August 7, 2026
If you own or are thinking about buying a multifamily property in a rent stabilized market, there's a new piece of data you need to see. A recent analysis from Trepp, highlighted by CRE Daily, shows that rent caps are creating a growing and dangerous gap between what owners are allowed to charge and what it actually costs to run their buildings. That gap is now eating into property values in a big way, and the trend is not slowing down.
In cities like New York, Los Angeles, and Saint Paul, rent stabilization laws cap how much landlords can raise rents each year. But those laws were never designed to account for rising insurance premiums, property taxes, utility costs, and payroll. So while revenue growth is locked in place, expenses keep climbing without any ceiling. That mismatch is squeezing net operating income (NOI), which is the number that ultimately drives a property's value.
Trepp's data, as reported by CRE Daily, points to a striking example in Washington Heights. A 12 unit rent stabilized building at 530 West 159th Street brought in about $201,000 in annual revenue, but expenses hit roughly $301,000 in 2023. That left the property with negative NOI of about $99,000, despite being 92 percent occupied. The loan went into special servicing that July, foreclosure followed a few months later, and the lender took title earlier this year. A fully occupied, rent paying building still failed financially. That is worth sitting with for a moment.
No, and that is what makes this data so important. A 212 unit property in Brooklyn saw its NOI fall from about $425,000 in 2023 to negative $905,000 by 2025, as operating expenses jumped 55 percent year over year. Similar patterns showed up in Los Angeles with a Section 8 property and in Saint Paul with a 136 unit building called Wilder Square. As of July 2026, Trepp identified 484 multifamily properties in New York and 601 in California with debt service coverage ratios below 1.0x, meaning the property is not generating enough income to cover its loan payments.
Texas had over 1,000 properties below that same threshold, but for a different reason. That distress comes from oversupply built up in 2021 and 2022, which tends to correct itself as the market absorbs the extra units. Regulation driven income erosion is a different animal. It does not correct on its own because the underlying rule, the rent cap, stays fixed while costs keep rising.
Because NOI is the engine behind every valuation. At a 6 percent cap rate, every dollar of NOI lost translates into roughly 16 dollars of lost property value. In the Brooklyn example above, a NOI decline of about 1.33 million dollars wiped out an estimated 22 million dollars in value. That is not a small correction. That is the kind of number that changes refinancing conversations, sale prices, and lender relationships.
It also changes buyer behavior. Investors are increasingly unwilling to underwrite a property where income is capped but expenses are not, especially at today's pricing. That hesitation is already showing up as slower transaction volume in regulated markets compared to the rest of the country. Fewer buyers means less liquidity, which means owners who need or want to sell are stuck holding assets longer than planned.
A few things worth putting on your radar if you own property in a capped market, or are considering buying one:
Trepp expects this pressure to continue unless local governments introduce some form of expense pass through or index rent increases to actual operating costs. Until that happens, expect more properties to breach debt covenants, more foreclosures in regulated markets, and continued hesitation from buyers who do not want to inherit someone else's expense problem. It also raises a bigger policy question. Rules designed to protect affordability may end up discouraging the very investment that keeps housing stock in good condition.
Source: Trepp analysis via CRE Daily, "Rent Caps Pressure Multifamily NOI As Expenses Climb," August 7, 2026
Disclaimer: This content is intended for informational and educational purposes only and is not intended to be construed as legal, tax, financial, or insurance advice. Every property and tax situation is unique. Please consult a licensed attorney, CPA, or tax professional regarding your specific circumstances before making any decisions related to property improvements, tax assessments, or real estate transactions. Mohammed M. Rahman is a licensed real estate broker in New York. Contact: Mo@ClosedByMo.com.
