New York City mayoral candidate Zohran Mamdani’s major win has banks with excessive exposures to rent-regulated actual property on edge.
Mamdani, who has vowed to freeze rents on rent-stabilized residences if he is elected mayor, gained over New Yorkers in the course of the Democratic major as their metropolis’s housing market grows dearer and aggressive.
The major outcomes will not be official till a ranked-choice runoff on July 1, however Mamdani is prone to face Republican candidate Curtis Sliwa and present Mayor Eric Adams, who’s working as an unbiased, in November’s basic election. Sliwa misplaced to Adams, who was the Democratic candidate, within the final election.
Lenders which have already been making a beeline out of the enterprise might even see the prospect of a Mamdani mayorship as motivation to speed up these efforts, mentioned Piper Sandler analyst Mark Fitzgibbon.
The 2019 Law That Triggered the Retreat
Banks with main loan concentrations within the New York rent-regulated market have been making an attempt to shrink these portfolios since 2019, when the state handed a legislation, designed to guard tenants, that restricted their income streams by capping hire will increase and eliminating eviction plans.
Economic elements, such because the speedy rise of rates of interest and inflation, amplified the ache. Commercial debtors could battle to afford loans that mature in a price setting twice as excessive as once they have been made. A complete hire freeze could be “one other kick within the shins to the trade,” Fitzgibbon mentioned.
Still, rent-regulated actual property in New York has traditionally been a secure asset class, with minimal losses and conservative underwriting, he mentioned.
“Could it lead to some delinquencies? I believe so,” Fitzgibbon mentioned. “But I believe, extra considerably, it in all probability accelerates the need by a whole lot of these banks to shrink their portfolios much more on the multifamily house, which is dangerous for town.”
Last 12 months, Flagstar Financial was the poster youngster for the way CRE publicity could hit a financial institution’s stability. After a tumultuous first half of the 12 months, the financial institution’s outsized e-book of rent-regulated multifamily loans — which makes up greater than one-fifth of the corporate’s $67 billion loan portfolio — got here below the microscope.
In the final two weeks, as polling confirmed a stronger outlook for Mamdani, Flagstar’s inventory has dropped some 10%. On Wednesday, the $97 billion-asset financial institution’s share value fell practically 7% throughout elements of the day. But Peter Winter, an analyst at D.A. Davidson, wrote in a be aware that the sell-off was “overdone,” on account of Flagstar’s sturdy capital place.
Flagstar didn’t reply to a request for remark.
CEO Joseph Otting, who was introduced on final 12 months to cease the financial institution’s spiral and assess its credit score scenario, mentioned earlier this 12 months that Flagstar’s rent-regulated portfolio has held up effectively.
“We’re not seeing the stress that we personally anticipated to see in that portfolio after we truly went by means of loan by loan after which sort of constructed up what we thought the chance was within the portfolio,” Otting mentioned.
There have nonetheless been some cracks. In May, New York actual property magnate Joel Wiener, who makes a speciality of rent-regulated properties, put 1000’s of properties out of business after Flagstar — the first lender — started foreclosures proceedings, in accordance with court docket paperwork. The portfolio was shackled by about $564 million in mortgage debt with Flagstar.
In the submitting, Ephraim Diamond, Wiener’s chief restructuring officer for the properties, mentioned whereas rental revenue money flows had beforehand coated the debt service, these revenues grew to become inadequate on account of rates of interest that “sky-rocketed,” together with the 2019 legislation enactment and rising inflation.
What Comes Next for Banks in NYC?
Even so, a few of the parts placing strain in the marketplace could be on the upswing, Fitzgibbon mentioned, particularly since any potential Mamdani coverage would not take impact till not less than 2026.
If the Federal Reserve reduces rates of interest this 12 months, refinancing loans made in the course of the low-rate period could be much less drastic. Additionally, if inflation evens out, constructing homeowners could get a greater deal with on their prices.
There are indicators that the trade has been adjusting to the 2019 laws. According to a 2025 report from the New York City Rent Guidelines Board, internet working revenue development for buildings containing rent-stabilized models grew 8% throughout town and by 18.6% in core Manhattan. That bump marked the primary enhance in 4 years.
Otting mentioned internet working revenue throughout Flagstar properties elevated 6% in 2023.
The proportion of distressed properties additionally declined in 2023 for the primary time since 2016, per the report.
Otting mentioned earlier this 12 months that the money flows of Flagstar’s debtors gave the impression to be bettering, and constructing homeowners have been prepared to place in more cash to maintain their loans present. He added that the surprising rise in bills from a number of years in the past — as a lot as 30% to 40% will increase for insurance coverage, upkeep and labor prices — had began to stabilize.
Flushing Financial, a $9 billion-asset financial institution based mostly on Long Island, has additionally made its enterprise in lending backed by rent-regulated actual property, which makes up 22% of its complete loan portfolio. The financial institution has mentioned in earnings shows that debtors have greater than 50% fairness in these properties, which additionally present minimal indicators of eroding credit score high quality.
Flushing Financial declined to remark.
Still, lots could occur between now and November. Former Gov. Andrew Cuomo misplaced to Mamdani within the Democratic major however is rumored to be contemplating working as an unbiased within the basic election.
