While New York City mayoral front-runner Zohran Mamdani's proposed rent freeze is likely to result in some credit quality deterioration in bank multifamily portfolios, the impact would be manageable in many cases, according to an analyst who spoke with S&P Global Market Intelligence.
Mamdani, a self-proclaimed Democratic Socialist, has campaigned on a promise to freeze stabilized rents. Should a rent freeze be implemented, it would likely lead to some cash flow pressures, delinquencies or even defaults among owners of rent-stabilized apartments in the city, Piper Sandler analyst Mark Fitzgibbon said in an interview. Those building owners are already under pressure from higher costs related to labor, fuel and mortgage debt, he added.
"It's pressuring these building owners from a lot of different directions, which is not ideal," the analyst said.
New York City property owners have endured rent freezes in the recent past, Fitzgibbon said. When former Mayor Bill de Blasio implemented multiple rent freezes during his tenure from 2014 to 2021, it was challenging for building owners, but they were able to manage through them without a major spike in delinquencies, the analyst said.
"Do I think for a period of time, the building owners could withstand it again? I think most can," the analyst said.
Rent freeze headwinds
But the de Blasio era rent freezes took effect at a time when interest rates were at "extraordinarily low" levels and mortgage costs were dramatically lower than they are today, Fitzgibbon added. The higher rate environment "pressures the building owners potentially more than we've seen during those past rent freeze periods," he said.
A rent freeze will make it more challenging to renovate buildings, said Richard Christopher Whalen, chairman of the consulting firm Whalen Global Advisors. Property owners will struggle in a rent freeze to recapture the costs of renovating old rent-stabilized units when tenants vacate them. As such, building owners will need to raise rents on market-rate units to make up the difference, he added.
That is especially a problem for older, smaller properties because costs are already high and property owners can only raise rents so much before prospective tenants and lenders lose interest, Whalen said.
"It's going to slowly impair these assets and it reduces their attractiveness for lenders because the lenders know that the ownership can't keep up with maintenance," Whalen said. "They can't do voluntary [capital expenditure] to improve the building or make it more attractive to tenants."
Rent-regulated exposure
Investors have been justifiably concerned about a potential rent freeze and stocks have come under pressure for banks with exposure to rent-regulated multifamily properties in New York City, but the reaction may be overblown in some cases, Fitzgibbon said. "Investors have sold the stocks of a lot of banks that traffic in the Metro New York area because of this concern and many of those banks ... have very little exposure."
For banks with multifamily loans in New York, rent-stabilized apartments can account for anywhere from 0% to 50% of their multifamily portfolios, Fitzgibbon said, citing a research note he published Oct. 6. While the note lists a dozen banks with exposure to rent-regulated multifamily loans in the city, Flushing Financial Corp., Flagstar Bank NA and Peapack-Gladstone Financial Corp. had some of the largest exposures in the group at the end of the second quarter.
Of Flushing Financial's $2.5 billion in multifamily loans, for instance, roughly $702 million were 100% rent-regulated, about $502 million were 50% to 99% rent-regulated, and approximately $253 million was less than 50% rent-regulated. At Flagstar, $6.5 billion of the company's roughly $32 billion in multifamily loans were less than 50% rent-regulated, while another $9.9 billion were 50% or more rent-regulated. As for Peapack-Gladstone, $900 million of the company's $1.8 billion multifamily book was rent-regulated properties in New York City.
Banks downplay negatives
Flagstar Bank recently downplayed the risk of a potential rent freeze after the company reported $947 million in multifamily payoffs during the third quarter, including $195 million in payoffs on multifamily loans backed by properties where more than 50% of units are rent-regulated.
During an Oct. 24 earnings call, executives said the payoffs demonstrate a robust appetite for such credits across other lenders despite concerns around Mamdani's rent freeze proposal. A recent review of landlord financials also showed that cost increases related to insurance and labor have not persisted into 2025, which will make a difference in whether those properties are positive on a cash flow basis, Chairman, President and CEO Joseph Otting said.
Flagstar has already been working to right size its commercial real estate portfolio, however, whereas other banks operating in New York have not made such a focused effort, Whalen said.
"I actually feel better about Flagstar than I do about some of the other lenders in the city," he said.
On another earnings call, ConnectOne Bancorp Inc. CFO Bill Burns said 60% of its $700 million in exposure to majority-owned rent-regulated properties came from its acquisition of First of Long Island Corp. and is "completely ring-fenced" because the company has a 20% mark against those loans. The rest of the exposure accounts for less than 2.5% of the company's loan portfolio, is conservatively underwritten, has no value-add projects and continue to perform well, he added.
"I would say, not super significant stress in the portfolio," Burns said.
Furthermore, as Fitzgibbon noted in his Oct. 6 research note, New York City's rent guidelines board, the body that sets allowable rent increases on rent-stabilized housing, has already set the rent increase for 2026, which means Mamdani would not be able to freeze rents until October 2026. In theory, current Mayor Eric Adams could also renominate six of the board's nine members whose terms have expired before he leaves office, which would mute Mamdani's impact on rents in the early part of his term, Fitzgibbon wrote.
For now, the rent guidelines board is taking inflation into account, has approved multiple rent increases in recent years and will remain "fairly reasonable" for the next couple of years, ConnectOne President, Chairman and CEO Frank Sorrentino III said.
"I do think this is a very, very slow-moving process," Sorrentino said. "I don't think anything is going to happen with any immediacy in the short term."
A Mamdani administration could also be good for the company's rent-regulated portfolio, given other aspects of his housing agenda, such as property tax reform and other solutions aimed at allowing landlords to invest in properties and get them back on the market, Sorrentino said.
Similarly, Amalgamated Financial Corp. President and CEO Priscilla Brown said during an Oct. 23 earnings call that Mamdani has also spoken about other policies to build more rent-stabilized housing, such as zoning reform and public-private partnerships, in addition to a rent freeze.
"Keep in mind that there's real potential upside if a balanced approach leads to creation of more housing in New York," Brown said.
