The rental housing market is facing financial distress, with landlords in all corners of the country scrambling to pay back their investors. Unable to realize enough profit from their portfolios to meet financial obligations, these landlords are deferring maintenance, going into foreclosure, and resorting to fire-sales of properties. But unless something changes, tenants will bear the brunt of this crisis and landlords, for the most part, will be alright. For those invested in tenant power and in solving our national housing nightmare, dealing with the mounting specter of financial distress is a necessary first step.
While tenants had no say in speculative landlord investment in the rental housing market, they must take seriously the vulnerabilities embedded in those investments to imagine a transition to an alternative system. In a recent report, we’ve begun this task by sketching the contours of the financial distress phenomenon in the multifamily market nationwide. To dig further, tenants and advocates should examine how financial distress is playing out in New York City – where the predominant model of rental housing investment developed and where distressed properties abound. Doing so reveals important and oft-overlooked takeaways for the political economy of rental housing, pointing us beyond questions of supply and demand into a more nuanced analysis of how housing finance works and how to reform the market in a way that prioritizes tenant well-being.
The Consequence of Housing as Financial Asset
What we call the “financialized model of rental housing investment” is the central element of this analysis. The majority of poor and working-class people in the U.S. are tenants, and the places they live – subsidized housing, aging garden apartments, single-family homes, and manufactured home parks, among others – have been the target of decades worth of investor capital seeking lucrative returns. This treatment of rental housing as a financial asset, buttressed by a wide range of government policies, has led to the fast rising property values relied on by landlords for windfall profits and by local governments for tax revenue.
Increasingly speculative bets, however, mean that landlords are operating on increasingly tight margins. If net operating incomes fail to rise at the rate landlords and their lenders project – due to inflation, swelling insurance costs, or tenants exercising countervailing power – landlords find themselves unable to make the case to their lenders that their properties are accruing or even maintaining value. Desperate to increase revenue, landlords in this scenario will turn the screws on tenants in the form of rising rents, extraneous junk fees, fewer repairs, and less property management. Even in boom times, maximizing net income for the purposes of profit via rising property value has had the direct effect of making our rental housing stock increasingly decrepit and unaffordable; if financial distress deepens, this trend is liable to become even more intense in the coming years.
And indeed, the evidence of widespread financial distress is mounting. Multifamily loan delinquencies, wherein landlords fail to meet monthly payments, are at a ten-year high. Another concern is the “wall of debt maturities,” the hundreds of billions of dollars in landlord mortgages coming due in the next few years. Landlord loans are short-term – typically between 5-10 years – and are frequently refinanced to take advantage of interest rate shifts or rising net operating incomes. But in today’s market, low-interest loans that landlords took out before or during the pandemic are maturing into higher-interest rate and high operating cost environments, meaning they are at significant risk of being impossible to refinance.
While the travails of modern tenancy do sometimes make the headlines, the underlying story of financial distress in rental housing has avoided the spotlight because the bubble has yet to burst. This is largely because landlords and investors have the implicit sanction of government and the tools at their disposal to “extend and pretend,” kicking the can of loan maturities and other investment payouts down the road indefinitely, or at least until another wave of speculation arrives. And while anxiety abounds in real estate trade press reporting, there is not an obvious crisis of mass defaults playing out between landlords and lenders publicly, and the government is keeping watchdogging to a minimum. Instead, the crisis is slow-moving and hard to document, as landlords who bet enormously on their buildings squeeze every corner of their balance sheet to meet the rates of profit they promised to their sophisticated investors, maintaining the bubble on the backs of easily-ignored tenants.
Financial Distress in New York City
In New York City, by contrast, the financialized housing bubble has started to pop. Over the past few years, prominent landlords – and even a major lender – have gone under or sold off their holdings at bargain prices, and debates have raged publicly about the causes of this distress and the viability of operating affordable housing in the City as a result. Local landlords argue that financial distress is an isolated phenomenon specific to NYC housing politics. But New York City exemplifies the rule, not the exception, for how housing finance dictates conditions for tenants, offering lessons for other housing markets descending into financial distress on the financialized model, the role of tenant protections, and the need for government intervention.
New York has been arguably the most important city in the development of the contemporary system of housing as a financial asset because of a few unique features of its rental housing market. The first is its sheer size and composition: New York City has over 2.3 million rental units, the vast majority of which are multifamily (five or more unit) buildings. The second is persistent demand: New York City has had a rental housing shortage and a miniscule vacancy rate for large parts of the last century, long before national “supply gap” discourse. These factors combine to make New York rental housing a particularly attractive asset; larger multifamily buildings represent a kind of financial diversification, as each property produces many independent streams of rental revenue from each unit, and the perception that New York rental housing will always be in demand creates the kind of market asymmetry that financial actors love.
The federal government laid the groundwork for the financialized system beginning in the 1980s, establishing a regime of low interest rates, preferential tax treatment for real property investment, the limited liability corporate form, and direct-to-landlord affordable housing subsidies that together ensured the acquisition and financing of rental housing could predictably produce high returns. By the 1990s, New York City landlords and their investors put the pieces together, experimenting with a business model that exhibited the return expectations and speculative fervor usually associated with lucrative asset markets.
In addition to producing monthly cash flow (via the rent left over after expenses), multifamily rental housing’s real profit potential came from the fact that buildings could be invested in, traded, and financed based on a perceived value that would rise quickly and inexorably. Landlords and investors could use a building’s cash flow to demonstrate its earnings potential and then extract the added value, either via selling the building at a higher price or refinancing existing debt and cashing out the proceeds.
While the transformation of real estate into a financial asset is not necessarily new, its success and durability has been: the spread of this system across New York City produced astronomical returns for landlords and investors for nearly three decades, attracting global capital and establishing an ecosystem of local investors and banks whose main line of business is the buying, selling, and financing of New York City rental real estate.
Alongside its status as the birthplace of financialized housing, New York City is also the home of uniquely robust tenant protections. New York City operates the largest rent regulation program in the country – rent stabilization, an affordable housing tool born in the mid-20th century which sets the terms for nearly one million rental units in the city. As recently described by tenant organizer (and now head of the New York City Mayor’s Office to Protect Tenants) Cea Weaver, the rent-stabilized stock has been defined by an ongoing political contest between constituencies of organized real estate and organized tenants, with profound effects for the arc of financialization and housing investment. Two moments that Weaver points to demonstrate this push and pull, and exemplify how landlords attempt to pin financial distress on tenants in pursuit of basic dignity.
The first is 1994, when reforms to the rent stabilization law were passed which provided landlords with various mechanisms for deregulating and increasing rent on stabilized units, a shift which provided an enormous boost to already burgeoning financialization in the City. The second moment came in 2019, when a statewide tenant movement successfully won the passage of the Housing Stability and Tenant Protection Act (HSTPA), undoing the 1994 reforms and challenging the financialized business model that had dominated rent-stabilized housing during the previous 25 years. To be sure, the passage of the HSTPA changed rent projections for landlords, investors, and lenders holding multifamily buildings at the time. But the landlord class now posits that the HSTPA was the sole cause of the financial distress seen in the years since, claiming it removed all profit and made operating housing in New York City untenable.
There are multiple problems with this argument. For one, there were a host of unrelated, changing market dynamics happening at the same time as the HSTPA that contributed to rental housing’s mounting financial precarity. By 2018, commentators were already predicting a market slowdown driven by the inevitable end of the speculative run up in valuations. By early 2020, the COVID crisis was wreaking havoc on rents and housing. Shortly thereafter, inflation and rising interest rates drove up both the cost of operating housing and the cost of carrying debt.
Second, and more fundamentally, landlords and investors were actively choosing to make risky acquisition deals with the intention of maximizing net operating income at the expense of tenant well-being, as any extra dollar gained via a rent increase or saved on maintenance could later be leveraged and extracted. The result of this risky behavior was that even a minor change to the system – including simply providing rent-regulated tenants the basic dignity of not living with sudden price hikes – could shake the foundations of the market.
In the years since, New York City’s rental housing market has lingered in a sort of financial distress purgatory. Landlords have pointed the finger at tenants and held the housing stock hostage, refusing to repair crumbling buildings and attempting to delay the repayment of their financial obligations as they wait for (or try to force) a return to the speculative fervor of the pre-2019 profit environment. While the multifamily market in NYC limps along and bides their time, tenants don’t have the option to “extend and pretend.” Instead, they have seen massive rent hikes on non-rent-regulated units and significant housing code violations in rent-stabilized ones.
To break the stalemate, the government must play a role, stepping in to inject capital, require repairs, and remove the burden of distress from tenants’ shoulders. City housing agencies have fallen short of addressing the crisis to date, only rarely devoting sufficient attention to the enormous needs of long-neglected buildings. Mayor Zohran Mamdani, however, spent his first day in office standing with organized tenants living in a distressed rent-stabilized portfolio of 5,200 units across 93 buildings owned by a longstanding, notorious New York landlord, Pinnacle Group.
While Mamdani’s early willingness to prioritize financial distress does bode well for meaningful tenant protections and wide-scale building reinvestment in the coming years, the Administration’s efforts in the Pinnacle portfolio were largely unsuccessful. Pinnacle filed for Chapter 11 bankruptcy on this chunk of their portfolio in May 2025, so by the time of Mamdani’s January mayoral inauguration the proceedings were nearing a close. Despite the Mayor’s best efforts, the bankruptcy judge ended up approving a pre-negotiated auction bid by another corporate landlord that uses the same model of layered and leveraged capital as Pinnacle, and has had similarly troubling levels of code violations.
Confronting Distress Nationwide
The financialized housing model now undergirds rental market dynamics in cities around the country, portending a wave of distressed housing markets nationwide. In the years following the 2008 financial crisis, delinquent single-family home mortgage notes across the country were transferred to corporate entities, giving large-scale investors exposure to many different urban housing markets, and the market decline associated with the Great Recession created a whole range of real estate asset types that were available on the cheap.
Arguably the key cogs in spreading the financialization machine were Freddie Mac and Fannie Mae, the two semi-public lenders who, after taking blame for their role in the single-family subprime mortgage crisis, greatly increased their market share of rental housing financing in the years post 2008. By the mid 2010s, both Freddie and Fannie were the major lenders supporting the financialized model of landlording nationwide, setting out mortgage terms that local and regional lenders felt compelled to match. Across markets with very different dynamics, they and other lenders have now homogenized financing terms across the country, freely providing capital to facilitate the kinds of acquisitions and continued debt leverage that the financialized model of rental housing ownership relies on.
The ubiquity of the financialized model means that financial distress in the multifamily rental housing stock is popping up everywhere. As researchers working with organized tenants affiliated with the national Tenant Union Federation, we have seen firsthand how this trend maps onto tenants experiencing neglected repairs and increased fees in Kentucky, Missouri, Connecticut, Massachusetts, Illinois, Montana, and more. Across these contexts, the process of buying property, increasing the net operating income, and then refinancing it for a profit through a “cash-out refinance” has proliferated, and now, exactly as has happened in New York City, financial distress is leading to rapidly rising rents and worsening conditions.
In order to improve upon New York’s handling of financial distress, tenants and organizers around the country should heed three important lessons. First, as the Pinnacle example has shown, there’s a big capacity question looming. While the Mamdani administration might have been able to attract different types of bidders for the Pinnacle portfolio with enough time, the fact is that most “preservation buyers” – entities that would come in with an actual plan to fully rehab units and keep the buildings affordable – are likely not currently able to intervene in a portfolio of this size, much less at the scale of distress in New York City or nationwide.
Operating expenses for housing have surged to such an extent that traditional, non-profit Community Development Corporations are struggling to maintain the portfolios they already have, Public Housing Authorities and local housing agencies are hampered by severe restrictions and decades of fiscal austerity, and new social housing entities are too small and experimental to compete. Unless alternative infrastructure is built, there’s always going to be some new iteration of the financialized landlord waiting to pounce on distress much quicker than a city government, non-profits, or tenants themselves can get an alternative together. Developing new financing tools, development authorities, or preservation entities who are resourced to act as developers and operators is an important next step.
Second, tenants and organizers must be ready to articulate policy ideas to contend with “debt overhang” – the notion that buildings have more debt than they might be worth in the open market. The debt overhang obstacle makes intervention in distress costly and difficult to imagine, setting a high floor for what landlords are willing to take as a loss as they would never sell their buildings for less than the outstanding debt principal. Given this debt environment, more attention to the role of lenders and financial regulators is needed. One potential model to look at, also from New York City, is the FDIC and Community Preservation Corporation’s disposition of the Signature Bank portfolio, which combined tools like debt writedowns, audited capital improvement plans, and (in select cases) proactive foreclosures to simultaneously deleverage properties and ensure better conditions for tenants.
Third, tenants across the country should be prepared to counter the narrative that market distress is tenants’ fault, rather than the fault of the risky bets that landlords chose to make in the first place. Though few cities have the type of rent regulation of New York City, we can expect landlords to use language around financial distress when arguing against future tenant protections like rent stabilization and just cause eviction protections, capitalizing on a general lack of public understanding about landlord business models in the process. An accurate depiction of financial distress in the rental market also forces a reckoning with deeper problems than the current dominant discourse in national and regional housing policy reaches. It moves us from questions of supply and demand to basic questions of housing finance – who has access to it, how they wield it, who pays the consequences, and what role the state must play in achieving a different vision entirely. Shifting the policy conversation towards these fundamental flaws in the rental housing market is essential if we are ever going to realize the types of federal intervention necessary to advance a housing system that delivers quality homes that people can afford.
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Check out Ruthy and Jacob’s newsletter, the Rent Roll, if you want to learn more about the multifamily rental market and financial distress.
