Are you looking at a rent‑stabilized building in Brooklyn and wondering how to underwrite it after HSTPA? You are not alone. The rules changed in 2019, and assumptions that once drove deals no longer apply. In this guide, you will learn the key impacts on rents and operations, the documents to collect, how to fold findings into a pro forma, and where to stress test your numbers for Kings County. Let’s dive in.
What HSTPA changed
HSTPA sharply limited pathways to convert stabilized units to market rate. You should not assume tenant turnover will lead to deregulation. That upside was common before 2019, but it is now the exception. Underwrite long‑term regulatory control and slower rental growth tied to allowed increases.
The legal regulated rent now drives value more than ever. For many Brooklyn properties, the legal rent and allowed increases set by state and city agencies cap the income you can achieve. Your underwriting needs documentary proof of legal rents and any valid rent add‑ons.
Preferential rents and overcharge exposure require attention. HSTPA changed how preferential rents and certain increases are treated. Overcharge claims can lead to rollbacks, refunds, and interest. Build a reserve and do not count increases without clear support.
Start with rent histories
What to obtain
- Certified rent histories for each unit from the New York State Homes and Community Renewal. These show legal regulated rent, lease terms, and increases.
- The owner’s rent roll with current rent charges, unit numbers, and which tenants pay a preferential rent.
- Copies of current leases and renewal letters. Include any documents that reference a preferential rent.
- Records of rent increase notices tied to improvements or renewals.
What to verify
- Compare the rent roll to the state rent history. Reconcile differences and flag possible overcharge risks.
- Confirm where a tenant pays a preferential rent and that the legal rent is registered.
- Identify any past deregulation attempts or claims, even if resolved.
Confirm registrations and filings
What to obtain
- Building registration status and annual rent registrations from the NYC Department of Housing Preservation and Development.
- Administrative decisions, stipulations, or orders from the state agency that affect units in the building.
- Any change‑of‑use, conversion, or deregistration filings and outcomes.
What to verify
- The count of stabilized units in city and state records matches the physical units and the rent roll.
- Annual registrations were submitted and accepted each year. Missing years create compliance and cash flow risk.
Check MCI and IAI work
What to obtain
- Copies of Major Capital Improvement and Individual Apartment Improvement filings, approvals, and cost documentation.
- Department of Buildings permits and invoices from contractors tied to the claimed work.
What to verify
- The work aligns with permits, was actually performed, and costs match rules. Validate that increases were rolled into registrations and that there are no open disputes.
Analyze preferential rents
What to obtain
- All preferential rent agreements and renewal notices that describe how the rent is set.
What to verify
- That the owner registered the legal rent while collecting a lower preferential rent. Test whether the legal rent was ever achieved at prior turnovers. Model the gap conservatively.
Review tenant files and payments
What to obtain
- Tenant ledgers or payment histories for each unit. Include bank deposits or receipts when available.
- Lease correspondence, defaults, and any stipulations that affect rent.
What to verify
- Actual collections versus stated rent. Identify arrears, partial payments, and concessions. Note any non‑occupancy or sublet issues that could affect lawful rent basis.
Pull violations and service records
What to obtain
- HPD and 311 complaint history, open and closed violations under the housing maintenance code.
- Department of Buildings violations, open permits, and Environmental Control Board cases.
- Service contracts for elevator, boiler, pest control, trash, and utility bills with meter details.
What to verify
- Serious violations and time to cure. Unresolved issues can lead to abatements or penalties and should be budgeted.
- Which services are included in rent and how they are billed. Confirm contract costs and termination terms.
Check enforcement and litigation
What to obtain
- DHCR decisions, consent orders, pending complaints, and settlement agreements tied to rents.
- Housing court dockets for landlord and tenant actions, plus any HPD enforcement cases.
What to verify
- Recent overcharge rulings, rollbacks, or refund obligations. Note any owner patterns that suggest ongoing risk.
Review capital and permit history
What to obtain
- DOB permits, job filings, final sign‑offs, contractor warranties, and any certificates of occupancy changes.
- A history of recent capital projects and reserve studies if available.
What to verify
- That permits are valid and major work was signed off. Flag unpermitted work that could undermine MCI claims and create future costs.
Turn diligence into a pro forma
Model legal and collected rent
- Track both legal regulated rent and actual collected rent. Where preferential rents exist, show the gap as loss‑to‑lease and assume it persists longer than you might expect.
- Use conservative vacancy and turnover assumptions. Stabilized buildings often have lower churn and limited upside from turnover.
Apply renewal increase mechanics
- Use New York City Rent Guidelines Board renewal patterns to model one‑ and two‑year lease increases over several years. Avoid aggressive year‑over‑year jumps.
- Include only validated MCI or IAI increases. If an increase is pending or lacks proof, treat it as speculative.
- Add a reserve for potential overcharge refunds where records do not match or registrations are missing.
Build realistic operating expenses
- Confirm which utilities the owner pays, such as heat and hot water. That detail can change operating margins.
- Reconcile elevator, boiler, and pest control line items to service agreements. Do not overlook termination or renewal costs.
- Budget to cure HPD and DOB violations on a defined timeline. Account for possible abatements during repairs.
Plan for capital and reserves
- Do not double count capital projects as immediate rent drivers. MCIs require documentation and acceptance before rent increases are reliable.
- Size reserves higher when you see deferred maintenance, significant tenant complaints, or compliance gaps.
Value and exit with restraint
- Avoid underwriting deregulation as an exit strategy. Price and plan based on stabilized net operating income.
- Stress test exit cap rates for regulatory risk, potential rent roll adjustments, and any open enforcement items.
Stress test your numbers
Scenarios to run
- Base case: Current collected rent with conservative Rent Guidelines Board increases, current submarket vacancy, and only validated MCI or IAI increases.
- Upside case: Modest recovery toward legal rent on a minority of units over multiple years. Phase increases in line with allowed mechanisms.
- Downside case: Discovery of historic overcharges on some units, plus the cost to cure HPD violations and a slower resolution that reduces cash flow.
- Shock test: A major system failure, such as an elevator or boiler, that causes temporary rent abatements and higher capital outlay.
Sensitivity inputs
- Renewal increase per tenant: Test a range that reflects lower to upper Rent Guidelines Board outcomes.
- Loss‑to‑lease: Test 0 percent to 20 to 30 percent depending on how prevalent preferential rents are and how well documented.
- Overcharge probability: Where histories or registrations are inconsistent, model a contingent refund reserve, including interest, for affected units.
- Vacancy and turnover: Test plus or minus 50 percent around your baseline for a regulated asset.
Red flags to treat seriously
- An owner rent roll that exceeds state rent histories without solid documentation.
- Missing HPD or DHCR registrations across multiple years.
- Claimed MCI or IAI increases without permits, invoices, or contractor records.
- Multiple recent overcharge findings or a pattern of agency disputes.
- Serious unresolved HPD or DOB violations that point to large capital needs.
- Evidence of informal concessions or acceptance of partial payments without proper records.
Where to verify records
- New York State Homes and Community Renewal and the Division of Housing and Community Renewal for rent histories, MCI or IAI filings, and administrative decisions.
- NYC Department of Housing Preservation and Development for annual registrations and housing maintenance code violations.
- NYC Rent Guidelines Board for historical renewal increase patterns and reports.
- NYC Department of Buildings for permits, job filings, and violations tied to capital work.
- NYC Department of Finance and ACRIS for recorded deeds, mortgages, and chain of title.
- NYC Housing Court and New York State Unified Court System for docket histories and outcomes.
- Environmental Control Board for open administrative violations and fines.
- 311 and NYC Open Data for complaint trends and service request patterns.
Timeline and process tips
- Expect several weeks to receive certified rent histories and related decisions. Build this into your deal timeline.
- Start with HPD registration and violation lookups. These are fast and can flag larger issues early.
- Use DOB and ACRIS to cross‑check capital claims and ownership details right away.
- Engage rent regulatory counsel, a rent roll auditor, and a construction or engineering consultant early. Their findings will shape your price and your reserve plan.
How we help in Kings County
You deserve clear, local guidance as you weigh risk and return on a Brooklyn multifamily. Parkview Terrace Realty is a family‑run brokerage based in Sunset Park with 28 plus years on the same block. Our team brings hands‑on underwriting help for investor conversations, access to a ready buyer pipeline for as‑is sales, and practical tenant placement for stabilized assets.
We reconcile rent rolls to state histories, flag overcharge exposure, and help you set realistic rent, expense, and reserve assumptions. We also market professionally with MLS syndication and property videos to reach both neighborhood buyers and wider investor pools. Whether you are buying, selling, or repositioning, we help you move from uncertainty to a clear plan.
Ready to talk through a building you are considering or to get a read on value before listing? Get a free home valuation and a straightforward plan tailored to your timeline with Parkview Terrace Realty.
FAQs
What did HSTPA change for Brooklyn underwriting?
- It limited deregulation pathways, increased scrutiny on preferential rents and improvement‑based increases, and raised the risk of overcharge claims that can adjust rent rolls.
Which records should I request first for a rent‑stabilized building?
- Start with certified unit rent histories, the owner’s rent roll, leases and renewals, and HPD registrations, then layer in MCI or IAI files, DOB permits, and violation histories.
How should I treat preferential rents in my pro forma?
- Model the legal regulated rent and the collected rent, record the gap as loss‑to‑lease, and assume the gap may persist beyond initial turnover in a post‑HSTPA context.
Can I count pending MCI or IAI increases as income?
- Only if they are documented with permits, invoices, and accepted awards; otherwise treat them as speculative and exclude them from base income.
What are the biggest red flags when buying in Kings County?
- Mismatched rent rolls and state histories, missing registrations, unpermitted capital work tied to rent claims, unresolved serious violations, and a pattern of overcharge findings.
