What Makes NYC Multifamily Deals Pencil

New York City’s multifamily market is increasingly divided. Well-located free-market buildings continue to attract buyers, while rent-stabilized properties face constrained rents amid rising expenses, according to Helen Hwang, senior executive managing director and head of the Institutional Investment Sales Group at Meridian Investment Sales.

On the development side, much of the debate centers on 485x, the Affordable Neighborhoods for New Yorkers tax incentive program. Created in 2024, it provides property tax exemptions for eligible housing projects that meet affordability and other requirements. Its construction wage requirements apply at sites with at least 100 units, with higher requirements for sites with 150 or more units in designated areas.

Hwang argues that those rules are changing project designs and reducing what developers can pay for land. In this Q&A with Multi-Housing News, she discusses the returns needed to justify new construction, how refinancing pressure shapes owners’ decisions and when a partner can help preserve an investment’s upside.

Which buyers are active in NYC multifamily and what are they targeting?

Hwang: We’re seeing strong interest from family offices, private investors and core-plus and value-add funds, with institutional capital increasingly participating alongside them on a deal-by-deal basis. Demand is particularly strong for well-located, predominantly free-market multifamily assets with stable cash flow and identifiable upside.

What’s really interesting is how bifurcated the rental market has become. With very limited new supply, newer-vintage, top-tier doorman buildings in NYC have experienced rent growth of approximately 8 to 9 percent annually since 2023. That’s extraordinary growth for any asset class! Meanwhile, rent-stabilized buildings are facing almost the opposite dynamic. Their rental increases are constrained by regulation, while operating expenses, insurance, taxes and capital costs continue to rise significantly. Their expenses are growing faster than revenues. Liquidity for both debt and equity for rent-stabilized assets, as a result, has become increasingly scarce.

So I think the distinction today is less about who’s buying and more about what they’re buying. Investors are willing to pay for predictable cash flow and real growth. Free-market buildings offer both, while many rent-stabilized properties are struggling to maintain NOI.

Rent-stabilized assets are still trading, but the buyer pool has narrowed considerably. The days of underwriting substantial upside through apartment turnover are largely behind us. There are still investors pursuing these properties, but at a very different basis. Cap rates have widened significantly, and some buildings are trading at a fraction of replacement cost. That tells you just how dramatically the investment landscape has changed.

What does your team’s research show about pricing for free-market and rent-stabilized multifamily?

Hwang: The pricing divergence between free-market and rent-stabilized multifamily remains significant.

In my team’s Mid-year 2026 Manhattan Capital Markets Report, Class A multifamily pricing averaged approximately $750,000 per unit, with core cap rates around 5 percent. Manhattan multifamily sales volume below 96th Street reached approximately $1.4 billion in the first half of 2026, nearly double the prior-year period.

Free-market assets continue to benefit from strong rental fundamentals, which support pricing even in a relatively elevated interest-rate environment.

Rent-stabilized buildings are a different story. Values depend heavily on the actual rent roll, collections, expense structure and capital requirements. Investors are no longer assigning value to hypothetical deregulation or turnover upside.

I would caution against relying too heavily on a single price-per-unit benchmark for rent-stabilized properties because the underlying economics can vary enormously from building to building.

How does pressure from a loan maturity or refinancing gap affect an owner’s decision to sell?

Hwang: A seller facing a loan maturity is solving a very different problem from an owner who can afford to wait.

For a well-capitalized owner, the decision is largely about whether today’s pricing meets their return expectations. They may choose to hold the property and wait for a more favorable market.

A maturity-driven seller is focused on the capital stack. How much debt can the property support today? How much additional equity would be required to refinance? Is that equity available and at what cost?

Sometimes the owner would prefer not to sell, but the refinancing economics make a sale the more rational decision.

Our midyear report showed that approximately 89 percent of Manhattan loan originations in the first half of 2026 were refinancings, compared with just 11 percent for acquisitions. That tells you how much attention the market is devoting to managing existing capital structures.

Can you describe situations in which bringing in a partner made more sense than an outright sale?

Hwang: If there’s meaningful upside left in the asset, we’d rather help our client capture it than hand it over to the next buyer. Sometimes that means selling isn’t the best answer. Bringing in the right equity partner can create substantially more value.

One example involved a distressed multifamily portfolio loan sale where we advised our lender to pursue a joint venture rather than an outright sale. We saw substantial embedded upside in the assets and believed that simply stabilizing the capital stack would create immediate value. What people sometimes overlook in distressed situations is that the distress isn’t necessarily in the real estate. It’s often in the financing.

When sponsors are underwater, they understandably become reluctant to put more money into the property. Nobody wants to throw good money after bad. As a result, even relatively simple improvements get deferred. Light renovations, better property management and more attention to operations can create meaningful value without a massive capital investment. Sometimes the lowest-hanging fruit is sitting right in front of you.

We also did this on an office-to-residential conversion where the owner had a terrific asset in an enduring location but needed a partner with the capital and development expertise to execute the business plan. Rather than selling the property and letting someone else capture all the upside, we helped structure a partnership that allowed the owner to retain an interest while bringing in the expertise needed to unlock the property’s potential.

But here’s the part I always emphasize: Finding the capital is often easier than finding the right partner. We spend an enormous amount of time on alignment, governance, decision-making rights and exit strategies because a partnership can last a lot longer than anyone originally anticipated.

I always say that a bad partner is far worse than a bad deal. You can fix a bad deal. Getting out of a bad partnership can be much harder.

What spread are investors seeking between the projected yield on cost of a 485x development and the going-in cap rate on an existing rental building?

Hwang: For ground-up development in NYC, investors are generally looking for a minimum stabilized yield on cost in the mid-6 percent range on an untrended basis. When you can acquire a relatively core, stabilized multifamily building at a 5 percent to mid-5 percent cap rate, you need at least a 100- to 150-basis-point premium to justify the development risk. You’re taking on construction cost risk, interest rate risk, inflation, market risk, execution risk and, perhaps most importantly, time. Why take all those risks when you can buy an existing building with cash flow from day one?

The challenge with 485x is that the economics of larger developments have changed dramatically, primarily because of the construction wage requirements. In general, we’re seeing an increase of approximately $60 to $90 per square foot in hard construction costs attributable to the higher wage requirements under 485x.

To illustrate, our team analyzed the same approximately 600-unit development site in Midtown West under two different tax incentive programs: the former 421a and the current 485x. We held the site, building size and projected market rents constant, while applying each program’s respective affordability and construction wage requirements. Although the affordability provisions differ, the bulk of the economic impact came from the substantially higher construction wages under 485x.

Under the former 421a program, the project generated a projected stabilized yield on cost of 6 percent. Under 485x, that yield fell to just 5.2 percent, an 80-basis-point decline driven primarily by the additional wage-related construction costs.

We’re looking at essentially the same 600 apartments, on the same site, with the same market rent assumptions, yet the economics deteriorate dramatically under the new program. A project that was already marginal at a 6 percent return becomes impossible to finance or raise equity for at a 5.2 percent yield on cost.

That’s the fundamental challenge with 485x. We’re not talking about developers making a little less money. We’re talking about whether these buildings get built at all. And when they don’t, we lose the market-rate housing, affordable housing and construction jobs that would have come with them.

Are developers sizing projects to stay under 100 units to avoid 485x’s construction wage requirement. Is that affecting land bids?

Hwang: Absolutely. And the data is now confirming what we’ve been hearing from developers. The 99-unit threshold under 485x has created some pretty unintended consequences in how projects are being designed.

We’re seeing developers build larger apartments to stay under 100 units, leave allowable development square footage unused or divide larger sites into multiple 99-unit buildings, which is inherently inefficient because you’re duplicating building cores, elevators and other infrastructure.

Through our ULI New York 485x Task Force, we worked with KPF to analyze 37 development filings involving single and multiple 99-unit buildings. The findings were striking: These sites could accommodate approximately 30 percent more apartments under existing zoning than what developers are proposing to build. Some of those additional apartments would also be affordable housing.

Developers are finding creative ways to make projects work, but those workarounds come at a cost. Land values are increasingly being determined by what can actually be built economically, rather than a site’s full zoning potential. For larger development sites that can’t be efficiently configured around the 99-unit threshold, the outlook is particularly challenging. Unless a site has vested 421a benefits, is located in a submarket where 100 percent market-rate development is now economically feasible or has a landowner with a sufficiently low basis to make a deal work, many of these sites will simply remain on the sidelines.

The 99-unit trend is just the visible part of the problem. What concerns me more are the larger projects that aren’t moving forward at all. In a city with such a severe housing shortage, we need to pay attention to both.

Which change to 485x would you prioritize?

Hwang: We should first reassess whether 99 units is even the appropriate threshold, particularly when measured against the historical size and scale of projects that have supported union construction jobs. Another approach worth studying is whether the wage threshold should be based on zoning floor area rather than a rigid unit count. ZFA is a more transparent and objective measure that is less susceptible to manipulation through unit sizing or building configuration.

The strongest counterargument is legitimate: Construction workers should benefit from the value created by public tax incentives, and renters should receive meaningful affordability in exchange for those incentives. I agree with both principles.

But we also have to look at the actual outcomes. If the policy is encouraging developers to build fewer apartments or discouraging construction altogether, we’re potentially losing both affordable housing and construction jobs.

This shouldn’t be a choice between affordable housing and good-paying construction jobs. We need a program that actually delivers both. With vacancy at just 1.4 percent and annual rent growth approaching 9 percent for newly constructed free-market apartments over the past two years, the consequences of inaction are becoming increasingly difficult to ignore. Every year we wait means fewer apartments, fewer affordable homes and fewer construction jobs. We need to stop measuring the success of housing policy by what it promises and start measuring it by what actually gets built.

What surprises you most about investor appetite for NYC multifamily today?

Hwang: What surprises me most is the muted appetite from institutional LP capital for NYC multifamily, particularly given how compelling the fundamentals have become for existing free-market buildings.

I think part of the problem is that New York has generated so many negative housing headlines. Between HSTPA (Housing Stability and Tenant Protection Act of 2019), Rent Guidelines Board increases, Good Cause Eviction, the Grey case and the challenges with 485x, it’s easy for investors to conclude that NYC is simply too difficult a market.

But here’s the irony: Many of these policies have actually strengthened the competitive position of existing luxury rental buildings. Greater regulation of rent-stabilized apartments constrains that segment of the market, while the economics of new development have become increasingly challenging. Both dynamics put additional upward pressure on free-market rents.

The more you regulate rent-stabilized housing and restrict new supply, the more pricing power you give owners of existing free-market apartments. And we’re already seeing the results. New York has experienced some of the strongest rent growth in the country, while the pipeline of new rental housing remains severely constrained for the foreseeable future.

What surprises me is the disconnect between investor sentiment and property fundamentals. Institutional capital is understandably cautious about New York’s regulatory environment, but it’s overlooking one of the most compelling supply-and-demand stories in the country.

If you’re looking for cash flow, rent growth and a market with very limited new supply, where else would you rather be? NYC free-market multifamily is about as compelling as it gets!