In New York City, debates over affordability often center on the proliferation of opulent high-rise developments. But in the boroughs, deep-pocketed investors are buying up hundreds of smaller buildings, prompting a new set of concerns in the city’s deepening housing crisis.
Over the past few years, private equity firms have quietly spent hundreds of millions of dollars buying apartments in neighborhoods like Bushwick, Bedford-Stuyvesant and Williamsburg in Brooklyn and Ridgewood in Queens, property records show.
Private equity firms — which typically invest money on behalf of pension funds, endowments or other large sources of wealth — focus on assets, like businesses or housing, that they can buy relatively cheaply but that have big profit potential. Their expansion into the housing market across the nation has prompted scrutiny in Congress about whether the trend is amplifying America’s affordability problems.
In New York, the smaller buildings they zero in on, typically owned by families or local investors, have become attractive to bigger buyers because they have unique features: Rents are typically not regulated, and property taxes are often capped, limiting an owner’s costs.
Tenants’ advocates worry that larger, more sophisticated landlords will seek to make money on buildings that have traditionally been an important source of inexpensive housing or generational wealth for families and smaller owners. Dozens of tenants who live in buildings already purchased by private equity-backed firms have complained about rent increases and declining maintenance. Many have said they planned to move out.
Daniela Godoy, 25, moved into one-bedroom apartment with a rent of $3,500 in Bushwick in November, about a year after a limited liability company associated with the Carlyle Group, one of the largest private equity firms in the world, purchased the three-story, three-unit building.
On a recent Thursday, the fire alarm was blaring at Ms. Godoy’s apartment, two days after the Fire Department had cited the building’s owners over problems with the alarm system.Ms. Godoy, who works in public relations, said the building management has been unresponsive to problems like a gas and heat outage in February.
Ms. Godoy plans to move in with her family in Connecticut after her lease ends in October.
“We can’t wait to get out,” she said.
In response to questions about Ms. Godoy’s issues, Carlyle officials said the power loss stemmed from a problem with the utility, not the landlord, and that some repairs may have taken longer because tenants had to agree to let workers into their apartments. The firm said it seeks to respond to all issues within 24 hours.
The number of units controlled by Carlyle and other firms remains a minuscule slice of the overall housing stock. But the firms often use limited liability companies to shroud their connection to properties, making a complete accounting of private equity-backed ownership of real estate in New York City impossible. They also rarely disclose where their money comes from.
One analysis of property records based on data provided by a real estate information company, PincusCo, shows that Carlyle has bought more than 150 buildings, mostly clustered in Bushwick and Bedford-Stuyvesant, since 2020. Property records indicate several other private equity-backed firms, including Conway Capital and Peak Capital Advisors, have bought another 150 buildings or so.
In an analysis of sales of retail and residential buildings, excluding one- and two- family homes, PincusCo found that Carlyle in 2022 was the single most active buyer based on the number of deals.
“It is the next frontier in real estate,” said Timothy H. Savage, a professor at New York University’s Schack Institute of Real Estate.
The expansion of private equity into this market comes as city and state officials struggle to pass legislation to deal with the housing crisis.
In the years after the 2008 financial crisis, private equity investors drew criticism for buying up buildings with rent-stabilized units and aggressively trying to get people to move out in order to deregulate homes, raise rents and squeeze out profits. Then in 2019, New York State passed tenant-friendly rent regulations that made most types of deregulation impossible.
But residents’ willingness to pay ever higher rents continues to make New York City housing a lucrative investment — particularly the smaller buildings that are largely not covered by rent stabilization.
Many of the buildings have been owned by families or small landlords for decades, property records show. In other cases, the buildings had already been purchased in recent years by Brooklyn-based real estate companies, including STAYBK and Green Builders. The companies did not respond to requests for comment.
Smaller owners, grappling with the costs of managing older buildings, can reap clear financial benefits from selling. Mom-and-pop landlords say they are increasingly dealing with higher maintenance costs and property taxes, according to a recent Urban Institute survey. Fuel costs went up almost 20 percent last year, according to research from a city board that regulates rents.
“If you look at the history of New York City, that’s where small real estate families became big,” said Marc Norman, associate dean of the Schack Institute. “That’s where immigrant entrepreneurs got their start and were able to build equity to fund their businesses.”
The Carlyle Group declined to say how many buildings it had bought and what kinds of returns it was hoping to generate. According to the firm, its new strategy, which accelerated in 2020, is not about extracting profits in the short term — but rather building value long term by creating high-quality housing that caters to millennials looking for more space.
“Investing in building operations and services is core to our business plans,” Brittany Berliner, a Carlyle spokeswoman, said in a statement. “These investments continue to provide residents with premium level services, reduce energy consumption and create a better experience for current and future tenants.”
Conway and Peak did not respond to requests for comment.
But several tenants complained about the responsiveness of the new landlords.
“The previous owners would have someone to clean this whole building from top to bottom, and they don’t do that anymore,” said Penelope Roach, 64, who lives in a four-story apartment building in Bushwick that was bought by an entity associated with the Carlyle Group last March.
The trend has generated some activism among tenants and public officials. Dizzy Zaba, who uses the pronouns they and them, moved into an apartment in Bedford-Stuyvesant in December 2020 that cost $2,550 per month. In June 2021, the building was bought by an entity associated with Carlyle and another real estate company, Greenbrook Partners.
A dispute over a new lease proposal in December 2021 that included a nearly 5 percent increase and gave the landlord the ability to terminate the lease with 90 days’ notice has motivated Dizzy Zaba to organize their neighbors and other tenants in other buildings.
In October, the New York State attorney general, Letitia James, settled an investigation into Greenbrook, after it was accused of harassing renters. Greenbrook did not respond to requests for comment.
“There’s a small set of more bottom-feeding capital that wants returns very quickly and says ‘I want to see a big profit fast,’” said Brad Lander, the city comptroller, who has criticized Greenbrook. “The way you do that is by throwing people out of their homes.”
He said that tenant-friendly policies, including limiting steep rent increases, would prevent egregious problems. A “good cause eviction” bill, which might have done that, failed in the State Legislature this year.
Stefanos Chen and Matthew Haag contributed reporting.