Propmodo Daily

By Franco Faraudo · Mar. 21, 2024

Greetings!

A major NYC real estate firm, Sentinel Real Estate, is making a significant pivot away from the city. Recent scandals and tighter rent regulations seem to have soured their appetite for investment. Could this be a sign of deeper trouble for NYC's housing market? We'll be digging into the details in today’s email.

Have your say on affordable housing development! Take our short poll after the story, and we'll share the results tomorrow.

This week, Propmodo Technology and sponsor Valcre tackle valuation and underwriting tech. Learn about automated valuation, risk mitigation with cutting-edge data, and how to navigate the coming wave of commercial property revaluation.

Now, let's dig in!

Sentinel Feels the Burn of Rent Control Regulations

Sentinel, one of the United States’ largest private multifamily real estate owners, began as the investment arm for partners of the Smith Barney investment group. In the 1970s, the company expanded to include pension fund investments. John H. Streicker purchased the business from Smith Barney in 1988 and oversaw its growth to an $11 billion portfolio, primarily focused on multifamily housing. Today, Sentinel Real Estate owns approximately 27,000 apartments, mostly located within the U.S., along with additional properties in Germany, the Netherlands, and Australia. Following Mr. Streicker's passing in 2022, his son Michael now leads the company.

Sentinel holds a significant number of rent-controlled apartments in its portfolio, a category of housing with a complex history for the company in New York City. In 2022, they were hit with a $4 million fine by New York Attorney General Letitia James for a fraudulent scheme involving inflated renovation expenses. This plan aimed to qualify their buildings for a switch to market-rate rents. Sentinel denied any knowledge of the scam, claiming they were victims themselves. Regardless of their claim, the incident damaged Sentinel's reputation and could foreshadow further challenges related to New York City's extensive rent-controlled housing market.

In October of last year, the New York City Rent Guidelines Board adopted new rules that severely limited rent increases. This decision caused the value of properties under the new laws to plummet, especially amidst rising interest rates and inflation. Ultimately, Sentinel decided it needed to offload these struggling properties and is now selling around 1,300 apartments for a reported 40% discount.

It seems like Sentinel has lost its appetite for investment in New York, even though the company remains headquartered in the city. In the past few years, Sentinel has focused its investments on Australia, Northern California, and Texas. While Sentinel is large enough to absorb the losses incurred from New York's rent stabilization laws, the fact that a prominent NYC investor has turned its back on the city is a troubling sign. Cities around the country urgently need real estate companies to build and manage affordable and workforce housing units, but regulations designed to help renters can inadvertently deter investment.

With every loss comes a lesson. In the case of Sentinel's recent setbacks, perhaps the city needs to learn an important lesson about supporting the owners who contribute to the affordable housing stock that New York desperately needs.

Feedback Loop

Let's talk affordable housing. Share your thoughts in our quick poll and help us understand the challenges. We'll report on the results tomorrow. You can also email your feedback to [email protected].

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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