The last week saw a major plunge in shares of New York Community Bancorp after the company revealed challenges in its lending to multi-family residential developers. So what went wrong at this bank? And what does it say about this particular market? On this episode we speak with Quantierra CEO Ben Carlos Thypin, a New York City landlord and investor, about the bank's large role within NYC's rent-stabilized housing market. Over the last year, Ben has advised funds to short NYCB based on its exposure to this complex corner of real estate. He explains how NYCB's position, combined with market and regulatory changes to the city's housing market, contributed to the strains.
Hello, Odd Lots listeners, you were about to hear a conversation about the troubles at New York Community Bank Corp. We recorded this interview on February sixth, and his statement to the market, NYCB said that his deposits have increased since the end of last year and that liquidity remains ample. A spokesperson for the company did not respond to a separate quest for comment from Oddlots and now here's our episode a New York Community Bank Corp. Hello, and welcome to another episode of the.
Odd Lots podcast.
I'm Joe Wisenthal and I'm Tracy Allaway.
Tracy banking troubles again. Obviously, we had that little, I don't know many mini crisis at the uffle Kerfuffle last March with SVB and a couple other banks, and then recently, I think just last week. We're recording this Tuesday, February sixth, another.
One, that's right. So we saw New York Community NYCB. Their shares felt something like almost forty percent in a single day after they released a bunch of announcements. So let's see, I'm trying to remember all of them. So they missed on earnings per share. They cut their dividend and they increased their reserves for bad loans. So basically the provisions are the amount of money they set aside to cover souring credit. And of course this set off a wave of conversation and analysis about how much of that issue has to do with NYCB specifically, or whether it's saying something broader about the outlook for these loans. And I should just say that in its statement, NYCB specifically cited commercial real estate and multifamily as well, which is sort of the I always call it the forgotten CRE because everyone focuses on offices, but multifamily also falls into the CRE category.
Yeah right, we did that episode a few months ago. I think in October we did an episode on multifamily because we know that we know that there was just this incredible boom right in twenty twenty one and social media influencers. We're like raising money on Instagram for you know, sun Belt cire and so there is this big question about the category. More broadly, this is of course not a sun Belt story. It's New York Community Bank Orp. But it gets this question of like, oh, is this something idiosyncratic to the bank, Where is this broader are we gonna see multifamily problems elsewhere? It feels like each one of these banks that's gotten into trouble over the last couple of years, there is this furious debate. It's like, it's just it's just idiosyncratic. It's just Silicon Valley, it's just crypto exposure, it's just New York. But then eventually you have enough idiosyncratics when people start to go worry. They're like, are there things going wrong? Are there similarities with other banks?
Yeah? And it's funny you mentioned the multifamily episode. I think that was with Lee Everett. He was basically saying that was the next shoe to drop in the troubled cre category. But we did actually do an episode even before then titled the NYC Landlord who says the golden age of being a landlord is over.
That's right, So we did do a New York specific one. Our guest then, Ben Carlos, type in local real estate guy who owns residential real estate. He also does some data stuff and other things, and he basically came on He's like, look, my family has been in this business of renting out apartments for a long time, and the business is going bad. This is not a business I really want to be in it anymore. He mentioned that he would be selling off some or all of his assets over time. I think he specifically said he wouldn't be doing a fire sell or like a mass liquidation, but that he wanted to get out of business. He also said that he was interested in ways to essentially not just get out of the business, not just remove his defecto long position, but seeing if there were ways to bet on the downside. It was this, there is like a combination of like, okay, gimbiism in New York seems to be on the rise, so there perhaps is going to be more supply plus a sort of shifting political landscape. But I think this is key, such that regulations will make life harder for landlords.
Yes, this is the return to I mean it never went away completely, but a newfound popularity of rent control and the issues that maybe causes for landlords. And of course, I mean the backdrop to all of this is that interest rates have gone up spectacularly and so why deal with tenants and policy when you can just put your money in a money market fund and earn five percent?
Yeah, that's right.
And also you know, in New York specifically, we have an affordability crisis, and we have an affordability crisis even among individuals and families that make a lot of money. So plenty of New York City professionals who are rent who make decent incomes still find this housing market very frustrating, feel that they're paying way more than they should be in getting squeezed. And of course, you know, people with good money and professional jobs historically have had a lot of political power, and so this idea that okay, there is this very powerful renter class in New York City specifically that politicians have to listen to, which sort of tilts the dot, turns the dial more towards pro tenant policies that landlords may not like. Well, on that note, I'm very excited we have Ben back on the podcast.
Ben, thank you so much for joining.
Us, Thanks for having me.
Let's talk before.
We get into the conversation, because we want to talk to you about this real estate market. We want to talk to you about CB specifically and what's going on with them. I mentioned in the intro that you said on our episode early last year that you're not just interested in getting out of the space selling off of your assets, but also exploring ways to essentially shorten the space. Of course, you've done some work on that, including on NYCB, So I think we should start with a disclosure.
Where are you at right now with this? Sure?
So, you know, after our episode last year, and really really before it, I was exploring, you know, the various ways that one could approach shorting multifamily to you know, express the thesis that I talked about on that podcast. And you know, I found out a couple of things, one of which shorting is very hard and requires a lot of capital. But in doing so, I settled on New York Comedy Bank as a target, and spoke to and advised several hedge funds on New York Commedy Bank being a good target based on you know, totally public information. I can't speak to what trades, if any, they executed on this. All I can say is that I neither I nor my firm were or are short New or Commedy Bank, and I have not received or are not not entitled to any compensation tied directly or indirectly to the performance of that stock.
But you were paid, yes, for your advisory services or your consulting services to the hedge Fund. Correct, And just to be clear, you said on the podcast last year that you were planning on getting out of the residential real estate business in New York City.
What's happened between then and now on that front.
We've sold one of our buildings, we still have a few more to sell off.
So maybe just to begin with, can you talk a little bit about NYCB's relationship to multifamily, Like what is the exposure here? So they mention a multifamily portfolio, what is that? How did they come to own it, and what does it look like?
Yeah, so they are, by their own account, I think, the second largest multi family lender in the country, and multi family loans represent to forty four percent of their entire loan book, not just real estate loans, and twenty two percent of their entire loan book is a particular type of multifamily loan, which is rent stabilized. It loans on rent stabilized buildings in New York City, and this is a business they've been huge in for five decades. They are currently the biggest lender on rent stabilized buildings, even more so than the now failed Signature Bank. And the growth of New York comed Back as an institution is really tied up in the fortunes and evolution of the rent stabilized market over the past thirty years. So, you know, let me ask the two of you if you ever lived in an apartment in New York City within a building that was built prior to nineteen seventy four and contained six or more residential units.
Yes, but it hasn't been rent stabilized exactly.
And did you pay like, what it felt like, a really high rent for it?
Oh my god, I am still paying a really high rent for it.
Go on, Well, there was a time that all apartments and buildings like that were rent stabilized, and the reason that you paid a very high rent for that ancient apartment is deeply tied up in the story of New York Comedy Bank over these past thirty years.
Wait, so what is the allure of rent controlled apartments? Because if I think about I want to be a real estate developer or a lender in New York, you know, I want some luxury building that's all shiny and new, and I can charge an incredibly high amount for people to live there. I don't necessarily think oh, I'm going to go into rent stabilized properties.
Right. So, historically, up up until the early nineteen nineties, the allure of these properties was a lot less than it became, and it was largely based on, you know, the solidity of it as a business. You know, the rents are low, so the occupancy always stays high, and it's a it was a bond of business. And what changed in the early nineties is, you know, New York City at that time was in really bad shape. There's a lot of high budget deficits, high crime, all these foreclosed buildings costing city hundreds millions dollars in property tax revenue. And in response to that, dynamic landlords claimed that the foreclosures and the blight were the faults of rent regulations. And if you think about this doesn't really make sense because you know, it's a self serving argument and sort of gets the causality backwards. Like every city in the country was having major problems resulting from deindustrialization, white flight, and these other you know, mega trends, most of which did not have any form of rent regulation. So the real estate industry's claim was like, all right, if you let us raise the rents then we'll fix up the buildings, property taxes will go up, et cetera. Politicians and the New York City Council bought that and implemented a policy called vacancy decontrol, which allowed apartments to be deregulated in the buildings that we talked about. Once they once the legal rents breached a threshold of at the time was two thousand dollars. That was later raised several times, and I think before it went away it was the highest was twenty seven hundred dollars. So, you know, at the time, legislators from places like Bushwick, which were very poor, where you know, the highest rent in the neighborhood was five hundred dollars. They could never imagine that a rent could get to two thousand dollars, so.
They thought they had a long way to go until they would reach that cap.
Yeah.
So you know, incidentally, that's in nineteen ninety four. A little bank known as Queens County Savings Bank goes public the year before in nineteen ninety three, that later becomes New York Community Bank. So what happens between nineteen ninety four and twenty nineteen New York City's economy booms. Like many other urban markets around the country, population growth job growth far up housing construction, which then sends rents on existing housing soaring. So this makes for a very good combination for landlords. The apartment value of apartment buildings increases, liquidity in the debt and equity markets for a apartment buildings in New York sty increases, and New York Community Bank really grows along with its landlord clients. Becomes the biggest lender on these rent stabilized buildings, provides acquisition loans for the landlords to expand, It provides refinancing after refinancing, allowing their clients to take money out of these buildings. And you know, during this process, where like the BET is basically all right, market rents are, it's worth deregulating these buildings all over the city. Because the spread between market rents and the regulator rents is so high, the pricing on these assets gets totally out of whack. The spread between buildings that are selling in the Bronx which have a very weak credit profile, and buildings that are selling in Manhattan really narrows. And that continues for the next twenty years.
Sorry, just to back up, I'm just because I want to be precise. What specifically did the New York City Council do in the early nineties. When you say that twenty seven hundred, what happens then?
Okay? So up until that point, rents on a rent on a regular department like the one that Tracy lived in, could only be raised a certain.
Amount of I didn't live in a regulated apartment. Well it was, yes, sorry, yes, it's previous life.
Yes. And up until that point, the rents could only be raised by a certain amount based on what the Rent Guidelines Board issues each year. Okay, and starting there was some erosion of that system prior to nineteen ninety four, but the big change in nineteen ninety four was that the apartment could become completely deregulated once once it breaches that two thousand dollars threshold, So instead of being able to only go up three percent a year, it could go from two thousand to four thousand. And there's also a bonus for when an apartment goes vacant, so every time an apartment turns over from tenant to tenant, the rent could be increased twenty percent, as opposed to just the rent guidelines board amount.
So the obvious question here is that would seem to create an incentive structure for landlords to basically try to get to the twenty seven hundred or twenty eight hundred threshold so that they could then raise the rent to whatever the market can bear. Did we see that behavior and how exactly do they try to speed up that process?
Yes, so there are three ways that they try to speed up that process. One is buyouts, offering people money to leave, which is legal. Others are harassment of tenants out of buildings and using all sorts of means. And the third is inflating the cost of renovations that they're doing that are used to justify increases, because that was always another way to increase rents. Was like, if you need to put in a new boiler in the building, you could amortize the cost of that improvement across all the rents and the buildings in the building. If you need to redo the plumbing in a particular apartment, you could amortize the cost over that.
Sorry, something I'm still confused by, even post nineteen ninety four, and I've only lived in New York almost twenty years now, But every once in a while you like hear some story about so and so has an apartment on the Upper east Side and they're living in it and their grandmother is still there.
It is still like crazy, this is a friend's plot line.
Right, yeah, something like that.
How did those stories exist in a post ninety four world?
Sure, so one, there's still the very old system of rent control, so like that is a very small number of units, but also does represent some of those situations.
So we're talking about a difference between rent.
Control rent staabilized. I see, I see.
So the rent control like they're just like this is it and this is the price where someone is That actually was not changed. What changed was these was the units that were designed to just go very slowly.
Correct. Well, I mean rent control is also designed to go out very slowly in a way. But once a rent control, once a tenant at this point, once a tenant in a rent control unit vacates that it becomes rent stabilized and it sort of enters into the new system.
I see.
But to answer your broader point, which I think speaks to this dynamic here is post ninety four. You know this trade of you know, improving the apartment either actually or on paper in order to get the rent above the deregulation threshold. Really only works in strong submarkets, So there was a time every apartment a building of a certain size in below below ninety sixth Street was rent stabilized. But Manhattan is the highest rent market in New York City, so all of those apartments are excuse me, a huge portion of those apartments were deregulated because there was enough spread in there for the landlord to be able to for it to be worth doing the work. Same thing in places like Park Slope and sort of Western Brooklyn Queens, you know, the gentrifying areas of the city, whereas in the non gentrifying areas. The ways this policy mainly manifests itself was in just increasing the rents higher than they otherwise could be. But rents never are much more rarely reached the threshold.
To be able to deregulate it.
Can you talk to us a little bit about the financing picture. To what degree did this dynamic become, I guess well known in the fundraising side of this whole thing. So was it pretty easy to get loans an additional capital in order to either buy more properties on the assumption that you could eventually get to that threshold and raise the rent or to fund renovation to try to get to that threshold.
Yes, it was pretty easy and became particularly so in the early two thousands, early to late two thousands, you know, with sort of the broader sheends in real estate of institutionalization, more private equity, and you know, became a more sophisticated business that was putting more capital in more places. So prior to let's say two thousand, the rent stabilized business was a pretty sleep still a pretty sleepy business in so far as like what type of capital played in it.
So like mom and pop, mom and pop and apartment building.
Okay, And you know there were certainly large landlords at that point that it accumulated a lot of these properties. But you know, private equity firms were not a big player at that time. But in particularly in the two thousands, the private equity and both on and also private credit and New York coming back to the world really put a lot of capital into this sector, and largely based on the premise that they would be able to raise these rents a lot more.
Let's talk a little bit more about that, because Tracy mentioned in the beginning like setting aside everything you know, it doesn't seem like rent control or rent stabilized buildings or any of these buildings are like a particularly exciting place to lend in. But if everyone thinks the place is not an exciting place to lend and then intuitively there's sort of like above market opportunities for the one player that goes in. And we see this all the time and all kinds of markets where like, yes, like you can make a lot of money in distressed assets of all sorts because most people don't want it. So if you put in a new legwork to make it work, you can make a lot of money. Talk to us a little bit more about like the relationship that New York Community Bank Corp. Had with a fellow landlords in your world, why landlords liked working with them, why they liked working with landlords, and why this was you know, the profits that they accrued during the good times.
Sure, so the New Yor Community Bank really, like many community banks, it's a relationship bank, and clearly as part of its strategy it was building relationships with rand stabilized landlords. So this has several benefits them. Obviously, making loans is what a bank does. But also these community banks typically require anyone getting a commercial mortgage from them to have deposits at this bank as well, saying and also like the deposits from tenant security deposits held in these buildings excuse me, at New York Commedy Bank. So it became a way for the New York community banks of the world to really build their deposit bases and their loan books on a product type in which there's a lot of product. You know, there's a lot of these buildings that need loans, and it's also kind of complicated. So like lenders from out of town you know there, you know, which were coming to land on office buildings and you know, all sorts of other assets were less inclined to land on rent stabilized buildings, not because of any sort of accurate assessment of risk, but just because like it's easier for some for some French bank to you know, loan on an office building then figure out the rent stabilization code.
So if we're looking at all the headwinds that are facing this particular segment, in addition to things like the fact that rates have gone up enormously, I think there was a more recent change to policy in twenty nineteen. Can you walk us through what exactly that was and how it sort of changed the picture for multifamily.
Sure, So, prior to twenty nineteen, you know, the bad behavior that we talked about earlier of harassment, the lack of houses construction, and you know, the general dynamics in New York Cities housing market had really produced a terrible situation. We have, you know, rent housing burden for tenants across the city is way up record levels, homelessness is way up. And twenty nineteen, a finally unified statewide coalition of tenant groups called Housing Justice for All capitalized on the post Trump progressive resurgence to pass the Housing Stability and Tenant Protection Act of twenty nineteen, which is now known as the HSTPA. This bill did many things, but for the purpose of this conversation, the most important things it did is it ended vacancy de control, so you can no longer deregulate rent stabilized apartments.
So that reduced as your incentive to harass your tenants.
Theoretically, and it removed the twenty percent vacancy bonus. Can't you know, you can't raise the regulated rent by twenty percent on turnover, and it also severely curtailed the degree to which landlords could recapture the renovation costs in rents.
It's funny, So I I want to go here actually at some point in the conversation because right around the corner, little did we know in twenty nineteen that a couple years later we'd have like the worst inflation in forty years. And we know that it was like a real headache and a very costly headache for landlords to get contractors in and renovate and floors and air conditioners and anything else that landlords would have to deal with. So I was sort of curious about that. Okay, it sort of like curtails the ability to recapture renovation costs, but objectively, the cost of renovation did.
Explode, right two years later?
Can you talk a little bit more about the intersection of these regulations with just the reality that you don't even have to not even for like sort of nefarious purposes or purposes of raising the rent, like renovation costs really did.
Explode, right, So I think you know, the regulations inflation and interest rates changing are really accelerants to what was sort of an evitable trend on these buildings. So you know, post HSTPA, the liquidity in the market for these buildings just dries up. There's no price discovery. Most sellers don't want to crystallize their losses. Most buyers don't know how to price the assets, you know, in a large part because the issues that we just discussed, and brokers in the sector are buying large like indulging their client's delusion. So you know, this puts people like excuping lenders near community Bank in a difficult position because, like, in addition to not wanting to mark down the value their collateral like I need lender wouldn't in this case doing so, would you know, put some of their posits at a lot of the deposits at risk as well. And they don't know what the future holds. Like everyone in this world of rend stabilized buildings is sort of engage in this collective delusion. They're waiting for the Supreme Court to overturn rank control, They're waiting for the legislature to weaken the AHASTPA. And I think this is where they really miscalculated, and I really sort of bought into their own propaganda from you know, thirty years ago, which is that you know, they think that real estate investment drives economic conditions, but really economic conditions tend to drive real estate investment. And they would have known this if they had looked at the data from the rent stabilized building sector, which showed that this trade really started to taper off before the HSTPA in twenty seventeen, the amount of rent stabilized buildings being traded. So the question is why, and the reason, I think is pretty simple. If you look at the history of this the deregulation, there were fewer and fewer buildings in which this deregulatory trade actually worked because you know, if market rents are not high enough, it doesn't make any more, it doesn't make sense to invest all this money in these buildings. So, after all the deregulation that happened over those preceding twenty five years, the vast majority of events stabilized stock and therefore collatter on near community bank loans remains concentrated in lower income submarkets. So this is always subprime real estate. And the buildings are you know, they're century old, they're expensive to maintain, The tenants have a weak credit profile. So even if the laws did allow for higher increases than they do now, at some point you can't pull blood from a stone. Big rent increases are going to increasingly show up and increase collection costs, legal fees, et cetera, all while operating costs, to your point, Joe, are increasing on these ancient buildings. And if you think about, like the other buildings in these neighborhoods, the vast majority of other multi family buildings once built after nineteen seventy four in places like the South Bronx, literally require subsidies to operate.
What's the future of these buildings now? So one thing that you see landlords say nowadays is because of the changes to rent control that they aren't motivated to get new tenants in. So, you know, why spend a load of money renovating an apartment getting it up to standard if you're not going to be able to make up that investment by charging market rent. Just leave it empty. So are we just going to end up in a situation where apartments are empty? Or at some point do landlords maybe crystallize their losses and start saying, you know what, I'm just going to sell this off. Maybe a developer can knock down the building, build something new. What actually happens, So.
It's obviously going to vary a lot between landlords and landlord. Some are in better financial positions than others. But to your point, Tracy, it doesn't really make sense to invest, you know, conventional for profit capital in these buildings, certainly at anywhere approaching the values of the past. So I think, you know, broadly speaking, we're sort of in the standoff between these rents stabilise building donors their lenders, and on the other side, the government because these buildings need subsidies to survive. But if I'm the government, and I guess we're all the government away as tax payers, we don't want to subsidize buildings at above market value. But on the other hand, you don't want buildings to degrade to a point where subsitdy becomes way more expensive, and not to mention, the tenants living in the buildings increasingly suffer. So doesn't seem like we're at the point politically where that people can come to an agreement on injecting capital into these buildings. But I think that's an inevitability.
But just going back, your basic argument here is that you know, okay, like you bet on this deregulation trade, maybe the Supreme Court will one day say all rent control or something is illegal, or rent stabilization regimes are legal, or maybe the government will water down some of the twenty nineteen the New York State government or something will water down the twenty nine teen policies. But your basic argument is that even if that were true, that gap between what these building the fair market value of these buildings today under current law, and the sort of dream legal changes aren't that big or aren't as big as some of the call option embedded is not as great as some of these investors imagine.
Correct. In some cases, the call option is very valuable, Like if it's a fully rent stabilized building on the Upper West Side, you know, they're basically you're buying the land. That land there is very valuable. But the if it's a fully renstabilized buildings in Eastern Queens or the South Bronx, that land is not very valuable. So the idea that they're going to demolish it anytime soon doesn't really hold up. So I think, you know, we're dealing with a disconnect between what the market in its collective delusion valued these buildings at before and what they're fundamentally valued at based on you know, cash flow and fundamentals of these buildings, and a change in law doesn't change that very much simply because of where the real estate is located and the credit profile that tends in the.
Setting side the investor upside potential from a regulatory change. One of the arguments that the anti rent control argue people make is like, and you sort of did touch on this, that it is a perverse or bad situation for people living in a building if their owner has either no interest or financing capacity to keep that building up. So then essentially the person is living in an asset that continually gets degraded or does it get fixed that often, and the building is falling apart. How real is that for some people in some buildings that phenomenon.
I think it's very real. But it's I think that that argument from landlords really tends to fall on to fiars because people were living in conditions like that under the old rehip. It's not like all the money that was being made in this business was being plowed back into investing these buildings. These buildings are the least well kept in the entire city. They were before and they are now. So it's certainly a very real dynamic that you know, these buildings require capital, and they have owners that for both rational economic and moral reasons or ideological reasons, don't want to invest capital in those buildings. However, a lot of the problem goes back to having a really inept regulatory app apparatus for housing, because in many cases these landlords are legally obligated to provide to make these or make sure these buildings aren't good prepare, and have not been doing so for quite some time.
So ben obviously people are going to need a place to live. This real estate isn't going away. Are these investible assets? Is there a play here for some of this real estate?
I don't want to leave listeners with the impression that these are like uninvestable buildings. They're fundamentally depreciating assets. But like as many Bloomberg listeners would know, like there's plenty of financial assets out there that have depreciating cash flows, what really needs to happen here is these buildings need to be valued at a values that reflect their fundamentals. We're starting to see previews of this where like some of these stabilized buildings are leased entirely to city programs or entirely to tenants with Section eight vouchers. So there's gonna be various forms through which capital isn't injecting these buildings to stabilize them, whether it's providing boucher's to tenants, city leasing it directly, nonprofits taking them over and getting you know, government financing, and every possible formation in between them. There's no civil serviable fixing these buildings because they're all in their unique situation and you know, we have so little open housing that it's not like the tenants have anywhere that they can go. So it's a very live issue.
All right, Ben Carlos Taipan, thank you so much for coming on to odd Laws. Fascinating sort of like New York City real Estate and history.
That did a great job of clearing up how we got in this position.
Thanks roving us, Tracy. I thought there were a lot of interesting points in there. One thing in particular I just start on and it's not directly related to the regulation. This idea like the relationship lenders. You know, it reminds me of SVB. It's like you have this expectation that that's where you hold the security deposits, et cetera. And it kind of brings me down. It depresses me a little bit because the idea.
On a relationship with your bank, well, I.
Like the idea of financial institutions that actually get to know a space that like build up a specific needs rather than like pure commodity lending, or.
It seems counterintuitive because you think they should be developing expertise and good risk management skills in a particular sector, but instead, so far, what we've seen is it tends to lead to I guess over exposure.
I guess one thing also that is maybe unique and very different from an SVB other than the you know, one thing that's in similarity obviously is the expectation of holding deposits, the focus on one industry. But that's one thing that's different and interesting is and I thought it was a fascinating point that I hadn't thought of because of the sort of complexity of New York City housing law. And I'm sure we basically just scratch the surface that it sort of naturally repels most capital like, as you said, a French bank isn't going to sort of like really like take the time to really deal with like a post nineteen seventy four houses, pre nineteen seventy four houses, all that, and so it sort of creates the situation where one type of bet ends up being concentrated in the hands of one or a small number of players that actually put into the legwork to understand the market.
Yeah, the other thing I thought was interesting about that particular dynamic was it kind of leads to a situation where, Okay, there's not a big natural body of capital in this space for you know, the various reasons that we laid out, But if you do the work, do your due diligence, put that effort in, you can get in and then make a lot of money because the dynamic almost becomes self reinforcing. Right. It's like you have this business model that's basically predicated on the value of your building going up, and then you have lenders who are very into that dynamic as well, and you have more money coming in vis private equity, private capital, which Ben also mentioned. It feels like it almost becomes this little like tiny feedback loop feeding on itself. The other thing that this is related, but the other thing that interested me was the idea that, well, these were always subprime assets, right. But again, that ecosystem of players were sort of telling themselves a different story, and everyone agreed on that story at the same time. And that's fine as long as everyone can keep agreeing. But then when the environment starts to change, when interest rates start to go up, operational costs go up, it kind of falls apart totally.
I thought that was a really fascinating point that even if, like you got the dream free market wish list, that many of these buildings just do not have the embedded value that a lot of the investors sort of assumed or imagined that they would. That's like a really interesting debate there. I also thought it was interesting, you know that in the old old days that rent stabilized billance. As he described it, it's a bond business, and so it's almost like when it got out of the business of being a bond business, where suddenly people started maybe thinking of it as like an equity business. Yes, Upside exactly showed the seeds of its eventual demise because you keep pushing to try to get out of the bond asset class to get something more like equity market.
Right, and that's when the story becomes really important, the story being like, well, we're getting close to the twenty eight hundred threshold and we're going to renovate and eventually get over it, and then we'll make tons of money because this is going to be a shiny new designer apartment or something like that. On that happy note, shall we leave it there?
Let's leave it there.
Okay, this has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
I'm Joe Why Isn't? You can follow me at the Stalwart. Follow our guest Ben Carlos type and he's at so Bendito. Follow our producers Carmen Rodriguez at Carmen Arman, dash Ol Bennett at Dashbot and Kelbrooks at kel Brooks. And thank you to our producer Moses Ondem. From our Odlots content, you can check out Bloomberg dot com slash odd lots, where you have transcript, a blog and the newsletter, and check out the discord twenty four to seven. You could chat with fellow listeners on all these topics, including plenty of conversation about New York City real estate discord dot gg, Slash.
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