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In his latest Commercial Observer article, Bob Knakal, Founder, Chairman & CEO of BK Real Estate Advisors, examines the growing economic challenges facing New York City’s rent-stabilized housing stock. While Article XI can provide significant property-tax relief to distressed buildings, Knakal argues that the program addresses a symptom rather than the underlying problem: operating expenses are rising faster than regulated rental revenue.
Insurance, real estate taxes, water and sewer charges, labor, fuel, repairs, and maintenance costs have all increased significantly, while owners face strict limits on their ability to increase rents. Knakal explains that when expenses consistently grow faster than revenue, the economics of a property eventually become unsustainable.
Article XI can substantially reduce property-tax obligations for qualifying buildings for up to 40 years. For distressed rent-stabilized properties, this can restore positive cash flow and potentially prevent foreclosure or physical deterioration.
Knakal compares Article XI to giving Tylenol to a patient with an infection. Lowering the financial “fever” can help stabilize a building, but it does not address the underlying imbalance between regulated revenue and rising operating expenses.
Insurance, utilities, payroll, maintenance, water charges, and other costs continue to rise, while rent growth remains heavily constrained. This widening gap creates increasing financial pressure for owners of rent-stabilized properties.
Knakal demonstrates how reducing property taxes can dramatically improve a building’s NOI. However, if expenses continue increasing faster than rents, the same economic problem will eventually return.
Article XI can play an important role in preserving existing affordable housing and preventing distressed buildings from falling into foreclosure or physical decline. The issue is whether tax relief alone can provide a sustainable long-term solution.
When the city reduces the property taxes collected from one building, the lost revenue must ultimately be addressed through spending reductions, higher taxes or fees, other revenue sources, or borrowing. Expanding Article XI across thousands of buildings could create significant fiscal pressure.
Knakal argues that policymakers should look beyond temporary financial relief and examine why regulated buildings increasingly require extraordinary government intervention to remain economically viable.
The article highlights a fundamental principle of real estate: buildings respond to arithmetic.
There are only a few ways to address a persistent gap between revenue and expenses—revenue can increase, expenses can decrease, someone can subsidize the difference, or the property can eventually become economically unsustainable.
Article XI provides an important tool for distressed properties, but Knakal argues that policymakers must also confront the structural issues causing expenses to grow faster than regulated revenue.
According to Knakal:
“Article XI may be good medicine. It may lower the fever... But, if expenses continue compounding faster than revenue, the underlying infection remains.”
The central question is therefore not simply how to rescue distressed buildings, but how to create a regulatory and economic environment in which those buildings can remain financially viable without requiring extraordinary intervention.
Article XI can provide distressed rent-stabilized buildings with valuable financial breathing room. But long-term stability requires more than lowering one expense.
For New York City’s rent-stabilized housing market to remain sustainable, policymakers must address the fundamental relationship between revenue, operating expenses, regulation, and investment. As Knakal emphasizes, tax relief may lower the fever, but it does not necessarily cure the underlying infection.
Article XI is a New York City property-tax incentive program that can provide qualifying buildings with substantial tax benefits, replacing conventional property taxes with a lower payment in lieu of taxes (PILOT).
For distressed properties, reducing one of the largest operating expenses can restore positive cash flow and help prevent foreclosure or deterioration.
Operating expenses—including insurance, utilities, labor, maintenance, and taxes—have been rising faster than the revenue owners can generate under rent regulations.
Knakal argues that Article XI can stabilize individual properties but does not necessarily solve the broader structural imbalance between regulated revenue and rising expenses.
Significant tax reductions across thousands of buildings could reduce city tax revenue, potentially shifting the financial burden elsewhere through higher taxes, fees, spending reductions, or borrowing.
New York must look beyond temporary subsidies and address the underlying economics of rent-stabilized housing. As Knakal puts it, “Buildings don’t care about politics. Buildings respond to arithmetic.”
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