On Jan. 16, a federal bankruptcy judge approved the $451 million sale of the Pinnacle Group’s 5,100-unit rent-stabilized apartment portfolio to Summit Properties USA, rejecting an eleventh-hour attempt by New York City Mayor Zohran Mamdani to delay the deal.
Mamdani, who took office on Jan. 1, had made housing affordability a signature policy of his campaign. Prior to the election, he issued a four-part plan to address the affordability crisis, with rent freezes and cracking down on wayward landlords key components.
On his first day in office, Mamdani held a press conference announcing his goal of intervening in the Pinnacle-Summit sale, as part of a wider unveiling of his administration’s approach to making housing more affordable.
The legal ruling marks a chaotic end to the Pinnacle bankruptcy drama, but the courtroom arguments exposed a deeper structural fracture in the city’s housing economics.
While the mayor’s legal team argued that Summit lacked the financial capacity to cure thousands of code violations, the proceedings laid bare a stark reality: Under current market conditions, rent control may disincentive landlords from providing proper upkeep of their properties, putting those two components of the administration’s housing plan at odds with each other.
The challenging economics of rent stabilization
The Pinnacle sale price — nearly 45% below the portfolio’s 2021 valuation stated in court documents — signals that investors see little path to profitability.
This collapse in value mirrors broader trends identified by the Harvard Joint Center for Housing Studies (JCHS). In a 2025 report, JCHS noted that “steep increases in insurance premiums and property taxes” are squeezing property owners nationwide. Specifically, insurance premiums jumped 57% between 2019 and 2024, while property taxes rose 12% from 2021 to 2023, according to the report.
Rent control involves government intervention to limit how much landlords can charge for rent on certain properties, aiming to stabilize costs for tenants by curbing rent increases.
For rent-stabilized property owners unable to pass increasing insurance and property tax costs on to tenants, the result is often insolvency.
The National Multifamily Housing Council (NMHC), a trade association representing the multifamily housing industry, told Scotsman Guide that when “operating expenses are rising at a faster pace than rents,” housing providers are forced to “defer capital expenditures,” leading to the physical deterioration of properties.
By all accounts, Pinnacle’s properties are suffering from disrepair, sometimes even extreme neglect. In a letter submitted to the court, one tenant, a teacher living with his wife and child, complained of “blood and urine” covering the apartment and a “fridge full of maggots” when he had moved in.
All told, court documents show Pinnacle amassed over 5,000 code violations totaling $12.7 million in fines for the poor conditions in the 93 buildings under its management.
The Mamdani administration argued that due to the buildings’ poor conditions, the capital required to ameliorate the situation, combined with reduced profits imposed by the government’s rent regulations, meant Summit would be unable to operate the properties in the black at the $451 million sale price.
In making this argument, however, the administration seems to have conceded a point that critics of rent control policies have been making for years: The business model for successfully running rent-stabilized properties is unsound, and the policies often lead to unintended negative consequences.
As Mamdani administration lawyers put it in a recent legal filing, Summit “failed to demonstrate that the properties can support the proposed sale price and maintenance needs and costs given the regulated rents,” adding that an internal analysis found that “the proposed sale would not lead to a supportable business.”
Mamdani’s office did not respond to a request for comment.
A ‘chill’ in investments
The Pinnacle case is not an isolated failure but part of a wider pullback.
Data from the NMHC reveals that 73% of investors have or plan to cut back on investment or development in markets with rent control measures. Critics argue that price ceilings and the resulting capital flight are exacerbating the affordable housing shortage the policies intend to mitigate.
Ryan Bourne of the Cato Institute told Scotsman Guide that this dynamic dampens investment activity. When rents are capped below market rates, developers factor in the risk of future regulation and stop building.
“Uncertainty chills investment,” Bourne said, noting that San Francisco saw a 15% drop in rental supply after expanding rent control in 1994.
Such an uncertain regulatory environment can create a powerful deterrent against building new rental stock.
Konstantin Kholodilin, a senior researcher at the German Institute for Economic Research (DIW Berlin) and author of the most comprehensive meta-analysis on rent control conducted to date, told Scotsman Guide that while cities deploying rent caps can offer exemptions for new construction, the uncertainty cools the market because “investors can still expect the regulator to shift the threshold date for defining new housing in the future, thus placing it under control.“
Consequently, he cautioned, development capital shifts elsewhere, as controls “lead to the construction of more owner-occupied units at the expense of rental units.“
In court, Mamdani’s legal team argued Summit could not afford the necessary repairs. Yet, while attempting to block the sale, the city offered no alternative financial model that would work.
With the sale approved, over 5,100 households will transition to a new owner, but the underlying rent control equation suggests the math for maintaining rent-stabilized housing is breaking down.
Operating costs are soaring, revenue is capped and capital is fleeing the sector. The problem appears to have just been punted down the road.
