A New York developer says it could lose $150 million after state housing regulators quietly rewrote the rules governing how landlords convert deteriorated apartment buildings out of rent stabilization, then applied the new standard to projects that were already finished. The dispute centers on Peak Capital Advisors, which built its business acquiring gentrifying buildings and renovating them under a decades-old process known as substantial rehabilitation. Now the company is fighting the state in both state and federal court over what it calls an unlawful, retroactive policy shift.
The stakes are laid out in detail by The Real Deal, which reports that Peak Capital Advisors could lose $150 million in investment and financing tied to the fight. The company has 101 outside investors and 10 lenders exposed to the outcome, and Freddie Mac holds mortgages on eight of Peak's 31 affected properties, according to the same report. In November 2025, Peak filed a federal suit against New York state seeking to pre-empt the return of its buildings to rent stabilization, and weeks later the state hit back in a separate case.
A Rule Change With No Warning
At the center of the fight is a 1995 standard that presumed a substantial rehabilitation was legal if a building was at least 80 percent vacant and at least 14 of 17 major building systems had been replaced, per the same account. In November 2023, the Division of Housing and Community Renewal issued Operational Bulletin 2023-3, which eliminated that automatic presumption, according to Rosenberg & Estis, P.C. The new guidance put the entire burden on building owners to affirmatively prove substandard conditions existed before renovation began, superseding the older 1995 bulletin.
The Real Deal's reporting describes how Homes and Community Renewal then sought to apply that new standard retroactively to projects that had already been completed. Beginning in March 2025, DHCR began applying its revised policy to finished work and disqualified all 31 of Peak's sub-rehabilitations, the outlet reports. Former DHCR senior executive Woody Pascal, who ran the agency's substantial rehabilitation program from 2010 until he left in March 2025, has since joined the New York Apartment Association and filed a sworn statement in Peak's lawsuit. Pascal said state government changed as tenant groups became more influential between 2018 and 2023, and, per The Real Deal's separate reporting on his statement, accused DHCR of bowing to political pressure to eliminate the sub-rehab exemption.
The State's Fraud Allegations
New York's housing regulator and Attorney General Letitia James see it differently. The state sued Peak Capital Advisors and co-founders Juan David Gomez and Alex Rabin in state court, seeking to return all 31 renovated buildings to rent stabilization and alleging the developer illegally deregulated 159 rent-stabilized apartments across those properties, according to Homes and Community Renewal. The state's complaint accuses Peak of submitting fraudulent affidavits and reassigning unit numbers to make deregulation appear legitimate.
Peak's attorney, Vladimir Favilukis, said DHCR began disapproving substantial-rehabilitation applications for previously unused reasons, per the article. Attorney Christina Smyth, who advised clients not to buy a building sub-rehabilitated in 2008 because it could fail under current standards, told the outlet the expansion of rent stabilization has contributed to record median rents in Manhattan and Brooklyn. Manhattan's median rent reached $5,300 a month this summer and Brooklyn's hit $4,350, both as reported by Corcoran.
Other Landlords Caught in the Same Bind
Peak is not alone in feeling squeezed by DHCR's shifting standards. Former New York governor and attorney general Eliot Spitzer sued the state after DHCR failed to rule on his substantial-rehabilitation application for a building at 985 Fifth Avenue in Manhattan for more than two years, the outlet reports. Spitzer said DHCR refuses to perform its statutory duties, and after 26 months he was finally granted permission to demolish and replace the building, even though four tenant holdouts remained despite seven-figure settlement offers.
DHCR has also declined to settle substantial-rehabilitation rejection disputes more broadly, according to the same reporting, and it denied a Williamsburg project's 2022 application in early 2024. Certificate of No Harassment applications, which many owners must clear before major alteration or demolition work, had a median wait of seven months, per the outlet — and the program covering non-emergency demolition or change-of-use work was expanded by the City Council in 2018 and voted permanent this past August. Under HPD's rules, an owner denied a certificate can only bypass a mandatory five-year construction permit restriction by setting aside 25 percent of a building's floor area as permanent affordable housing, according to The Habitat Group.
The Broader Squeeze on Aging Buildings
The retroactive policy fight is unfolding against a backdrop of legislative caps meant to protect tenants but that owners say make it harder to justify renovation costs. Under the 2019 Housing Stability and Tenant Protection Act, New York lawmakers limited improvement-based rent increases to $83 per month based on a maximum renovation cost of $15,000. State legislators raised that ceiling in April 2024, amending the maximum allowable renovation cost to $30,000, according to Homes and Community Renewal.
New York's Good Cause Eviction Law, passed by the state legislature and applied immediately in New York City, adds another layer, establishing a rebuttable presumption that steep annual rent increases on covered market-rate rentals are unreasonable. Meanwhile, Mayor Zohran Mamdani has promised to freeze rents and transfer buildings to nonprofits, and his rent freeze proposal was approved for two years this past June. The Real Deal's reporting frames the combined effect of these policies and DHCR's rule changes as a systematic effort by state and city government to stop property improvements in order to limit rents.
Investors Grow Wary of Rehab Deals
The uncertainty has changed how real estate professionals underwrite these deals. Broker Ilya Tolmasov told the outlet that underwriting timelines for sub-rehabilitation projects have stretched from two years to at least five. Veteran broker Bob Knakal observed that investors are increasingly buying stacks of paperwork rather than rent-stabilized buildings themselves, reflecting how legally fraught the process has become.
One anonymous developer told the outlet they spent $150,000 on due diligence before abandoning a potential project altogether. Roughly 57,000 rent-stabilized units were registered as vacant last year, according to the same reporting, underscoring how much housing stock sits in this regulatory limbo. DHCR has proposed excluding disclosed tenant buyouts from the 80 percent vacancy rule, a change that could reshape how future rehabilitation applications are evaluated.
Not Every Redevelopment Fight Ends the Same Way
Some projects have moved forward despite the friction. Extell Development won the right, after seven years, to demolish a six-story walk-up on the Upper East Side and build a 22-story building in its place, the outlet reports. A Greenpoint, Brooklyn property at 230 Franklin Street has development potential for hundreds of units but remains subject to the 1982 Loft Law, which was passed to legalize residential use in former manufacturing buildings.
The market for these buildings themselves illustrates the tension. A Brooklyn row house with two free-market units and six rent-stabilized units was listed for $2.8 million in 2021, and in 2023 a New York family bought a four-story, eight-unit Brooklyn row house from Jeff Sutton for $9.75 million. This fight over rehab standards echoes a related constitutional challenge covered previously by Gramercy landlords' $1 million repair suit, in which courts dismissed a takings claim because the owners hadn't first exhausted DHCR's administrative hardship process — a pattern of judicial deference to the agency that Peak's federal suit will now have to confront.
