Rent Control Is Squeezing Landlords in D.C. Suburbs

Wall Street's landlords have long embraced two Maryland counties next to Washington, D.C. Multifamily buildings in these suburbs cater to a steady stream of federal employees, making their rental properties some of the most attractive in the U.S. to institutional investors.

- REBECCA PICCIOTTO

That all changed this summer.

In July, Montgomery County and Prince George's County enacted laws that limit rent increases to either 6%, or 3% in addition to the inflation rate, whichever is lower.

Because the new laws restrict rent increases not just on apartments where tenants are living but also on vacant units, they are considered among the strictest in the country.

Multifamily transaction volume in both counties was down 13% in the first three quarters of 2024 compared with the same period in 2023, according to data from MSCI Real Assets.

"There's no question that [the rent restrictions] had more than a chilling effect," said Scott Melnick, president of Montgomery County-based brokerage Melnick Real Estate Advisors.

Apartment owners expect the new legislation would curb their ability to finance redevelopment and upgrades on existing properties because they don't know whether they can succeed in getting an exemption.

More than the specific features of the rent laws, institutional investors have been deterred by the perception of a more aggressive regulatory environment and its uncertainties.

"There are so many unanswered questions that right now, everything is really, just truly on pause," said Christine Espenshade, vice chairman of multifamily capital markets at real-estate firm Newmark.

Many of the country's largest institutional investors are multifamily owners in the Maryland counties that are now subject to the new rent regulation measures, including Equity Residential, UDR, Starwood Capital Group and Blackstone.

Investors tend to strongly oppose rent restrictions, and haven't welcomed the regulations in Maryland.