In May 2019, the City of Jersey City made a subtle but substantial change to its rent control ordinance. This change directly impacts the profitability of affected property owners. With the passage of Ord. 19-044, Jersey City revised the definition of “Fair Return” under its rent control ordinance from “6% above the maximum…demand deposit savings account interest rate” to “2.5% above…” The new 2.5%+ “Fair Return” applies to the “equity investment in real property.” The “equity investment” is considered only the “actual cash contribution of the purchaser” at closing, plus any additional principal payments. The Jersey City ordinance follows the “Investment-Based Standard” and is the most restrictive constitutional rent control formula.
To understand the effect of Ord. 19-044, it is helpful to restate the amended ordinance in plain language. Stated simply, the revised rent control ordinance “guarantees” a landlord a minimum net income of 2.5%+ measured against the landlord’s cash contribution to the purchase. In its most basic application, the formula works as follows:
Purchase Price: $800,000