Nobody likes getting a surprise tax bill. After New Castle County’s first property reassessment in over 40 years, homeowners opened their mail to find tax increases that felt shocking—and understandably so. When your assessment jumps 477% overnight because it’s been frozen since the early 1980s, that sticker shock is real.
The legislature responded to homeowners’ concerns by passing House Bill 242, sponsored by Rep. Kimberly Williams and signed by Governor Matt Meyer. The bill allowed school districts to create separate tax rates for residential and commercial properties, increasing school taxes on apartment buildings by 39-70% depending on the district. The explicit goal was providing relief to homeowners.
What HB242 did not consider was the over 100,000 New Castle County residents who rent apartments. The bill’s focus on homeowner relief completely overlooked how shifting tax burdens onto apartment buildings would directly impact renters—the very residents who often struggle most with housing costs.
As a commercial real estate broker who spends every day valuing apartment communities and multifamily development sites across Delaware, I want to walk through exactly how apartment buildings are financed, who really owns them, and why HB242’s tax increases will inevitably show up in renters’ monthly bills.
Who Actually Owns Your Apartment Building?
When you look at an apartment community, you see a building. Maybe you see a management company name on the sign. You might assume there’s a wealthy “landlord” who owns it outright.
The reality is far more complex—and understanding it is critical to understanding why HB242 hurts renters.
The Bank Comes First
In nearly every apartment transaction, the largest stakeholder isn’t the owner you imagine—it’s the bank or lending institution. Lenders typically provide 65-80% of an apartment building’s value in the form of a mortgage. On a $50 million property, that means $32.5 to $40 million comes from a bank.
These lenders expect a return on their capital in the form of interest payments. Just like your home mortgage, that payment is due every single month. Miss those payments, and the bank forecloses. The bank isn’t in this for charity—they’re investing capital and expecting it back with interest.
The Limited Partners Come Second
Behind the bank in the capital structure are the Limited Partners—the actual investors who provide most of the equity. These are:
- Pension funds (teachers, firefighters, public employees)
- Family offices managing generational wealth
- Institutional investors like insurance companies
- Pooled investment funds from individual savers
These investors also expect a return on their capital. They’re not anonymous corporations—they’re retirement accounts, 401(k)s, and savings vehicles for working Americans. When they invest in multifamily real estate, they’re seeking stable, predictable returns to fund retirements and long-term financial security.
The General Partner Comes Last
The “face” of the property—the company or entity that manages and operates it—is called the General Partner. This is who you think of as the “landlord.”
Here’s the surprising part: although they may appear to be large entities, the General Partner typically has the smallest amount of equity in the deal. They might own 1-5% of the property, while the Limited Partners own 15-25% and the bank owns 65-80%.
The General Partner earns fees for managing the property and gets a share of profits, but they’re the last to get paid after the bank and investors take their cut.
How Apartment Buildings Actually Make Money
Understanding the cash flow waterfall explains why tax increases inevitably hurt renters.
The Basic Formula: Rent payments from residents cover:
- Operating expenses (maintenance, utilities, property management, insurance, property taxes)
- Debt service (monthly mortgage payments to the bank)
- Returns to Limited Partner investors
- Capital improvements and building upgrades
- Finally, profits to the General Partner
Notice where “improving the resident experience” falls in that list? Near the bottom.
When everything is working properly, there’s enough rent revenue to cover all these obligations and still invest in the property—new appliances, parking lot repairs, fitness center equipment, common area upgrades. These improvements make buildings more attractive, allow properties to compete for residents, and maintain quality living conditions.
What Happens When You Dramatically Increase Operating Expenses
HB242 increased property taxes on apartment buildings by 39-70% in a single year. For a typical 300-unit community, that could mean an additional $80,000 to $200,000 in annual tax expenses.
That money has to come from somewhere. And there are only a few places it can come from. First to Go: Building Improvements.
When cash flow gets squeezed, capital improvements get cut first. That means:
- Aging appliances don’t get replaced on schedule
- Parking lot repairs get deferred
- Clubhouse renovations get postponed
- Playground equipment stays broken longer
- Landscaping gets reduced
- Common area upgrades don’t happen
This is the invisible cost to renters. Your rent might stay the same initially, but the building slowly deteriorates around you.
Next to Go: Investor Returns. If cash flow gets cut significantly enough that investors stop earning their expected returns, they don’t stick around. They move their capital to markets with more predictable expenses and better risk-adjusted returns.
When investment capital flees a market, properties lose access to the equity needed for major renovations, repositioning, or even routine capital expenditures. Buildings age faster. Conditions decline. And residents suffer the consequences of living in under-invested properties.
Worst Case: Bank Defaults. If cash flow gets cut so severely that the property can’t make its mortgage payments, the bank forecloses. Bank-owned properties are the worst outcome for residents. Banks aren’t property managers—they’re trying to minimize losses. Maintenance becomes reactive rather than proactive. Capital expenditures stop entirely. The building limps along until the bank can sell it, often to another investor who faces the same impossible math.
All three scenarios—deferred maintenance, capital flight, and foreclosure—lead to the same outcome: worse living conditions for renters.
The Inevitable Result: Higher Rents
So how do property owners avoid deferred maintenance, lost investors, and bank defaults?
Simple: they increase revenue. And in the apartment business, that means one thing—higher rents.
The revenue increases come in multiple forms:
- Base rent increases at lease renewal
- Utility bill-backs (charging residents for water, sewer, trash)
- Parking fees (what used to be included now costs extra)
- Pet fees, amenity fees, package fees (new charges for services that were once included)
This isn’t hypothetical. We’ve seen it happen in every market where operating expenses spike dramatically:
- When Florida property insurance rates increased 40-60% in 2022-2023, apartment rents in major Florida markets rose by corresponding amounts within 12-18 months
- When California utilities and water costs surged, landlords passed those costs directly to tenants through bill-back programs
- When Texas property taxes jumped in fast-growing counties like Williamson and Collin, rent increases followed in the next lease cycle
The pattern is consistent and predictable: when operating costs rise sharply, rents rise correspondingly. Apartment operators aren’t absorbing those costs—they can’t. The capital structure won’t allow it.
Renters will get hit one way or another—through worse living conditions, higher rents, or both.
The Housing Supply Death Spiral
There’s one proven way to combat rising rents: increase housing supply. Build more apartments, and competition keeps prices in check. Economics 101.
HB242 just made that nearly impossible.
Here’s why: property values in commercial real estate are determined by net operating income and capitalization rates (cap rates). When you increase a property’s annual expenses by $100,000, you don’t just reduce profit by $100,000—you reduce the property’s total value by $1.4 to $2 million, depending on prevailing market cap rates.
This is the standard valuation methodology used by every appraiser, lender, and investor in the country. It’s not subjective—it’s math.
Why This Kills New Development:
Building new apartments costs $200,000 to $300,000+ per unit in today’s market. A 200-unit building might cost $50 million to construct. Developers finance these projects with construction loans, expecting to refinance into permanent financing once the building is complete and stabilized (90%+ occupied with predictable rent rolls).
For permanent financing to work, the stabilized value of the completed building must exceed the cost of construction. Banks won’t lend more than a property is worth.
Here’s the problem HB242 created:
Before HB242, a developer might project:
- Construction cost: $50 million
- Stabilized Net Operating Income: $3.5 million annually
- Expected value at 5.5% cap rate: $63.6 million
- Loan available (75% of value): $47.7 million
- Deal works ✓
After HB242 increases taxes by $200,000 annually:
- Construction cost: Still $50 million
- Stabilized Net Operating Income: Now $3.3 million (after higher taxes)
- Expected value at 5.5% cap rate: $60 million
- Loan available (75% of value): $45 million
- Deal fails ✗
The developer is $5 million short of refinancing their construction loan. The bank won’t make up the difference because the property isn’t worth enough to support the debt. The project dies.
Multiply this scenario across every proposed apartment development in New Castle County, and you’ve just frozen housing supply for years. When housing supply stops growing while demand continues, rents skyrocket.
The Renters Who Had No Say
Let’s follow a Delaware renter—someone HB242 didn’t consider—through the next three years:
Year 1 (2026): Their rent increases $150/month ($1,800/year) as their landlord passes through the HB242 tax increase. The homeowner down the street got tax relief. The renter got a rent increase.
Year 2 (2027): Their building defers capital improvements because cash flow is tight. The fitness equipment breaks and doesn’t get replaced. The parking lot develops potholes that don’t get fixed. The lobby renovation gets canceled. Meanwhile, the homeowner’s property continues appreciating.
Year 3 (2028): Their lease is up, but almost no new apartments have been built in the county because HB242 made the development math impossible. Limited options force them to accept a worse deal at an older building—now paying $400/month more than three years ago. The homeowner refinances at a lower rate and pulls equity out for renovations.
Total cost to this renter over three years: $10,800 in higher rent, deteriorating living conditions, and fewer housing choices.
The homeowner who HB242 was designed to help saved approximately $800/year—$2,400 over three years.
If that homeowner has adult children renting in New Castle County, their family is a net loser. If they care about property values in a county where housing becomes scarce and expensive, they’re a loser too. And the renter who had no voice in this policy debate? They’re paying for someone else’s tax relief.
The Contradiction We’re Ignoring
Delaware’s political leadership is virtually unanimous in supporting affordable housing—yet HB242 was crafted without apparent consideration for how it would affect renters.
Governor Meyer made affordable housing his signature issue as County Executive, investing $30 million in initiatives specifically aimed at helping renters and low-income residents. Representative Kendra Johnson co-chaired the state’s Affordable Housing Production Task Force, calling our housing shortage a “crisis.” Senator Russell Huxtable says “every Delawarean deserves a safe and affordable place to live.”
The Task Force released nine comprehensive recommendations for expanding affordable housing:
- Zoning reforms to allow more housing
- Developer incentives for including affordable units
- Increased funding for housing production
- Streamlined permitting processes
These are thoughtful, well-researched policy recommendations.
HB242, designed to help homeowners, works directly against these goals for renters. Dramatically increasing taxes on apartment properties makes it harder to build new housing, harder to maintain existing housing, and harder to keep housing affordable. The relationship between operating costs and rents is direct and predictable—yet this reality apparently wasn’t part of the HB242 conversation.
We Can Do Better
This isn’t about defending property owners. This is about understanding that policy decisions have ripple effects, and those effects often hurt the people who weren’t considered when the policy was designed.
Housing is an ecosystem. When you provide relief to one group by dramatically increasing costs for another, those costs don’t disappear. They flow downhill to the people living in those buildings.
The renters of New Castle County—the young professionals, the families trying to make it work, the service workers who keep our economy running—had no voice in HB242’s passage. Yet they will pay for it, not in press releases or talking points, but in real dollars from their paychecks every month for years to come.
Tax bills going up after 40 years of stagnant assessments was inevitable. The challenge was addressing it fairly across all residents—homeowners and renters alike. HB242 solved the problem for one group while creating new problems for another.
HB242 applies only to the 2025-26 school year, but it sets a concerning precedent. It tells the market that Delaware will shift tax burdens based on political pressure rather than comprehensive analysis. It tells developers that long-term projects here carry unpredictable risk. It tells renters that their housing costs are collateral damage in battles over homeowner tax bills.
Those messages don’t lead to more housing or more affordable housing. They lead to less of both.
And in a state already facing a housing shortage, less housing means higher costs for everyone—especially the 100,000+ renters living in the very buildings HB242 targeted.
We can do better than this. We must do better—for all Delaware residents, not just homeowners.
Nick Murray is a Partner with CBRE’s Multifamily Investment Sales team specializing in apartment communities across Delaware, Pennsylvania, and New Jersey, and founder of Delaware Multifamily FOCUS, a weekly market intelligence platform.
