NYC apartment developers are turning to other uses, other places, without 421-a

With the valuable 421-a tax break for developers now dead until further notice, the thousands of people in New York’s development community are looking for the best ways to pivot their businesses — if at all.

“This is probably my fourth 421-a exhalation… [but] there was a little more support last time around,” Slate Property Group director David Schwartz said. “I think at some point it comes back. It’s just that I don’t know when, and that’s the challenge.

New York’s affordable tax provision, formerly known as 421a, expired earlier this month after the end of the legislative session in Albany with no new arrangement or extension in place. The real estate community had urged lawmakers for years to find a solution before the program expired, arguing that without it all rental development in the city would come to a halt.

With community opposition to the program fiercer than ever and several lawmakers opposing the program, New York developers have arrived at their dreaded future with the program unavailable for some time, if not forever. Now many are considering building nonresidential properties, putting development plans on hold or investing out of state, brokers and developers said. bisnow in interviews since the official expiration of the incentive.

“We’ve been preparing for the eventual expiration for years,” said Jordan Barowitz of the Durst Organization. “Developers will do condominiums, we won’t. We looked to see if there was any potential for commercial development. We are also looking in other cities like Philadelphia; we have a project that we are just starting on.

He added that some developers may be eyeing the competitive realm of last-mile industrial development with more interest, but at the moment, with very few exceptions, rental housing is seen as “out of the picture”. At the company’s Halletts Point megaproject, some 800 apartments that have been intended will not be built until new tax relief is agreed.

“Some suggest that developers are bluffing when they say they won’t build rental housing in New York without a program. Honestly, I wish they were right, but they just aren’t,” Brookfield senior vice president and chief communications officer Andrew Brent said in an email.

His company is building thousands of units in the South Bronx and Greenpoint with program support.

“And obviously the city desperately needs more housing,” Brent said.

At last week’s REBNY gala, Governor Kathy Hochul tried to appease the industry, promising changes, though she never mentioned the program by name. Her replacement proposal, which she released in January, was criticized by housing advocates and failed to gain traction in Albany. Still, she painted an optimistic picture of what could be to come.

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Courtesy of REBNY

Governor Kathy Hochul at the REBNY ceremony

“We’re coming back next session, we’re going to make sure we get the changes we need to support this industry because you’re creating thousands of jobs, you’re giving people their homes,” she said during of the ceremony. “You are going to see an extraordinary comeback for this state and this city.”

On Tuesday, Hochul, who replaced scandal-ridden former governor Andrew Cuomo last year, easily secured the Democratic nomination for governor with 67% of the vote, making her an overwhelming favorite to become New York’s first woman elected to the state’s highest office.

With the race in the rearview mirror, some CRE players, after the industry directed his financial support in his own way in the primary, expect next year will bring a more favorable policy environment for a new curriculum.

“Chosen [will be able to] do less politics when it comes to their eligibility and focus on the real politics of finding a way for much-needed housing projects to thrive in New York,” said YuhTyng Patka, president of New York City Real Estate Tax and Incentives. Practice. Group of the law firm Duval & Stachenfeld.

Patka said some of his clients are considering “more developer-friendly jurisdictions” in other states or considering building condos. Others, she said, choose to simply focus on their current project and take a “wait-and-see” approach.

But not everyone feels so sure about a friendlier political environment in Albany, even after the election.

“The last time it expired, the governor was really committed to it … I think the political world is a little different than it was then,” Schwartz said. “I felt more confident in previous years… I know something will happen at some point, but I think the opposition this time is stronger than last time.”

The 421-a program expired in 2016, and it wasn’t renewed until 2017 after Cuomo reached a OK with REBNY and the construction unions and renamed it Affordable New York. But even though he’s less confident about the program’s future, Schwartz said there are more alternatives available on the market this time around.

“There’s a lot of this stuff that could be industrial…there’s a lot of need for medical space and other uses,” he said. “A lot of people are going to be doing other things and in very upscale neighborhoods, look at condos. Then people will continue to build housing for low-income people, who get a different tax allowance.

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Courtesy of Aufgang Architects and Joy Construction

A rendering of 375 207th St., nicknamed Sherman Creek North Cove.

That’s what Joy Construction director Eli Weiss envisions, just that there are certain tax programs, like the Low-Income Housing Tax Credit, available for this type of work. The problem, he said, is that there is little land available at a price that would make sense.

“If you’re a landowner in a prime neighborhood, you’re not going to sell land for $75 a foot…it’s going to be very difficult. We’re going to have to look in areas like the Bronx and far into Brooklyn and parts of Queens,” he said.

“The other issue is that it also screws up the mandatory inclusive housing, because if you have a project that was in a rezoning, you’re required to make it 25% or 30% affordable,” he added. “But you don’t get the tax deduction for that, so that makes the calculations even worse.

Weiss, like many others, precipitate to get two projects into the ground before the program expired – buildings with poured foundations were protected. One, which the company is building with Maddd Equities, will include two towers of retail space and 611 housing units in newly rezoned Inwood. The other, on Tillary Street in Brooklyn, will will have 465 apartments and span 436K SF.

Joy was certainly not the only one in a hurry to meet the deadline. Some 80 claims have been filed in Brooklyn over the past 12 months, per TerraCRG. But Patka of Duval & Stachenfeld said that doesn’t mean developers will stick with projects if costs get too high.

“It’s scary because I’ve seen reports of how extortionate deposits and last spring are,” she said. “And so that looks good for the pipeline, but I don’t think that’s self-stated or taking into account that just because a permit filing has taken place doesn’t mean the project is going to be completed. “

The Affordable New York program, however, requires construction to be completed by 2026 for taxes to be reduced, The real deal paid off. But even if people are looking for alternatives, rising costs are another complexity to consider, said DJ Johnson, partner and senior managing director of the capital markets group at B6 Real Estate Advisors.

“I’ve heard people say, ‘Look, we used to build for $275 a foot, now we’re building for $350 a foot,'” he said. “I wouldn’t advise any property owner to make any transactions unless they’re in a condo market because the price adjustments are going to be too big. So my advice would be to hold on.

But for many, there is an impending sense of the inevitable.

“We’ve got some nice projects in the pipeline that have entered the 421-a program, but I guess that’s also going to end at some point,” said Isaac Hirsch, CEO of Brooklyn-based JIH Builders Group. too long, then people will start looking for alternative investments.

Lora M. Andrew