Nov. 14, 2016 By Hannah Wulkan
The incentive for Long Island City developers to build large-scale rental complexes—as opposed to condo projects—is about to grow once again with the likely reinstatement of the 421-a tax exemption, according to a local real estate agent.
The 421-a program, which gives certain residential developments long-term relief from property taxes, expired in January, but a new agreement between the Building and Construction Trades Council of Greater New York (BCTC) and the Real Estate Board of New York (REBNY) promises to bring new life to the program.
The new guidelines would give developers a 35-year exemption on property taxes, with several stipulations. The new program will be available for developers of residential buildings with 300 or more units, requiring them to pay a minimum wage of $45 per hour with benefits for qualifying projects in Queens. However a developer can sidestep the salary requirement if more than 50 percent of the units are earmarked as affordable housing.
The plan also notes that any affordable units will be required to remain affordable for at least 40 years. Once the deal is officially signed, the State Legislature will likely release $2 billion in state affordable housing funds.
Eric Benaim, the founder of Modern Spaces Real Estate based in Long Island City, said that the new guidelines would likely drive up the price of large properties that could hold over 300 units, but would discourage developers from building smaller projects or condominium buildings.
“I wish they would have included smaller buildings,” Benaim said. “I totally get why someone buying a $10 or $20 or $30 million apartment, shouldn’t get tax abatement, but someone buying their first studio or a young family buying a two bedroom, they’re the type of people who should benefit from the tax abatement.”
Benaim said that the new plan could have other consequences as well. Developers with smaller sites would likely try to merge several together to reach the 300-unit mark, or if the property is only slightly too small, it could encourage developers to adjust their plans and build smaller units so they could fit 300 apartments in, despite a smaller square footage, he said.
He also posited that the new 421-a deal may encourage those already developing smaller scale rental sites to change business plans to develop condos, as it will be hard to compete with the prices that large developments build under the new program could offer.
While Benaim said that he didn’t expect the new 421-a program to create an additional boom in development in the area, he did foresee several projects that were shelved when the old 421-a program ended going back in to development, including several along the Astoria waterfront.
The 421-a program has been around in some form since the 1970s, initially encouraging development during a fiscal crisis, and later encouraging the development of affordable housing.
The new iteration was agreed upon by the BCTC and REBNY last Thursday, and was announced in a joint statement.
“The agreement, which was overwhelmingly approved by the Executive Board of the BCTC, will preserve traditional worker standards and benefits and create opportunities for new categories of workers which will ensure our long-term competiveness in the industry,” said BCTC president Gary LaBarbera in a statement.
“We are pleased to have reached an agreement that will permit the production of new rental housing in New York City, including a substantial share of affordable units, while also ensuring good wages for construction workers,” added REBNY chair Rob Speyer.
Governor Andrew Cuomo encouraged the negotiations, and is trying to convene a special session in the coming weeks for state lawmakers to sign 421-a back in to the books.
“The deal reached today between these parties provides more affordability for tenants and fairer wages for workers than under the original proposal. While I would prefer even more affordability in the 421-a program, this agreement marks a major step forward for New Yorkers,” Cuomo said in a statement on Thursday. “The agreement extends affordability for projects created with 421-a for an additional five years – bringing affordability for these units to 40 years. It also allows lower-income individuals to qualify as it lowers the percentage of area median income needed to apply.”
“I urge the Legislature to come back to Albany to pass desperately needed affordable housing and to sign the MOU to release these funds. We simply cannot allow the lack of resolution to stall affordable housing production for years to come. There is no excuse not to act,” Cuomo added.