By John Banks, President, REBNY
Last week, Governor Andrew Cuomo and state legislators agreed on an Omnibus Housing Bill which contains many items beneficial to our industry:
A four year extension of 421a and rent regulations, a two year extension of economic incentives for Lower Manhattan and the boroughs, a four year extension of the coop-condo abatement program.
The bill does not include a New York City Mansion Tax. (There is no change in the existing one percent State Mansion Tax.) Here are the highlights to these programs.
The co-op/condo abatement has been extended for four years, until June 30, 2019. There is no change in the eligibility requirements and in the amount of the benefit.
421A PARTIAL TAX EXEMPTION PROGRAM
The program has been extended to June 15, 2019.
Regarding wages for construction, the law requires that a memorandum of understanding be executed before January 16, 2016 between the largest trade association of residential real estate developers and the largest trade association representing building and construction workers with membership in New York City that includes provisions regarding wages and benefits for construction workers on buildings over 15 units that receive 421a benefits.
If a memorandum of understanding has not been executed by that date, the new construction aspect of the program will be suspended and no new applications accepted.
A project seeking to vest benefits under the current program has until December 31, 2015 to meet the commencement of construction requirements.
The new program which would take effect on January 1, 2016 would require any rental project in the city that receives 421a to provide on-site affordable housing.
Extended Affordability Program
The new law adds an extended affordability program. 80/20 projects which commenced construction before July 1, 2008 may elect to become an extended affordability project by retaining their 20 percent affordable units at 80 percent AMI and add 5 percent more at 130 percent AMI, for 15 years.
A project that meets these requirements would receive a 15 year exemption at 50 percent a year which would commence at the expiration of their current exemption. (If the 80/20 project was receiving a 25 year benefit the extended affordability benefit would be for 10 years.)
In addition, these projects must pay prevailing wages for their building service workers. The application for any extended affordability property shall be filed with HPD on or before the later of: December 31, 2016 or eighteen months after the expiration date of the initial benefits.
Other changes to the 421a program include:
- The market rate units built under the new program are not covered by rent regulations if their initial rent or legal rent on vacancy exceeds the then vacancy decontrol amount.
- The new program does not contain the underutilization test or the maximum rent test.
- Commencement date has been redefined for both the new program and the current program. Commencement date is defined as the date upon which excavation and construction of initial footings and foundations lawfully begins in good faith. A full building permit is not required.
- Affordable units shall share the same common entrances and common areas as the market rate units, and shall not be isolated to a specific floor or area of the building.
- The new fee for a 421a application is $3,000 per apartment.
Rent regulations have been extended until June 15, 2019.
The legal rent for high rent and high income, high rent deregulation has been increased to $2,700, and beginning January 1, 2016, and annually thereafter the maximum legal regulated rent for the deregulation threshold shall be increased by the same percentage as the most recent one-year renewal adjustment adopted by the rent guidelines board.
The recapture period for Major Capital Improvements (MCI) has been extended, but still remains permanent:
- For a building with 35 or fewer units the recapture is eight years
- For buildings with more than 35 units the recapture is nine years. This change applies to any determination issued by the Division of Housing and Community Renewal after the effective date of the law.
The State and City are authorized to provide a real property tax abatement to compensate owners for the loss in value due to the extension of the MCI recapture periods.
The Industrial and Commercial Abatement Program (ICAP) which provides tax incentives for renovation and new construction was extended two years, allowing applications to be filed until March 1, 2019.
The Relocation and Employment Assistance Program (REAP) was extended for two years to June 30, 2017. The Commercial Revitalization Program (CRP) as well as the Commercial Rent Tax (CRT) exemption and the Energy Savings Program, was extended for two years.
CRP is available for leases commencing by March 31, 2018. The CRT benefit is available for leases commencing by June 30, 2017. The energy programs allow approval of applications filed by June 30, 2017.
The Sales Tax Exemption program for the World Trade Center, the World Financial Center and Battery Park City was extended to cover leases with terms commencing by September 1, 2019.
The Sales Tax Exemption program for the other areas of Lower Manhattan, generally south of Frankfort and Murray Streets, was extended to cover leases with terms commencing by September 1, 2017.
The Commercial Expansion Program (CEP) which provides real property tax benefits for tenants in designated commercial districts in the boroughs was extended for two years to June 30, 2018.
When it comes to building affordable housing, we’ve always said it’s all about the math. Economic decisions are made based on whether or not one can build more affordable housing at lower incomes while covering the costs of construction, land, and taxes.
The entire concept of leveraging private investment to create affordable housing requires running the numbers on a project and listening to developers and lending institutions’ responses to those numbers.
In the end, Albany passed legislation that requires more affordable housing at lower incomes, increases the benefit program, and dramatically streamlines the process.
There were some changes that REBNY was not happy with, but overall, if we care about building affordable housing for New York City, this is a program that makes sense.
On a personal note, I want to thank my predecessor Steven Spinola for his leadership and guidance during the beginning of my tenure at REBNY and throughout this legislative process.
I will fondly remember these past few weeks working together shoulder to shoulder and learning from his 30 years of experience.
Last week, REBNY member Jeffrey Gural put it best in an interview with The Wall Street Journal, “Spinola has done an excellent job advocating for our industry. This legislation is the last piece of the puzzle.”
In other REBNY News:
REBNY’s Residential Deal of the Year Committee will be meeting on July 7 from 4 to 5:30 p.m. at Halstead Property.
July 14 is REBNY’s Residential Ethics Course for New Members. From 9 a.m. to 10:30 a.m. in the Mendik Education Center, REBNY members may come take this non-credit course. Registration is required, and more information can be found on rebny.com or by contacting ResidentialEthicsCourse@rebny.com.
August 18 is REBNY’s next Residential Breakfast Club Seminar. From 9:30 a.m. to 11 a.m., join your fellow REBNY members at this free seminar in our Mendik Education Room, where our top industry leaders will be imparting hints and tips to improve your business. For more information, contact Yesenia Dhanraj at YDhanraj@rebny.com, or check the Events section of www.rebny.com.