421-a expired on January 15, 2016. No additional information is available at this time. The below discussion is for what was passed in 2015, but never took effect due to the failure of the industry and unions to agree upon a wage rate that most probably would have gutted the program anyway if implemented city-wide.
Commercial exemption programs were generally extended in 2015 without any fanfare. The Administration is planning on making changes to the various commercial incentive programs. They may allow for an extension of these programs so as not to create uncertainty in the business community before making the changes. More news will be forthcoming when available.
THE 421-a HIGHLIGHTS
Please remember the following discussion was for a program that currently is NOT in effect.
By now, you have all heard about the Mayor’s 421-a revision, but probably not much of the details. I will comment on the law as passed by the State Legislature with respect to new construction, but not on the Greenpoint-Williamsburgh provisions and not on the extender provisions for current Manhattan properties whose abatements are on the verge of expiring.
This memorandum will not cover two items: (i) Greenpoint-Williamsburgh areas which are specialized, and (ii) extender provisions for affordable units, which are basically available for Manhattan properties (if any builder wants this, they can pay me to do a Manhattan analysis). Additionally, this memorandum is for information purposes only and is not meant to be relied upon by any reader for legal assistance and does not create an attorney-client relationship. Moreover, it is just a discussion of what is proposed as of June 1, 2015. You can expect that there will be amendments by the members of the New York City Council and State Legislature. So this is not final.
The meat and potatoes of this analysis is in Section II, but first I provide some major points to narrow the 421-a discussion.
SECTION I. VARIOUS PROVISIONS.
Deadlines for old 421-a. Under the proposed bill, a builder has until December 31, 2015 to make its old projects started and compliant and until December 31, 2019 to get them finished. Of course, the bill has to pass for this six and a half month extension to take effect.
Condominiums and Cooperatives. Units in these types of developments are no longer eligible for 421-a if the structure is more than 34 residential units.
Building Size. Under the old 421-a, the building had to be at least four units. Now it must be six units or more. This eliminates A LOT OF BUILDINGS. Under the Bloomberg Administration, the New York City Department of Housing Preservation and Development ("HPD") tried to eliminate 421-a for less than five units, claiming it would eliminate about 43% of the applications. It is probable that HPD wants a reduced workload and wants to focus on the remaining buildings for regulatory reasons.
SECTION II. THE AFFORDABLE HOUSING SCHEME.
Now a developer is building a rental building with six units or more and wants to get 421-a. How does he or she get it?
First, the builder has to do some affordable housing. You are used to terms like “geographical exclusion areas,” “80-20” and “Area Median Income” (aka “AMI”). Except for AMI, throw all those ideas out.
For AMI figures, I am going to give you the AMI dollar figures according to the US Department of Housing & Urban Development ("HUD") for 2015 along with the monthly rental amount that this translates into (which I derived).
100% of AMI Monthly Rent Maximum
$86,300 - Family of four $2,157.50
$77,700 - Family of three $1,942.50
$69,100- Family of two $1,727.50
$60,500 – Individual $1,512.50
130% of AMI Monthly Rent Maximum
$112,190 - Family of four $2,804.75
$101,010 - Family of three $2,525.25
$89,830 - Family of two $2,245.75
$78,650 – Individual $1,986.25
40% of AMI Monthly Rent Maximum
$34,520 - Family of four $863.00
$31,080 - Family of three $777.00
$27,640 - Family of two $691.00
$24,200 – Individual $605.00
60% of AMI Monthly Rent Maximum
$51,780 - Family of four $1,294.50
$46,620 - Family of three $1,165.50
$41,460 - Family of two $1,036.50
$36,300 – Individual $907.50
70% of AMI Monthly Rent Maximum
$60,420 - Family of four $1,510,50
$54,390 - Family of three $1,359.75
$48,370 - Family of two $1.209.25
$42,350 – Individual $1,058.75
The rents are derived by taking 30% of the relevant AMI figure and dividing by 12 with the AMI figure being the 2015 AMI according to HUD.
These are the figures a builder needs to know because these are the percentage figures for the affordable units within the proposed legislation.
To get 421-a, the builder needs to pick one of three affordable housing options. That’s right, you pick it. And the options are:
Option A: not less than 10% of the units are affordable to those making 40% of AMI, not less than 10% more of the units are affordable to those making 60% of AMI, and not less than 5% more of the units are affordable to those making 130% of AMI, with NO other subsidies other than tax exempt bonds and 4% credits from any other source.
Option B: not less than 10% of the units are affordable to those making 70% of AMI and not less than 20% more of the units are affordable to those making 130% of AMI.
Option C: not less than 30% of the units are affordable to those making 130% of AMI and NO other subsidies (not even tax exempt bonds and 4% credits.
Option C is not available in major portions of Manhattan.
If you construct affordable housing and are getting more subsidies than what is listed in Option A, you will probably need to fit in Option B, which should not be so hard as you can always go below the respective options’ AMI percentages. But you must choose your option at the time of the application. You cannot change later on!
What is affordable? Ironically, the bill does not itself define this. But generally it is 30% of the income limits.
The affordability option must be met upon the initial rental and upon subsequent rentals, so even if a unit is rent stabilized, the rent resets when the unit is vacated to whatever the HUD AMI amount would be at that time (and it changes annually and can go DOWN).
The program is good for new buildings and eligible conversions, which is defined as the conversion, alteration or improvement of a pre-existing building or structure resulting in a multiple dwelling in which nor more than 49% of the floor area is the pre-existing building or structure.
Sites are eligible if they are a tax lot containing an eligible multiple dwelling or a zoning lot containing two or more eligible dwellings that are part of a single application.
The construction period is either three years or the time from the beginning of construction to the completion of construction.
The benefit is for the construction period and after completion, it is a full exemption amount for 25 years plus ten years of a lesser amount. The ten years are not a phase out like in the old law where the 100% exemption amount phased out at 10% per year. Rather, the exemption’s percentage is the same for all ten years. And this is calculated by multiplying the exemption by the affordability percentage of the building, which is the number of affordable units divided by the total number of units. Please remember if the site had a building on it prior to construction, the taxes that were paid on that building must still be paid.
The proposed program keeps the 12% ineligible aggregate floor area limit. (If you do not know what that is, there is a 7 page HPD Frequently Asked Questions form at this link: Go over this and the ineligible space gets taxed and if fully taxed, then the remainder is apportioned among the residential tax lots.
Now for some basic bullet points:
there cannot be a poor door (everybody must be able to enter from the same entry and exit);
the affordable unit mix (regarding apartment size) must be the same as the market rate mix or at least 50% of affordable units shall have 2 or more bedrooms and no more than 25% shall have less than one bedroom;
affordable unit tenants are subject to rent stabilization for all 35 years, but if such tenant remains at the end of the 35 years, those units remain rent stabilized for that tenant until they vacate;
in filing with DHCR for rent stabilization, the developer must designate the units that are the affordable units and note what restrictions those units have;
the developer actually has to rent these units and not delay in renting them (in other words, it can’t wait for a new and hopefully higher AMI to take effect to rent the unit some months later);
the developer can’t do a BNB and rent the units out transiently, as all affordable housing tenants must be offered a one or two year lease;
if the developer builds on a site that had residential units three years prior to commencement of construction, it must do one affordable unit for each of the old units (the law does not state a requirement to then create additional affordable units beyond what is required, and that failure might be the intent, but the law is not really clear);
market units are rent stabilized too, but they can be decontrolled upon vacancy if they meet the rent stabilization law’s requirements; and
the prevailing wage building service requirement drops from a fifty unit building to a thirty unit building with affordable housing requirements to get out the prevailing wage mandate.
Once in the 421-a, a building cannot choose to get out (for example, to make the building a condominium). Moreover, if the building owner does something wrong and HPD revokes the benefit, the affordable units must remain rent stabilized for the whole 35 years (along with needing to meet the AMI requirements on a subsequent rental).
The fee for the program is increased to be $3,000 for each dwelling unit, although affordable housing projects getting substantial government assistance may be able to pay less.
Finally, if a developer is currently applying for 421-a and has not yet received any benefits under the current 421-a, it can choose this new version of 421-a rather than the current version. In very many rental situations, that may be optimal.
The information on this page is “Attorney Advertising.” The firm information is Robert S. Altman, Esq., PLLC, 27 Whitehall Street, 4th Floor, New York, New York 10004, and its phone number is 212-232-8713. Past results do not guarantee results in any present or future matter.