News reports indicate that the NYS legislative session has ended without an extension or replacement of the 421-a property tax exemption statute. This means that NYC residential developers head into the summer with questions about how to underwrite rental projects, particularly mixed-income rental projects.
In the absence of an as-of-right property tax exemption program such as 421-a, it is expected that certain types of development will continue, such as residential condominium development, predominantly affordable residential development (albeit with significant subsidies and alternative property tax exemption programs such as 420-c for projects receiving Low Income Housing Tax Credits or Article XI, which I discuss further below), repositioning of existing multifamily properties, and commercial development and re-development (incentivized by the ICAP program).
Mixed-income rental projects will proceed when underwriting of their property taxes, affordability, and construction wage requirements become predictable to developers and lenders. One existing alternative to 421-a that has been used for many years and will now receive significant attention is the property tax exemption under Article XI of the Private Housing Finance Law. Article XI requires that at least two-thirds of the dwelling units in a project be affordable to individuals with incomes (and rents) at or below 165% of Area Median Income, with the remaining third of dwelling units at market-rate rents. As an illustration of the rents required for Article XI for those two-thirds of units, please see the below chart.
Click here to view table.
Please note that Article XI contains other eligibility requirements and is a discretionary program that must be approved by the NY City Council