A publication of Seyfarth Shaw's New York Real Estate Practice. The ReaList newsletter covers New York real estate news, events, and trends.
Real Estate Finance:
EB-5 Program Temporarily Extended Without Change
On May 5, 2017, President Trump signed into law H.R. 244, which authorizes appropriations to fund essential government operations and programs that were set to expire on May 5, 2017. H.R. 244 includes reauthorization, without change, for the EB-5 Regional Center Immigrant Investor Program (the “EB-5 Program”). The EB-5 Program allows foreign investors to obtain U.S. permanent residency if they (i) invest $1 million into a “new commercial enterprise” (or $500,000 if the new commercial enterprise is located in a targeted employment area – either in a rural area or one or more census tracts experiencing high unemployment) and (ii) can document that their investment created a minimum of ten full-time jobs over a two-year period. These EB-5 investments are a common source of funding for large real estate developments in major cities across the U.S., including Manhattan, San Francisco, Los Angeles, and Dallas. This relatively less expensive source of financing is attractive to large real estate developers because foreign investors are willing to accept below market returns in exchange for the potential to earn a U.S. green card.
Many successful, high-profile developments have utilized EB-5 financing. Notable examples include: the 17,000,000 square foot, $20 billion Hudson Yards mixed-use development; a massive $8 billion shipyard development in San Francisco; a 179-room 219,000 square foot luxury hotel in lower Manhattan; a 958,000 square foot mixed-use development in Brooklyn, which will include a public school; and an 800-foot tall luxury residential high-rise building in Manhattan’s Lower East Side neighborhood.
Real Estate Tax:
Revived: the Return of "421-a" as the Affordable New York Housing Program
On April 7, 2017, Governor Cuomo reached an agreement with the New York State Legislature to revive the 421-a tax exemption program, now titled the “Affordable New York Housing Program” (click here for a link to the NY Assembly Bill). Like the previous 421-a program, developers may qualify for tax exemptions in exchange for creating a specific percentage of affordable rental units within a newly developed multiple dwelling. Depending on project size and location, the program requires a range of 25% to 30% of units be set aside for persons earning 40% to 130%, adjusted based on family size, of the area median income. The rental units will also be subject to rent stabilization. Governor Cuomo estimates 2,500 new affordable housing units will be created annually.
Noteworthy changes to 421-a under the Affordable New York Housing Program include the extension of the tax exemption period to 35 years, up from 25 years for qualifying projects, and the requirement of “fair wage” payments to construction workers on projects with 300 or more units in certain areas of Manhattan, Queens, and Brooklyn. Some estimates claim the Affordable New York Housing Program could cause New York City to lose $2.4 billion in tax revenue annually. The Affordable New York Housing Program is expected to remain in effect until at least 2022.
Real Estate Litigation:
New York's "Scaffold Law" May Not Impose Strict Liability
The construction industry has long accepted that the New York scaffold law, N.Y. Labor Law §§ 240-241, imposes strict liability upon construction contractors and property owners for injuries suffered by workers who fall or are hit by a falling object as a result of inadequate scaffolding or similar construction structures (such as ladders or temporary staircases). A recent decision by the New York Court of Appeals indicates that this common understanding is wrong.
In O’Brien v. Port Authority, No. 27, a construction worker was injured when he slipped and fell on a temporary staircase that was wet due to rainfall. The worker sued his employer and the property owner, and the parties produced testimony from experts who disagreed about whether the safety measures used on the temporary staircase were adequate to properly protect the worker. A majority of the Court of Appeals reversed the decision of a lower appellate court, and found that the fact that the worker was injured is not, by itself, enough to impose liability where defendants had provided evidence that the safety measures employed were adequate despite the worker’s fall. The Court of Appeals held that the trial court was required to weigh the competing evidence about whether the safety measures employed on the staircase were adequate to have properly protected the worker.
Health Care Real Estate & Finance:
Landlords Adapt to Changes in Medical Leasing Market
In retail leasing, the term “medical office” was once understood to mean a family medical practice, or perhaps a dentistry practice. However, today the term encompasses a much wider range of health care services, such as medical imaging, dialysis, walk-in clinics, urgent care, and other uses or specialties, most of which are being spun off from hospitals amid a broader healthcare industry restructuring. Several health care services companies have become recognizable brands due to widespread retail visibility. And while landlords welcome this new iteration of health care tenant, many are unprepared for the attendant regulatory and operational considerations. One such consideration is the suitability of existing zoning classifications. For example, a zoning ordinance in suburban Philadelphia has different classifications for “medical office,” “medical center” and “medical clinic,” complicating an otherwise straightforward landlord representation (and in one case, delaying execution of a lease so the landlord could obtain a variance to allow for operation of a dialysis clinic, a use the landlord had incorrectly thought to be permitted as of right). In New York City, however, the same dialysis clinic would be considered an “ambulatory diagnostic or treatment health care facility,” a subcategory under the “community facility” umbrella designation that was created to eliminate confusion and to incentivize specific community facilities to locate in areas, such as retail shopping centers, to better serve neighborhood populations while still preserving the character of these residential neighborhoods. As health care services companies continue to expand and become a larger presence in the retail leasing market, it will be incumbent upon health care services companies and their counsel to work with landlords and zoning boards in developing shared practices and expectations to facilitate growth.