The Real Deal New York

The new 421a is a mixed bag for union labor

Unions didn’t get all they wanted, but their voice may now be louder than before

November 15, 2016 07:30AM
By Kathryn Brenzel and Will Parker

Construction site in New York City (inset from left: John Banks III and Gary LaBarbera)

Construction site in New York City (inset from left: John Banks III and Gary LaBarbera)

New York City real estate developers and union leaders praised the possible return of the 421a developer tax exemption last week, ending more than a year of seemingly fruitless negotiations.

Reaching the agreement represented a monumental step toward reviving the tax break and assuaging some concerns over the future of rental construction in the city. But victory came with considerable caveats.

The accord is a far cry from the initial demands of union groups, who sought prevailing wage requirements for construction workers on most projects that qualified for the tax break. Conversely, the wage requirement in the latest proposal won’t apply to the majority of projects that qualify for 421a, and it won’t guarantee that developers turn to union labor at a time when non-union shops are gaining considerable ground.

Gotta give to get back

According to the agreement struck late last week, rental construction projects that total more than 300 units, and that are located south of 96th Street in Manhattan, must pay workers a wage-plus-benefits average of at least $60 an hour. For projects on the Brooklyn or Queens waterfronts, that average is $45. Developers of these buildings will also be required to set aside between 25 and 30 percent of units as affordable housing, in accordance with suspended legislation that’s been held up in Albany.

Edward Ott, a labor expert at CUNY and former executive director of the New York City Central Labor Council, said that Building and Construction Trades Council of Greater New York’s agreement may encourage more developers to hire union workers for affordable housing projects. He acknowledged, however, that both sides likely didn’t walk away from the negotiating table completely happy.

“Is it everything the unions wanted? Probably not. And I don’t think it’s everything that the developers wanted either,” he said. “There’s probably a little bit of bruising on both sides.”

He added, “Now we get to see if it works at all.”

A louder voice in Albany

Gary LaBarbera, president of the Building Trades, said in a statement that the agreement would ensure unions’ “long-term competitiveness in the industry.” He didn’t return requests seeking comment on Monday.

Even if the unions fell short of achieving their more ambitious goals, the long detente with REBNY did result in some concessions from the largest developers in New York, a sign to many that construction now has a much more serious seat in Albany.

Gov. Andrew Cuomo

Gov. Andrew Cuomo

“We supported the principle of prevailing wage,” said Hector Figueroa, president of SEIU Local 32 BJ, the building workers union, “but we always understood that in the construction of affordable housing units there had to be an understanding between the industry and the construction unions.” Figueroa dismissed the notion that unions failed to get what they really fought for as “a bit cynical” and said that the agreement advances the interests of labor while opening doors for organizing more non-union workers.

David Pfeffer, a partner at Tarter Krinsky & Drogin, noted that unions have been throwing their weight all around Albany, lobbying delegates and legislators to oppose other real estate-related legislation until minimum wages were inserted into programs like 421a. As Gov. Andrew Cuomo acknowledged last week, lawmakers refused to sign an agreement that would release $2 billion in affordable housing funds until 421a was in place.

“There was never a wage requirement in the law at all. So it’s a win for them,” Pfeffer said. “It’s definitely a step in the right direction for workers. It’s not a huge step, but it’s certainly a step.”

Competing with open-shop

If minimum wages for large 421a projects in prime locations are greatly increased, many are hopeful that developers of such projects will now be more likely to choose union labor than they had been previously. Union shops also bill themselves as the safer option, arguing that a majority of construction-related deaths in the city occur on non-union sites. Officials are currently pushing the city to record whether incidents occur on union or non-union work sites.

The unions have also made some changes in an attempt to compete with the prices offered by open-shop labor. This includes creating a “blended-rate” workforce by adding more employees who are paid at a lower rate than the highly-skilled journeymen and eliminating certain fringe benefits.

But in the past year, REBNY and Building Trades have waged a public battle over labor’s actual market share of residential construction in the city in the first place. LaBarbera said that unions built 79 percent of residential projects with 300 units or more or larger than 300,000 square feet. REBNY countered that unions built only 45 percent of those units. LaBarbera seemed to be fighting to get that 79 percent as close to 100 as possible, while reassuring REBNY that his group was not necessarily aiming for “smaller, 100 percent affordable projects,” as he explained to Crain’s in April. LaBarbera’s argument also sent mixed-signals on how much of an impact the wage requirements will have if union labor held onto a majority of the market to begin with (meaning that those jobs were likely paying prevailing wages anyway).

Apart from REBNY, Mayor Bill de Blasio was another public doubter of LaBarbera’s prevailing wage crusade (which Cuomo and Speaker Carl Heastie last year supported). “The only way to achieve [affordable housing] goals is with an appropriate wage level for the creation of affordable housing, which obviously is not based on the profit motive,” de Blasio said last year. REBNY ultimately backed de Blasio’s proposal for renewing 421a.

Hurry up and wait

The impact of 421a’s return (if it really does) is not yet clear and industry experts are hesitant to uncork the champagne just yet. Real estate attorney Daniel Bernstein of Venable said on Friday that his phone was ringing non-stop after the agreement was struck. Developers were calling his office and asking what the agreement between REBNY and the building trades meant for their projects. A representative for the Durst Organization, which halted progress on its Hallets Point project in light of 421a’s absence, said that the company is still reviewing the proposal.

Michael Stern

Michael Stern

JDS Development Group’s Michael Stern, known for his use nonunion labor (and who once called LaBarbera “the CEO of Blockbuster Video” when he should instead “become Netflix”) said that the new wage agreement for 421a “sounds workable.” He also said there was much left to evaluate.

“I’m not dismissing it as overly expensive off-hand,” Stern said. “I need to dig into the details.”

Charles Bendit, co-CEO of Taconic Investment Partners, said that the proposal “seems reasonable” and a welcome step toward restoring the tax abatement program. As for the wage requirement, Bendit said for a large project (like the 352-unit residential development his company plans for 52nd Street), Taconic is more likely to use union labor anyway.

Ross Moskowitz, an attorney at Stroock & Stroock & Lavan, said the deal shows that labor, real estate and Cuomo are ready to move on with what they have. “If it reveals anything, it’s that they came up with a solution that they can all live with,” he said.

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