From left: Martin Nussbaum, Ofer Cohen and David von Spreckelsen
UPDATED, June 16, 7:24 p.m.: Brooklyn rental projects that did not yet secure a 421a tax abatement are stranded in a precarious position, but condo projects will be only marginally affected.
That was the consensus Tuesday among some of Brooklyn’s biggest residential players in the wake of the New York State legislature’s failure to renew the 421a tax abatement.
Ofer Cohen, founder of Brooklyn commercial brokerage TerraCRG and host of the Only Brooklyn real estate summit, said in the last six months, he saw a tremendous slowdown of rental development sites trading hands. “We actually can’t sell anything for rental development,” he said.
The Brooklyn projects facing the most dire consequences are large-scale rentals in second-tier neighborhoods like Bedford-Stuyvesant, Crown Heights, and Bushwick that have not yet secured the abatement, according to Cohen.
“You’re not going to do a 500-unit condo there,” he said. “These projects are just not going to get built until there is a meaningful extension or a new program.”
Martin Nussbaum, a principal of Slate Property Group, co-developers of luxury condo building 51 Jay Street in Dumbo, agreed. “You can’t look at those prices without tax abatements and do rentals,” he said.
The developers seemed to think absorption rate of future condo projects would not be as badly affected by the absence of an abatement.
“We’re finding that people are not as sensitive to taxes as we had anticipated,” said David Von Spreckelsen, president of Toll Brothers City Living, which developed luxury condo Pierhouse without a 421a abatement. “I don’t think buyers are valuing it as much as we thought they would.”
Ken Copeland, a principal at Flank Development, the firm behind condo building The Boerum at 265 State Street, said, “We studied to see where historic sales had been and couldn’t really find a discernible difference in per-foot sales pricing in projects that had 421a abatements versus those that didn’t.”
However, he added that if interest rates rise, condo buyers could become slightly more sensitive, in which case 421a might grant a competitive advantage. Rising Brooklyn land prices combined with rising construction costs are “making it untenable to do condo projects at prices they will actually sell,” regardless of 421a, he said.
Jeff Simpson, CEO of Greystone & Co., said that brokers have tried to assuage fears by saying that if 421a doesn’t get passed, a project can simply go condo. But it never quelled his fears.
“We don’t exactly drink the Kool-Aid on that concept right now,” he said. “We’ve become a lot less active buying property in Brooklyn because of the uncertainty.”
The legislature has until Midnight Thursday to pass a new version of the 421a tax abatement.