The Real Deal New York

Scooping up ‘golden’ certificates

June 02, 2008
By James Kelly

While the pending June 30 deadline date has caused a critical drop in the value of undeveloped sites that will no longer qualify for 421-a abatements as
of right, it has had the reverse impact in another
market: the trading of 421-a certificates that absolve developers of the low-income requirement — and sometimes even can grant developers an extension for breaking ground.

A certain species of the document, formed via an agreement between low-income developers and the Housing Preservation Department on or before Dec. 26, 2006, gives developers until June 30, 2009, to break ground on their projects and avoid both the $65,000 assessment cap and the 20 percent low-income requirements.

Needless to say, these certificates — dubbed “golden” certificates by their brokers — have skyrocketed in value as July 1 approaches, since they will be the only way to beat the assessment cap and low-income requirements once the date passes.

The certificates are selling for $37,000, up from around $25,000 last summer, according to Massey Knakal managing director and partner James Nelson.

“As we get closer to the June 30th deadline, and people don’t get in the ground, the [“golden”] certificates will definitely go up in value,” he predicted. “I’d guess beyond $40,000 by June 30th.”

His firm has sold 16 such certificates, for a total of $592,000.

The one catch to the “golden certificates,” however, is that they cannot be applied to developments outside the new 421-a Geographic Exclusion Area. So if you want to build outside the zone, your only options are to break ground by July or suffer the abatement cap.

Real estate attorney Paul Korngold said, however,
that because property values outside the GEA tend to be lower, the cap in those areas usually won’t hurt a developer as badly.

There are exceptions of course, such as super luxury property in Forest Hills, Queens, Korngold noted. But for other outside-the-zone locations, “odds are the assessed value of a project will not exceed $65,000 per unit in a lot of those areas,” Korngold said.

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