De Blasio’s 421a reforms would help developers: report

NYU Furman Center finds new incentive program likely to increase profits

Nov.November 10, 2015 09:05 AM

The Real Estate Board of New York supports proposed changes to the 421a tax abatement program, and a new study by NYU’s Furman Center offers a clue why: it would likely drive up developers’ profits.

A report published Monday found that total returns from new rental development would likely rise across the city under the proposed new 421a regime compared to its predecessor. Unsurprisingly, the report’s authors argue this could lead to more development of both affordable and market-rate housing.

Conversely, the report found that letting the 421a program expire would likely lead to less development.

Under a framework passed by the New York State legislature in June and still pending final approval, the 421a program – which offers tax incentives to developers in return for providing affordable units – would be extended past its current expiration date in December under new terms. The percentage of units developers need to set aside as affordable to qualify would rise from 20 percent to 25 or 30 percent (depending on the subsidy scheme). In return, the full tax abatement period would increase from 11 to 25 years.

Under the new regime, developers would have less rental income because more units would be affordable. But this would be more than made up for by an increase of a development’s resale value due to the longer abatement period, which would drive up the internal rate of return (or IRR, a broader measure of profitability that includes resale value ).

Based on IRR, “rental development with the 421a program would be more attractive than it is now, even in the parts of the city where no affordable set-aside is currently required,” the report claims. But it also cautions that condo development “may still continue to dominate in certain portions of Manhattan” despite rentals becoming more profitable.

Related Articles

John Banks

High expectations: A look at John Banks’ 4 years at REBNY

John Banks

John Banks to step down as REBNY president

REBNY Awards

Newmark Knight Frank wins REBNY retail award for Alamo Drafthouse deal in FiDi

Patrick Jenkins (center) with Carl Heastie and James Whelan (Credit: Twitter, Anuja Shakya Photography)

REBNY taps Heastie’s bestie for tax-break campaign

The Real Deal interviews TF Cornerstone's Tom Elghanayan at REBNY's 124th annual banquet.

TF Cornerstone exec: How I got over Amazon dumping LIC

NestApple head broker Nicole Fishman, president Stephen Kalifowitz, RentHop founder Lee Lin and RoomZoom founder Elien Becque

Broker-fee ban could boost some startups, doom others

REBNY President Jim Whelan (Credit: iStock; Whelan by Anuja Shakya)

Rental commissions are back — for now

REBNY President James Whelan (Credit: iStock; Whelan photo by Anuja Shakya)

Stop the “havoc and confusion:” Industry petitions to overturn ban on broker fees