Capital offense: Legislature largely ignores real estate

From 421a to electric buildings, Albany left key industry issues unresolved

Jun.June 03, 2022 07:00 AM

Eric Adams, James Whelan and Gary LaBarbera in front of the New York State Capitol building (Photo-illustration by Paul Dilakian/The Real Deal, Axel Dupeux (Whelan), Getty Images)

With a week to go in the legislative session, Mayor Eric Adams went to Albany to pitch state lawmakers on renewing or replacing 421a, a lucrative property tax break for multifamily developers. 

Upon returning, the mayor said he was hopeful the legislature would “at least” extend the tax exemption. But it never got close to doing so. 

That was not the only real estate–related measure left on the cutting-room floor as lawmakers prepared to adjourn for the year. The Assembly was still wrapping up its session Friday morning.

421a and good cause eviction 

The governor’s proposed replacement for the tax break, dubbed 485w, was dropped from budget negotiations in March and never gained support from lawmakers.   

Developers expected 421a to die and have been racing to qualify their projects for the abatement before it expires June 15. In order to be grandfathered, projects must have foundation footings in place by that date. The city provided developers some flexibility, allowing them to file permits for alterations in order to move forward with foundation work, rather than permits for new buildings, which take longer to secure.

Tenant advocates argue that 421a, which abates property taxes for up to 35 years, is a giveaway to developers that creates little truly affordable housing. Several lawsuits have accused landlords of abusing the program by overcharging tenants at 421a projects. These factors left the tax break with no support from progressive lawmakers.

The city is expected to forgo nearly $1.8 billion in property tax revenue through 421a this year. Those buildings will not be affected by the tax break’s expiration. But future construction will: Multifamily project financing has already dried up.

The city’s Mandatory Inclusionary Housing program relies on 421a to create affordable units. Real estate and construction groups say multifamily development will peter out without some kind of tax incentive.

“Without a program, there is no doubt there will be less housing built,” said Gary LaBarbera, president of the state and city chapters of the Building and Construction Trades Council. “Electeds are clamoring all the time that we need more affordable housing. So whats the answer?”

Last time 421a expired, it lapsed for 15 months while LaBarbera’s group and the Real Estate Board of New York negotiated a renewal. This time they are largely aligned, but tenant advocates oppose it.

Meanwhile, those same advocates pushed for the passage of a statewide good cause eviction measure, which would create a soft cap on annual rent increases of either 3 percent or 150 percent of the inflation rate, whichever is higher.

As with 421a, state lawmakers declined to move forward on good cause. And the real estate industry would not entertain the idea of lumping 421a with good cause in a legislative compromise, the way it once did with 421a and rent stabilization.

Lawmakers, for their part, were not inclined to anger tenants or the industry just before the June and August primary elections. So they mostly did nothing.

One exception was Carlos’ Law, a construction safety measure that passed with support from organized labor and the Real Estate Board of New York. REBNY won some concessions on the measure rather than risk it passing over the group’s objections.

Legalizing basement apartments 

Lawmakers learned during the budget process that the issue of local control is touchy. Hochul initially proposed requiring localities to allow accessory-dwelling units on lots zoned for single-family use. That was vilified by Long Island lawmakers as an end to single-family housing and an unconstitutional seizure of power by the state. 

Lawmakers have since tiptoed around this concern by offering an amended version for New York City alone. The bill, sponsored by Sen. Brian Kavanagh and Assembly member Harvey Epstein, would let the city create an amnesty program for existing illegal basement apartments.

There are tens of thousands of illegal basement apartments in the city. Earlier attempts to bring these units up to code stalled, in part because of obstacles posed by the state’s multiple dwelling law. This bill has the backing of the Adams administration, and Kavanagh was hopeful it would be approved before the end of the session.  But it was not.

Hotel conversions 

Last year, the state allocated $100 million for the conversion of distressed New York City hotel and office buildings into affordable housing. Such conversions were authorized through the Housing Our Neighbors with Dignity Act, under which the state finances the purchase and conversion of hotels and offices on behalf of state-approved nonprofits.

No such projects happened. Still, the legislature set aside another $100 million to expand the conversion program statewide.

Lawmakers worked deep into the night Thursday and were expected to pass a bill to ease hotel conversions by making certificates of occupancy for Class B hotels valid for residential use as well.

Under the measure, sponsored by Kavanagh and Assembly member Steven Cymbrowitz, conversions must either be funded through HONDA or otherwise be financed or acquired by a local housing agency and managed by a nonprofit.

The apartments must also be rent-stabilized and dedicated to low-income or recently homeless New Yorkers, with rents capped at 30 percent of income.

The measure has the backing of the New York Hotel and Gaming Trades Council because it will likely target nonunion hotels; the bill requires building owners to get permission from organized labor to convert a unionized hotel.

“This bill is not about converting hotels that are viable and providing good jobs,” Kavanagh said.  “The impulse here is based on the fact that there are more hotel rooms than will be needed in the foreseeable future.”

Going electric 

In December, the City Council approved a measure that will require new buildings shorter than seven stories to have electric heat and hot water beginning Jan. 1, 2024, and taller ones starting July 1, 2027. State lawmakers were considering doing the same for the rest of the state.

The latest version was a compromise between the governor’s proposal to force new buildings to go electric in 2027 and climate advocates’ preferred 2024 deadline. It was not expected to pass, however, and indeed it did not.


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