The Real Estate Board of New York and the Building and Construction Trades Council of Greater New York have reached an agreement to revive the 421a tax exemption in New York City, ending a 10-month stalemate that put a damper on the city’s investment sales market and stalled several major projects.
The new agreement will require developers to pay construction workers an average of $60 an hour (including wages and benefits) for Manhattan projects with over 300 units that benefit from the tax cut. In Queens and Brooklyn, the average hourly rate, including wages and benefits, will be $45.
The new deal will also extend the maximum amount of time developers can pay zero in property tax with 421a from 21 years to 35 years. In return, affordable apartments developed with rent restrictions must stay affordable for 40 years, up from 35 years. The agreement needs to be approved by the state Senate and Assembly.
“While I would prefer even more affordability in the 421-a program, this agreement marks a major step forward for New Yorkers,” Gov. Andrew Cuomo said in a statement. In August, he had suggested that the plan should require developers to set aside 25 to 30 percent of a project’s units for affordable housing.
Gary LaBarbera, president of the Building Trades, said his group applauded the governor “for bringing all parties together to finalize an agreement on an important public policy that will allow for the development of critical affordable housing, and establishes wage standards for construction workers in New York.” Rob Speyer, chair of REBNY, said that the agreement “will permit the production of new rental housing in New York City, including a substantial share of affordable units, while also ensuring good wages for construction workers.”
Jolie Milstein, CEO of the New York State Association for Affordable Housing, a trade group that represents affordable housing developers, said the agreement paves the way for state officials to release $2 billion in statewide affordable housing funds.
421a expired in June 2015, but Cuomo and the state legislature extended it under the condition that REBNY and the Building Trades come to an agreement over wages. They did not and 421a officially sunset on Jan. 15, 2016. In the spring, state senate Republicans introduced a replacement measure called ‘421aa,’ which failed to pass the legislature.
The agreement announced today resembles 421aa in a number of respects. That proposal called for only a slightly lower average hourly wage for large Manhattan projects ($55) and also extended the lifetime of the tax exemption to up to 35 years.
After the new agreement was announced, a spokesperson for Mayor Bill de Blasio provided a statement that contrasts somewhat with that of Governor Cuomo. “We look forward to reviewing all the details of a new proposal. Our priority is ensuring that the ultimate legislation passed demands real affordable housing for our people and protects taxpayers from giveaways.”
Cuomo and de Blasio often sparred over the terms of a renewed 421a. Last year, out of frustration with how Cuomo was handling the legislative session, de Blasio said Cuomo had behaved vindictively. “[I]f someone disagrees with him openly, some kind of revenge or vendetta follows,” de Blasio told NY1. Cuomo later denied the criticism saying “I don’t know what that means.”
Developers and brokers had maintained that without a deal in place, building new rental housing in the outer boroughs would be next to impossible. The death of 421a was blamed for a 30 percent drop in dollar volume in Brooklyn’s investment sales market, and developers opted to abandon or delay major projects. The Durst Organization, for example opted to hold off on the second phase of its $1.5 billion Hallets Point residential project in February, saying that “without the abatement, the economics for the project collapse.”
David Schwartz, a principal at Slate Property Group, said that though other factors such as a tightening construction financing market had hurt rental development, 421a was definitely a factor.
“Everyone kind of put everything on hold until something happened,” he said. He added, however, that “the devil’s always in the details.”
Rich Bockmann contributed reporting.