State may create 421a stopgap

Workaround could rescue mixed-income apartment projects

From left: TRD's Erik Engquist, Kasirer's Suri Kasirer and Cozen O'Conner's Kenneth Fisher

From left: TRD’s Erik Engquist, Kasirer’s Suri Kasirer and Cozen O’Conner’s Kenneth Fisher
(Photo by Alexis Manrodt)

With the expiration of property tax break 421a threatening plans for thousands of apartments, the state might cut separate deals with developers to help finance them.

The property tax break expired last June, and efforts to extend or replace it have failed. But the state and city could reach agreements for payments in lieu of taxes, or PILOTs, instead.

During The Real Deal’s New York City Real Estate Forum on Thursday, real estate attorney Ken Fisher indicated that state officials are considering the idea. The state would take over project sites and lease them back to developers through long-term ground leases.

Developers’ lease payments would be less than they would otherwise pay in property taxes, achieving some or all of the savings that 421a once provided. Gov. Kathy Hochul’s office did not respond to a request for comment.

Fisher said such a model could help large-scale projects like Innovation QNS, a 3,200-unit project by Silverstein Properties and two partners, pencil out. The project was approved by the City Council in November, but, like many others, may be unable to get financing from lenders because high property taxes on rentals make it too risky financially.

PILOTs would not work with every site, as they require well-heeled developers whose lenders would be comfortable with the arrangement. And the state could limit the benefit to projects already approved by the city and with significant affordable housing.

The proposal also may not sit well with the legislature, which could block deals though its representatives on the Public Authorities Control Board. However, some lawmakers have shown a willingness to extend the tax break for specific projects.

Fisher said he does not think 421a will be replaced until at least 2025, perhaps not until 2027. Even projects that qualified for the tax break by laying foundations before it expired would be denied the benefit if they are not completed by mid 2026 — a risk many lenders won’t take. Virtually all projects need loans to get built.

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Thursday’s panel with Fisher and lobbyist Suri Kasirer, moderated by TRD’s senior managing editor Erik Engquist, focused on navigating the city’s land use review process, politics and affordability levels demanded by City Council members.

Kasirer, who is married to developer Bruce Teitelbaum, said her husband’s 917-unit project in Harlem, One45, came along a bit too soon.

“A lot of it was just the timing of it,” she said. “There wasn’t a lot of experience both on the Council’s side — land use — and also on the administration’s side, to have the political courage to get it over the finish line” — that is, to overcome opposition from Harlem Council member Kristin Richardson Jordan.

But One45’s demise last May seemed to inspire the speaker and mayor to save other projects, including the Bruckner Boulevard rezoning and Innovation QNS.

“It 100 percent opened the door for other projects,” Kasirer said. “We could not afford another failure.”

Teitelbaum has submitted revised plans for One45 to the Department of City Planning. It could come back to the Council early next year. Like most large, mixed-income rental projects in the city, it requires not only new zoning but a 421a-style tax break — such as the workaround being discussed by state officials.

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