Hochul allows 421a alternative in Gowanus

Gov. Kathy Hochul on Tuesday announced an alternative for projects missing out on the property tax break 421a.

The governor launched a program allowing certain multifamily developments in Gowanus to receive tax breaks akin to 421a, which expired last June.

Under the arrangements, the state would take over the Brooklyn sites and rent them back to developers through long-term ground leases. Property owners would then make payments in lieu of taxes, or PILOTs, at a discount to what they would normally pay in property taxes.

The program, which is a workaround specifically for projects that got footings in the ground before 421a expired last June but might not meet a 2026 completion deadline, may eventually be applied to other parts of the city. It is one of a series of initiatives announced by the governor Tuesday aimed at supporting more housing construction after the legislature balked at a broader proposal she made in January.

The governor also announced $650 million in discretionary funds for “pro-housing communities” — localities that show “concrete” commitments to adding housing. The state will release criteria for receiving funds, but Hochul said she remains committed to the growth targets laid out in her New York Housing Compact.

She lamented the legislature’s inaction, which she said brought the 2021 Gowanus rezoning’s “energy and momentum to a screeching halt.”  

“That does not mean we have to freeze in time, trapped by inertia,” she said. “We will wait no longer. We will press on.”

As The Real Deal first reported, officials have been discussing this kind of arrangement for months, following the legislature’s refusal to extend the construction deadline for 421a projects.

To qualify for the exemption, properties needed to have foundation footings in place by June 15, 2022, and finish construction by June 15, 2026 — a deadline that developers have said some project cannot meet.

Construction unions opposed the PILOT-based alternative if it did not come with new wage requirements. That may still become a sticking point for projects, which will ultimately need approval from the state’s Public Authorities Control Board, where the Assembly and Senate have a say.

“Notably absent from this announcement are the inclusions of any labor standards. Know why? Because there are none,” Sen. Jessica Ramos, who chairs her chamber’s labor committee, tweeted ahead of the governor’s announcement. “NY should not be in the business of subsidizing poverty wages as part of our strategy for tackling the affordability crisis.”

City officials have pointed to the Gowanus rezoning, which paved the way for 8,000 new units of housing, as a significant reason for providing property owners more flexibility to qualify for 421a. According to one analysis provided to TRD, because of New York City’s high property taxes on rental buildings, at least eight projects totaling 3,500-plus apartments in Gowanus are in jeopardy without a tax break.

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The Real Estate Board of New York estimates that at least 32,000 housing units throughout the city will not be built if developers are not given an option outside the June 2026 deadline. Rushing construction is not even an option for many, as lenders will not provide financing for projects at high risk of missing the tax break.

In a statement, REBNY President Jim Whelan said the governor “is to be applauded for taking practical steps to move some mixed-income rental projects forward.”