In 2022, foundation footings were completed for a 1,300-unit project in Astoria. The developer got city approval that October to build the much-needed housing instead of another warehouse for last-mile deliveries.
And then — nothing. With little chance of completion in time to get the crucial 421a property tax break, the project was mothballed.
Now it could be kick-started, according to the developer, thanks to a provision in the state budget agreement. Gov. Kathy Hochul said Monday that the budget would extend 421a’s construction deadline from June 2026 to June 2031.
The deadline has exacerbated challenges in securing financing for projects, because lenders don’t want to risk developers’ missing the 35-year tax break and defaulting on their loans.
The deadline stood in the way of Boris Aronov’s Halletts North, which is expected to deliver 1,279 apartments, of which 318 would be permanently affordable, according to Jim Hedden, a representative for the developer.
“We are excited and confident that the proposed legislation will provide us with what we need to get started and allow us sufficient time to complete our project,” he said in a statement.
The real estate industry last year sought an extension of the deadline, but state lawmakers failed to act. About 32,000 planned apartments were hanging in the balance, the Real Estate Board of New York estimated.
In July, the governor launched an alternative to 421a, but only in the rezoned area of Gowanus. The state approved 18 projects for the program, which would mimic the benefits under 421a through payments in lieu of taxes.
Whether those Gowanus developers revert back to the old 421a will depend on the details of the extension, said Kramer Levin’s James Power. The industry is waiting for the fine print on the budget, which requires approval by the state legislature.
As it stands, projects that use a particular affordability option under 421a — setting aside 30 percent of apartments for tenants earning 130 percent of the area median income — would not qualify for the extension.
Still, under the Gowanus alternative, developers have to go through a number of hoops to gain the benefit, so going with 421a may be easier.
The budget is also expected to include a replacement for the expired 421a, dubbed 485x. The text of the budget bill has not been released, but it is expected to set construction wages at a percentage of prevailing wage rates and require 20 to 25 percent of apartments be set aside for tenants earning, on average, 60 or 80 percent of the area median income. Requirements depend on project location and size.
The Real Estate Board of New York has said the program will produce less housing than its predecessor. The trade group negotiated with the building trades for a lower wage scale, but the governor and legislature opted for the unions’ terms.
The result could be that rental projects only get built in the city’s priciest neighborhoods, where rents are high enough to make up for labor costs and affordability requirements.
The wage requirements kick in for projects in certain areas of the city and with more than 150 units, down from the previous program’s threshold of 300, according to sources.
The fate of projects that cannot be grandfathered under the expired 421a program will rely on 485x. Among them is Silverstein Properties’ Innovation QNS, a stalled, 3,200-unit Astoria development in which 45 percent of apartments would be affordable.
A spokesperson for Silverstein indicated that the company is waiting for details on the new program. BedRock Real Estate Partners and Kaufman Astoria Studios are partners in the $2 billion project.
Some elements of the housing agreement announced by the governor appear to still be in flux. Daniel Bernstein, an attorney who leads the tax incentive and affordable housing department at Rosenberg & Estis, said once actual legislation is available, projects will need to be assessed individually.
“We’re going to need to talk to our clients and say: ‘Does this work for you for sites you
have or are looking at?’” he said. “Are they going to be able to invest money in a project and get a reasonable rate of return and produce housing? Or do the numbers still not work?”
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