The Daily Dirt: Sorting fact from fiction on developers’ new tax break

There is arguably only one true statement in the following paragraph about the new tax break for multifamily projects, 485x, which replaced 421a:

“The program will offer a lavish tax abatement to New York City developers who choose to set aside 20 percent to 30 percent of units for low-income renters. The units would be set aside for 30 years. It is unclear how many units of housing it will produce, or what exact level of affordability it will contain, as most of it remains at the discretion of developers.”

That commentary was from Layla Law-Gisiko, president of the City Club, a civic group that apparently has a dim view of development, tax breaks, or both. She also called 485x “more or less the same as the old tax incentive, only more generous.”

The one accurate part of her analysis was that no one knows how much housing it will produce. But the nearly universal sentiment in real estate circles is that it is less generous than 421a and will produce less housing. Former deputy mayor Vicki Been, an architect of mandatory inclusionary housing in New York City, called 485x “a very blunt program that I predict won’t work in a lot of places.”

Early indications from commercial brokers are that 485x development sites will fetch less per square foot than 421a sites did.

Daily Dirt ran through some of the reasons last week, but one reader noted another: 485x’s affordable units are permanently income-restricted. That means about a quarter of the units will be an eternal drain on a 485x building’s finances. With 421a, that mandate ended when the tax break did.

Law-Gisiko, to her credit, responded to The Real Deal’s request for her rationale. She noted that besides the five-year increase in the abatement, to 40 years, the area median income has gone up. As a result, she argued, the drop in rents for affordable units from 130 percent of AMI (allowed under 421a) to 80 percent of AMI (under 485x) is not as great as it seems.

“The AMI has considerably increased (80 percent increase from 2015 to 2023) and much faster than the Consumer Price Index,” she said by email. “Eighty percent AMI today is a much higher number than it was in 2015 and it has grown faster than people’s income.”

AMI is a measure of people’s income, so it seems circular to say it increased faster than people’s income.

But the proof in judging the two tax breaks will come from comparing what developers pay for land. Sales in the months to come will allow for that.

What we’re thinking about: Will the city or state come up with a bailout for co-ops and condos facing fines from Local Law 97? Email me at eengquist@therealdeal.com.

A thing we’ve learned: According to Wikipedia, “Ladies and gentlemen, the Bronx is burning” was never actually stated by Howard Cosell (or Keith Jackson) on the national broadcast of a 1977 Yankees World Series game during which the network showed several live shots of a fire consuming a large, empty apartment building in the borough. Urban legend has since credited the late Cosell with the quote. But it is true that many landlords resorted to arson to collect the insurance proceeds on rent-stabilized buildings which they saw no point in keeping.

Elsewhere in New York…

— The United Federation of Teachers complained to a judge that the Metropolitan Transportation Authority failed to evaluate the environmental impact of congestion pricing, the New York Post reported. The policy has been backed by New York environmentalists since Mayor Michael Bloomberg proposed it in 2007. An environmental assessment by the MTA found no significant impact, and the Environmental Protection Agency signed off on the analysis. Many teachers drive to work because they enjoy free, designated parking, but beginning June 30 they will pay $15 for entering the central business district of Manhattan.

— Bronx co-op Fordham Hill Oval is installing smart radiator covers called Cozys to cut carbon emissions, save energy and avoid Local Law 97 fines, Habitat magazine reported. The 1,130-unit complex will pay $15 per cover, per month for 15 years, put no money down and save an estimated $170,000 a year. Residents will be able to control the temperature in their units rather than overheating the whole building so the coldest unit can stay warm.

— The Trust for Governors Island will plant 5,000 milkweed plants on the island to attract monarch butterflies. Milkweed is the only thing monarch caterpillars will eat. It allows them to produce a poison that protects them from predators. Guided nature walks exploring relationships between native plants and wildlife are scheduled for May 30, June 27, July 25, Aug. 29, Sept. 26, Oct. 31 and Nov. 21. A monarch migration celebration will be held Sept. 14.

Daily Dirt Data

Residential: The priciest residential sale on Wednesday was $8.2 million for a 4,850-square-foot co-op apartment at 470 Park Avenue. J. Roger Erickson of Douglas Elliman had the listing.

Commercial: The largest commercial sale of the day was $161 million for a 360,000-square-foot, 35-story office building at 1370 Sixth Avenue. Principal Real Estate Investors sold the property to Barings.

New to the Market: The highest price for a residential property hitting the market was $21.9 million for a 5,100-square-foot condominium unit at 15 Hudson Yards. Corcoran Sunshine has the listing.

Breaking Ground: The largest new building application was for a 166,000-square-foot, 16-story mixed use property at 145 Broome Street in Soho. David Middleton of Handel Architects filed the permit. — Matthew Elo