Real Estate Bulletin

NYC Land Use Bulletin: Two Ways to Develop Affordable Housing Without 421a

May 5, 2016

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Our Housing Experts Highlight Strategies for Developing Affordable Housing in NYC

Written by:
Claire Haaga Altman, Executive Vice President of Affordable Housing + Community Development
Richard Barth, Executive Vice President of Housing + Real Estate Strategies

Housing developers in New York City have relied on 421a tax abatements for 45 years making the development of condominiums, coops, and rental apartments more economically feasible through the abatement of real estate taxes. Despite the lapse of 421a earlier this year, there are alternative strategies to develop affordable housing projects that can achieve real estate tax abatements and other cost reductions that can be used advance affordable housing projects. In fact, many not-for-profit developers and affordable housing providers have long relied on these strategies.

We’ve identified two options for advancing certain affordable housing projects that provide long- term real estate tax abatements or exemptions. They are worth a look:

Very Low Income Projects

Real Property Law Section 420c (Referred to as “420c projects”) was passed in the early 1990’s to provide full, long-term tax abatements to projects that use Low Income Housing Tax Credits (LIHTC) as part of their financing. To qualify, the project must serve households with incomes at or below 60% of Area Median Income (AMI), have a municipal loan, and commit to long term affordability.

Eligibility: the project must be owned or leased for at least 30 years by a corporation, LP, or LLC, of which at least 50% of the controlling interest is held by a tax exempt or charitable organization whose purposes include low-income housing, or a wholly-owned subsidiary of such charitable organization. The project would also be subject to an HPD approved regulatory agreement which requires use as low-income housing.

Affordable Mixed Income Projects (Article XI)

Article XI of the Real Property Law provides for a 40-year real property tax exemption for projects that have a not-for-profit partner. Capalino can assist in identifying a not-for-profit partner and structuring a joint venture that can best make use of the Article XI property tax exemption.

In exchange for the tax exemption, Article XI requires that at least 2/3 of the project be affordable to households at 165% of Area Median Income or less. Unlike the “420c projects,” the City Council must approve all Article X1 exemptions and projects. As part of the review process by the City of New York and the Council, it is likely that units with a greater mix of incomes may be required.

Participation of a housing not-for-profit in the venture may eliminate not only property taxes, but mortgage recording taxes, sales taxes and transfer taxes. Cumulatively, that is a savings of almost 10% of a project’s total development costs, not including the annual real estate tax savings. So, in the case of a $50 million project, about $5 million could be saved on these transactional taxes. Then, once the project is built and occupied, there could be annual savings on real estate taxes.