Sunday, August 6, 2017
What is it And Who Qualifies? The 421-a tax abatement was created in 1971 to encourage the development of underutilized or unused land by significantly reducing property taxes on newly developed land for a set period of time. During the time period, thousands of New Yorkers were moving upstate or to the suburbs, and City officials feared a decline in residential development. Initially the city gave these tax breaks to any newly constructed development, but as the Manhattan housing market rebounded in 1980’s, the City created an “exclusion zone” between 14th and 96th Streets. Any developers building in this “exclusion zone” were 421-a eligible only if they constructed affordable housing on-site (typically 80/20, with 20% being low-income units) or off-site (by purchasing certificates that were used to create low-income units in other parts of the city). Thousands of condominiums across Manhattan were developed under this program prior to the 2008 housing market crash. The abatement was available for new developments located only on lots that were vacant, underutilized, or “nonconforming” with the prescribed zoning use under the 421-a abatement. Owners are exempt from paying any increases in property taxes that result from new construction. The 421-a abatement was initially set to run for 10 years, but can run for as long as 15-25 years in upper Manhattan and the outer NYC boroughs. The 10-year abatement provides unit owners with a 100% abatement from property tax increases for the first two years, with taxes then being increased by 20% of the current tax rate every two years for the remaining eight years. For example, if an apartment is bought in a building that had a 421-a abatement in the first year and sold in the seventh year, the new buyer would have the remaining three years of reduced taxes, since the abatement stays with the property and does not follow the owner. This tax abatement expired in January 2016, due to disputes over wages between the construction industry and developers. However, a revival bill dubbed 421-a, “Affordable New York,” is currently being developed in the state Legislature. The “Affordable New York” bill would permit qualified developers a 100% property tax break for a term of 35-years, mandating that all affordable units remain so for a 40-year term. The bill also includes mandates regarding construction worker wages and benefits. The newest version of the bill suggests allowing outer borough developments with up to 80 units to qualify (an increase from the 35 units necessary to qualify in the Governor’s initial proposal). Currently, the biggest issue is the debate over the average assessment value for qualifying condominiums, with NY Republicans looking to raise the limit from $65,000 to $85,000. By increasing the assessed value (which is based on a percentage of the unit’s market value), pricier properties will then qualify for the abatement. This has led many to question whether the 421-a program actually promotes affordable housing, or if it just incentivizes private development in the outer boroughs. It does not help that affordable housing benchmarks have been hit in the time since expiration, and the anticipated cost to the City to support the program with the current proposals are expected to total $1 billion (estimated at $100-120 million per year) over a ten-year period, seemingly while not increasing the affordable housing inventory. Mayor De Blasio and Governor Cuomo have fought publicly after the former introduced a proposal that would expand affordable housing, which the Governor shut down because of inadequate pay for construction personnel. The Mayor has described the current proposals as an “undue burden” on NYC residents, with the cost for each affordable unit increasing to $592,000 from $507,000 when the initial version of 421-a was in effect. Things to Consider Despite Tax Relief Opportunities When buying a condominium or co-op, it is important to consider the scenarios in which these tax abatements fall off or change, and to research which new laws or regulations have potential impact on your purchase in the next 3-5 years. What will be the real cost when the abatement expires? The property taxes could drastically jump to levels higher than those at the time of purchase.
Thursday, April 6, 2017
Are you having a hard time finding resources on Real Estate subjects? We recently compiled a list of useful links for those looking to learn more about real estate processes, laws, and taxes. It includes both municipal resources and other helpful sites, such as Streeteasy and Oasis, a source for detailed community maps. We hope that they can be of use to you!
Monday, March 20, 2017
The closing is the climactic moment in a Real Estate transaction, when the deal is finalized and the money finally changes hands. However, the big moment can be daunting, especially in New York, where the large cast of characters can include not just the seller, purchaser, and their attorneys, but possibly several brokers, a lender, the lender's counsel, a management company, and title company as well. But what really goes on, and what should a prospective buyer or seller prepare for to make sure that the final step goes smoothly? This article, originally published in the New York Times, offers a helpful guide for first-timers.
Monday, November 7, 2016
HDFCs (Housing Development Fund Corporations) are essentially income-restricted cooperatives; they limit a potential purchaser’s ability to buy in based on whether their annual salary falls below the calculated income cap. The establishment of HDFCs were geared toward purchasers looking for a residential home to keep for a substantial period of time, with the possibility of passing it on to family members. They compose much of New York City’s affordable housing. HDFCs are further classified by the way in which the low income cap is calculated, either through a regulatory agreement with the city or without one. If the building does have a regulatory agreement, then the income cap is based on a percentage of the median income within the surrounding neighborhood. If the building does not have a regulatory agreement, then the income cap is generated by a formula based on the building’s maintenance charges and utilities fees. Usually, the standard is to bracket the income at about seven times the annual maintenance charge. Further, the income cap will mimic the economics of the surrounding area and increase when the area becomes more affluent. For instance, as a maintenance charge increases within an HDFC building, the income cap will follow suit and allow for a greater annual salary. While HDFCs require a purchaser to fall within the low income cap, there is no requirement as per the resale price. Thus, a seller has full discretion in determining the market price of the HDFC. Nonetheless, the resale price is often regulated by the high flip tax that HDFC buildings impose (often about 30% of the profit) and the relatively limited supply of potential buyers that fit the income requirements to purchase. The HDFC market is aimed to benefit purchasers, since a potential purchaser is able to acquire a high-profile residence at a price that is substantially lower than the market rate. The ideal purchaser is someone that has acquired a large trust or inheritance but has a low income. However, a purchaser trying to obtain funding may run into issues as banks tend to look less favorably on HDFC loans. This arises from the fact that HDFCs are seen as riskier investments, and thus have higher rates. Moreover, where a purchaser is unable to obtain bank financing, the HDFC is likely to require an all cash transaction. We would urge any HDFC purchasers to consult with a banker that has a proven track record of closing loans on HDFC projects, as the financing component of the transaction is often the piece of the transaction that has the most associated risk. For further information on HDFCs please check out the following links: http://www.nychdfc.org/#about http://www1.nyc.gov/site/hpd/owners/homeowner-hdfc.page http://uhab.org/homeownership