New York City developers are wasting no time grabbing development sites and properties eligible for the 421-a tax abatement as the program is set to expire on June 15.
A 421-a replacement program proposed by Gov. Kathy Hochul with support from both Mayor Eric Adams and the Real Estate Board of New York seems unlikely to make the final state’s budget, according to The City. Legislators in Albany missed the April 1 deadline and are expected to continue working through the week to pass the $200 billion spending plan.
The situation has motivated developers to leverage the tax abatement while they still can.
“Developers have told me time and time again that they simply wouldn’t build without 421-a,” said Brett Gottlieb, a partner at Herrick’s real estate division who represents developers in the 421-a application process.
They take advantage of 421-a abatements by setting aside a certain percentage of their units for tenants with incomes between 30% and 140% of the area median income in exchange for tax credits over a period of 30 years.
Opponents of the 421-a abatement, such as New York City Comptroller Brad Lander, argue that the abatement costs city taxpayers roughly $1.7 billion annually in lost tax revenue.
Proponents, meanwhile, argue that most of the city’s developments would not be built without the abatements due to high risk and narrow profit margins. Developers, without abatement, could face taxes that, in some instances, reach more than 30% of net operating income.
The New York Business Journal spoke with several commercial real estate executives to gain insight into what developers are doing before the June 15 deadline.
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