421a certificates are key resource for developers.
Fueled by the broadening change in housing finance arising from the increasingly refined rental market, confidence in the value of 421a negotiable tax-abatement certificates has emerged even stronger and has become a key financial resource for developers of affordable housing projects in New York.
Along with the prosperity of Manhattan and the rise of affordable rentals throughout the city, the revived 421a tax-abatement program has created win-win situations for developers of both affordable housing and high-end residential projects, and New York City's low- and moderate-income families.
Constructed as an incentive for investors to finance new projects and rehabilitation for low income renters, the 421a tax-abatement certificate program offers developers a partial tax exemption for buildings south of 96th street and north of 14th street in Manhattan -- the "exclusionary zone" -- in return for the construction of affordable rentals anywhere in the city. For each affordable rental apartment constructed in the outer boroughs or outside the prime Manhattan areas, the builder gets five negotiable tax-abatement certificates. To obtain the five negotiable certificates, the affordable apartment buildings must be free of mortgage debt, a prime factor in keeping rents low and maintenance high.
Other developers building market-rate housing in the "exclusionary zone" are able to buy these certificates, the price of which are set off against the cost of the affordable rental units.
The Manhattan builder is then entitled to a 10-year tax abatement on one apartment, plus up to three years for the construction period. This amounts to full exemption from additional property taxes on the project for the first two years after construction, with the full taxes phasing in, pro-rated, over the next eight years until the building's full tax status is achieved.
Among the changes currently under consideration in the City Council, affordable housing developers want market rate builders to buy certificates before they can pull a building permit, and they want a formula to set the price per certificate, which has decreased as more affordable units have been built.
On the market developers' side, there are two bills that Mayor Rudolph Giuliani has brought to the City Council. One would change what is known as an "underutilization test" for the planned luxury site from 20 percent to 50 percent of the assessed valuation, and the other proposal would permit the certificates to be used in 15 FAR districts, a provision that expired last October.
This change would broaden the number of sites available. Market builders feel they should be able to use the certificates to rehabilitate old manufacturing buildings, such as those in Tribeca and along the Queens and Brooklyn waterfront, for instance, where the buildings would not qualify for the J-51 program, which is also up for renewal.
Leewood Real Estate Group has already successfully used the revival of the 421a -- which was created in the 1980's, but fell out of economic favor during the doldrums of the early 90's -- with its most recent development projects, bringing forth affordable housing in Staten Island and The Bronx.
In Staten Island, Leewood has constructed 180 low-rise apartments on the North Shore. The three developments -- Nicholas Manor in Port Richmond and Harbor Manor in Mariner's Harbor, which boast a total of 72 one and two-bedroom townhomes, and Tompkins Court in the Clifton neighborhood with 108 one- and two-bedroom townhomes - have through the 421a program been tied to the construction of 900 luxury apartments on Manhattan's Upper East Side.
Leewood is also constructing River Court and Gerard Court, a 252-unit affordable housing project in The Bronx, using the combination of New York City Housing Development Corporation Tax Exempt Bonds and 421a tax abatement certificates. It is the second largest project in New York City's history to use the 421a tax certificate program.
Looking ahead into the year 2000, 421 a tax-abatement certificates will be an important resource for creating affordable rental housing in New York City. As the residential market continues to be strong and the rental climate holding steady, the production of affordable housing will continue to be on the rise. We will see more of this financing technique, and developers of low- and high-end residential projects alike will continue to benefit. More importantly, affordable housing will be available to New York city's s economic "backbone" - low and moderate-income families, creating the almost unheard of win-win situation.
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|Author:||Lee, R. Randy|
|Publication:||Real Estate Weekly|
|Date:||Jan 26, 2000|
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