Mortgage Observer

Anticipating the Next CRE Financing Boom: A Legal Perspective

In addition, to be feasible and competitive, producing a profit for the developer, a project often needs to qualify for tax abatements and sometimes favorable subsidized or government-sponsored financing. Though these programs seek to spur development, once the marketplace for developable land expects them, any developer that doesn’t get the benefit of them probably will have trouble competing. So qualification for those programs becomes a “gating item” for anyone who wants to put together a successful development project in any market where those programs are available. Net result: an even larger governmental role in the development process, and higher bids than otherwise for parking lots and other development sites.

If the municipal government wants to “do something” about the development process to encourage a broader range of new product, probably with a focus outside Manhattan, the usual instinct consists of enacting some new program to layer on top of all the existing programs to motivate developers to build whatever type of new construction we want to see. That approach, though familiar, would just further complicate a development process that already seems amply complicated and governmental.

It might make more sense to figure out how to uncomplicate that process, making it easier to build new projects, with greater flexibility, more quickly and in more areas of the city. This might involve revisiting the scope of all the legal and regulatory burdens on the development process, starting with zoning and some of our assumptions about how buildings should be built.

The city has started that process with rezoning in the boroughs, starting to streamline the permitting process, taking more of it online and asking questions about minimum apartment sizes. The process still has a long way to go, ideally in a way that sets simple and bright-line standards and expectations and minimizes the need for extended interaction with municipal authorities.

New York remains the place where everyone wants to be, even more the “center of the world” today than it was 20 or 30 years ago. People will keep coming here. Even with all the buildings that already exist, many quite old, we need more. One good resolution for New York City for 2012 might involve figuring out how to get more buildings more easily, and not just at the high end.

Joshua Stein is the sole principal of Joshua Stein PLLC. The views expressed here are his own. He can be reached at joshua@joshuastein.com.