REBNY Celebrates Tax Break Renewal and Rezonings as Its 2017 Victories

The resurrection of the lucrative 421a property tax break was unquestionably the biggest achievement for REBNY in 2017. The issue had seemed hopeless for more than a year, as the old 421a law sunsetted in January 2016 with one weird caveat engineered by Gov. Andrew Cuomo: the labor unions and REBNY had to hammer out a compromise on the policy that would satisfy developers’ desire for cost control and the construction trades’ mission to ensure workers get paid prevailing wages..

When the two parties finally worked out a deal in November 2016 for what they called Affordable New York, it mandated that developers of projects with 300 units or more pay construction workers an average hourly wage of $60 in Manhattan and $45 in Brooklyn and Queens.  

Developers that hope to score the lucrative tax break must rent 25 to 30 percent of their units in a new building at below-market rates. Projects in the 300-unit-plus category in Manhattan south of 96th Street or along the Brooklyn and Queens waterfront will be eligible for a 35-year tax exemption. Meanwhile, smaller developments that meet the affordable housing requirements qualify for a tax break that lasts 25 years and do not have to fulfill the wage rules.  

Despite all these new details, the state legislature spent another six months wrangling over a few nitty-gritty details in the bill. Much of the debate revolved around whether condominiums should get the exemption and if so, how large it should be. Ultimately, the version that passed capped the exemption at projects of 35 units or less with an assessed average tax value of $65,000.

The proposal was a triumph for the real estate lobby, but not necessarily for the public. Affordable New York is unlikely to produce much housing for low-income New Yorkers, and it will cost $1.2 billion more than the old 421a program over the next decade, according to a report issued by the city’s Independent Budget Office last year.

Midtown East

The rezoning of New York City’s densest office neighborhood was another achievement for the real estate board, which counts among its members many of the city’s biggest commercial landlords and developers. In November 2015, REBNY, then-City Councilmember Dan Garodnick and then-Manhattan Borough President Gale Brewer resurrected a Bloomberg-era plan to upzone Midtown East. The group, known as the Midtown East Steering Committee, issued a new set of recommendations that required developers to pay for transit upgrades or pay a premium in order to tap into unused air rights attached to landmark buildings in the neighborhood.

The rezoning entered public review at the beginning of 2017 and hewed closely to the steering committee’s recommendations. Under the Midtown East plan, developers can only use landmark air rights if they pay 20 percent of the value of the sale of the air rights to the city. The one major sticking point in the plan was the proposed price of landmark air rights, which the city initially pegged at a minimum of $78 a square foot. After REBNY and landmark property owners charged that the proposed amount was far too high and would stymie both air rights deals and development, the city agreed to lower the cost of air rights to $61.49 a square foot.

The City Council ultimately approved the rezoning in August 2017, along with $50 million in capital funding for fixing up public spaces and streets in Midtown East.

Construction Safety

Few issues generated more controversy in the construction community last year than Intro. 1447, a piece of construction safety legislation commonly known as “the apprenticeship bill.” It was introduced in January 2017 as part of a package of 21 bills that covered worker training, prevailing wages, site safety, civil penalties and reporting requirements. When it first hit the floor of the council, Intro. 1447 heavily favored the construction trade unions by requiring workers on buildings of 10 stories or taller to enroll in apprenticeship programs. Since construction unions are the only groups that run apprenticeship programs, nonunion or open-shop contractors (firms that can employ union and nonunion workers) felt that they and their workers would be unfairly penalized or kicked off construction sites.

REBNY and open-shop groups testified vigorously against the bill at a City Council hearing last January. Small, minority-owned contracting companies and their workers would be the hardest hit by the new requirements, they argued, because they wouldn’t be able to afford to build new apprenticeship programs.

Several months of back and forth ensued. Union and open-shop construction groups held dueling rallies that ended in knock-down, drag-out fights. The apprenticeship language was eliminated from the bill. But the final version—which REBNY opposed—required 40 hours of construction safety training for workers on building sites of four stories or higher by September 2020. The City Council passed it in September 2017 with a unanimous vote of 42-0.

Toxic Effects of Green Initiatives?

REBNY has advocated for green energy initiatives in construction and building management for the past couple of years. But, it turns out, the real estate lobby took issue with the city’s mission to reduce its carbon footprint when new rules created negative financial impacts for its members.

In September, Mayor Bill de Blasio unveiled plans to cut the city’s greenhouse gas emissions 80 percent by 2050. The proposal called for new, strict limits on fossil fuel usage in commercial or residential buildings of more than 25,000 square feet that will go into effect in 2030. Landlords who cannot meet the requirements will face steep financial penalties. Older, multi-family residential buildings that rely on natural gas and heating oil are most likely to suffer under the new regulations, according to REBNY’s report.

“In the coming year, REBNY will continue to forcefully advocate for the industry on these issues,” the report notes. “We will meet with relevant stakeholders to express our concerns over the unintended consequences of this legislation and the need to identify appropriate metrics to measure energy efficiency.”

Tax Worries and Investment Sales

Even after a year marked by struggling investment sales and declining retail rents, REBNY members still saw signs the market was doing well. The luxury residential condo market took a hit, but the volume of residential home sales still increased year-over-year throughout the five boroughs for the first three quarters of 2017, the report notes.

And as it looks down the barrel of 2018, the organization will have to contend with unfavorable tax laws passed by a Republican Congress that could negatively affect the market in New York. Under the new rules, the state and local tax deduction will be capped at $10,000 for property, income and sales taxes. Since New York is a high-tax state, residents and developer alike are concerned by the spectre of rising property taxes and whether that will ultimately drive New York’s wealthiest to low-tax states like Florida.

However, REBNY members can also look forward to the organization’s 122nd annual banquet on Jan. 18. Hosted at the Hilton in Midtown, the party will include a cocktail hour from 5:30 to 6:30 p.m. and the banquet and awards from 7 to 10 p.m.