New York City Developers, Officials Score Wins in Albany’s New Budget

Housing and zoning initiatives get a boost, and the real estate industry secures a key concession

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New York Mayor Eric Adams emerged as one of the biggest winners in the $237 billion New York State budget in April after Albany included a deal to address the housing crisis after more than two years of contentious negotiations.

While Gov. Kathy Hochul and state legislators spent weeks butting heads over details surrounding tenant protections and wage floors for laborers on new construction projects, the city quietly lobbied for several measures that could help the Adams administration produce 108,850 new homes by 2040 in an environment when only 1.4 percent of the city’s rental units were available last year. 

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In the end, the mayor largely got what he wanted. Once the legislative leaders reached an agreement, city officials cheered provisions that would make it easier to transform aging office buildings into housing, allow a denser concentration of apartments on residential lots, and incentivize developers to restart stalled projects throughout the city.

“It’s definitely worth celebrating, but now it’s really time to roll up our sleeves and create a modern zoning envelope that will allow for the creation of more housing in the city,” said Adolfo Carrion Jr., commissioner of the city Department of Housing Preservation and  Development (HPD). “We’re happy with what we came home with, knowing that permits for construction were way down and the housing vacancy rate is the lowest it’s been since we started tracking in the 1960s.”

The mayor’s own proposal, the “City of Yes for Housing Opportunity,” wasn’t dependent on the state budget to move forward. But the budget law removed a cap that restricted the size of a residential building to 12 times the lot on which it is built and included new incentives that could entice developers to build more rental properties for tenants earning less than the region’s median income. 

“Everything in City of Yes for Housing Opportunity is within the city’s own power to effectuate, but the state changes will certainly enhance its ability to deliver them,” City Planning Commissioner Dan Garodnick said. “The state tools are really helpful to enable us to get new housing built. The first thing for us to do is to create the new tools, and we’ll have additional public review before we map them.”

It wasn’t a coincidence that the Adams administration launched the public review for the City of Yes a mere two weeks after the budget vote. City planning officials will send a draft of their plan, which includes myriad changes to city zoning rules, to community boards and borough presidents this month with the goal of getting their feedback before they break for the summer. 

Once the community boards make their recommendations, Adams administration officials are aiming to get the proposal on the City Council’s calendar for a vote before the end of this year. Some council members have already pushed back against citywide alterations, arguing that their districts have vastly different needs.

“It won’t pass as is. There will be a lot of changes,” one council member warned.

But Garodnick believes the city’s new plan is well positioned to tackle the housing crisis by encouraging new development everywhere while still respecting neighborhood character. “We deliberately designed this proposal to enable a little more housing in every neighborhood so that we could have a big impact overall without the dramatic changes or impact on local infrastructure that local communities frequently fear,” he said.

Something old, something new

The measure that will have the most immediate effect on the creation of new housing in the city is the extension of the 421a tax incentive that the legislature let expire in June 2022.

Owners who applied to be eligible for the abatement will now have until 2030, instead of 2026, to complete their stalled projects. Real estate leaders estimated that the law’s extension would affect about 80 projects that started construction on their foundations but hadn’t gotten their temporary certificate of occupancy.

“This is a shot in the arm that the real estate industry needed,” said YuhTyng Patka, chair of law firm Adler & Stachenfeld’s real estate tax and incentives practice group. “Having building plans and already being in the ground is a significant jump-start as compared to projects that have yet to be designed and underwritten.”

Developers so thoroughly embraced the 421a tax abatement that they utilized it in seven out of 10 rental buildings built between 2010 and 2020 and rushed to file permit applications for 58,625 new units in the first six months of 2022 as its expiration loomed. Once the incentive no longer applied, owners proposed the construction of only 9,909 new units in the entirety of last year, a Real Estate Board of New York (REBNY) report in December 2023 found. 

Garodnick called the extension “absolutely critical” for the production of future affordable housing projects. “Without it, we likely would have seen extremely depressed housing production and we saw a significant drop off of permitted units in 2023, so this was a really important piece of the puzzle,” he said.

Adams officials and REBNY urged state legislative leaders to resurrect the tax incentive this year. Lawmakers ultimately agreed to extend the 421a deadline and also created a new incentive, 485-x, which requires owners to set aside 20 to 25 percent of their units at below-market rates for households earning no more than 100 percent of the area median income for a three-person household. The program also imposed a minimum-wage requirement of $35 an hour for workers on projects larger than 100 units, which rose even higher for development sites in Manhattan south of 96th Street and parts of Brooklyn and Queens.

But multiple real estate leaders downplayed the new incentive’s potential and argued that its high wage requirements would dissuade developers still having trouble securing financing for new projects. The city’s housing department also needs to finalize rules to implement the new program, which could take several months.

“Owners also need time to digest the new 485-x program, find a site, crunch the numbers, and see if a project makes sense,” Patka said. “I do not expect to see a dramatic uptick in filings due to 485-x in the near future.”

Near and FAR

The two development tax breaks weren’t the only city-friendly incentives that made the final version of the state budget.

The budget includes money for a program to encourage homeowners to create what are called accessory dwelling units (ADUs) — converted garages and the like. However, it’s unclear how soon it will benefit New York City. An early $59 million in funding is going to regions around the city such as Long Island, and the City of Yes plan already aims to incentivize ADUs. Still, homeowners in the city could get $175,000 each for ADUs conversions, depending on certain criteria. 

State lawmakers also added an exemption through the budget that would encourage owners to turn underutilized and vacant office properties into mixed-income rental housing. Under its City of Yes plan, officials proposed moving up the date for buildings eligible for conversion, too, from those built before 1961 to those built before 1990. This would theoretically enable the transformation of 136 million square feet of residential space and the creation of new homes for as many as 40,000 New Yorkers, city officials say. 

Most of those properties, which would have to go through the city’s extensive land use and review process, are concentrated in Manhattan, where nearly 23 percent of office space remained vacant as of March, according to Cushman & Wakefield data.

Carrion, the HPD commissioner, believes some developers will take advantage of the program, especially those with Class B or C offices in their portfolio.

“It’s hard to guess where office vacancy rates will go,” he said. “I don’t think they’ll get better than where they are, because remote-work patterns have cemented in people’s lives.”

The more significant zoning-related change that state lawmakers passed will give the city more authority in allowing developers to exceed the current floor area ratio (FAR) cap on a case-by-case basis. In other words, developers will be able to build residential projects up to 15 times the size of their lots, up from the current 12, once they go through the city’s extensive zoning review. 

But many real estate leaders were surprised in March when Deputy Mayor for Economic Development Maria Torres-Springer introduced two new residential zoning districts, R11 and R12, that would permit a concentration of units as high as 18 FAR. Those districts have not been mapped out yet, but insiders say they are meant for the city’s already dense central business districts such as Midtown South.

“I think what’s important for the city is to make sure they educate communities as much as possible how this will play out,” one insider said. “It’s not just allowing 18 FAR everywhere. It’s introducing it into the zoning resolution so on a project-by-project basis sites can develop over 12 FAR and make that point to communities that density might not happen in those neighborhoods that don’t have a lot of density now.”