NYC Real Estate Leaders Push to Save REAP Program as Deadline Approaches

A New York City tax incentive program proponents say has created significant job growth post-pandemic will expire this year, and the real estate industry wants lawmakers to renew it so they can continue to reap the benefits.

The Relocation and Employment Assistance Program — known as REAP — was originally enacted in 1987 with the goal of expanding employment outside of Manhattan’s core. It offers businesses income tax credits for relocating jobs from outside of the city or below Manhattan’s 96th Street to designated locations above 96th Street or in one of the other boroughs, according to the New York City Department of Finance.

REAP has been renewed several times since its inception, most recently in 2020. But the program is set to expire in June 2025, and the city’s real estate leaders are trying to save it.

“The REAP program has supported robust commercial activity across all five boroughs, creating jobs, significant tax revenue and daytime foot traffic that local businesses rely on,” Zachary Steinberg, senior vice president of policy at the Real Estate Board of New York (REBNY), said in a statement to Commercial Observer.

“As New York continues its recovery from the COVID pandemic, it is critical that the city and state support this program without delay,” Steinberg added.

But detractors of REAP — including State Senate Majority Leader Michael Gianaris of Queens — have argued it has cost the city a significant amount of lost taxes and has been subject to abuse by companies.

Companies can qualify for REAP if they have conducted business operations outside of the city or below 96th Street for at least two consecutive years before relocating to eligible areas, according to the Department of Finance. In addition, businesses must have at least one employee and agree to improve their new property by construction or renovation.

Once they qualify, those businesses can receive a $3,000 annual credit per employee for 12 years and an annual nonrefundable tax credit of $1,000 per share.

REAP’s main purpose is to “attract businesses and employees” in core Manhattan to relocate to neighborhoods in Brooklyn and Queens, and it has been successful, helping create an estimated 3,000 new jobs in Queens alone, according to Laura Rothrock, president of the Long Island City Partnership, a Queens business improvement district.

Several types of businesses — specifically manufacturing companies — have left Manhattan for Queens in the past 20 to 30 years, and local officials want them to remain.

“It’s really important that those jobs stay,” said Thomas Grech, CEO and president of the Queens Chamber of Commerce. “They’re traditionally middle-class jobs that support families, that pay mortgages, and that pay rents.

“Those kinds of jobs really matter, and without that core of business in places like Brooklyn and Queens, I think the entire city suffers,” Grech said.

In Long Island City, Queens, especially, several manufacturing firms have used REAP to their advantage, Rothrock said.

One company was manufacturing firm Ferrara Manufacturing, which was formerly based in Manhattan’s Garment District and used the program to relocate and expand to Long Island City in 2019, according to Gabrielle Ferrara, the company’s chief operating officer.

And, thanks to REAP, Ferrara was able to expand into a larger space, invest in new technology, and hire as many as 300 additional employees so they could produce Team USA’s 2024 Olympic uniforms last year.

“We couldn’t have done it without that incentive to be able to first of all create a permanent footprint in New York City, but also add jobs for our business,” Ferrara said. “Now we have this beautiful space in Queens, which we’re hoping to sort of make this beacon of apparel manufacturing and fashion in the New York City area.”

Rothrock said Ferrara’s story is exactly why lawmakers need to reauthorize the program come June.

“These are the types of businesses that the city has wanted to keep in New York City and protect,” Rothrock said. “They tend to be higher-paying jobs for lower-skilled workers in many cases. We want to make sure that we give them all the tools they need to be competitive and stay here.”

And it’s not just Long Island City — a majority of the companies using REAP are in Brooklyn neighborhoods like Downtown, Dumbo, Williamsburg and Sunset Park, according to Regina Myer, president of the Downtown Brooklyn Partnership, another business improvement district.

For example, at Downtown Brooklyn’s 1 Willoughby Square, architecture firm FXCollaborative used REAP to move about 100 employees from the Flatiron District to its new 40,000-square-foot office space in the building in 2023, Myer said.

Plus, the Architecture Research Office used the program to move into 10,000 square feet at the 34-story office tower in January 2023, as CO previously reported.

“This tax credit has been a really effective way for tenants to become aware of the possibilities in Downtown Brooklyn,” Myer said. “What’s so important is it’s made Downtown Brooklyn competitive with other locations in Manhattan, and it’s gotten tenants excited about office space in Brooklyn.”

And, while REAP is largely seen as a benefit to the city’s real estate, there are some concerns about the incentive, including its cost to taxpayers and which companies can apply for it.

Several experts agreed REAP needs more “aggressive” marketing because many New Yorkers are concerned about the use of public funds, Myer said.

“As taxpaying citizens, we’re all concerned, but I think this has been very effective,” Myer said. “Over the cost of its term, [it’s been] a very cost-effective program, and, from our perspective, keeping jobs in Downtown Brooklyn has numerous benefits.”

However, it seems like New York City could save a lot of money if REAP expires, according to a report from the Independent Budget Office from 2020 (the most recent data available).

The Department of Finance estimated that REAP credits cost the city $33 million of “forgone tax revenue” in 2019, when around 200 firms participated in the program, the report found. If REAP had expired in 2020, tax revenue in the first year would have been about $3 million, hitting $33 million by 2033, according to the report.

And concerns about the program’s cost only grew when tech giant Amazon tried to use both REAP and New York’s Industrial and Commercial Abatement Program (ICAP) to relocate its second headquarters to Long Island City in 2019.

ICAP offers property tax abatements for up to 25 years to industrial and commercial buildings that are built or improved upon, according to the Department of Finance. Both REAP and ICAP would’ve given a roughly $900 million tax abatement to Amazon, the Wall Street Journal reported at the time.

Sen. Gianaris, who did not respond to a request for comment, emerged as a vocal opponent of the Amazon deal and got it effectively killed, claiming both programs needed to be reformed and capped.

However, REAP might have an easier time being renewed this year since it’s not tangled in a divisive political issue like the Amazon deal.

“It was a different time period,” said David Lombino, managing director at owner Two Trees Management, which has had tenants take advantage of REAP. “There was a really anti-business sentiment coming from the far left, and that was also before the city’s economy was rattled by COVID.

“I think a lot of electives have now come to the conclusion that we need to encourage businesses locating here, not discourage them to score political points,” Lombino said.

Ferrara agreed, saying there’s “always going to be bad actors in any program,” but that REAP’s benefits far outweigh its concerns and past controversies.

“Without this program, you really handicap a lot of small businesses and prevent them from reinvesting in the community and doing exciting and interesting things around different industries,” Ferrara said.

But the fate of this year’s REAP renewal remains unclear, and it’s also unclear what will happen to those companies already using the program if it’s not reapproved. In fact, JLL (JLL)’s John Wheeler called losing it a “nightmare scenario.”

“Whether a new administration wants to support the program going forward is one thing, but to go back and interrupt the incentives that have already been qualified for and relied upon is problematic,” Wheeler said.

Plus, said Grech of the Queens Chamber of Commerce, there’s the worry of those companies already using REAP “pulling up stakes and leaving” New York City if the incentive goes away.

Isabelle Durso can be reached at idurso@commercialobserver.com.