New York City’s 485-x vs. 467-m: Two Very Different Development Incentives

For decades, the comic strip “Goofus and Gallant” has taught generations of children lessons on how to act, and how not to.

Goofus might let a door slam in someone’s face, while Gallant holds it open until the person walks through. Goofus races for the first available subway seat, while Gallant sees the pregnant woman approaching and makes way for her instead. 

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That sort of thing.

For the past few years, New York City commercial real estate has had its own version of Goofus and Gallant, and it goes something like this:

The development incentive 485-x forces developers to downscale affordable housing projects so they can pencil, creating fewer housing units at a time of immense shortage. The incentive 467-m allows developers to turn office buildings into residential buildings of any size that will fit the footprint. 485-x sets construction wage standards that go beyond what is feasible. 467-m has no such requirement, freeing developers to pay what the market (and construction unions) demand.

And, perhaps most importantly: 485-x is utterly failing in its mission to help make a dent in the city’s affordable housing crisis, while 467-m is producing as much new housing as conversion-available space will allow, with more on the way.

New York State Real Property Tax Law 485-x, adopted on April 20, 2024, to replace the sunsetting — and much more popular among CRE types — 421a, states that construction on eligible sites of at least 100 units in Manhattan below 96th Street and throughout large swaths of Brooklyn and Queens must offer a minimum wage for construction work of $40 per hour. For residential projects of at least 150 units in most of those areas, the wage requirement can rise to $72.45 per hour.

There are many other details and provisions in the law, but it’s the construction wage requirements that have turned 485-x into an albatross around the neck of New York’s multifamily developers, preventing them from building the sort of massive housing developments needed to provide all the new housing New York City requires. 

“What I understand from knowledgeable people who’ve done the math is that the lowest construction wage requirement for 100 or more units would add perhaps 5 to 10 percent to construction wages, and the highest 150 or more unit threshold, depending on location, could add 15 to 20 percent to the cost of construction,” said Dan Bernstein, a member and leader of the tax incentives and affordable housing department at the law firm Rosenberg & Estis. 

“Developers are trying very hard to not be subject to the highest construction rate requirement,” Bernstein said. “Everything’s more expensive these days, and everything’s been affected by inflation. Paying an extra 10 or 20 percent for construction wages and getting nothing for it causes developers to consider economies of scale — whether building one larger building or two separate adjacent buildings of 99 units makes more sense.”

As an illustration of just how restrictive the law has been, New York developer TF Cornerstone is the only area developer that is working on any ground-up residential developments in the applicable locations of more than 150 units. 

The company is currently developing three of them, all expected to deliver in 2028 or 2029: 2 Oak Street in Greenpoint, Brooklyn (268 units); 10 Noble Street, also in Greenpoint (792 units); and 273 West 22nd Street in Manhattan’s Chelsea (278 units).

But Jeremy Shell, a principal at TF Cornerstone, made it clear that in the face of 485-x, the creation of such large residential developments will be a limited strategy for the company at best.

“These will be less profitable projects for us, and that’s not sustainable over the long term. We can’t do an unlimited number of 485-x projects,” said Shell. “We’re going to be delivering those 485-x projects into a supply-constrained market, which means that the rents should be strong and the top line should be there when we deliver. There’ll be significant velocity to lease up these projects. But, frankly, we can’t continue to do this going forward.”   

Shell explained that the reason the company proceeded with these projects at the full construction wage rates set by 485-x goes back to certain ways TF Cornerstone operates differently from most New York developers.

According to Shell, TF Cornerstone, a family firm that is around 55 years old, is probably the most truly vertically integrated developer in the city. It owns its own in-house general contractor, funds its projects using only its own capital, and plans to retain ownership of all of its projects over the long term.

“We employ a multi-generational hold strategy,” said Shell. “Many [developers] have to achieve an internal rate of return [IRR] over a short period of time. We’re in it for the long term, creating buildings and neighborhoods that are built to last. We’re going to own this for our generation and future generations.”

This unique approach to development means that TF Cornerstone relies on different metrics than other developers for evaluating success. While others might look at their IRR over a five-year to seven-year period, said Shell, TF Cornerstone evaluates projects multi-generationally, and looks at yield on cost as a central barometer of success. 

Still, either way you look at it, said Shell, 485-x would diminish the company’s returns.

“I would say the yields have suffered an estimated 25 to 50 basis points from where they really want to be,” said Shell. “If I were to focus on IRR, I would say it was a few hundred basis points off from our targeted IRRs. But again, we’re not selling it at the end, so IRRs are very theoretical and almost irrelevant for our investment strategy.”

In addition to all of its long-term considerations and goals, the fact that TF Cornerstone’s operations are fully in-house deprives the company of the luxury of being able to wait around for the next great business opportunity. To justify employing an in-house general contractor, the company must build consistently.

“Our investment philosophy is to build through cycles. We can’t sit out cycles, and we don’t want to sit out cycles. It’s antithetical to our philosophy as an investor and an owner,” said Shell. “But also, due to our business model, we have people — project managers, heads of construction, etc. — where if we’re not building, they’re not busy, and we would have way too much overhead to maintain that arm of the company. We want to have up to three cranes in the air through every cycle, because that means we’re delivering projects in good times and slower times. It’s good business for us to be delivering consistently.”

Shell compares the company’s operation to an assembly line, and noted that the sacrifice of paying the required construction wages will hopefully be justified by the company’s faith in the ongoing growth and prosperity of New York City.

“We believe in New York over the long term, that it will be on this growth trajectory, and that it will weather these intermittent storms that invariably come,” said Shell.

Although, with 485-x in place, it’s like the city bought its very own automatic rain machine. 

Basha Gerhards, executive vice president of public policy for the Real Estate Board of New York (REBNY), confirmed that not only are TF Cornerstone’s three projects the only new development housing projects in the 485-x-relevant zones planned for over 150 units each, but that these three projects account for 11 percent of the entire unit count of new housing currently scheduled for development in those areas since 485-x was implemented.

Gerhards cited New York Gov. Kathy Hochul and former New York Mayor Eric Adams’s goal of 500,000 new housing units over 10 years.  

“If we want to meet that goal, we need larger projects — buildings that are 10 or more stories, with 150 or more units,” said Gerhards. “As of right now, 485-x is not generating those projects at scale.”

Gerhards cites data from the New York City Department of Housing Preservation and Development (HPD) to back this up, noting that since the implementation of 485-x, there are currently 289 projects throughout the city in at least the planning stage using the 485-x program for a total of 11,617 units, which is less than 3 percent of the city and state’s goal. Of those, only 2,511 units are set to be designated as affordable.

Gerhards also noted that not one 485-x project has yet opened for business. 

Commercial Observer reached out to both Gov. Hochul and HPD Commissioner Dina Levy to ask their thoughts on the effectiveness of 485-x in helping the city achieve its housing goals, and whether any re-evaluation of the program had yet occurred with possible plans to change it.

A spokesperson for the governor sent this statement: “The governor passed the most significant housing deal in decades to address the state’s housing affordability crisis by building more housing, all while creating good-paying jobs. While the state does not have a regulatory role in 485-x, the governor has been clear that home prices are too high and building housing must be a top priority.”

Commissioner Levy did not respond. According to Crain’s New York Business, the commissioner did recently say that “the city is taking a close look at the program,” but also that “any changes to 485-x would require state action,” which makes the state’s “regulatory role” quote too clever by half. 

“We will continue to explore whether or not there are issues with folks not building,” Levy said during a City Council hearing, according to Crain’s. “Certainly we don’t want anyone leaving developable space on the table.” 

Perhaps, instead of Goofus and Gallant, the more appropriate comparison here is to the three figures from the Japanese maxim with their hands over their eyes, ears and mouth: “See no evil, hear no evil, speak no evil.” 

Acknowledge no evil, even if it’s killing the city’s housing goals.

The HPD figures, along with TF Cornerstone’s lone ranger status on larger projects, seem to leave little question about whether builders are holding back and leaving developable space on the table. 

CoStar provides more ammunition here by noting that in the full decade between 2014 and 2024, only three residential buildings in the city were built with exactly 99 units. Since the implementation of 485-x barely two years ago, that number has leapt to over 30. 

The data company also said that since the law’s implementation, “the number of units under construction in New York City has declined by 45 percent, falling from 44,200 to 24,170.”

The evidence that 485-x is not producing anywhere close to the needed amount of housing for New York City seems irrefutable. It’s uncertain what the city and state believe is going to change in order to reverse that without action on their parts. 

“While there is agreement within the real estate industry, labor and the public sector that the program hasn’t yet delivered the number of units one would hope, that’s where the agreement stops,” said Eldad Gothelf, senior vice president of real estate at the government relations firm Kasirer. “The governor’s and mayor’s administrations seem to want to let the program continue to play out in the hopes that it will start working and be a little bit more effective.”

As Gothelf noted, labor, the intended beneficiary of the construction wage requirements, does acknowledge the law’s issues as well as the need for changes.

Carlo Scissura, president and CEO of the New York Building Congress, an advocacy group for the city’s construction industry, believes 485-x should be re-evaluated.

“Folks like me and others in the world of trying to get things built in New York will need to start working in the fall with legislative leaders and the governor’s office to figure out how to fix this,” said Scissura. “Because, if we’re not incentivizing developers to build, if the math doesn’t pencil out and we’re not getting large-scale projects, then clearly we are going to have to relook at this and tweak it.”

Talking with some of the city’s CRE veterans leaves little doubt that the 485-x program has already been widely branded a failure by industry insiders.

“We’re getting developers spending more time figuring out how to create 99-unit buildings to avoid the wage requirements than underwriting deals,” said Bob Knakal, founder, chairman and CEO of BK Real Estate Advisors, citing one project he’s working on in Manhattan as an example.

“The site is very likely going to be subdivided into six pads, and six 99-unit buildings are going to be built on a site that could accommodate 680,000 buildable square feet, and only 500,000 square feet is going to be used,” said Knakal. “So, because they’d go over the 99-unit threshold, 180,000 feet is not going to be built. That’s 250 apartments that are not going to be built because the incentives don’t work. On what planet does that make any sense?”

To make it even more illogical, Knakal noted that in a case like this, a developer could wind up with severe redundancies, such as building six different roofs, elevator cores, HVAC systems, etc., where one of each would otherwise suffice. Such redundancies exert “downward pressure on the value,” he said.   

“If you disincentivize the private sector to build,” said Knakal, “you get zero production.”

Both Knakal and Shell also mentioned the potential for 485-x to have a negative effect on land values, with myriad results.

“By artificially increasing the cost of production of the building, you’re reducing what can be paid to the land,” said Knakal. “That impacts whether or not somebody transacts. For every single site where the seller does not transact because the price is not compelling enough, you get zero production, zero increase in real estate taxes, zero jobs created, zero housing units, and zero added to the supply. If anything, you should be incentivizing production by increasing the land values so that sellers are compelled to sell.”

Shell said that moving forward, TF Cornerstone will evaluate potential projects case by case, but noted that land values will have to come down for additional projects of this sort to make sense. 

“It’s unsustainable for New York City to not have a viable, robust pipeline of new-construction multifamily housing, so we might continue to do a few more jobs this way if things don’t change in 485-x,” said Shell. “But land values are going to have to adjust. If people want to sell their land, and nobody’s buying the land to build new 485-x projects, then land values will have to adjust accordingly. That’s when we’ll incrementally make a little bit of a better return, as we’re buying the land at [a better cost] and continuing to build.”  

Part of what makes this all so infuriating is that, if city and state officials are looking for a model of a law that does things right and encourages development, they need only look at another one of their own laws that took effect around the same time.

New York State Real Property Tax Law 467-m, also enacted in 2024, provides a 35-year tax benefit for any developers creating residential housing by converting from any “nonresidential building, except for hotels or other Class B multiple dwellings,” and for projects that begin by June 30, 2026. After that, the benefit shrinks to 30 years for projects starting before June 30, 2028, and will shrink to 25 years after that for any project starting by June 30, 2031.

But the significant difference between 467-m and 485-x is in the construction wage requirements. While 467-m has wage requirements for building services employees, it has no such requirement for construction wages, and developers say this makes all the difference.

As of July 2025, the New York City comptroller’s office reported that there were 44 “completed, ongoing and potential conversions as of the first quarter of 2025 totaling 15.2 million square feet” that could produce approximately 17,400 apartments. The report noted that these could “absorb more than one-third of the occupancy lost since the fourth quarter of 2019 in the lower tiers of the market,” and that conversions could “triple the production of residential units from commercial space seen in 2012-2020.”

In December 2025, the Wall Street Journal noted that “as many as 25 future office conversions with 8.8 million square feet of space are in the planning stages throughout Manhattan.” 

And, by April 2026, Knakal wrote that Manhattan had 84 conversion projects underway, totaling approximately 25.7 million square feet.

As for the tax exemption, while the comptroller’s report noted that the exemptions on conversions to that point totaled $5.6 billion, it also estimated that failure to pass 467-m would have led to property value decreases for those properties of $5.1 billion.

To leaders in the commercial real estate industry, 467-m is the polar opposite of 485-x, an example of how to create incentives that produce real results.

CSC Real Estate is currently in various stages on four different conversion projects in Manhattan: at 300 East 42nd (relabeled 770 Second Avenue), 75 Maiden Lane, 136 East 57th Street and 210 East 86th Street.

“467-m gives a lot of optionality to existing buildings that were in their last lives. Historically, you didn’t have much of an ability to convert them given the high cost of land and construction,” said Salo Smeke, a managing partner at CSC. “It enables more affordable housing that can be built in the city at a price that developers can afford to deliver.”  

Knakal also sang the law’s praises.

“467-m is a great program. It’s compelling,” said Knakal. “You have to create incentives that are compelling to get the private sector to act. 467-m is very robust. You have 84 properties being converted from nonresidential to residential use. That’s 25.7 million square feet. That’s real activity. That’s not one or two here and there. This incentive is so compelling that it’s creating all this tremendous activity. That’s what happens when you create policy that incentivizes the private sector to move.”

Even TF Cornerstone is taking advantage of 467-m, with a conversion project at 135 East 57th Street in Manhattan that will produce 369 residential units in the first quarter of 2028. 

Compared to his thoughts on 485-x, talking about 467-m produces a starkly different reaction from Shell.

“467-m is a perfect example of when the government puts out adequate incentives and the private sector responds,” said Shell. “Look at the amount of housing production that’s going to come out of the 467-m program. It’s phenomenal. And 485-x is a bad example of putting out incentives and letting the market respond, because there’s just not enough production.”

Looking ahead, then, the CRE industry will continue to absorb and convert obsolete office space, while hoping upon hope for a new and better approach to ground-up development than 485-x provides. 

“I’m hopeful that all sides see that the lack of development is a loss for the public sector, the private sector, labor and the people of New York in general,” said Kasirer’s Gothelf. “I think the potential of reopening 485-x gives everyone an opportunity to really lay out what’s important to them. Having a wage rate in place from the labor side of things can be beneficial to them, but only if there’s actual development.”

Larry Getlen can be reached at lgetlen@commercialobserver.com.