The Daily Dirt: One winner, two losers in rental projects’ tax break

Warning: We’re going into the weeds on 485x. But then we’ll zoom out for a look at who the winners and losers are.

Responding to Wednesday’s Daily Dirt, Moses Gates of the Regional Plan Association noted some nuances about 485x, the tax break replacing 421a for multifamily rental projects. Out of respect for your sanity, we had skipped over some of those details, but they can indeed make the difference in whether a development is built or shelved.

Two Trees’ River Ring, for example. More on that next week.

First, Gates noted, the new 40-year property tax exemption is not only five years longer than 421a’s but it also doesn’t phase out in the same way: For large developments in Zone A (485x’s terms vary by neighborhood, and Zone A mandates the highest labor costs), it replaces 10 years of a 25 percent tax exemption with a 100 percent exemption. That won’t make or break a project because it’s 30 years down the road, but it’s not nothing.

Second, Gates pointed out that area median income — which determines rent levels in affordable units — has outpaced inflation. It has grown enough to offset some of the rent-drop the state tried to achieve by making 60 percent or 80 percent of AMI, instead of 130 percent, the benchmarks for affordability in 485x.

AMI, despite its name, is only partially a measure of income. Part of the AMI formula is housing prices, which have risen faster than wages. Since 2019, the AMI has grown by 45 percent while the Consumer Price Index has grown 23 percent. For a family of four, the number has gone from $106,700 to $155,300, Gates said.

Of course, CPI is not the most important metric for developers. They are not paying for milk, clothing and haircuts so much as for construction wages, raw materials and insurance.

Gates said that on big, Zone A projects, 485x’s tax break is “undoubtedly more generous” than 421a’s, but not to developers, renters or land sellers. Rather, much if not all of the benefit will go to construction workers on those projects.

Because of their new wage floor, and the 60 percent AMI affordability standard for large projects in attractive neighborhoods, the prevailing sentiment in the industry is that 485x will produce less housing than 421a did. The big losers in that scenario are tenants, because the housing shortage will continue, and nonunion construction workers, because there will be less development.

What we’re thinking about: Pro-housing group Open New York supported ⁦Housing Justice for All’s push for good cause eviction. Will HJ4A return the favor and campaign against parking mandates that raise the cost of housing? Public review of that proposal is underway. Email me at eengquist@therealdeal.com.

A thing we’ve learned: Adjustable rate mortgages are growing in popularity as interest rates continue to tick up. ARMs accounted for 7.8 percent of mortgage applications last week, the highest share this year. Those borrowers are betting that rates will fall, which would benefit homebuyers with ARMs. Homeowners with fixed-rate mortgages must refinance to get lower rates. That entails fees of thousands of dollars.

Elsewhere…

— When law firm Belkin Burden Goldman scheduled a seminar to tell clients about all the real estate laws that passed in New York last month, it filled up within hours, prompting the firm to schedule two more. The topics were good cause eviction, individual apartment improvements, the 485x tax incentive, commercial conversions and the extension of 421a’s construction deadline. Meanwhile, some investment sales brokers say their phones haven’t stopped ringing since the news about 485x and 421a broke.

— The late writer Joan Didion’s apartment at 30 East 71st Street was listed last year at $7.5 million, but that proved to be magical thinking. Eventually it was repriced at $5.75 million. According to property records that became public Friday, it sold for $5.4 million. Didion died in 2021 at 87.

— Occupancy in Lower Manhattan hotels was 74 percent last quarter. That’s lower than the citywide rate, which was 86 percent at the end of last year, but it was the highest first-quarter figure for Lower Manhattan since 2008, just before the Financial Crisis. Tourist visits to the neighborhood were up 27 percent last year, powered by growth in international tourism, according to the Downtown Alliance.

Daily Dirt Data

Residential: The priciest residential sale recorded on Friday was $14.65 million for Unit 69W at Central Park Tower, 217 West 57th Street. The 3,000 square-foot condo was sold by Corcoran’s Sunshine Group for Gary Barnett’s Extell Development.

Commercial: The largest commercial sale of the day was $64 million for 124-130 Montgomery Street in Crown Heights to a limited liability company affiliated with Yitzchok Schwartz’s YS Developers. The sellers were Brooklyn developers Isaac Hager and Daryl Hagler. Once a former spice factory, the property was targeted for redevelopment by Bruce Eichner, but his attempt to rezone it failed. Along with the sale, YS Developers filed plans to build at the adjacent 960 Franklin Avenue, records show. 

New to the Market: The highest price for a residential property hitting the market was a penthouse unit at 200 11th Avenue for $20 million. Douglas Elliman has the listing for the 3,200 square-foot Chelsea condo.

— Joseph Jungermann