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Newsletter Exclusive Article:

East Midtown Rezoning

written by Frank E. Chaney

Since its inception more than four years ago to its final approval last year, the East Midtown rezoning was touted as providing the perfect mix of zoning incentives that would help rejuvenate both the building stock and the transportation network in the 73-block area around Grand Central Terminal. Early proponents, such as Mary Ann Tighe of CBRE and Amanda Burden, the then Chair of the City Planning Commission, envisioned East Midtown as home to a raft of gleaming supertall office towers rivaling those of other world-class business districts such as Singapore, Hong Kong and London. Some, however, thought the linkage between new development and the provision of improvements to the transportation network was too tenuous. Others had concerns about the City's proposal to enter the market as a seller of development rights. As a result, as time ran out on the Bloomberg Administration, it also ran out on the first iteration of the East Midtown rezoning.

The de Blasio administration essentially started over, working from the ground up, first through a steering committee headed by Manhattan Borough President Gayle Brewer and then City Councilmember Dan Gardonick, and then through the Department of City Planning, working from the recommendations of the steering committee, to devise East Midtown redux - a revised plan strengthening the linkage between transportation improvements and new development and substituting a development contribution on the transfer of landmark development rights for the direct sale of development rights by the City. It was approved by the City Planning Commission and then the City Council in August 2017.

The new East Midtown rules offer a number of significant incentives for development of new office towers and the enlargement of existing office buildings on what are defined as "qualifying sites" - sites that have frontage on a wide street, at least 75 feet of which, at the time of development, is clear of buildings. First among these incentives is a significant increase in allowable floor area ratio ("FAR") a number by which the lot area is multiplied to arrive at the maximum amount of floor area that may be developed. Prior to the rezoning, base FARs in East Midtown were generally either 12.0 or 15.0 and the maximum FAR with bonuses and transferred development rights ("TDRs") from landmark buildings capped at 21.6. Under the new East Midtown regulations, while the base FARs remain the same, the maximum FARs with bonuses and landmark TDRs range from 24.6 to 30.0, depending on location.

For qualifying sites in Transit Improvement Zone Subareas, the maximum FAR may be reached by a combination of making improvements to the area's transit system and with landmark TDRs. A minimum FAR of transit improvement bonus must be provided before additional floor area may be added using landmark TDRs.

Under the new East Midtown regulations, landmark TDRs (which under the old regulations were "free") require a contribution to the newly established Public Realm Improvement Fund, a dedicated fund for financing improvements to East Midtown's above- and below-ground transit and transportation network. The required contribution is equal to 20% of the TDR purchase price or $307.45 per square foot of TDR, whichever is greater.

There are also incentives for sites that are not qualifying sites. One of the reasons that a large percentage of East Midtown's office buildings are more than 70 years old, is that they were built under the old zoning code, which did not use FAR and therefore had no limit on floor area. Consequently, many older buildings have floor areas in excess of what the FARs of the current zoning code allows. If such buildings were demolished, a new building on the same site could not be rebuilt to the same FAR. In essence, the excess floor area would be lost, creating a significant disincentive to replacing aging and outdated buildings.

Under the new East Midtown rules, however, such sites - many, if not most, of which are non-qualifying sites - may be redeveloped to the pre-existing, excess FAR, provided a contribution is made to the Public Realm Improvement Fund at the rate of $307.45 per square foot of the floor area in excess of the current FAR.

The recent announcement by J.P. Morgan Chase that it will demolish its headquarters building at 270 Park Avenue and build a new building of approximately 2.5 million square feet, more than twice the size of the existing building, has been greeted with great enthusiasm as the first of the many "world class" office buildings the new East Midtown zoning regulations were designed to encourage. In addition to providing the required transit improvements, Chase will utilize approximately 600,000 square feet of TDRs from Grand Central Terminal and another 100,000 square feet from St. Bart's Church on Park Avenue.

While the Chase announcement was exciting and welcome news, there were reasons to temper one's enthusiasm as to its significance. 270 Park Avenue was not on the list of 30 sites identified in the East Midtown Environmental Impact Statement ("EIS") as "potential" or "projected" development sites and differs from many, if not most of them, in one key respect: it's a single-user building. Being the sole occupant, Chase can vacate the building and commence redevelopment as soon as it wants. Buildings having multiple tenants with leases running over five to ten years (or longer) must go through the time-consuming and complicated business of either buying out the leases or waiting for them to expire, one by one, over time. Either option requires patience - and pockets sufficiently deep to carry the building while income dries up. The hope is, of course, that the East Midtown rezoning will make the gain worth the pain. The gain under the old zoning was marginal - an increase in the FAR of only two or three. But under the new East Midtown rules, the FAR gain can be 10 or more. While the potential is definitely there, it may not be as readily achievable as in the case of 270 Park. But that by itself is no reason to be less than optimistic. Change on the scale envisioned by the East Midtown rezoning doesn't happen overnight.

The Chase announcement regarding 270 Park Avenue was not the only good news. Within weeks, it was announced that the owners of 405 Park Avenue were in contract to purchase 30,000 square feet of TDRs from St. Patrick's Cathedral to be used in a gut rehab and enlargement that will add four stories and 205,000 square feet to the building, utilizing a combination of transit improvement bonus floor area and, perhaps, additional landmark TDRs.

Other buildings rumored to be considering taking advantage of the new East Midtown zoning rules include the Pfizer headquarters on 42nd Street, the MTA headquarters on Madison Avenue and the Roosevelt Hotel on 45th Street.

What seems clear is that East Midtown is set to follow the examples of Greenpoint-Williamsburg, West Chelsea and Hudson Yards, where City Planning rezonings triggered significant new investment and development. If the announcement of new developments continues at the rate they have started, East Midtown may eclipse them all.

frankeastmidtown



Newsletter Exclusive Article:

The Everexpanding Loft Law

written by Luise A. Barrack and Jason R. Davidson

Article 7-C of the Multiple Dwelling Law (the "Loft Law") was enacted in 1982. The Loft Law brought under its jurisdiction spaces that lacked a residential certificate of occupancy, were previously used for commercial, warehousing or manufacturing purposes, and were residentially occupied by three families living independently from one another during the period from April 1, 1980 to December 1, 1981 (the initial "window period"). The Loft Law also established the Loft Board, which was charged with overseeing and coordinating the legal conversion of these Interim Multiple Dwellings ("IMDs") to legal residential spaces. The Loft Law mandated that owners of IMDs register the units at the Loft Board. The Loft Law was supposed to sunset after loft owners achieved code compliance and obtained residential certificates of occupancy for the IMDs.

However, the Loft Law did not sunset. Instead, it has been renewed, amended, and extended. The Loft Law was amended in June 2010 and again in January 2013 (the "Amended Loft Law"). The definition of IMDs in the Amended Loft Law was consistent with the initial definition of IMDs but incorporated spaces that were illegally occupied as dwelling units by three or more families living independently from one another for 12 consecutive months from January 1, 2008 through December 31, 2009 (the "Second Window Period"). Notwithstanding this expansion of covered units, the Amended Loft Law carved out of its jurisdiction units which do not have at least one window facing a street, legal yard or legal courtyard; that are less than 400 square feet and are located in a basement or cellar; or are in an industrial business zone (other than Greenpoint or Williamsburg, North Brooklyn and certain areas of the Long Island City industrial business zone). In addition, it excluded buildings that were used as of June 21, 2010, and continued to be used to the time when the coverage application was submitted, for certain activities which are inherently incompatible with residential use.

Mayor DeBlasio has opined that the Loft Law is too favorable to loft owners and that he intends to support legislation to increase the Loft Law's scope and enhance the rights of loft tenants. Among the proposed amendments are the inclusion of units in basements or that lack a window, and the addition of yet another window of coverage from 2015- 2016. The first priority of politicians, landlords, and owners alike should be to ensure that tenants do not reside in housing that does not comply with minimum housing maintenance standards and minimum standards for health, safety and fire protection. However, in removing the prior restrictions on basement spaces and spaces without windows, the Mayor is proposing an endeavor that owners may well be incapable of achieving, as the units they will be compelled to legalize may simply be unable to meet the required legal standards, even with major renovations. While Mayor DeBlasio has been crystal clear that he intends, to the best of his ability, to increase rent regulated housing stock in New York City, at what cost are these proposed amendments? For example, many years ago, we represented a loft building owner in which one of the tenants - despite owning a beautiful home in Rhinebeck, New York with a barn in which he created his art - claimed Loft Law status. The subject space was basement space with no windows in which this tenant stored his artwork. The tenant had to access the space by going through a hatch in the floor and climbing down a wooden rung ladder that folded out of the hatch. Under the proposed amendments to the Loft Law, the owner of that building would be compelled to find a way to legalize that space or potentially face fines for failing to do so. We currently have a case in which the tenants did not have a window during the Second Window Period, but installed a cinder block wall in 2014 with windows behind a roll down garage door (which is in the interior of their space) to sustain their application for Loft Law coverage. Again, this would require the owner to make a garage space legal for residential purposes. Clearly, New York City government agencies would never allow a single-family homeowner to convert their garage space into a residential apartment, so why should a loft building owner be compelled to do so?

The Mayor should meet with the owners of IMDs, and fire code and architectural experts, to understand the myriad issues involved in legalization, to help achieve the goal of ensuring that tenants do not reside in unsafe conditions. Simply adding rent regulated housing stock without fully understanding the implications of doing so will not necessarily serve New Yorkers well.

loftlaw



Newsletter Exclusive Article:

The New 421-a

featuring Daniel M. Bernstein, Frank E. Chaney and Nicholas Kamillatos

Featuring Daniel M Bernstein, Frank E Chaney, Nicholas Kamillatos - Newsletter July 2017

HPD Says New 421-a Exemption is too Generous, Plans to Restrict 421-a Units "Double Dipping" Under Inclusionary Housing Program.

Residential Developers Should Look to Alternative Zoning Programs: Rosenberg & Estis, P.C. is leading the way in Alternative Zoning Programs.

The New 421-a property tax exemption under Real Property Tax Law Section 421-a(16) was signed into law on April 10, 2017 (the "New 421-a") and already is reshaping residential development in NYC. The New 421-a applies to projects commencing construction from January 1, 2016 until June 15, 2022 and also may be available to projects which commenced construction in 2015 and prior under certain circumstances.

On June 27, 2017, R&E attorneys Daniel M. Bernstein, Frank E. Chaney, Nicholas Kamillatos presented an important panel discussion on the New 421-a program and the zoning, financing and rent regulatory programs and issues which may allow savvy developers to build larger, taller and better projects with more advantageous economics.

This alert will summarize some of the major issues which were addressed in the June 27th event and that will be of interest to NYC developers and property owners.

New 421-a
What is the New 421-a and what does it do? The New 421-a is a long and valuable property tax exemption for mixed-income rental projects which make 25% or 30% of their units affordable. It is available for small homeownership projects, but with less generous benefits. Without the New 421-a, rental projects can expect to pay approximately 25%-30% of gross rents as property taxes. With the New 421-a, property taxes will largely be frozen at or near pre-construction levels for 25 years, with a smaller exemption in years 26-35.

There are 3 main categories of projects which can qualify for the New 421-a:

· Rental projects of fewer than 300 units and certain larger rental projects (depending on their location). These projects can receive 35-year 421-a benefits.

· Small homeownership projects outside of Manhattan, 35 or fewer units, AV limit. These projects can receive capped 20-year 421-a benefits.

· Rental projects of 300 or more units located in an Enhanced Affordability Area (EAA) or 300+ unit projects located elsewhere that elect to follow construction wage requirements. These projects may have three Affordability Options available, must pay a minimum average construction wage ($60 per hour in Manhattan EAA, $45 per hour in Brooklyn or Queens EAA). These projects can receive enhanced 35-year 421-a benefits, have longer affordability restrictions and certain other differences from smaller projects.

R&E is leading the way in advising developers on the New 421-a, including how to switch a project from the old-law 421-a program to the New 421-a Program. If you have a residential project that commenced construction in 2015 or prior and are seeking benefits under the expired 421-a program, please feel free to contact the attorneys listed below to discuss whether the New 421-a program is a possibility for your project.

HPD Will Amend Inclusionary Housing Program Rules to Eliminate 421-a "Double-Dipping" For Off-Site Projects
In response to the New 421-a's more generous property tax exemption benefits and general incompatibility with condominium and cooperative projects, HPD has proposed amending the Rules of the Inclusionary Housing program to prohibit affordable units that qualify for 421-a property tax exemption benefits from also generating off-site bonus floor area through the Inclusionary Housing program. This means that an affordable housing unit could either receive property tax exemption benefits under the

We are in the process of verifying with HPD whether this proposed change to the Inclusionary Housing Program would apply only to the Voluntary Inclusionary Housing (VIH) Program or to the Mandatory Inclusionary Housing (MIH) Program as well.

Fortunately for developers, there are alternatives that may still allow New 421-a affordable units to also generate a zoning bonus: on-site Inclusionary Housing (VIH and MIH) and Senior Housing aka Affordable Independent Residences for Seniors. There are also important rent regulatory changes in New 421-a (as compared to the expired 421-a program) that are worth attention.

Inclusionary Housing On-Site
The voluntary Inclusionary Housing program is still available in two areas, R10 (and R10 equivalent) zoning districts and Inclusionary Housing Designated Areas. Mandatory Inclusionary Housing is still required in Mandatory Inclusionary Housing Designated Areas. Developers must satisfy HPD's approval process in order to participate in either Inclusionary Housing program. This means compliance with HPD's strict design, unit size, unit distribution and UFAS requirements and underwriting approval, among other requirements. As long as the affordable units are built on the same site as the market rate units, "double-dipping" is still allowed: i.e., the units can be counted as satisfying the requirements of both the Inclusionary Housing program and the New 421-a tax exemption program.

Senior Housing
In March of 2016, there was a change in the zoning resolution that will allow a developer who may not be able to participate in the VIH program to increase the project's residential floor area. This new option is senior housing, referred to as Affordable Independent Residences for Seniors ("AIRS"). To receive a bonus for AIRS, a project must satisfy certain affordability, age and use requirements. As with on-site Inclusionary Housing, on-site AIRS may also be counted as satisfying the requirements of both the AIRS program and the New 421-a tax exemption program.

Conclusions
The New 421-a program is compatible with several zoning incentive programs and financing programs, including the Inclusionary Housing on-site program, Senior Housing, and various financing programs. Developers and property owners should focus on what the New 421-a may mean for their projects and properties and may want to take advantage of this important tax incentive program.



Newsletter Exclusive Article:

Alexander Lycoyannis

Hot Topic: The Recently-Enacted Anti-Airbnb Law

Alexander Lycoyannis has been featured in several media sources for his expertise in the legal landscape surrounding short-term apartment rentals and the resulting effect on New York City. Lycoyannis wrote an article for the Commercial Observer entitled "The New Anti-Airbnb Law: An Overview," where he explains that a new law signed by Gov. Andrew Cuomo in October, 2016 supplements a 2010 state law that had banned most apartment rentals for fewer than 30 days.

The original 2010 law was not enforced effectively, as evidenced by the success of Airbnb in New York City since that law's passage. However, the new ban could be a game-changer, Lycoyannis says: "The new law makes it illegal for anyone to advertise the use of an apartment in a manner that would violate the 2010 law; in other words, most advertising for apartment rentals lasting fewer than 30 days.

The law specifies that anybody violating the new law faces civil penalties of up to $1,000 for the first violation, up to $5,000 for the second violation, and up to $7,500 for the third and subsequent violations. The new law took effect immediately." The aggressive new law is beginning to prompt New York City hosts to remove their apartments from the Airbnb website, and even induced Airbnb to file a federal lawsuit (later dropped when it became clear that the new law would be enforced against hosts only, and not Airbnb itself).

In an article entitled "Inside The NYC Airbnb Controversy - Hosts Pressure Mayor For Law Reform," Alec Berkman of Bisnow relies on Lycoyannis's expertise to conclude that "limiting the stock of relatively cheap accommodations could be a double-edged sword, potentially helping New Yorkers but curbing tourism, one of the city's biggest revenue streams."

To read more on this issue, follow links below:

"The New Anti-Airbnb Law: An Overview"

"Inside The NYC Airbnb Controversy - Hosts Pressure Mayor For Law Reform"