On September 19, 2017, R&E Member Nicholas Kamillatos moderated the Bisnow Affordable Housing event. Of Counsel, Daniel M. Bernstein also joined the discussion as a panelist.
New 421-a Due Diligence Considerations
1.Projects that may be “grandfathered” under Old 421-a program (by commencing construction by December 31, 2015) may want to opt-in to New 421-a program.
2.Switching from the Old 421-a program to the New 421-a program may require maintaining eligibility for Old 421-a program until New 421-a program eligibility is confirmed.
3.Projects commencing construction January 1, 2016 through June 15, 2022 can potentially qualify for New 421-a program.
4.Be clear that the project will qualify for New 421-a program. New 421-a program requirements are discussed in this panel.
New 421-a Lender Considerations
1.New 421-a application process is different. Under the old 421-a program, developers could obtain a Preliminary Certificate of Eligibility before commencing construction. Under the new program, applications are only accepted after completion of construction (i.e., issuance of TCO or CO for all residential units). The timeline for receiving benefits under the new program has not been defined. HPD could take months before issuing New 421-a Certificate of Eligibility.
2.Lenders will want an opinion of counsel as to the eligibility of a project to receive benefits. HPD will not issue such New 421-a opinions of counsel so 421-a counsel must provide.
3.Loan documents should build in milestones for New 421-a application process, including:
a) HPD approval of certain ANYHP requirements can be obtained prior to completion of construction.
b) HPD approval of marketing materials. Notice of Intent to Market is to be filed with HPD nine (9) months prior to completion date.
c) HPD will require that a 421-a Restrictive Declaration is executed and recorded against the property, plus all affordable units and certain market units rented and registered with DHCR.
d) Since we do not yet know how long HPD will take to process and approve applications for New 421-a benefits, loan documents should allow 9 months post completion of construction for issuance of New 421-a Certificate of Eligibility, with additional time provided that borrower is diligently pursuing same.