2017 NYC Property Year In Review
This past year saw several major legal and regulatory changes and proposals that are already impacting NYC property ownership and development.
March 2017 – The New York City Department of Finance issued final rules for the Industrial and Commercial Abatement Program (ICAP). The ICAP rules provide critical guidance on how to use the ICAP program to mitigate increases in property taxes relating to the renovation, expansion and new construction of commercial property throughout NYC. New ICAP projects are also subject to filing fees for the first time.
April 2017 – New York State’s 421-a Property Tax Exemption was renewed for new residential projects that commence construction until June of 2022. The new 421-a program contains different affordability requirements from the old 421-a program, including a longer exemption period and is primarily available for new rental projects. Developers and lenders quickly learn that the new 421-a can only be applied for after completion of construction, making it even more critical to confirm the eligibility of residential projects through the review and advice of 421-a counsel and in consultation with the New York City Department of Housing Preservation and Development (HPD). Without a 421-a Preliminary Certificate of Eligibility (as was available during construction under the old 421-a program, no longer available under the new 421-a program), a counsel’s 421-a opinion letter becomes even more essential for developers/borrowers and for lenders.
June through December of 2017 – HPD and the New York City Comptroller proposed and/or adopted rules to implement the new 421-a program, to limit the ability of new 421-a projects to generate additional development rights under the voluntary Inclusionary Housing program, to add documentation requirements for payment of prevailing wages to building service employees and, for the first time, to clarify how developers of large 421-a projects are to meet minimum average wage construction wage requirements. Owners of projects under the new 421-a program and the old 421-a program can expect to be the subject of regular audits by HPD as to their properties’ compliance with rent registration and affordability requirements. Many large property owners are already reviewing their 421-a properties’ compliance with these and other 421-a requirements in advance of HPD’s audits, which are scheduled to begin in the fall of 2018.
December 2017 – Federal tax reform was signed into law. While it appears that private activity bonds and low-income housing tax credits are still allowed, it remains to be seen what demand there will be for these programs among developers/borrowers and among the potential purchasers of these tax credits. If these and other tools prove unable to keep up with the demand for housing finance, developers/borrowers will look to other tools and financing sources to pick up the slack.
Throughout 2017, various re-zoning proposals were evaluated by the City Planning Commission and the NY City Council, and several became law (East Midtown, East Harlem, among others). The effects of these re-zonings will be seen in new residential, commercial and mixed-use developments. Owners and potential developers of sites in re-zoned areas are expected to align their development plans with incentive programs – chiefly property tax incentives and financing programs – to fully incentivize development in re-zoned areas.
If you have interest in discussing a NYC residential or commercial property and how it may be affected by some of these legal and/or regulatory changes, please contact Daniel M. Bernstein.