Wednesday, August 08, 2007

AY carve-out shrinks, value halved (?), in city-brokered 421-a reform

[Updated August 11] A compromise on the reform of the 421-a tax break reached yesterday, according to Crain's New York Business, eliminates the "Atlantic Yards carve-out" that would've given a special $300 million break to Forest City Ratner's project and even generated criticism from Mayor Mike Bloomberg and ACORN's Bertha Lewis, both project supporters.

Not quite. Forest City Ratner still gets a deal. Ten days ago, an FCR spokesman had declared a modified carve-out a done deal. The Daily News reported that the tweak would reduct to 15 years the tax break for the 1930 market-rate condos.

And that appears to be the deal, worth $200 million according to the Post and $150 million in the Sun, even though it's been couched differently in some reports. First, Forest City Ratner would still get its tax savings in most buildings without having to change the income mix, thanks to an upward tweak in the bill's definition of affordable housing.

And the developer would still get a tax break for the condo buildings without having to provide affordable housing. That's the premise of the current law, as applied to Prospect Heights, and certainly part of the developer's economic projections when Atlantic Yards was hatched. But no other similarly-situated developer, who planned a project but then saw the law come up for renewal and revision, would get the same deal.

Four or five AY buildings would contain only condos; the "carve-out" would have allowed them to qualify for a 15-year tax break even without including affordable housing--[updated] which is better than the current 15-year as-of-right tax break. The compromise allows a 15-year tax break but would allow the 25-year tax break if those buildings included 20% affordable for-sale units--a provision that likely would be applied to at least one of those condo buildings.

Obfuscation in the Times

The New York Times reported:
As for Atlantic Yards, city officials said the new agreement represents a fair compromise. To receive the maximum tax break, 20 percent of the units in any building will have to meet the new affordability guidelines, which are more stringent than those that originally applied. And the lower-priced units will have to be built at the same time as the market-rate units, to insure that they are not put off until the end of construction or never completed.
(Emphasis added)

The Times failed to mention that AY condo buildings could still receive a special tax break.

And what does "originally applied" mean? The new affordability guidelines are more stringent than those currently in place, but they are less stringent than the bill as passed by City Council and as originally passed by the State Legislature.

In other words, Forest City Ratner now would have to include affordable units in every building to get the maximum tax break. But it would still get special treatment.

The 421-a revision passed by the city and originally by the state would have required FCR to reconfigure the income ranges planned for the entire project--hence the carve-out.

Now the developer is faced with the option of doing nothing, and getting the 15-year tax break for the four or five buildings that would include only condos, or tweaking the income ranges in some of those condo buildings to get the 25-year tax break. (That might mean lower prices for market-rate condos, now that they wouldn't be in exclusively luxury buildings.)

Configuration questions

Assemblyman Hakeem Jeffries had criticized the carve-out as "offensive", though he and others who supported at least the affordable housing element of Atlantic Yards last year had not criticized the condo buildings for "economic segregation," as he recently dubbed the carve-out.

The project as of now would be 4500 rental apartments, with half at various levels of affordability, and 1930 condos. According to a Forest City Ratner document (right) obtained as a result of a lawsuit filed by Assemblyman Jim Brennan and State Senator Velmanette Montgomery, at least four buildings were planned to contain condos and not rental units. (One of those four would contain office space as well.)

However, that document left out one building, at Site 5, which apparently would contain 322 condos.

Raising AMI

The Times's online headline today, "Bill Aims to Spur Housing for the Poor in New York," was off the mark. It would better have said: "Bill Would Spur Subsidized Housing in New York" or "Compromise Loosens Affordable Housing Definitions." (Update: in print, the headline more accurately said "Deal May Spur More Housing At Lower Cost.")

One key to the change, apparently, was raising the Area Median Income, or AMI, regarding affordable units. That was the request of the Bloomberg administration. In exchange, the city apparently agreed to Assemblyman Vito Lopez's stipulation that the "exclusion zone"--the areas where affordable housing would be required in exchange for the tax break--be that in the state bill, rather in the more narrow city bill. However, that zone will be reviewed later this year, according to the Times.

The idea behind expanding the zone was that 421-a was spurring market-rate development in prosperous or gentrifying neighborhoods without any commensurate provision for subsidized housing. (Click on graphic for larger view.)

The city's bill, passed at the end of the December, would've required 20% of the units be affordable to households with AMIs of 60%-80%. The first version of the state bill would've set AMI at 60%.

That was accompanied by the carve-out, because Atlantic Yards wouldn't qualify with 20% units at 60% of AMI--and some buildings wouldn't have affordable units at all. The developer was estimated to be eligible for $300 million in tax breaks others similarly situated couldn't get. However, the state's bill also generated pushback from the city, which argued that it couldn't build the planned Queens West middle-income development.

[Updated] The new bill maintains AMI at 60% for projects built by the private sector without "substantial governmental assistance," but raises it to 90%, with a cap of 120% for any unit, for projects with such assistance, apparently because the city is concerned about moderate-income subsidized housing like Queens West.

Under that definition, 1350 of the 2250 planned Atlantic Yards affordable rentals would qualify and thus ensure that the project as a whole meets the state's definition of 20% affordable housing. Here's the tally: 20% of the Atlantic Yards rentals, 900 units, would be at 50% AMI and below. Another 450 would be at 60%-100% AMI.

Affordable condos?

Crain's reported:
Developments that use substantial government assistance must provide 20% of their units on-site to people earning no more than 125% of area median income for homeownership.

That refers to specific buildings. So the "affordable" for-sale units would go to households (of four) with incomes up to $88,625.

Forest City Ratner has pledged that there would be 200 onsite for-sale affordable units, or about 10%. (This is part of an announced, though not formally pledged, plan to build 600 to 1000 affordable for-sale units, onsite or offsite.) Jeffries has asked the developer to double the number of onsite units.

But the 200 units could be applied to some of the condo buildings to qualify for the 25-year tax break.

Quick criticism

The change in AMI spurred quick criticism from Williamsburg housing activist Phil DePaolo, of the New York Community Council: "I believe that this new bill will not create substantial amounts of real affordable housing. At this time, market rate housing development is clearly occurring and will continue to occur in the city without the benefit of the 421-a tax abatement. Therefore, the tax abatement is no longer needed as an incentive."

Because AMI is calculated regionally, the median income for a family of four, $70,900, is nearly twice the Brooklyn AMI and more than twice the community AMI of $30,000 in Greenpoint and Williamsburg.

"Even at 60% of AMI most residents in Williamsburg and Greenpoint will not be able to afford the units proposed under Chairman [Vito] Lopez's bill," DePaolo said. "We also worry about the fine print in the new HDC [Housing Development Corporation] programs, which now has affordable housing rent to income ratios going all the way up to 35%, when the entire country uses 30% as a standard. It seems like it might not be much, but if you do the math, that extra 5% really squeezes working families!"

He added, in an echo of the recent Rutgers report on gentrification in Williamsburg, "It's very important to focus on the luxury units which invariably change the economic demographics of less affluent communities and have the effect of forcing out the less affluent. The wealthy residents that move in have larger incomes putting pressures on local retail outlets to change the mix of amenities. Instead of hardware stores, affordable supermarkets and Laundromats, the commercial core changes to noisier bars, expensive restaurants, boutique food markets and so on. Stores offering less expensive goods can no longer pay the cost per square foot of the gentrified neighborhood."

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