Without further 421-a revisions, major Atlantic Yards/Pacific Park uncertainties; most condos wouldn't get tax break (which meant huge savings)
But Forest City New York's Ashley Cotton's answer to a question I posed indicated significant uncertainty--and likely deep concern--regarding the timing and viability of several buildings within the project
Remember, when parent Forest City Realty Trust last November announced an unspecified slowdown in the project, which is being developed as part of Greenland Forest City partners, it cited three reasons. Along with the glut of market-rate units and rising construction costs, CEO David LaRue cited uncertainty about the 421-a tax break, a "crucial tool for virtually any ground-up multi-family project."
And that crucial tool has been revised, but would for now exclude several buildings within the planned project buildout. Why so crucial? Well, as explained below, the overall taxes on units at the 550 Vanderbilt condo tower are less than one third of what they'd be without the tax break. Lowered taxes mean lower monthly payments, and that drives higher prices overall.
Four of 15 buildings have been completed or near completion; no active construction has begun on any building, though infrastructure work continues. While Forest City has said it will meet the 2025 deadline for the remaining 1,468 affordable units, that may be in question. And it seems very unlikely that the full project, including market-rate units, would be done by then.
Condo limits in 421-a
At the meeting last night, I noted that the legislative revision of 421-a passed last month only restored the savings for condo buildings in the outer boroughs with up to 35 units. So, I asked, would it apply to future Atlantic Yards condo buildings, which would be much larger.
No, said Cotton. "We’re assessing the whole thing. We’re fast and furious sort of analyzing it with our experts and attorneys. And condos were one of the sticking points in the political debate… So we have to assess what the new language means for us.” (See PART TTT of the legislation, starting on p. 194.)
Cotton's tone differed greatly from the enthusiasm expressed by her boss, CEO MaryAnne Gilmartin, who in January told the Real Deal regarding the 421-a revision, "Well, instantly it's going to allow Pacific Park Brooklyn to continue and for us to build it as quickly as possible."
The first condo building, B11, has 278 units, while the unbuilt B12, which actually has the tax break because construction "started," would have 265 units. The future B13 would have 277 condos, and B4 was once planned to have 218 condos. That would leave another 892 condos as part of the 1,930 such units approved.
Not only that, the 2007 "Atlantic Yards carve-out," which extended the 421-a tax break to the whole project even if rental buildings contained no affordable units (as long as there were a minimum of affordable units overall), has apparently expired. That means that 100% market-rate rental buildings--of which three are contemplated--wouldn't get the tax break.
The uncertainly about 421-a and condos surely has hindered the effort, announced more than a year ago, to market three buildings with condos--B12, B13, B4--to outside investors.
It's hard to imagine that Greenland Forest City and other similarly situated developers would be in such a bind regarding the condos, or that Forest City would lose its exemption. Then again, Forest City did lose some key allies, with the departure, in scandal, of Assembly leaders Vito Lopez and Sheldon Silver.
Presumably they're lobbying to get the tax break extended. Perhaps we'll learn more on Friday, when executives from parent Forest City Realty Trust hold a quarterly conference call with investment analysts.
The 421-a savings
As shown in the graphic below, taken from the 550 Vanderbilt offering plan, monthly real estate taxes with the 421-a tax abatement for the building as a whole were estimated at $101,308 (pink), whereas without the abatement they'd be $330,091 (blue).
Similarly, annual real estate taxes with the 421-a tax abatement were estimated at $1,215,693 (pink), whereas without the abatement they'd be $3,961,095 (blue). Such savings continue for 11 years, and then are phased out over the next four years.
Similarly, annual real estate taxes with the 421-a tax abatement were estimated at $329 (green), whereas without the abatement they'd be $9,519 (orange).
421-a = a $100,000 bump in price?
Using a StreetEasy calculator, with a 4.4% interest rate, a buyer putting 20% down ($195,000) on a $975,000 apartment and paying monthly costs of $743.15 common charges and $27.39 taxes would have a monthly payment of $4,676.
(This, however, assumes a 30-year tax break, though it disappears after 15 years. A 15-year mortgage--which doesn't take into account the diminishment of the tax break over the last four years--would mean an $6,698 payment.)
Using that same calculator, a buyer putting 20% down on a $975,000 apartment and paying monthly costs of $743.15 common charges and full $793.29 taxes would have a monthly payment of $5,442. (Over 15 years, it would be $7,464.)
What would the price for a buyer paying full taxes and a consistent monthly payment of $4,676 over 30 years? About $784,000, a significant drop from $975,000. (Again, that overestimates savings over the last 15 years, plus the last four years of the 15-year tax break.)
What about a consistent monthly payment of $6,698 over 15 years? Nearly $850,000--though again, that overestimates savings over the last four years of the tax break. Bottom line: the 421-a benefit seems to be worth at least $100,000 in sticker price for such units.
The schematic below, no longer accurate in terms of timing or configuration, lists just four buildings with condos: B4, 218; B11, 278; B12, 265; B13, 277.
That's only 1038 condos, with 1,930 approved, so that leaves 892 condos. Many if not most might go into Site 5, where the developer has floated plans for a two-tower project, billed as an office tower but potentially containing more than 600,000 square feet of apartments.
But if they switch B4 to office space, as planned, that would be a loss of condos, as well.
Both the graphic above and the tentative scenario described below depict a project with far fewer condos than the 1,930 approved and, rather than 2,250 affordable and 2,250 market-rate rentals, perhaps 900 more market-rate rentals.
In other words, at one point, some condos were projected to shift to rentals. That said, neither scenario was locked in. And Atlantic Yards/Pacific Park is a "never say never" project.