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Gilmartin says return of 421-a "will allow Pacific Park Brooklyn to continue" (really?)

Update/correction January 2018: note that while sites were grandfathered in, the project as a whole had questions marks around it, so it would not have been prudent to build.

OK, a red-carpet interview before an awards banquet is not exactly the same as a deposition under oath. But I do think Forest City Ratner CEO MaryAnne Gilmartin, who recently received a lifetime achievement award at the Real Estate Board of New York’s annual gala, wasn't fully candid about the return of the 421-a tax subsidy, now dubbed by Gov. Andrew Cuomo "Affordable New York."

"Well, instantly it's going to allow Pacific Park Brooklyn to continue and for us to build it as quickly as possible," she said in an interview (below) with the Real Deal's Hiten Samtani. "Because without it, it would not be possible to meet the timeline, so that's critical."

Maybe. But the Greenland Forest City Partners (GFCP) joint venture already has 421-a benefits locked in for two sites, B12 (615 Dean) and B15 (664 Pacific). While the latter has been stalled by a legal case regarding access to a neighboring property, B12 could have started already. And it hasn't.

That's likely because of two additional factors cited by Forest City Ratner's parent Forest City Realty Trust (FCRT): rising construction costs and a glut of luxury units in and around Downtown Brooklyn.

That said, the return of 421-a (and, perhaps, some other public help) may help GFCP meet the 2025 deadline for the remaining affordable housing. (Nearly 800 of the promised 2,250 below-market units will be finished soon. Note that it seems that a specific provision extending the tax-break to buildings without affordable housing will have to be renewed.)

But parent FCRT in November announced a financial model for the project stretching to 2035, which suggests construction could stretch well past 2025. (There are 6,430 total apartments projected, as well as office and retail space.)



On the award

“This award--I’m a proxy. I"m a proxy for an industry that has finally gotten their head around the fact that women have been overlooked and underrepresented,” Gilmartin said in the interview. “And for that, this award is really for all of those women. And for a borough, for all of the boroughs outside of Manhattan, that have been overlooked and under-served by the REBNY community."

As the Real Deal reported, in her speech, she said, to loud cheers, “I dedicate this award to all the women whose talents and ambitions were overlooked and underrated by our industry."

The 421-a deal

The bill would extend the tax break from 25 years to 35 years, with affordable housing guaranteed 40 years (with Atlantic Yards it's 30-35 years), and require wage minimums on large projects in more coveted areas.

As the New York Times reported, in De Blasio and Cuomo Spar Over Cost of Affordable Housing Plan, Cuomo had rejected a de Blasio proposal because it didn't mandate wages for construction workers. An effort to get the Real Estate Board of New York and a consortium of unions to agree led to a stalemate--and now a one year suspension of the tax break.

The Times reported:
According to Vicki Been, the commissioner of the city’s Department of Housing Preservation and Development, the subsidy for every unit of affordable housing will swell to an estimated $544,329 per unit in forgiven taxes under the governor’s plan. Under the city’s proposal, the cost per unit was $421,693.
Under pre-2015 421-a (which included condos), according to HPD, the cost was $614,029 per unit.

The Times quoted Carol Kellermann, president of the Citizens Budget Commission, who called it a policy choice: “The governor’s proposal raises the city’s cost in foregone property tax revenue in order to subsidize construction workers’ wages, without increasing the expected number of affordable housing units."

Wouldn't it be worth seeing alternative proposals to deliver such housing?

According to Politico, summarized in the Real Deal, the proposed changes "would cost the city about $82 million a year more than legislation supported by the de Blasio administration in 2015." A Cuomo spokeswoman called the cost "minimal."

Also, ProPublica reported that Cuomo's "proposal would also let developers collect the tax savings without limiting rent increases on most of the market-rate apartments they build, as required under past iterations of the program."

That means that instead of 35 years of relative stability, the rent increases would begin after the first tenant moves out, as long as the rent is more than $2,700 per month, the current floor for luxury deregulation. (ProPublica has reported that the current regulation often isn't met.)

Update: the IBO on 421-a

A report from the New York City Independent Budget Office (IBO) asked, "An Efficient Use of Public Dollars?: A Closer Look at the Market Effects of the 421-a Tax Break for Condos":
Despite the substantial cost of 421-a in foregone tax dollars, there has been little research examining its effects on housing prices and whether the tax benefit efficiently fosters housing development—the primary goal of the 421-a program.
IBO has explored these questions in regard to condo units receiving 421-a benefits. To do this, we compared more than 17,000 repeat condo sales from 2005 through 2015. Among the key findings based on this analysis:
  • Condo buyers in Manhattan pay on average $35,500 more for an apartment with a 421-a benefit than buyers of similar units without the tax break. Condo buyers in the other boroughs pay on average $31,200 more for units with the 421-a benefit.
  • Because of the higher purchase prices for condos receiving 421-a benefits, owners in Manhattan spend on average 53 cents to 61 cents for each $1 of tax savings. Condo owners in the rest of the city spend on average 42 cents to 50 cents for each $1 of tax savings.
  • Owners of condos receiving 421-a benefits get more in tax savings than they are spending in higher purchase prices. As a result, the city “wasted” a total of roughly $2.5 billion to $2.8 billion in tax expenditures in 2005 through 2015 by providing tax relief to owners as opposed to encouraging additional housing development—the program’s intended purpose.
As policymakers again consider renewal of 421-a, a reduced and better-targeted set of benefits could, at least in theory, lessen the program’s inefficiency while still providing some incentive for condo development. A program that does not oversupply tax subsidies would help make better use of scarce public resources.

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