Why 2022 could be a very big year for Atlantic Yards/Pacific Park: looming 2025 housing deadline, plus Affordable NY renewal
May 31, 2025 is the deadline for the required 2,250 affordable housing units, with potentially onerous $2,000/month fines per missing unit facing developer Greenland Forest City Partners. Two towers starting this year and likely next year should include 25% to 30% affordable apartments, leaving a gap of some 900 units to be built.
That remaining count will be tougher to reach. It takes two or three years to build a tower, plus the time to build a platform over the Vanderbilt Yard to allow vertical construction. So they have to start before then.
I've reported on tentative, unconfirmed plans for Greenland Forest City Partners to build three towers (B5, B6, B7) over the western railyard block, with B5 starting in the first quarter of 2021 and B6 and B7 starting in the second square of 2022. Here's the project schematic.
(Another wild card is the two-tower project floated for Site 5, which could include apartments, but first needs approval from Empire State Development. The three towers over the eastern railyard block--B8, B9, B10--likely would come past 2025.)
The current Affordable New York tax-incentive program, the replacement for the 421-a tax break, is "available to projects that commence construction between January 1, 2016 and June 15, 2022, and are completed on or before June 15, 2026." It requires 25% to 30% affordability in exchange for the tax break.
So 6/15/22 could be a deadline to start any building contemplated to meet the 2025 deadline, depending on whether and how the tax break is renewed or modified.
Developer concern
Many developers are concerned about the tax abatement, as discussed at the Only Brooklyn.® Real Estate Conference on May 7, as shown in the video below.
State of the Brooklyn Residential Market from TerraCRG on Vimeo.
Jeff Levine of Douglaston Development expressed dismay about a "glut" in the condo market, at least at the luxury level--"the only market that sells is the commodity market, which in Manhattan may be in the vicinity of $2,000 a foot, and in Brooklyn may be in the teens"--he said--rental is the way to go." (That benchmark, by the way, classifies 550 Vanderbilt as a "commodity" condo, as past sales averaged $1,469/sf, according to StreetEasy.)
But "the rental market is still suffering from the excess taxation of New York City, where as much as one third of your rent in some cases is allocated to real estate taxes," Levine said, "and you cannot achieve the necessary tax abatements, which are basically a Band-Aid to allow you to develop the rental property, in the hope that inflation will bail out the excess taxation." And Affordable New York "makes the penciling of pro formas very difficult," he said, indicating the costs and benefits.
He did say he expected market cycles ending in a re-set.
A Pacific Park developer
At about 26:46 came Jeremy Shell of TF Cornerstone, whose firm is building two towers (B12, B13) on the southeast block of the Atlantic Yards/Pacific Park site, having leased the sites from Greenland Forest City Partners.
"Given the political climate that we're in right now, the outlook is even worse, from my perspective," Shell said. "Look out to 2022, June 2022; 421-a, or Affordable New York, comes up for renewal. The way we do projects... a lot of people buy a shovel-ready project, the way we do projects, we have to look out--scary as it is, 2022 is just around the corner, from my perspective."
Surely the cost of land, or a development lease, is baked into their decision to go forward. Which means that TF Cornerstone got a very acceptable $143 million deal from GFCP for the B12 and B13 sites. Those sites are shown from overhead in a screenshot from the video.
Note the parked Long Island Rail Road trains to the north. A deck must be built over the working railyard, as shown in the east-pointing image below right. It's a much larger expanse than it looks in the northbound overhead shot.
Tax abatement worries
"And so, the prospect of speculating on land, without a certain execution on the Affordable New York," Shell said, pointing to the notion of buying land without an immediate execution date. "And if you look at today's political environment: is Affordable New York going to get renewed...?"
"I'd say it's 50/50 at best, given the pressures that come in from the external forces," he continued. "And if it got renewed, how will it be renewed, and with what modifications, as bad as the program is right now, with respect to all the affordable housing that you need to include in there, what needs to change?"
(Emphasis added)
Had Shell been talking to the public at large, he likely wouldn't have described the program as "bad" for requiring affordability, but developers can be more candid when talking to an audience of peers. While TF Cornerstone builds affordable housing, that's not its main business or goal. So the numbers must work, and apparently they do regarding Pacific Park. But that still doesn't mean the program's not a burden, in their mind.
"At the very least, it needs to be renewed as is," Shell continued. "What could happen is they could put additional constraints on you with respect to affordable housing. And that's certainly where people are going. Look at what's happening with rent regulations." (He spoke before the state legislature passed landmark pro-tenant legislation, as described by Samuel Stein for Jacobin.)
"The real problem is not just that the tax abatement needs to be adjusted," Levin commented. "The underlying problem has to be fixed." He cited a tax system that needs reform. (Here's a Gotham Gazette commentary from the Citizens Budget Commission.)
Shell agreed, but said, "Looking at the politics right now, it's hard for me to have confidence there's political will to reform the real estate tax regime in the next, say two and a half years... We're trying to get the projects that we have in the ground, before that deadline. And planning further out, I think, is daunting."
If planning further out is daunting, well, that goes for anyone prognosticating on the last three or four Atlantic Yards/Pacific Park towers, at minimum. It's difficult for Greenland Forest City to offer a schedule without having a sense of the financing possibilities.
Regarding condos
Though there were once supposed to be 1,930 condos in Atlantic Yards/Pacific Park, there's only one building, 550 Vanderbilt, with 278 units. Given the 421-a reform eliminated the tax break for condos, it's unlikely that any more condos will be built, at least until a change in the law.
Maybe that wouldn't be so bad for the developers.
Early on in the discussion, Levine said, "I hate the condo market. In my early days, I waxed rich and I waxed poor with the condo market. But I realized early on that I'm not smart enough to time the economy and the condo market so that my product could hit it when people are ready, willing, and anxious to buy. So, generally speaking, I prefer to do rentals."
TF Cornerstone moving into Brooklyn
Shell was introduced as having had a lot of success with a large project in Downtown Brooklyn, 33 Bond Street, a 25-story building with 714 units.
"We consider ourselves a New York City company," he said, citing TF Cornerstone's "very high profile" in Long Island City and a long-past role in Brooklyn.
Regarding 33 Bond, Shell said "it's been terrific. we feel like we're in it for the long run, we want to continue to grow the brand here in Brooklyn."
"Last summer we contracted, and this winter we closed, on two sites in Pacific Park," he said. "800 apartments there. We're thrilled, because it really fit our core competencies, which is highly complicated public-private, large-scale rental housing, where you really have to take a long-term view, and that's how it fits our profile."
The long-term view surely contemplates the delayed open space that residents would ultimately partake of.
A not-so-booming market for office space
At about 33:19, the moderator asked what's missing in Brooklyn.
"The biggest issue confronting Brooklyn in my opinion today is the lack of major corporations, entities taking advantage of the commercial office opportunities that are being created," Levine said. "It's no secret there are a number of major commercial buildings being built for the most part on spec, here in Brooklyn... unfortunately, the old philosophy, if you build it they will come, does not seem to be taking place."
That is not the greatest advertisement for future office space at Site 5.
Why is the office building 25 Kent in Williamsburg not renting? (It was said, last November, to have an anchor tenant coming.)
"One issue might be, in general, the Amazon effect," Levine said. But it wasn't leasing before Amazon's short-lived Long Island City plan, he was told.
Levine stuck to his line, citing "the anticapitalist philosophy that makes people think that Brooklyn, and New York City, might not be the place to house your business for the next 20 or 30 years." He said he hoped "Amazon will be the turning point in the philosophy... There may be some things about capitalism that are not right.... capitalism has been very good to me, and I think it's very good for all of us, when it works right."
Shell cited the need for the city's Relocation and Employment Assistance Program (REAP), which offers business income tax credits for relocating jobs from outside of New York City or below 96th Street in Manhattan to designated locations above 96th Street in Manhattan or in one of the other four boroughs. The program has been extended to 6/30/20.
"We've got the REAP benefits coming up," Shell said. "Without that, these outer borough office deals are just--if they're sucking wind now, you could imagine, without that, where they'd be... We're working on a largely commercial project in Long Island City on the waterfront, that's a big concern of ours. We're going to be pioneering in Long Island City, a commercial building... the prospect of losing REAP might be devastating."
That surely will be another milestone that those developing Site 5 to watch.
That remaining count will be tougher to reach. It takes two or three years to build a tower, plus the time to build a platform over the Vanderbilt Yard to allow vertical construction. So they have to start before then.
I've reported on tentative, unconfirmed plans for Greenland Forest City Partners to build three towers (B5, B6, B7) over the western railyard block, with B5 starting in the first quarter of 2021 and B6 and B7 starting in the second square of 2022. Here's the project schematic.
(Another wild card is the two-tower project floated for Site 5, which could include apartments, but first needs approval from Empire State Development. The three towers over the eastern railyard block--B8, B9, B10--likely would come past 2025.)
The current Affordable New York tax-incentive program, the replacement for the 421-a tax break, is "available to projects that commence construction between January 1, 2016 and June 15, 2022, and are completed on or before June 15, 2026." It requires 25% to 30% affordability in exchange for the tax break.
So 6/15/22 could be a deadline to start any building contemplated to meet the 2025 deadline, depending on whether and how the tax break is renewed or modified.
Developer concern
Many developers are concerned about the tax abatement, as discussed at the Only Brooklyn.® Real Estate Conference on May 7, as shown in the video below.
State of the Brooklyn Residential Market from TerraCRG on Vimeo.
Jeff Levine of Douglaston Development expressed dismay about a "glut" in the condo market, at least at the luxury level--"the only market that sells is the commodity market, which in Manhattan may be in the vicinity of $2,000 a foot, and in Brooklyn may be in the teens"--he said--rental is the way to go." (That benchmark, by the way, classifies 550 Vanderbilt as a "commodity" condo, as past sales averaged $1,469/sf, according to StreetEasy.)
But "the rental market is still suffering from the excess taxation of New York City, where as much as one third of your rent in some cases is allocated to real estate taxes," Levine said, "and you cannot achieve the necessary tax abatements, which are basically a Band-Aid to allow you to develop the rental property, in the hope that inflation will bail out the excess taxation." And Affordable New York "makes the penciling of pro formas very difficult," he said, indicating the costs and benefits.
He did say he expected market cycles ending in a re-set.
A Pacific Park developer
At about 26:46 came Jeremy Shell of TF Cornerstone, whose firm is building two towers (B12, B13) on the southeast block of the Atlantic Yards/Pacific Park site, having leased the sites from Greenland Forest City Partners.
"Given the political climate that we're in right now, the outlook is even worse, from my perspective," Shell said. "Look out to 2022, June 2022; 421-a, or Affordable New York, comes up for renewal. The way we do projects... a lot of people buy a shovel-ready project, the way we do projects, we have to look out--scary as it is, 2022 is just around the corner, from my perspective."
Surely the cost of land, or a development lease, is baked into their decision to go forward. Which means that TF Cornerstone got a very acceptable $143 million deal from GFCP for the B12 and B13 sites. Those sites are shown from overhead in a screenshot from the video.
Note the parked Long Island Rail Road trains to the north. A deck must be built over the working railyard, as shown in the east-pointing image below right. It's a much larger expanse than it looks in the northbound overhead shot.
"And so, the prospect of speculating on land, without a certain execution on the Affordable New York," Shell said, pointing to the notion of buying land without an immediate execution date. "And if you look at today's political environment: is Affordable New York going to get renewed...?"
"I'd say it's 50/50 at best, given the pressures that come in from the external forces," he continued. "And if it got renewed, how will it be renewed, and with what modifications, as bad as the program is right now, with respect to all the affordable housing that you need to include in there, what needs to change?"
(Emphasis added)
Had Shell been talking to the public at large, he likely wouldn't have described the program as "bad" for requiring affordability, but developers can be more candid when talking to an audience of peers. While TF Cornerstone builds affordable housing, that's not its main business or goal. So the numbers must work, and apparently they do regarding Pacific Park. But that still doesn't mean the program's not a burden, in their mind.
"At the very least, it needs to be renewed as is," Shell continued. "What could happen is they could put additional constraints on you with respect to affordable housing. And that's certainly where people are going. Look at what's happening with rent regulations." (He spoke before the state legislature passed landmark pro-tenant legislation, as described by Samuel Stein for Jacobin.)
"The real problem is not just that the tax abatement needs to be adjusted," Levin commented. "The underlying problem has to be fixed." He cited a tax system that needs reform. (Here's a Gotham Gazette commentary from the Citizens Budget Commission.)
Shell agreed, but said, "Looking at the politics right now, it's hard for me to have confidence there's political will to reform the real estate tax regime in the next, say two and a half years... We're trying to get the projects that we have in the ground, before that deadline. And planning further out, I think, is daunting."
If planning further out is daunting, well, that goes for anyone prognosticating on the last three or four Atlantic Yards/Pacific Park towers, at minimum. It's difficult for Greenland Forest City to offer a schedule without having a sense of the financing possibilities.
Regarding condos
Though there were once supposed to be 1,930 condos in Atlantic Yards/Pacific Park, there's only one building, 550 Vanderbilt, with 278 units. Given the 421-a reform eliminated the tax break for condos, it's unlikely that any more condos will be built, at least until a change in the law.
Maybe that wouldn't be so bad for the developers.
Early on in the discussion, Levine said, "I hate the condo market. In my early days, I waxed rich and I waxed poor with the condo market. But I realized early on that I'm not smart enough to time the economy and the condo market so that my product could hit it when people are ready, willing, and anxious to buy. So, generally speaking, I prefer to do rentals."
TF Cornerstone moving into Brooklyn
Shell was introduced as having had a lot of success with a large project in Downtown Brooklyn, 33 Bond Street, a 25-story building with 714 units.
"We consider ourselves a New York City company," he said, citing TF Cornerstone's "very high profile" in Long Island City and a long-past role in Brooklyn.
Regarding 33 Bond, Shell said "it's been terrific. we feel like we're in it for the long run, we want to continue to grow the brand here in Brooklyn."
"Last summer we contracted, and this winter we closed, on two sites in Pacific Park," he said. "800 apartments there. We're thrilled, because it really fit our core competencies, which is highly complicated public-private, large-scale rental housing, where you really have to take a long-term view, and that's how it fits our profile."
The long-term view surely contemplates the delayed open space that residents would ultimately partake of.
A not-so-booming market for office space
At about 33:19, the moderator asked what's missing in Brooklyn.
"The biggest issue confronting Brooklyn in my opinion today is the lack of major corporations, entities taking advantage of the commercial office opportunities that are being created," Levine said. "It's no secret there are a number of major commercial buildings being built for the most part on spec, here in Brooklyn... unfortunately, the old philosophy, if you build it they will come, does not seem to be taking place."
That is not the greatest advertisement for future office space at Site 5.
Why is the office building 25 Kent in Williamsburg not renting? (It was said, last November, to have an anchor tenant coming.)
"One issue might be, in general, the Amazon effect," Levine said. But it wasn't leasing before Amazon's short-lived Long Island City plan, he was told.
Levine stuck to his line, citing "the anticapitalist philosophy that makes people think that Brooklyn, and New York City, might not be the place to house your business for the next 20 or 30 years." He said he hoped "Amazon will be the turning point in the philosophy... There may be some things about capitalism that are not right.... capitalism has been very good to me, and I think it's very good for all of us, when it works right."
Shell cited the need for the city's Relocation and Employment Assistance Program (REAP), which offers business income tax credits for relocating jobs from outside of New York City or below 96th Street in Manhattan to designated locations above 96th Street in Manhattan or in one of the other four boroughs. The program has been extended to 6/30/20.
"We've got the REAP benefits coming up," Shell said. "Without that, these outer borough office deals are just--if they're sucking wind now, you could imagine, without that, where they'd be... We're working on a largely commercial project in Long Island City on the waterfront, that's a big concern of ours. We're going to be pioneering in Long Island City, a commercial building... the prospect of losing REAP might be devastating."
That surely will be another milestone that those developing Site 5 to watch.
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