Hochul finds workaround to replace 421-a tax break, for Gowanus at least. Will it extend to other neighborhoods? To Atlantic Yards/Pacific Park?

In what the New York Times called "stopgap measures," on 7/18/23, Governor Hochul Announces New Executive Action on Housing Crisis to Increase Supply, Create Affordable Housing, and Promote Broader Housing Growth.

Notably, in response to the state legislature's failure to approve her proposed replacement for the 421-a tax break, seen as crucial to advancing much rental housing, Gov. Kathy Hochul:

announced a program aimed at targeting specific benefits and housing obligations in line with the former 421-a(16) program for development proposals currently vested in the expired program in the Gowanus neighborhood in Brooklyn. Proposals would respond to a request for applications administered by Empire State Development. For eligible proposals, Empire State Development would purchase the privately owned properties for a nominal fee, lease the property back to the original owners for a long-term lease term that would parallel the 421-a(16) benefit period, and deed the property back to the original owner at the conclusion of the benefit period. In exchange, the property owner would make payments equivalent to the reduced taxes the property would have paid if it were to complete construction prior to the expired 421-a(16) program completion deadline of June 15, 2026.

This would enable the affordable housing promised by the Gowanus rezoning and involve only buildings "currently vested"--they got foundations in the ground before the start deadline--and contain at least 50 housing units.

The executive order does not change the level of affordability--buildings with middle-income units would still qualify--but the units would be permanently affordable rather than expire after a set period.

The program was to be presented to the Empire State Development (ESD) Directors this week, and later ESD board and Public Authorities Control Board approvals. Those are surely pro forma.

And Atlantic Yards?

As some news coverage has pointed out, the program was not extended to other rezonings--apparently because of lack of political support. Also, The Real Deal warned that the program might have limited impact:

Developers who have secured construction financing and aim to finish work in time to get 421a benefits are not likely to opt for a substitute that requires government approval. The additional legal costs and approvals associated with the program may also give developers pause. Some may even sit on their land for a few years and hope another as-of-right tax break comes along.

The new program may only make financial sense for larger projects, said Ofer Cohen, CEO of Brooklyn-based commercial brokerage TerraCRG. Though it is open to any project with more than 50 units, it may be most attractive to those with at least 150, he said.

But a potential template has been set--a custom workaround for various neighborhoods and projects.

Could that happen with Atlantic Yards/Pacific Park, a project overseen and shepherded by ESD? That door seems open. All the buildings will have more than 150 units.

Remember, there's a renegotiation coming, and affordable housing fines that the developer surely wants to avoid.