New 485-x tax incentive would require (at Atlantic Yards) 25% "affordable" units for households averaging 60% of AMI (now $83,880 for 3 people, but will rise)

Might the state's recently approved 485-x tax incentive re-start Atlantic Yards/Pacific Park? Of course not. Remember, there's an expensive platform, and fines for missing affordable housing to be reckoned with.

Zone A in yellow, Zone B in orange
 (Department of City Planning)

Might it help any potential bidder or developer better assess the bottom line regarding future investment? Surely.

A 421-a successor

Future buildings would qualify under 485-x (bill text), a successor to the since expired 421-a, as a "Very large rental project," defined as a site in in Zone A or Zone B, which includes the Atlantic Yards/Pacific Park site, with 150 or more rental units.

The carrot: a 40-year exemption from property taxes.

That's more than the most recent iteration of 421-a, which for Atlantic Yards/Pacific Park buildings offered a 25-year full exemption, and ten years of exemption applied to the 30% affordable units, at 130% of Area Median Income (AMI). 

(Note that the announced but never launched B5 tower, over the railyard just east of Sixth Avenue, may still qualify, given that foundations were installed before the deadline, but the 421-a extension eliminates the opportunity to build only 130% AMI affordable units.)

However, more affordability is required. The new buildings would require at least 25% affordability, with the weighted average of all income bands not exceeding 60% of AMI, with no more than three income bands, and no income band exceeding 100% of AMI.

Currently, 60% of AMI has risen to $65,220 for one person, $74,580 for two, $83,880 for three, and $93,180 for four.

Rents have not yet been set for 2024, but last year's maximum rents at 60% of AMI were: studio, $1,272; 1-BR, $1,589; 2-BR, $1,906; and 3-BR, $2,202. Those numbers surely will rise.

With an average of 60% AMI, that could mean a mix that, for example, included 5% at 100% of AMI, which is getting closer to market-rent, and 20% at 50% of AMI.

At 100% of AMI, the 2023 rents were: studio, $2,120; 1-BR, $2,648; 2-BR, $3,117; and 3-BR, $3,671.

Eligible projects have to have started after June 15, 2022--so it's retroactive?--and before June 15, 2034, and must be completed by June 15, 2038.

Wage requirements

Construction work on eligible sites in Zone B are also required the lesser of $63/hour, increasing 2.5% a year, or 60% "of the greatest prevailing rate of wages and supplements within a classification." Sites in Zone A must pay more: $72.45, or 65%.

Because of the required wage and affordability levels for large projects, “the new tax exemption program for housing production, 485-x, will produce less rental housing than its predecessor 421-a,” said James Whelan, president of the Real Estate Board of New York, according to The City, which had a round-up on all the housing provisions.

Of course the issue is not simply quantity of housing but what the public gets for the tax abatement.

Less for "large" projects

A "large rental project" is defined as an eligible project with 100 or more units. They are required to have 25% affordable at an average of 80% of AMI, with no more than three income bands and none over 100% of AMI.

That was targeted by the Association for Neighborhood Housing and Development (ANHD), which commented:

Meanwhile, the legislature did bring back the real estate friendly 421a tax abatement, now called 485x. 421a was not an affordable housing program, and 485x is no different. Buildings with only 25% of units affordable at 80% AMI (a household income of $101,680 for a 3 person family [now $111,840]) will not meet the housing needs of most New Yorkers. Instead, public resources will pour into the pockets of big real estate developers building mostly luxury housing while the affordability and homelessness crises continue. We must focus funding on solutions that preserve deeply affordable housing, create affordable housing for the lowest-income New Yorkers who need it most, and stabilize rents helping more tenants remain in their homes.

ANHD had a mixed but critical toward several other provisions that were part of the housing deal, including "Good Cause Eviction."

Praise from a developer

By contrast, former Deputy Mayor (and now developer) Alicia Glen commented in Crain's New York Business, "“485-x will catalyze tens of thousands of new rental apartments…That is a big deal: building new two-bedroom apartments that will rent for approximately $2,100 a month without any direct subsidy is a good deal for the public.”

I'm not exactly sure of her math, but that figure is in between 60% and 70% of AMI last year. (Maybe she was already calculating a 2024 upward adjustment?) Either way, they likely won't rent for that little by the time the buildings actually rise.

Gothamist quoted real estate lawyer Brett Gottlieb, who warned that the higher costs for developers, coupled with currently high interest rates, means "developers might possibly wait out the economic environment and try to procure lower interest rates, if and when the time comes.”

Lower floor for "modest" projects

A modest rental project, defined as having 5 to 100 units, would comply with affordability option B, with at least 20% affordability and weighted average not exceeding 80% of AMI, with no income band (of three maximum) exceeding 100% of AMI.

What about condos?

There is now a tax break for condos, but only some:

"Affordability option D" shall mean a homeownership project in which one hundred percent of the units shall have an average assessed value per square foot that does not exceed eighty-nine dollars upon the first assessment following the completion date and where each owner of any such unit shall agree, in writing, to maintain such unit as their primary residence for no less than five years from the acquisition of such unit

I'm not clear exactly what neighborhoods that includes/excludes, but it seems to me that focuses on neighborhoods with lower cost of land and also lower condo values, so likely far deeper in Brooklyn than Atlantic Yrds/Pacific Park. These buildings would get a 20-year tax benefit.

How was the number arrived at? I queried The Real Deal's Katie Brenzel, who responded, "I'm not sure, but the assessed value figure does not seem super different in practice from what was proposed in 2022 under '485w.' I know with that, the response from developers was generally that they didn't think many would use it."

I queried the city's Department of Housing Preservation and Development, but they haven't responded yet.

Other factors

The legislation bars any "poor door," requiring all units to "share the same common entrances and common areas as market rate units."

Unless preempted by the requirements of a federal, state or local housing program, the affordable units must match the market-rate ones in size or at least half of the affordable housing units must have at least two bedrooms with no more than a quarter of the units as studios. (Note: this is 50% by unit count, not floor area, the original Atlantic Yards pledge.)

The law does not prohibit the occupancy of an affordable unit by tenants whose income is less than the maximum percentage of AMI, thus presumably allowing for lower rents in certain circumstances.

Units can't be rented to a corporation, partnership or other entity, or held off the market for a period longer than is necessary for repairs.

If the aggregate floor area of commercial, community facility and accessory use space, other than parking located not more than 23 feet above the curb level, exceeds 12% of the site's aggregate floor area, the tax benefits will be reduced by a percentage equal to such excess.