How do you build profitably without the 421A tax abatement?
The 421-a tax abatement is set to expire in June 2022 and developers are mad-dashing to file permits in time. The popular abatement, rebranded as Affordable NY in 2017, reduces property taxes and creates strong incentives for apartment building developers to keep adding units to NY’s housing stock. Without a renewal, developers will purchase fewer land plots, as development costs become untenable. This reduces the new supply of apartments in NY and will deepen the affordable housing crisis. This is no good. On its face, giving developers tax breaks works in growing the housing supply. What happens when the abatement goes away this summer? Below are some options developers may seize as a way of reducing their yearly operating costs, without employing the 421-a benefit:
1. Solar Roofs: The solar roof abatement benefits building owners by offering a property tax abatement for the implementation of solar panels on the roofs of buildings to act as a renewable source of energy. Building owners can claim 5% property tax reduction annually for the operating cost of their solar system over a 5 year horizon. Additionally, owners can claim a $5,000 tax credit on their state income taxes, while claiming 26% of their solar system cost as a federal income tax credit.
2. Green Roofs: In hopes of reducing the urban-heat-island effect that causes higher temperatures to proliferate in dense urban environments, New York State (NYS) is allowing building owners in select districts in the Bronx, Brooklyn, and Manhattan, to receive tax abatements for the addition of roofs that have vegetation to absorb rainwater, provide insulation, and combat the elevated temperatures. NYS has implemented a one-time property tax abatement of $5.23 per square foot or $15 per square foot, depending on the community district, for the installation of green roofs.
3. Traditional, less popular abatements in NYC: Other options available include the 420-c, 420-a, and the J-51 Tax Incentives:
J-51: Viewed as an alternative to the 421-a, the J-51 grants tax benefits for the gutting & rehabilitating of existing multifamily and other property types. The NY City Council just renewed the J-51 abatement on Tuesday of this week! The benefits granted include 34 year or 10-year exemptions from the tax increases that would result from the work, as well as net reductions in existing real estate taxes.
420-c: “Complete exemption from real estate taxes,” per HPD’s website, for major rehabilitation, conversions of existing buildings, or development of new buildings that reserve some units for the housing of the formerly homeless.
420-a: “Complete or partial exemption from real estate taxes for the term of the regulatory agreement up to a maximum of 60 years,” for projects where 50% of controlling interest will be held by a 501 (c) (3) charitable organization.
Sources: Brooklyn Solar Works, The Real Deal
Originally published in December 2021