New York City Building Boom Fueled By Expected 421-a Successor Law
John Jordan | May 2017
NEW YORK—The multifamily development floodgates opened last year when developers put their money on the State Legislature enacting a replacement for the 421-a tax incentive legislation.
New York Building Congress president and CEO Carlo A. Scissura believes that developers bet on New York State passing a new 421-a tax incentive program this past legislative session that subsequently sparked a dramatic rise in new residential building permits in the first quarter of this year.
While the “Affordable New York” successor to the 421-a legislation, did not get enacted until the 2018 state budget passed on April 10, Scissura said that he believes developers moved forward with plans based on their expectation of a successor 421-a tax break and filed building permits with the city.
The New York Building Congress reported that building permits filed in the city during the first quarter of this year were the highest in the last 10 years and three times higher than permits recorded during the first quarter of 2016.
“The numbers seem to confirm that the drop in 2016 was largely the market taking a breather after the surge in applications prior to the expiration of 421-a,” Scissura said. “We now seem to be in a period of renewed vigor and investor confidence given the relative strength of the overall economy and the recent agreement on Affordable New York, the successor program to 421-a.”
He pointed to developer’s anticipation of the new 421-a program as a “significant part” of the impressive spike in residential building permits the first three months of this year.
According to the organization’s analysis of US Census Bureau data, the New York City Department of Buildings authorized construction of 6,343 residential units in the first quarter of 2017. In the first quarter of 2016 the DOB issued permits for 2,158 units. It should be noted that the 421-a tax incentive expired on Jan. 15, 2016.
In 2015 when builders rushed to file plans prior to the expected expiration in early 2016, 6,183 units were authorized in the first quarter. For the full year, the DOB authorized 16,269 housing units in 2016—nearly 40,000 units shy of the 56,183 units authorized in 2015.
The Building Congress reported that the 2017 first quarter building permit totals signal the best start for the residential development and construction sectors since 2007, when 7,264 residential units were permitted for construction across the five boroughs.
Scissura added that another good sign for the New York City residential sector is the tremendous amount of activity that took place in spite of the “uncertainty” that exists in Washington, DC.
“For those anxious that the boom times in the residential construction sector might have ended in 2015, the data from the first three months of 2017 should elicit a huge sigh of relief,” Scissura said.
Brooklyn got off to the quickest start in the first three months of this year with 2,097 permits, or 33%, of all permitted units citywide. Manhattan came in second place with 1,486 units, followed by Queens at 1,434, the Bronx at 1,124, and Staten Island with 202 units authorized for construction.
Scissura, the former president of the Brooklyn Chamber of Commerce, says that investors continue to flock to Brooklyn, but notes he is also pleased that Queens and the Bronx posted strong showings as well in the first quarter.
Looking forward, he adds, “It will be interesting to see what type of impact Affordable New York will have on the boroughs moving forward, especially in neighborhoods such as Astoria, where the Durst Organization recently announced it is moving ‘full steam’ ahead with its 2,400-unit Hallets Point project.”
Tony D’Anzica, HGAR Director and Manhattan Chapter Representative, said he is not surprised that developers are now looking to finalize plans in order to secure financing and take advantage of the successor 421-a legislation. However, he has noticed that sales in the high-end residential market are starting to slow. “Those units are not flying off the shelves like they used to,” D’Anzica said. “There has been a glut in the high-end residential market.”
D’Anzica, who is owner of property management company Dynamax Realty in New York City and Syracuse, said that some landlords of existing properties are offering rent incentives in order to compete with the new product on-line or in the pipeline.
Recent statistics have shown that it is very difficult to find affordable housing in New York City and its surrounding boroughs, noting that multifamily properties in areas such as Long Island City and sections of Brooklyn are now charging rents comparable to some Manhattan locations.
Lee Presser, an associate broker with Keller Williams NYC, said the filing of the building permits was not a real gamble for the developers since if the 421-a successor legislation failed to pass, they would just lose the building permit fees when they pulled the permit and put their project back on the shelf.
He said the moderately priced condominiums, as well as rentals are selling and leasing very fast. However, luxury condominiums over $10 million are on the market for long periods. Presser blamed Treasury Department regulations enacted in 2016 that are geared at curbing money laundering from foreign investors. Those regulations require all members of an LLC acquiring real estate of $3 million or more in New York City be identified.
Presser, who specializes mostly in multifamily and condo properties in Manhattan and Riverdale in the Bronx, said that New York City is a haven for foreign investors who may or may not occupy the high-priced real estate they acquire. “I tell people we are the new Switzerland,” he said. “Foreign investors are parking their money here.” He noted that while some buildings report they are 85% sold, in fact the occupancy level is about 50%. He theorizes that those unoccupied units “are nothing more than a Swiss bank account” for a foreign investor.
He stressed that both the moderately-priced condominium, as well as the moderately-priced rental markets are very strong at the moment in New York City.
“A moderately priced rental is going to come on the market four weeks before availability and it is going to be gone in less than three days,” Presser said. However, he added that luxury rentals priced at $12,000 or more a month in New York City have been sitting on the market unrented for months.