Background of the 421a(16) Program

In April of 2017, New York enacted a new version of the Real Property Tax law 421-a known as the Affordable Housing NY Program. The Tax Abatement was established to encourage developers to build multi-family residential buildings, with an emphasis on Affordable Housing in New York City.

Metropolitan Realty Exemptions is nationally recognized and stands ready to advise our clients on the details of the new 421a program and assist them in handling the necessary filings with the Department of Housing Preservation and Development (HPD).

421a(16) Affordability Options

Options for rental projects:

The 421a(16) Affordable Housing Exemption program is a partial tax exemption available for new buildings constructed throughout the five boroughs. In order to qualify the abatement, a rental project must allocate 25-30% of the units to Affordable Housing in accordance with one of the affordable options listed below.

Option A

• 25% of the units must be affordable: at least 10% at up to 40% of AMI, 10% at up to 60% of AMI, and 5% at up to 130% of AMI; and
• The project cannot receive any government subsidies other than tax-exempt bond proceeds and 4% tax credits.

Option B

• 30% of the units must be affordable: at least 10% at up to 70% of AMI and 20% at up to 130% of AMI.

Option C

• At least 30% of the units must be affordable at up to 130% of AMI;
• The project cannot receive any government subsidies; and
• The project cannot be located south of 96th Street in Manhattan or in any other area established by local law.

Homeownership Option:

Option D

Even though the Rent Act of 2015 was heavily focused on mixed-income rental properties, there are still options available for developers seeking to build homeownership projects. A condo project may qualify for the 421a(16) Homeownership if the following requirements will be met:

• Upon the first assessment following completion, the project must have an average assessed value not exceeding $65,000 per unit;
• Each purchaser during the benefit period must agree in writing to maintain the unit as his or her primary residence for at least the first 5 years of ownership;
• There must be signed contracts for each unit within 1 year of completion;
• The project cannot be located in Manhattan
• The project may not contain more than 35 units.

421a (16) Condo Tax Benefits:

Condo projects are eligible to receive benefits for a period of 3 years construction, plus 20 years. For the first 14 years, it is eligible for a 100% exemption; and the remaining 6 years, the project can enjoy a 25% exemption.

For each unit individually, the program will only abate the initial $65,00 in assessed value. Any assessed value above the initial $65,000, will be subject to standard unabated tax liabilities.

Affordability options for project containing 300 or more units

Option E

• At least 25% of the units must be affordable, with at least 10% of those units affordable at up to 40% of the AMI, 10% at up to 60% of the AMI and 5% at up to 120% of the AMI.
• This option also precludes the developer from receiving any governmental subsidies other than tax-exempt bond proceeds and 4% tax credits.
• This option is available within enhanced areas, including Manhattan below 96th Street, Brooklyn Community Boards 1 & 2 and Queens Community Boards 1 & 2.

Option F

• At least 30% of the units must be affordable, with at least 10% of those units affordable at up to 70% of the AMI, and 20% at up to 130% of the AMI.
• This option is available within enhanced affordability areas, including Manhattan below 96th Street, Brooklyn Community Boards 1 & 2 and Queens Community Boards 1 & 2.

Option G

• At least 30% of the units must be affordable at up to 130% of the AMI.
• This option is available within Brooklyn Community Boards 1 & 2 and Queens Community Boards 1 & 2.
• This option also precludes the developer from receiving any governmental subsidies

Building containing 300 + units

Developers that are constructing 300 or more rental units located in Enhanced Affordability Areas* must in addition to the affordability requirements, pay an average hourly wage of $45 for projects in Brooklyn or Queens, and $60 for Manhattan projects. These hourly wages are set to increase automatically every three years at a rate of 3%. For these large projects, the value of the Tax Exemption is 100% for 35 years after the construction period. The affordability restrictions must remain in place for 40 years from the date of the benefits being implemented, which means that developers will be required to maintain affordability for an additional five years after the exemption expires.

* The three enhanced affordability areas are: 1) Manhattan south of 96th Street, 2) Community Boards 1 and 2 in Brooklyn and within 1 mile of the bulkhead line, and 3) Community Boards 1 and 2 in Queens and within 1 mile of the bulkhead line. Buildings where more than 50 percent of the units are affordable as well as buildings that are subject to a project labor agreement are not subject to the wage requirement.

Note: Buildings where 1) more than 50 percent of the units are affordable or 2) buildings that are subject to project labor agreement are not subject to the wage requirement.

Reporting and monitoring requirements for projects containing 300 or more units

For such large-scale projects in which wage mandates, it is also required for the developers to hire an independent monitor to provide a certified payroll report to the New York City Department of Housing Preservation and Development (HPD) annually. The proposed law also requires a third-party fund administrator to handle underpayment of benefits, and explicitly limits a private right of action in enforcing the reporting and monitoring requirements.

421a(16) Step by Step Guide

Eligible Properties

• New Construction Residential buildings, or Existing buildings adding more than 50% of the existing square footage.
• Residential buildings proposing 6 or more units.

Step 1- Drafting and planning

A. Testing the assumptions under all applicable affordability options. Our firm will guide you through choosing the right affordability options, selecting the appropriate units mix and work through floor-by-floor allocation.

B. Affordability options may be combined with other incentives programs (e.g., Inclusionary Housing, AIRS program, etc.)

C. The Notice of Intent will be submitted to HPD.

Step 2- Marketing and Lottery

As soon as the Notice of Intent is approved....

Reside New York notifies HPD of upcoming TCO or CO and requests that the project should be assigned for marketing. Next, HPD assigns the project for marketing and the marketing meeting is set.

Reside New York and developers participate in all required marketing meetings.

The project info is uploaded on Housing Connect 2.0 public portal.

The ad will be published for public applications for a 3 Week period.

After the deadline date we Process requests for applications. Upon generation of the log, Reside New York reaches out to batches of applicants who appear to be eligible.

The applicant’s documentation will be forwarded to HPD for approval.

Upon HPD approval, units may be occupied immediately.

Step 3- Obtaining the Final Certificate of Eligibility

A. As soon as either Temporary Certificate of Occupancy or Final Certificate of Occupancy is obtained, the necessary documentation is prepared and the final application will be submitted to HPD for their approval.

B. The restrictive declaration is prepared, approved by HPD, and recorded on ACRIS

C. The NYC Application Fee is $3,000 for each residential dwelling unit in the building. This fee is due in one lump payment upon filing the 421a application.

D. HPD issues the 421a(16) Final Certificate.

E. The Certificate is filed with DOF in order to have the benefits implemented. You will also be refunded for any increases in taxes that were paid prior to the abatement being in affect.

421a(16) Rental Tax Benefits

Rental Projects meeting the requirements receive a 100% exemption for the construction period (limited to 3 years) and a 100% exemption for the next 25 years and for the remaining 26 through 35 years; a 25-30% exemption depending on the percentage of affordable units.

Other Requirements

Replacement Ratio

If the land on which an eligible site is located contained any dwelling units three years prior to commencement date, then such eligible site shall contain at least one affordable housing unit for each dwelling unit that existed on the land and was thereafter demolished, removed or reconfigured.

Prevailing Wage

Buildings containing more than 30 units, all building employees employed by the applicant at the extended affordability property shall receive the applicable prevailing wage for the entire extended affordability period.

Rent Stabilization

All free-market units that are at or above the DHCR deregulation threshold which is set at $2,817 for 2020 (changes yearly in January) shall not be subjected to rent stabilization.

Affordable Units

The affordable units must be leased out to affordable tenants with HPD’s marketing units only and remain rent-stabilized for the duration of the exemption. In the case these affordable units are not vacant and are leased out to non-affordable tenants, HPD may deny the property from benefiting from the abatement.

Affordability Selection

No affordability election may be changed after the filing of a Notice of Intent and no unit mix or unit distribution proposed in such Notice of Intent can be changed after it has been approved by HPD.

Monitoring

HPD will monitor all properties benefiting from the 421-a (16) tax exemption benefits for the duration of such exemption. The monitoring includes the requirement to provide monthly and quarterly rent rolls to HPD and notification upon a vacancy in order to then remarket such units.

Note:All rental dwelling units in an Eligible Multiple Dwelling must share the same common entrances and common areas with the Free-Market unit and may not be exposed on a specific floor or area of an Eligible Multiple Dwelling.