Affordable NEW YORK. Housing Program. A Briefing Memo April 27, 2017 SEIDEN & SCHEIN, P.C. ATTORNEYS AT LAW

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1 Affordable NEW YORK Housing Program A Briefing Memo April 27, 2017 SEIDEN & SCHEIN, P.C. ATTORNEYS AT LAW 570 Lexington Avenue New York, New York T: (212) F: (212) W:

2 From 421a to the Affordable New York Housing Program Jay G. Seiden, Esq. Partner Seiden & Schein, P.C. Alvin Schein, Esq. Partner Seiden & Schein, P.C. With the adoption of New York State s FY 2018 Budget, Governor Andrew M. Cuomo has advanced new legislation to create the Affordable New York housing program (Program) after the Real Estate Board of New York and the Building and Construction Trades Council of Greater New York reached a deal to replace the program previously known as 421-a. The information that follows summarizes highlights of the new Program. Seiden & Schein s Team looks forward to working with you on the application and implementation of the new Program for your current and future housing development projects. 2 SEIDEN & SCHEIN, P.C.

3 About the Seiden & Schein Tax Incentives Team Jay G. Seiden Jason Hershkowitz Nicholas DiLorenzo Francis D. Baquero Jaye Pradeep Luisa Gutierrez The law firm of Seiden & Schein, P.C. consists of a team of practitioners dedicated to providing efficient, competent service to its clients. In addition to skillful representation on matters relating to the development, buying, selling, leasing and financing of real estate. Seiden & Schein, P.C. is the leading law firm in New York specializing in real estate tax benefits and inclusionary housing. The firm has gathered the largest team of leading experts in the affordable housing field, specializing in 421a, 420c and ICAP. Client representation usually begins at the acquisition and pre-construction phases of the project, and continues through completion of construction, co-operative or condominium conversion, occupancy, leasing, permanent financing or sale. To learn more, call or visit: Overview On June 26, 2015, New York State Senate- Assembly Bill S6012/A8323 (the Rent Act of 2015) was signed into law as Chapter 20 of the Laws of 2015, which amended certain provisions of the 421-a statute and set forth the new 421-a program; however, the Real Estate Board of New York (REBNY) and the Building and Construction Trades Council of Greater New York (BCTCGNY) were unable to enter into a memorandum of understanding regarding wages of construction workers on buildings which receive 421-a benefits by January 15, 2016 and the proposed 421-a program officially sunset. On April 10, 2017, Senate-Assembly Bill S2009C/ A3009C (budget bill) was signed into law as Chapter 59 of the Laws of 2017 which details 421-a s replacement, the Affordable New York Housing Program. Contents I. Rental Projects Outside of the Enhanced Affordability Areas II. III. IV. Homeownership Projects Rental Projects Within Enhanced Affordability Areas Containing No Less Than 300 Units High Rent Vacancy Deregulation V. Common Entrances and Areas Requirement VI. VII. Affordability Requirements Replacement Ratio VIII. The Inclusionary Housing Program & The Affordable New York Housing Program

4 Affordable New York Housing Program For projects that commence construction on or after January 1, 2016, or projects that commenced on or before December 31, 2015 that have not received benefits prior to June 15, 2015 and will elect to comply with the new Program, the following options are available: I. RENTAL PROJECTS OUTSIDE OF THE ENHANCED AFFORDABILITY AREAS OR WITHIN AN ENHANCED AFFORDABILITY AREA CONTAINING FEWER THAN 300 UNITS A. Affordability Option A This option is available for projects that do not receive Substantial Government Assistance ( SGA ) of grants, loans or subsidies pursuant to a program for the development of affordable housing, but may receive tax exempt bond proceeds and 4% tax credits. i. 10% of the units must be affordable at no more than 40% of Area Median Income ( AMI ); ii. 10% of the units must be affordable at no more than 60% of AMI; and iii. 5% of the units must be affordable at no more than 130% of AMI. B. Affordability Option B This option is available for all projects, including those receiving SGA. i. 10% of the units must be affordable at no more than 70% of AMI; and ii. 20% of the units must be affordable at no more than 130% of AMI. C. Affordability Option C This option is available for projects that do not receive SGA and are not located within the geographic area south of 96 th Street in the borough of Manhattan or all other geographic areas in the city of New York excluded pursuant to local law 1. i. 30% of the units must be affordable at no more than 130% of AMI. 1 It is not yet known whether the excluded areas referenced in Affordability Option C will be limited to the previously defined Geographic Exclusion Areas, or if these excluded areas will be expanded or contracted through new or amended local law. 4 SEIDEN & SCHEIN, P.C.

5 D. Options A, B, and C are eligible for the 35-year benefit which consists of: i. Construction period benefits of up to 3 years (beginning on the later of commencement or 3 years before the date of completion and ending on the completion date); ii. Followed by 25-years of 100% exemption from real property taxation above the prior assessed value, other than assessments for local improvements; and iii. 10-years of exemption equal to the affordability percentage. Benefit Years Percent of Exemption of Increases in Assessed Value % Affordability Percentage (25% or 30%) 36 and subsequent years 0 E. Rental projects containing 300 or more dwelling units not located in the Enhanced Affordability Area may elect to comply with the Enhanced Affordability requirements below and shall be deemed to be located within the Brooklyn Enhanced Affordability Area or the Queens Enhanced Affordability Area. This election shall be made in the application and shall not be changed afterwards. i. This means that projects containing 300 or more dwelling units located north of 96 th Street in Manhattan or outside of the Brooklyn or Queens Enhanced Affordability Areas may choose to comply with Option E, F, or G below and will be eligible for the Enhanced 35-year benefit. ii. These projects will also be subject to the 40-year Extended Restriction Period and the prevailing wage requirement of $45/hour for construction workers. II. Rental Projects Within Enhanced Affordability Areas Containing No Less Than 300 Units A. Affordability Option E This option is available for projects that do not receive SGA, but may receive tax exempt bond proceeds and 4% tax credits. i. 10% of the units must be affordable at no more than 40% of Area Median Income ( AMI ); ii. 10% of the units must be affordable at no more than 60% of AMI; and iii. 5% of the units must be affordable at no more than 120% of AMI. B. Affordability Option F This option is available for all projects, including those receiving SGA. i. 10% of the units must be affordable at no more than 70% of AMI; and ii. 20% of the units must be affordable at no more than 130% of AMI. C. Affordability Option G This option is available for projects located within the Brooklyn or Queens Enhanced Affordability Areas that do not receive SGA. i. 30% of the units must be affordable at no more than 130% of AMI. Affordable NEW YORK Housing Program 5

6 D. Options E, F, and G are eligible for the Enhanced 35-year benefit which consists of: i. Construction period benefits of up to three (3) years (beginning on the later of commencement or three (3) years before the date of completion and ending on the completion date); ii. Followed by 35-years of 100% exemption from real property taxation above the prior assessed value, other than assessments for local improvements. Benefit Years % 36 and subsequent years 0 Percent of Exemption of Increases in Assessed Value E. Extended Restriction Period - projects within Enhanced Affordability Areas containing 300 or more units are also subject to the 40-year Extended Restriction Period whereby the Affordable Units are subject to the Rent Stabilization Law for a 40-year period from completion of construction, provided that tenants holding a lease and in occupancy at the expiration of such period shall have the right to remain as rent stabilized for the duration of their occupancy. F. Prevailing Wage for Construction Workers - projects within Enhanced Affordability Areas must pay prevailing wage to construction workers ($45/hour for Brooklyn and Queens or $60/hour for Manhattan south of 96th Street) and building service employees must be paid the prevailing wage during the entire restriction period. i. These prevailing wage requirements are not applicable to projects in which: 1. At least 50% of the dwelling units are affordable at or below 125% of AMI; 2. Any portion of an eligible multiple dwelling which is operated as a condominium or cooperative; or 3. Projects subject to a project labor agreement. 2 G. Projects that contain 300 or more units that are located outside of an Enhanced Affordability Area may elect options E, F, or G by complying with the Area s additional requirements. III. HOMEOWNERSHIP PROJECTS A. Affordability Option D This option is only available for homeownership projects operated as condominiums or cooperatives located outside of the borough of Manhattan that contain no more than 35 dwelling units. 100% of the units must have an average assessed value not to exceed $65,000 upon the first assessment following the completion date, and each owner must agree, in writing, to maintain such unit as their primary residence for no less than 5 years. 2 Project labor agreement shall mean a pre-hire collective bargaining agreement setting forth the terms and conditions of employment for the construction workers on an eligible site. 6 SEIDEN & SCHEIN, P.C.

7 B. Option D is eligible for the 20-year benefit which consists of: i. Construction period benefits of up to 3 years (beginning on the later of commencement or three years before the date of completion and ending on the completion date); ii. Followed by 14-years of 100% exemption from real property taxation above the prior assessed value, other than assessments for local improvements, provided, however that no exemption shall be given for any portion of a unit s assessed value that exceeds $65,000; and iii. 6-years of 25% exemption from real property taxation above the prior assessed value, other than assessments for local improvements, provided, however that no exemption shall be given for any portion of a unit s assessed value that exceeds $65,000. C. The prevailing wage requirement for construction workers does not apply to condominiums or cooperatives; however, the prevailing wage requirement for building service employees will still apply to condominiums or cooperatives containing 30 or more dwelling units. IV. High Rent Vacancy Deregulation A. A Market Unit shall be subject to rent stabilization unless, in the absence of Affordable New York Housing Program benefits, the owner would be entitled to remove such Market Unit from rent stabilization upon vacancy by reason of the monthly rent exceeding any limit established thereunder. B. The rent threshold for high-rent vacancy deregulation and high income highrent deregulation was raised from $2,500 to $2,700 by Chapter 20 of the Laws of V. Common Entrances and Areas Requirement A. All rental dwelling units in an eligible multiple must share the same common entrances and common areas as Market Rate Units in such eligible multiple dwelling and shall not be isolated to a specific area or floor of an eligible multiple dwelling. B. Common entrances shall mean any area regularly used by any resident of a rental dwelling unit in the eligible multiple dwelling for ingress and egress from such eligible multiple dwelling. Affordable NEW YORK Housing Program 7

8 VI. Affordability Requirements A. Unless preempted by the requirements of federal, state or local housing program, the Affordable units must have either: i. A unit mix proportional to the Market Rate Units; or ii. At least 50% of the Affordable Housing Units must have 2 or more bedrooms and no more than 25% of the Affordable Housing Units can be less that one bedroom. VII. Replacement Ratio A. If the land on which an eligible site is located contained any dwelling units 3-years prior to the project s commencement of construction date, then such eligible site shall contain at least one Affordable Housing Unit for each dwelling unit that existed on such date and was thereafter demolished, removed or reconfigured. 8 SEIDEN & SCHEIN, P.C.

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10 VIII. The Inclusionary Housing Program & Affordable New York Housing Program By Alvin Schein, Partner, Seiden & Schein, P.C. The Inclusionary Housing Program (the IH Program ) administered by the Department of Housing Preservation & Development ( HPD ), is now comprised of both a voluntary and mandatory program. The Voluntary Inclusionary Housing Program (the Voluntary IH Program ) permits the building of additional residential floor area ( RFA ), above and beyond the maximum as-of-right RFA permitted on a zoning lot ( IH Zoning Bonus ), in exchange for the new construction, preservation or rehabilitation of permanently affordable rental or homeownership housing ( Inclusionary Housing ). The IH Zoning Bonus so generated can be utilized both on-site, in the building where the Inclusionary Housing is located, and off-site, at a different development site that is located either in the same community district or within one-half mile of the project that contains the Inclusionary Housing, provided that such compensated development is also located in an R-10, or R-10 equivalent zoning district, or in an Inclusionary Housing Designated Area zoning district ( IHDA ). 1. R-10 (OR R-10 EQUIVALENT) ZONING DISTRICTS The Inclusionary Housing Program (the IH Program ) administered by the Department of Housing Preservation & Development ( HPD ), is now comprised of both a voluntary and mandatory program. The Voluntary Inclusionary Housing Program (the Voluntary IH Program ) permits the building of additional residential floor area ( RFA ), above and beyond the maximum as-of-right RFA permitted on a zoning lot ( IH Zoning Bonus ), in exchange for the new construction, preservation or rehabilitation of permanently affordable rental or homeownership housing ( Inclusionary Housing ). The IH Zoning Bonus so generated can be utilized both on-site, in the building where the Inclusionary Housing is located, and off-site, at a different development site that is located either in the same community district or within one-half mile of the project that contains the Inclusionary Housing, provided that such compensated development is also located in an R-10, or R-10 equivalent zoning district, or in an Inclusionary Housing Designated Area zoning district ( IHDA ). 10 SEIDEN & SCHEIN, P.C.

11 2. INCLUSIONARY HOUSING DESIGNATED AREAS A project located in an IHDA zoning district, receives an IH Zoning Bonus of up to 33% of the Base FAR based on 1.25 square feet for every square foot of Inclusionary Housing floor area provided. If 20% of the total RFA is dedicated to Inclusionary Housing, however, such a project automatically qualifies for an increase from the Base FAR to the Max FAR permitted on such zoning lot. MANDATORY INCLUSIONARY HOUSING The Mandatory Inclusionary Housing Program ( MIH ), unlike the Voluntary IH Program, requires the construction of Inclusionary Housing where the project is located in an area that has been rezoned to promote the development of residential housing. No IH Zoning Bonus is provided by Inclusionary Housing in an MIH zone. AMI AND RENTS In order to ensure affordability, rents for Inclusionary Housing provided under the Voluntary IH Program, whether located in an R-10 (or R-10 equivalent) or IHDA zoning district, are capped at 30% of 80% of Area Median Income ( AMI ), as defined in any given year by the Department of Housing and Urban Development (except for certain special areas that provide for other options). Because a project located in an R-10 (or R-10 equivalent) zoning district has an IH Zoning Bonus Ratio of 3.5:1, a smaller percentage of the project s total RFA will need to be dedicated to Inclusionary Housing in order to reach the Max FAR, as compared to the percentage of Inclusionary Housing that will need to be provided in a project that is located in an IHDA zoning district to get to the Max FAR, where a 1.25:1 IH Zoning Bonus Ratio applies. Consequently, a smaller percentage of total RFA will be subjected to the 30% of 80% AMI rental cap. 5. The MIH Program, in contrast, provides several rental limit options, permitting developers to choose between dedicating a higher percentage of the total RFA at a project to Inclusionary Housing in exchange for the ability to charge rents at higher AMIs and vice versa. For instance, MIH Option 1 provides a rental cap of 30% of 60% of AMI where Inclusionary Housing comprises 25% of the project s total RFA, whereas MIH Option 2 allows a higher rent of 30% of 80% of AMI where Inclusionary Housing comprises 30% of the total RFA. DETERMINING AMI AND RENT UNDER BOTH THE IH PROGRAM AND THE AFFORDABLE NEW YORK HOUSING PROGRAM Rents for Affordable housing developed under the IH Program and the Affordable New York Program must comply with the requirements of both programs. Due to the various permutations that are now available, it is incumbent on a developer to determine the option that best suits their project s needs. Affordable NEW YORK Housing Program 11

12 SEIDEN & SCHEIN, P.C. ATTORNEYS AT LAW 570 Lexington Avenue New York, New York T: (212) F: (212) W: 12 SEIDEN & SCHEIN, P.C.