New York developers have long insisted that an affordable housing tax break replacing 421-a is a vital part of the push to build more homes in the city. But their response to the replacement in this year’s state budget, 485-x, has been muted at best.
And now, one prominent developer is saying the higher wage and stricter affordability requirements in the program have effectively killed a huge project the company had planned for Williamsburg.
“It’s not feasible right now,” Two Trees Managing Director David Lombino said of River Ring, the sprawling, mixed-use development the firm intended to build on the neighborhood’s waterfront. “It was a popular project, but we were reliant on a tax-incentive program, and the new program is more expensive than the old program.”
River Ring would have featured more than 1,000 residential units, 25% of which would have been affordable for families earning between 40% and 130% of the area median income, or about $56,000 to $182,000 for a family of three. Amenities were to include a $150 million waterfront park and a YMCA.
But allowing units to be designated as affordable for families earning as much as 130% of the area median income was one of the biggest complaints about 421-a, and under 485-x, the highest level allowed is 100%, or about $140,000 for a family of three. Construction wages must be higher as well, starting at $72.45 an hour for buildings in parts of Manhattan, Queens and Brooklyn, including where Two Trees was planning to build River Ring.
Now is a tough environment for real estate in general thanks to factors such as high interest rates and development costs, which Lombino acknowledged. But he stressed that 485-x does nothing to mitigate these issues.
“Nothing in 485-x acknowledges the interest rate environment,” he said. “In fact, it makes it more expensive to build than the old program.”
Representatives for Gov. Kathy Hochul’s office did not respond to a request for comment by press time. In her remarks on April 15 announcing the budget deal, she said 485-x “will jumpstart housing production for the city while creating permanently affordable units, all the while ensuring that good wages will be there for our hardworking men and women who build them.”
The New York Post first reported news of the decision from Two Trees. The firm is run by the Walentas family and famous for spearheading the transformation of Dumbo.
Lombino declined to specify what else Two Trees could build at the River Ring site but said the company would not leave it undeveloped indefinitely. The company is also still moving forward on its comparably ambitious mixed-use Domino project in the neighborhood, which still qualifies for 421-a under the program’s deadline extension to 2031 that was also included in the state budget.
He expects other developers to make similar decisions going forward.
“Over the next couple years, there will be a lot of construction [being finished] under the old 421-a program with the completion deadline extension,” he said. “You’ll see few if any people starting projects under 485-x.”
Passing any replacement for 421-a has proved difficult. It expired in mid-2022, and there was virtually no momentum in the state Legislature behind developing a new program that year or in 2023, with many critics essentially saying good riddance to what they saw as a giveaway to large developers that produced little truly affordable housing.
Lombino says there had been a chance to pass a more effective program this year given the major change in attitude many New Yorkers have had around housing.
“There’s an increasing understanding that housing supply needs to increase dramatically,” he said. “You have people from all sides of the spectrum saying we need more housing, even council members you wouldn’t necessarily suspect given their politics.”
And he pushed back on the notion that Two Trees was bluffing, stressing that the firm needs to have an expectation that its real estate projects will make financial sense before moving forward on them.
“The return on investment needs to be higher than what you can get in a high yield savings account or with a certificate of deposit from your local bank. Otherwise people are going to deploy their capital in different ways,” he said. “It’s not a charity.”
Eddie Small , 2024-05-07 12:03:02
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