Proof 421a only puts money in developers pockets?

Studies have shown that 80% of tax breaks go into the hands of developers. Buyers continue to pay premiums for apts. with 10 or less years remaining on their tax abatement. Foreigners are especially susceptible to this "scam".

I think developers certainly benefit as it is easier to sell. Some of the issues facing new development right now are elimination of this rebate. However, buyers do not overpay that much as a large percentage of people in Manhattan do factor in elimination of rebate. All depends on what reinvestment rate they are using for money saved from not paying taxes - I realize that no one is actually doing the calculation but hypothetically a 6-7 percent plus reinvestment rate rather than mortgage rate makes it very attractive to buyers. Of course, developers can actually do the project rather than sitting idle and make money. Existing nyc tax payers are the ones getting screwed.

Yes, existing tax payers are getting screwed. There was no need for these tax breaks to stimulate development. Just one more piece of evidence that the real estate industry in NYC is corrupt.

It would be interesting to study the appreciation of these apartments vs. non-abated apartments. In theory, declining tax savings should mean lower appreciation.

How do buyers factor in the elimination of the abatement? Seems the only way is to perform some DCF analysis of the tax savings over the period of the benefit. That's how we did it when I was appraising these types of projects. Even then, it was a bit of stone age math. My instinct tells me that most buyers simply assume the tax benefit into perpetuity just as they might with a ground lease payment that might triple in 10 years.

I'm not sure how the real estate industry is 'corrupt' for applying for and receiving tax breaks.

They've got good lobbyists and made a persuasive argument that buildings wouldn't get built unless the unit owners received tax breaks (probably not true, but not 'corrupt'). Albany bought it under the guise of 'makes housing more affordable', and pressure to be seen doing something about rising housing prices without actually offending their campaign contributors in the real estate business. I'd suggest that the corruption (or at least failure to act in the best long term interests of all NYState residents) was on the part of Albany legislators, and HPD desparation. That the real estate industry plays a particularly aggressive form of hardball is not evidence of 'corruption'.

Development tax breaks are yet another form of kicking the tax can down the the road. If HPD truly cared about providing affordable housing, they'd build it. If Albany and NYC truly cared about the long-term viability of their finances, they'd implement an equitable tax code across all residential property types. Some oxen may be gored in the process (1-3 family brownstones, condos), and some air would be taken out of new developments, but the long-term effect would be fairer to a larger population of homeowners.

Aaron2, maybe we define corruption differently but I do not think Albany simply bought the developer's persuasive argument about affordable housing. Money talks and lobbyists know it. Albany politicians are not geniuses but it does not take a genius to know a boondoggle when they see it.

If a deal is corrupt, aren't bother parties liable? I remember years ago when tax assessors were sentenced for corruption because they were paid bribes to lower assessments on certain buildings. A number of them went to jail but not a single real estate owner was even accused. I hope you will agree the corruption is a two-way street.

I agree with your comments on creating a more equitable tax code. Current laws are both bad policies and bad politics.

My main point is that the assertion that without the tax program these buildings would not be built is bogus. Developers would simply be paying less for land or taking smaller profits, but all of this building would still be happening.

30, What do you think about Hudson Yards 421a?

Aaron, I think most condos seems to be fairly taxed now except ultra-luxury which may be under taxed relative to market value at $4k plus per sq ft. Many new developments are $1.5-2 per month per sq ft in taxes which is not low by any standards.

300: When I said 'equitable tax code' as regards condos, I was thinking specifically of the abatements, not the rates on unabated units, and didn't mean to suggest that rates on unabated condos were inequitable.

I hear co-op owners complaining about their taxes vs condo owners, but don't have any good comparative data. Do you know of source for comparing condo taxes vs co-op taxes on a per-square foot basis?

Aaron, I do not have that but with the limited sample set I have seen coops are 10-30 percent lower than 80s-90s condos but are catching up fast. Some of the extremely low taxes in soho on coops are being increased at 20 percent per year. New condos are the highest regardless of the sale price per sq ft. 4-10 family in Manhattan are also relatively high as the calculation metrology used by the city is multiple of gross rent. Look at some townhouse listings as an example. They are close to 1 percent of the traded market value.

Re: Hudson Yards I think it would have been built with or without 421a, if that was the question.

I think one of the reasons that co-ops are catching up to condos is the same reason that prewar is catching up to post-war. With vacancy decontrol and hundreds of thousands of units being brought out of rent control and rent stabilization, the rents in older buildings which used to be much lower due to those programs are now more comparable. Since co-ops and condos must be assessed as if they were comprable rental properties, these higher rents in rental buildings not only mean higher assessments for those rental buildings but also the comprable co-op and condo buildings.

That is good point on coops.

Part of the problem is that coops and condos are comparable rents properties. Maybe the tax law does not address it but coops are difficult or impossible to rent due to board rules on subletting. Also when permitted, many coops charge an admin fee as high as 10% maybe higher so the net rental value is lower than for a condo. Also, coop boards have stricter approval rights for sublet tenants including limiting the term of the lease. Taken in total, coops rent for a fairly big discount to equivalent condos.

Sorry I meant to say "Part of the problem is that coops and condos are NOT comparable rental properties."

Ximon, While what you are saying is true about coops, to my knowledge the city does not make any adjustment for a building being a coop. Both condos and coops are compared to rental buildings. In selected cases, a condo building may have what the apartment in that condo rented for which can become a data point for tax reduction filing application. I think more likely the difference may be due to some adjustment related to age of the building as they MAY be comparing to buildings with similar age.

But neither coops nor condos are assessed based on what is going on (either rental or sale) of individual units. They are assessed as whole buildings, and then the tax is apportioned based on share count or percentage of common interest. And it's based on what is going on in supposedly comparable rental buildings. So the difficulty in renting a Coop or the profitability due to Coop charges don't come into play.

Ubfortunately, 30, that all appears true. And just one more reason why the tax laws are unfair. Heck, coops are not even real estate!

https://therealdeal.com/2018/03/09/hpd-suspends-421a-for-more-than-1700-properties-heres-who-got-hit-the-hardest/

https://rew-online.com/who-still-has-tax-savings-as-the-sun-sets-on-421a-abatement/