Sam Rubin is used to working quick. Now he’s working quicker.
The developer has four projects that qualify for 421a, New York’s former tax exemption program. But a deadline is looming: June 15, 2026.
Rubin, head of Rubin Equities, is building in Mott Haven and Sunset Park, and he has eight months to finish construction. He’s hiring pricier contractors to get work done fast, with more people at each job site. He estimates that he’s spending about 10 percent more than he would on a typical project.
But missing the deadline would be even more expensive.
“That’s basically the difference between making money and not making money,” he said. “Otherwise, it will take us a lot of time to recoup the investments.”
The tax exemption expired in 2022, but last year New York lawmakers threw developers a lifeline. They passed a housing deal that gave the real estate industry five more years to complete construction and qualify their projects for the 421a program.
But facing political criticism, legislators required deeper affordability for developments taking the extension. You can have more time, the state seemed to be saying to developers, but you won’t get more flexibility.
“If those owners are not going to get their act together right now, they’re going to lose the project’s value altogether,” Eli Guttman, a tax abatement specialist at Metropolitan Realty Exemptions, told The Real Deal at the time, speaking about how to value 421a development sites.
But a year or two isn’t long in the building world, and despite the extension, some smaller developers are still racing against the clock to finish their projects, hoping to be some of the last in the city to receive the implicit subsidy for building middle-income housing. Their scramble to finish isn’t just about developers navigating the end of a complex tax break. It’s also about the discord of a program that served many masters, pleased few of them and left a legacy of more than 100,000 units of housing in a city starved for supply.
Affordable to whom?
The 421a program, though popular among builders, got a lot of criticism. With New York rents topping national lists, what was the use, critics asked, of subsidizing market-rate housing?
And despite affordability requirements that grew with each iteration of the program, 421a was at its heart a subsidy for mixed-income and market-rate housing. Developers’ favorite flavor of the program, known as Option C in the paperwork, most recently allowed them access to a 25-year tax exemption if they set aside 30 percent of units for households earning 130 percent of the area median income. Though the units were called “affordable,” in many places, the rent was just as expensive as the market rate.
“There’s ‘trying’ and then there’s something called ‘really trying.’”
The income requirement was so high that developers sometimes struggled to fill the units, according to Sean Kelly, a partner and broker at Ariel Property Advisors. Applicants, who sometimes made six figures, needed to jump through bureaucratic hoops like asset checks, all to spend up to 30 percent of their income on rent.
But developers still flocked to the option, lured by high rents they could charge for the ‘affordable’ units. A 2022 analysis by the city comptroller’s office found that 94 percent of projects in the program were pursuing that middle-income track, rather than options geared towards affordability for lower-income residents.
The ability to target 130 percent AMI under the “affordable” umbrella shifted the public’s perspective towards skepticism.
“When New Yorkers say, ‘Affordable to whom?’ often it’s a response to those 421a, 130 percent AMI units,” Kim Darga, deputy commissioner of development for the city’s housing arm, said at a technical briefing in August.
Eight-month sprint
Responding to that criticism, the state eliminated the 130 percent AMI option when it extended the construction deadline in April of last year.
Developers who miss the deadline will only get the extension if they choose a different option. Most are going for Option B, which involves setting aside 10 percent of their units to target 70 percent AMI, while leaving 20 percent at the 130 option. In other words, the “affordable” units will bring in less rent than expected. Because market rates are unknown, it’s difficult to estimate the effect this change will have on a bottom line. But if a project isn’t bringing in the cash flow it predicted, refinancing can become tricky, real estate experts said.
Losing access to the 130 option could mean a 10 to 15 percent drop in the value of a 421a project’s land, said Kelly, at Ariel Property Advisors.
Javier Martinez, head of Artifact Real Estate Development Company, is moving to finish three buildings in Upper Manhattan before the 2026 deadline. All are Option C, with the 130 percent median income threshold.
Martinez said the projects, totaling 218 units, are in a comfortable place to meet the deadline. Although the developments would survive if they missed it, there would still be a “significant” impact, he said. Rent increases at the affordable 421a units are governed by the Rent Guidelines Board while the building receives tax benefits, meaning the difference between 70 percent AMI and 130 percent will be felt for decades. And in neighborhoods like Washington Heights and Harlem, where rents are already less expensive, a developer can’t necessarily hike up rents for market-rate units to make up the cash flow difference.
“In this type of environment, where interest rates are so high and costs are so high, every little bit counts,” Martinez said. “If you have projects you can’t finance, then you can’t go to the next one. You can’t build more.”
Guttman, of Metropolitan Realty Exemptions, says developers like Rubin and Martinez are not alone in trying to save Option C for their projects. He gets calls multiple times per week from developers who are pushing their contractors and hoping to find any way around the deadline.
“There is definitely a pressure going on on the development side to make sure to meet that deadline,” he said. “There’s ‘trying’ and then there’s something called ‘really trying.’”
And the more expensive the neighborhood, the more it’s worth it to try. The lower income restriction is a bigger hit to the rent roll in, say, downtown Brooklyn than in the Bronx, Guttman said.
Guttman is working with Yitz Kaufman, COO of KS Group, on a large-scale development in Astoria. Kaufman has cut several months off the timeline for the 738-unit project, called Astoria Cove, hoping to score the 130 percent AMI option, and spending more to do it.
“That’s basically the difference between making money and not making money.”
He knows that if the KS Group team doesn’t make the deadline, the finances will take a hit, Kaufman said, but he doesn’t know quite how much.
“Hopefully that question will be hypothetical,” he said. “Because hopefully we will be able to do it.”
Some back-of-the-napkin math gives a taste. Based on other developments in Astoria that have taken the middle-income track, studios for households at 130 percent of AMI list for $2,900 per month and two-bedrooms for $3,500. A resident making 70 percent AMI could pay something like $500, or even $1,000, less per month for either, according to a review of units available in the housing lottery compared to maximums set by the city. Multiplied across 10 percent of a large project, that could be a big hit, which a landlord could either absorb, or try to make up by raising rents on market-rate units.
That may not be make or break. Martinez and Kaufman said they are both planning to use the deadline extension for other developments, forgoing the 130 percent AMI.
“There’s obviously a financial incentive to finish earlier,” Martinez said. “But the bigger financial incentive is just finishing the projects.”
‘You either get it or you don’t’
Not every developer is feeling the crunch. Big institutional players have mostly finished their 421a projects, they told TRD.
Some other developers are working in zoning districts that have even steeper affordability requirements to build. Those players were overjoyed about the extension and unbothered by the disappearance of 130 percent AMI, since they weren’t using it. That includes Charney Companies, which will have built 3,000 units under the 421a program by 2028, according to founder Sam Charney. The company is building on sites vested for 421a in recently rezoned Gowanus, where deeper affordability is required for big projects.
“It was an unbelievable program,” Charney said of 421a.
There were other big winners from the extension. Landowners, including those in the recently upzoned districts, saw their assets jump in value. Suddenly, developers had the option to squeeze out the last drops of 421a before it was replaced with a less lucrative incentive program. Developers, some of whom were planning to make the original deadline, were also able to eke out some breathing room with lenders who had worried about missing the exemption entirely.
“Projects were not capable of getting financing without a certainty that they were going to be able to be completed in time,” Brett Gottlieb, an attorney at Herrick, said. “Until the statute provided for the extension language, these projects were on hold. Some of them died permanently or were sold.”
Before the deadline was announced, MAG Partners was working overtime. The development team, which builds in Manhattan, knew they could finish their projects by the 2026 deadline and access the tax exemption before it closed for good. The issue was convincing their funders. Lenders wanted assurances that projects could be completed significantly earlier.
“Capital markets and lenders really put a lot of cushion on the deadline,” Jeffrey Rosen, chief investment officer at MAG Partners, said. “The end result of this is binary. You either get it or you don’t.”
A tax exemption goes from rags to riches
The 421a program’s transformation into an affordable housing program didn’t happen all at once. The tax break’s journey underscores New York City’s transition from an emptying metropolis to arguably the most in-demand municipality in the country.
In the 1970s, the city hollowed out. The original 421a was a simple tax waiver for new multifamily rentals, marketed by Mayor John Lindsay as a way to spur investment. There was no affordability requirement because there was no need for one. Subsidizing middle- and upper-class taxpayers was the point.
But New York survived its doom loop, and by the ’80s, development was making a comeback. Public opinion began to turn when Donald Trump pushed for tens of millions of dollars in tax breaks through the program for his Fifth Avenue tower, full of luxury condos. When the program was up for one of its occasional renewals in 2006, New York’s housing problem had firmly shifted from “abandonment” to “affordability,” as Michael Bloomberg put it. Critics blasted 421a for subsidizing luxury apartments in upscale neighborhoods.
In 2017, Mayor Bill de Blasio lobbied for all 421a buildings in the city to include affordable units. He got his wish, although with the highest-income option.
Detractors have long focused on the program’s cost, which reached $1.77 billion in foregone tax revenue in fiscal year 2022. The purported cost to the city of each affordable unit has reached more than $757,000, according to a report from the city comptroller’s office.
But the real meaning of those numbers is complicated. Given how multifamily rental buildings are taxed in the city, most projects just don’t work financially without some subsidy.
“You can’t pencil out a lot of property with full property taxes, given the construction costs and operating costs in this city,” Mark Willis, a senior policy fellow at New York University’s Furman Center, said.
The impact of the program has been so great that some real estate experts estimated there were few multifamily rental buildings constructed since the 1970s in New York that didn’t have a tax exemption.
“421a is the gasoline that fuels multifamily rental construction in New York City,” David Lombino of Two Trees said. “Without it, you don’t have a multifamily development business in New York City.”
Developers have found 421a’s replacement, 485x, uninspiring. “Better than nothing,” as one broker described it.
The new program added another wrinkle to a developer’s calculus: a construction wage minimum that kicks in at 100 units. The rate, $40 per hour, makes large buildings extremely difficult to pencil out, prompting many developers to target exactly 99 units.
“421a was like a very special vintage of wine,” Ethan Stanton, senior managing director at JLL, said via email. “The sites we still have, whether they’re under contract or on the market, are the only ones left in that case.”
Unless the wine passes its prime: Sites that have started construction under 421a but can’t finish before the deadline won’t be able to access 485x unless they rip up foundations and restart, according to Daniel Bernstein, an attorney at Rosenberg & Estis.
Not every developer is looking so far ahead just yet. While 421a is still here, they plan to make the most of it.
“There’s no second bite at the apple,” Martinez said.
