The Good, The Bad And The Ugly Of The 421-a Situation

Unless you’ve been living under a rock, you've heard that the 421-a tax credit for affordable housing was recently allowed to expire and is languishing in limbo. That’s likely to be the elephant in the room at Bisnow’s 7th Annual Multifamily-Residential Rundown on Feb. 10 at 7am at the InterContinental Times Square.

So, to get a sense of how the market’s reacting to the loss of 421-a, we asked three of the experts who’ll be speaking at the event to describe their best, worst and most likely scenarios for how the current situation will shake out. 

Bruce Eichner, founder and chairman of The Continuum Co, knows exactly how the 421-a situation would play out in a perfect world.

“The best-case scenario is that it gets re-enacted the way it was,” he says.

No one ever said 421-a was perfect, a fact its storied history can attest to. Nonetheless, the law was familiar to banks, developers and construction firms, providing a degree of certainty that kept projects flowing into the pipeline.

Leonard Steinberg, president of startup real estate firm Compass, says he thinks it's unlikely 421-a will make a comeback without a few changes. For him, even that would be far better than nothing at all.

“It makes no sense to me why they can’t just sit down, modify it, and improve it,” he says. “As a general rule, when it comes to laws, if something is broken don’t just discard it. Fix it.”    

Shimon Shkury, founder and president of Ariel Property Advisors, paints a grim picture of how things might play out with 421-a if a deal isn’t struck soon.

“I think the worst case is there will be minimal to no incentive for developers to build rental housing," Shimon (snapped above with Ofer Yardeni, CEO of Stonehenge NYC) says. That situation could lead to soaring prices and dwindling stock if it's allowed to fester. 

Leonard is similarly grim on what the New York real estate market would look like without 421-a or a replacement in the mid- to long-term.

“It’s an essential ingredient in not only stimulating developers to build but also getting banks to provide financing,” he says. “Even if developers have a project they’re hopeful about,” without 421-a, good luck getting a bank to underwrite it.

Bruce says the loss of 421-a could result in “a virtual cessation of rental projects anywhere in the city” once projects already underway have been completed. 

Leonard (above), Bruce and Shimon are all hopeful that a deal will eventually be struck.

Bruce says it’s possible that could involve making 421a apply only to rental properties and not condos, a change in the old 80-20 split between market-rate and affordable units, or even making 421-a apply only to Harlem and the boroughs, and not all of Manhattan. While all those options have pitfalls of their own, Eichner says he’d take one of them over the current situation. 

“I’m holding out hope for a compromise, but at this point it’s impossible to say anything for sure,” Bruce says. “And either way, it probably won’t happen as fast as developers would like it to.”

Shimon says he’s not sure how the specifics of a deal might shake out, but he thinks it’s only a matter of time before Albany realizes something, anything, needs to be done.

“If the city and state are sincere about developing affordable housing in New York, they’ll have to find a solution or implement a different incentive,” he says. “Right now there’s zero incentive to do that, and that’s a dangerous place to be.”