Three Consequences from the 421-a Tax Abatement Expiration

You may have heard a little something about the 421-a tax abatement expiring last month, after negotiations broke down between the Real Estate Board of New York (REBNY) and the Building and Construction Trades Council of Greater NY leading up to the midnight deadline on Jan. 16. There's been a lot of good, bad, and ugly with the 421-a situation, but now the questions stands: what will the fallout be from the actual 421-a expiration? 

Here are three consequences we here at CPEX see happening:

1) Fewer development sales

This is a no-brainer. With no abatement to lessen the cost and risk for developers, there will be fewer sales of prospective development sites. If you can’t build it, you probably won’t buy it. Aggregate dollar volume and pricing will also decline in light of the 421-a expiration.

2) Fewer rental apartments

This is a natural corollary to fewer residential apartments in the pipeline to come online over the next few years. The hit will be especially strong for affordable housing, as REBNY and Mayor Bill de Blasio predict (probably on the high end) upwards of 17,000 units will be lost without 421-a.

3) More condo, office and retail development projects

Not all is bleak for the Brooklyn development scene after 421-a expired. Condominium, office and retail developments should command a greater market share as developers steer away from residential rentals. With office vacancy rates among the lowest in the country and a high demand from businesses and retailers for more Class-A commercial space in Brooklyn, this could be the silver lining to the expiration of the 421-a tax abatement.

For more information about the impact of the 412-a situation on Brooklyn real estate, contact one of our property type specialists or click here.