The NYS Attorney General’s New Program Allowing for Partial Conversion of 80/20 Questions on ImplementationOctober 2014
On October 10th, the New York State Attorney General's Office issued a memorandum which allows the partial condominium conversion of those New York City residential apartment buildings which have some apartments rented at market rents and others reserved for income-restricted tenants. Typically, if certain tax or financing benefits have been provided for a building, 80% of the apartments are market rate and 20% are considered affordable. The Attorney General will now allow the sale of the market rate apartments as condominium units under a non-eviction offering plan while preserving the income restricted apartments as rentals. Previously, no conversion would be possible unless the developer were to wait at least 30 years after the building was first rented until the end of the affordability restrictions.
The ability to convert to condominium ownership earlier on this basis might be important for some owners struggling as a result of increases in real estate taxes over time. The memorandum provides a mechanism, specifically an exemption from certain regulatory requirements, if specific disclosures are made which are mostly applicable to the affordable apartments, and a letter of support is obtained from a relevant New York City housing agency, which may be HPD, HDC or HFA. These agencies have generally agreed to cooperate with the process. Once the exemption is provided, an offering plan may be filed to permit the sale of the market rate apartments only as condominium units, with no offering of the affordable apartments.
There are still a number of questions that will need clarity including:
- Whether or not the affordable units will now become permanently affordable, or if they will become subject to market rents at some point?
- Will it be necessary to require the condominium unit owners to subsidize the tenants of affordable apartments so that the building is properly maintained?
- Whether the 15% requirement to convert to condominium ownership will be based on all the apartments in the building or just the market rate apartments?
- Whether the statutory reserve fund under what is known as Local Law 70 will be calculated based upon the entire building or just the market rate apartments?
The Attorney General's office and the housing agencies will have to analyze these and other issues to determine how best to implement the new program. We will keep monitoring the situation and inform clients on any updates.
For more information on this or other real estate matters, please contact:
Douglas P. Heller at +1 212 592 1454 or [email protected]
© 2014 Herrick, Feinstein LLP. This alert is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.