A New 421-a Alternative for Gowanus: Mixed Income Housing Development Program

July 26, 2023

On July 18, 2023, New York Governor Kathy Hochul announced a significant program for new construction projects located in the Gowanus Neighborhood Rezoning district in Brooklyn seeking to provide property tax benefits consistent with those provided through the former Affordable New York Program, or 421-a. The program offers a potential solution for residential projects in the Gowanus area that will not be complete with construction prior to June 15, 2026.

The Gowanus area was rezoned in 2021 to, among other things, accommodate approximately 8,500 new residential units, including 3,000 affordable units. The area is subject to the City’s Mandatory Inclusionary Housing (MIH) Program, which requires that no less than 25 percent of a new building’s units be leased to tenants at deeply affordable rents. MIH was intended to work alongside a tax benefit program such as 421-a, which in effect subsidizes the affordable rents. Given the timing of the Gowanus rezoning, the June 15, 2026 completion of construction deadline for 421-a threatened to derail many of the affordable housing projects in Gowanus due to the risk that these projects would not qualify for a corresponding tax benefit.

The Gowanus Neighborhood Mixed Income Housing Development Program (GDP) as administered by Empire State Development (ESD) aims to address this challenge.  On July 21, 2023, ESD released a request for applications that provides more details with respect to GDP and the application process.

GDP Procedure:

  • Application to be submitted no later than September 29, 2023;
  • Projects will be subject to the approval of the ESD Director and the Public Authorities Control Board (PACB);
  • A developer will “sell” its property to ESD for the duration of the benefit period (35 years);
  • ESD will lease the property back to the developer for a nominal fee, providing a property tax exemption through a payment-in-lieu-of-taxes (PILOT);
  • Fee title will revert from ESD to the lessee after the 35-year benefit period.

Program Similarities:

  • 421-a and GDP will offer the same 35-year property tax benefit;
  • Developers will be responsible for a $3,000 fee per unit under either program;
  • Building Service workers are to be paid a prevailing wage (over 30 units for 421-a);
  • Market Rate and Affordable Units must share common entrances and spaces;
  • Market Rate Units leased below a deregulation threshold will be subject to rent stabilization;
  • Affordability requirements;
  • Unit stacking and proportionality requirements.

The GDP will require an involved application process and complex leaseback structure. Herrick’s team of attorneys has extensive experience with complicated public-private real estate transactions and can assist clients in navigating the program. Our attorneys are well versed in handling all aspects of a development transaction, from land use to ground leases to construction financing to condominium matters.

For more information on real estate or real estate tax incentive matters, please contact:

Brett J. Gottlieb at 212 592 1455 or [email protected]
Patrick J. O'Sullivan, Jr. at 212 592 1503 or [email protected]

© 2023 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.