The developers guide to Affordable Neighborhoods for New Yorkers, AKA the 485-x tax exemption

In April 2024, New York enacted a new version of the Real Property Tax Law under Section 485-x, also known as the Affordable Neighborhoods for New Yorkers (ANNY). ANNY replaces tax exemption 421-a for new construction projects located in New York City.  ANNY requires deeper affordability than 421-a and lifts the unit cap on affordable homeownership projects.  Like 421-a, larger projects must meet additional construction wage requirements based on site location, and the New York City comptroller will be empowered to revoke benefits for multiple uncured violations of the construction wage requirements. ANNY is designed to spur development and create much-needed affordable housing across New York City. This client alert provides an overview of ANNY and key considerations for developers looking to plan ahead for existing and future projects. Nixon Peabody’s nationally recognized Affordable Housing practice group stands ready to advise our developer clients on the new program and how it may fit into both existing and new projects on the horizon.

Summary of benefits for rental buildings 

485-x tax benefits and terms vary based on building size, type, and location. ANNY includes several affordability options, which vary based on the same. Each option is summarized in the chart below. Each rental project must elect its option in its application, which cannot be changed thereafter. For larger buildings in particular zones, ANNY offers a longer tax exemption benefit than that offered under the Real Property Tax Law, Section 421-a. All affordable units must be permanently affordable and subject to rent stabilization.  Market rate units are not subject to rent stabilization. 

BUILDING SIZE: 150 OR MORE RESIDENTIAL UNITS IN ZONE A OR ZONE B

• Project Type: Option A — Very Large Rental Project (100% Rental)
• Affordability Requirement: 25%
• Weighted Average AMI Level: 60% AMI (Weighted average with no more than three income bands and no band exceeding 100% AMI).
• Exemption:
  • Zone A: Up to 5-year construction period, followed by 40-year exemption at 100%. 
  • Zone B: Up to 3-year construction period, followed by 40-year exemption at 100%.
• Wage Requirements:
  • Zone A: Workers must be paid the lesser of $72.45/hr. or 65% of prevailing rate. Annual increase of 2.5%
  • Zone B: Workers must be paid the lesser of $63.00/hr. or 60% of prevailing rate. Annual increase of 2.5%

BUILDING SIZE: 100 OR MORE RESIDENTIAL UNITS (CITYWIDE)

• Project Type: Option A — Large Rental Project (100% Rental)
• Affordability Requirement: 25%
• Weighted Average AMI Level: 80% AMI (Weighted average with no more than three income bands and no band exceeding 100% AMI).
• Exemption: Three-year construction period, followed by 35-year exemption at 100%. 
• Wage Requirements: Workers must be paid a minimum hourly wage/benefit of $35.00 in 2024 (see Summary of Wage Requirements below for increases).

BUILDING SIZE: 6 TO 99 RESIDENTIAL UNITS LOCATED (CITYWIDE)

• Project Type: Option B — Modest Rental Project (100% Rental)
• Affordability Requirement: 20%
• Weighted Average AMI Level: 80% AMI (Weighted average with no more than three income bands and no band exceeding 100% AMI).
• Exemption: Three-year construction period followed by 35-year exemption, with (i) 25 years at 100% and (ii) 10 years with exemption equal to the affordability percentage.
• Wage Requirements: Not Applicable

BUILDING SIZE: 6 TO 10 RESIDENTIAL UNITS LOCATED OUTSIDE OF MANHATTAN AND ON A ZONING LOT NOT EXCEEDING 12,500 SQUARE FEET OF RESIDENTIAL FLOOR AREA

• Project Type: Option C — Small Rental Project (100% Rental)
• Affordability Requirement: None
• Weighted Average AMI Level: None; however, 50% of the units must be permanently rent-stabilized. 
• Exemption: Three-year construction period, followed by ten-year 100% exemption.
• Wage Requirements: Not applicable.

Summary of benefits for homeownership 

485-X is also available for homeownership projects with six units or more located outside of Manhattan operating as a cooperative or condominium.

To be eligible, 100% of the units must have an average assessed value per square foot that does not exceed $89.00 upon the first assessment following the completion date, and each owner of any unit must agree, in writing, to maintain such unit as their primary residence for no less than five years from the date of closing of such unit.

BUILDING SIZE: 6 OR MORE RESIDENTIAL UNITS LOCATED OUTSIDE OF MANHATTAN

• Project Type: Option D — Homeownership Project  
• Affordability Requirement:
  • 100% of units with an average assessed value per square foot not exceeding $89.00 and owner-occupied for at least five years.
  • Construction commencing between June 16, 2022, and June 15, 2034.
  • Construction completion on or before June 15, 2038.
• Weighted Average AMI Level: None.
• Exemption: 20-year exemption at 100%

Summary of wage requirements for projects with 100 or more units

In addition to the eligibility and rental requirements, developers and owners must also commit to construction wage standards for certain projects, including a citywide elevated minimum wage/benefit requirement for projects over 100 units. Exemptions will be granted to projects using project labor or collective bargaining agreements. Enforcement will be based on a complaint-based regime, and penalties could include revocation of benefits if the city comptroller uncovers multiple uncured violations of the construction wage provisions.

Projects over 150 units in certain sections of Manhattan, Brooklyn, and Queens may be subject to more stringent trade-based prevailing wage standards:

In Zone A (Manhattan below 96th Street, Neighborhood Tabulation Areas Queens 0201, and Brooklyn 0101, 0102, 0103, and 0104), workers must be paid the lesser of $72.45/hr. or 65% of prevailing rate.

In Zone B (Neighborhood Tabulation Areas Queens 0102, 0105, and Brooklyn 0201, 0202, 0203, 0204, 0601 0602, and 0801), workers must be paid the lesser of $63.00/hr. or 60% of prevailing rate.

These amounts ($72.45 and $63.00) increase annually by 2.5%.

Other restrictions and limitations

ELIGIBLE PROPERTIES

Tax lots with one or more buildings where all units are rental housing (a Rental Project) or condominium/cooperative housing (a Homeownership Project) are considered "eligible multiple dwellings" if they:

• Contain six or more dwelling units;
• Are created through new construction [1] or eligible conversion [2];
• Lawfully began excavation and construction of initial footings and foundations in good faith [3] (the Commencement Date) after 6/15/2022 and on or before 6/15/2034; and
• Have a first TCO (temporary certificate of occupancy) or PCO (permanent certificate of occupancy) covering “all residential areas” and (the Completion Date) is before 6/15/2038.

OTHER LIMITATIONS

Projects with a total area of more than 12% commercial, community, and accessory spaces (excluding parking up to 23 feet above the curb) will have reduced benefits by the same percentage. This reduction is first applied proportionally to non-residential lots until they are fully taxable and then to the remaining residential lots. [4]

All rental dwelling units in an eligible multiple dwelling must share common entrances and common areas with the market rate units and shall not be isolated to a specific floor or area of the building.

Affordable units must have (i) a unit mix proportional to market-rate units, or (ii) at least 50% shall have two or more bedrooms and no more than 25% shall have less than one bedroom.

No concurrent exemptions or abatements are permitted. [5]

POST-RESTRICTION PERIOD

See above regarding tenants in affordable units upon expiration of the restriction period.

EFFECTIVE DATE

Deemed to be effective 4/20/2024.

[1] New construction” is not defined but will be defined in the Rules.

[2] “Eligible Conversion” means the conversion, alteration, or improvement of a pre-existing building or structure resulting in a multiple dwelling in which no more than 49% of the floor area consists of such pre-existing building or structure.

[3] For eligible conversion, “the date upon which the actual construction of the conversion, alteration, or improvement of the pre-existing building or structure lawfully begins in good faith.”

[4] In the alternative, a project may elect to place the commercial space in a separate condominium unit to qualify for an ICAP tax exemption for the commercial.

[5] However, a project can condo out a residential portion and receive an Article XI tax exemption at the discretion of the City Council.