Flashback: the "Zoning Lot" Hustle
In 2017, eleven rental apartments got cheaper. That saved condo buyers down the block millions.
More than 20 years after its announcement, Atlantic Yards (aka Pacific Park) has such a complicated history that even who should know better get things wrong.
For example, you can’t detail the 1,374* below-market “affordable” units in Atlantic Yards/Pacific Park by simply looking at the initial advertisements for the city housing lottery. (The asterisk = one super’s unit.)
Though I used to do that, it’s misleading, because the configurations advertised—the varying-sized apartments in five affordable “bands”—are not necessarily accurate.
Notably, I’d forgotten the result of 2017 maneuver, as I reported in City Limits, in which developer Greenland Forest City Partners dramatically cut taxes for high-priced condominiums at 550 Vanderbilt Ave. (B11) by lowering rents at eleven rental apartments down the block at the “100% affordable” 535 Carlton Ave. (B14).
It’s one of the least-covered and -remembered aspects of this project, one that Empire State Development (ESD), the state authority that oversees/shepherds this project, also ignored in its tally of affordable units.
It’s also one of the most audacious, because the private benefit clearly outweighed the public one, as two not-so-related towers were retroactively combined for tax purposes.
An “affordable project”
Those towers, one (B14) flanking Carlton Avenue at the west and the other (B11) flanking Vanderbilt Avenue at the east, were separated by two, undeveloped parcels (B12/B13). Those have since been built as 595 Dean.
For the purposes of the 421-a tax break, the city’s Department of Housing Preservation and Development (HPD) allowed B11 and B14—in a retroactive request from the developer—to qualify as an "affordable project," because they were on a single zoning lot, “a tract of land comprising a single tax lot or two or more adjacent tax lots within a block.”
Lowered rents, but…
Rents at those eleven units, which went from serving middle-income households to moderate-income ones (not low-income), cumulatively declined $19,201/month or $230,412/year, at least in the first year.
That meant eight more moderate-income two-bedroom units, at $1,591/month, and three four more moderate-income three bedrooms, at $1,831/month, for households earning 100% of Area Median Income (AMI), or up to $90,600 for four people.
Reciprocally, that meant seven fewer middle-income two-bedroom units, at $3,223/month, and four fewer middle-income three bedrooms, at $3,716/month, for households earning 165% of Area Median Income (AMI), or up to $149,490 for four people.
Note that the middle-income units were marketed as “affordable”—i.e., income-targeted—but did not qualify as contributing to the overall “project,” two buildings comprising 576 units, as affordable.
Rather, only 105 of the 298 apartments at 535 Carlton—the low- and moderate-income units—initially had low enough rents to trigger the tax break. Hence the need to create eleven more moderate-income units, for a total of 116, or 20% in the two-building “project.”
A bonus for condo buyers
While rental apartments became somewhat more “affordable,” the public interest suffered overall: in my October 2017 article for City Limits, breaking the news, I estimated that the new 25-year exemption, instead of the initial 15 years, could ultimately save buyers $50 million in taxes, or $2 million a year. (No official would confirm that.)
The maneuver especially helped boost the most expensive units. For example, the four-bedroom, 4.5-bath Penthouse West, priced at $6.86 million, was formerly projected to require annual taxes of $42,711 (already a 20 percent discount off taxes without 421-a). Now, annual taxes would be just $1,665, saving the buyer nearly $1 million more over 25 years, by my calculations. (It still sold at a discount.)
As I wrote, Michelle de la Uz, executive director of the nonprofit Fifth Avenue Committee, called the policy “ridiculous.”
The developer, she said, “devised a way to substantially reduce their tax burden” while offering “extremely limited improvement in the affordability levels” in a project “whose ‘affordable housing’ is too expensive for most New Yorkers in need of housing.” As a leader of the coalition BrooklynSpeaks, de la Uz has advocated for deeper affordability in the project.
Another framing: $85 million in savings
Note that the cumulative $50 million savings is relative to the savings that buyers would’ve gained under the initial 15-year tax exemption.
If there were no tax exemption at all, my estimate was that condo buyers would save more than $85 million, cumulatively, over 25 years.
Drilling down
The maneuver emerged in neither a public statement or press release, much less disclosed at the Dec. 15, 2014 groundbreaking for 535 Carlton or the Regulatory Agreement filed that day.
Nor was it mentioned in the triumphant June 12, 2017 mayoral announcement in which Bill de Blasio claimed the newly opened 535 Carlton “delivering on the affordable housing this community was promised.”
Rather, it was buried in the Tenth Amendment to the 550 Vanderbilt Condominium Offering Plan, a required filing with the state Attorney General’s Office dated July 25, 2017. My article was published three months later.
One month after that, the maneuver was memorialized in a city Regulatory Agreement, dated Nov. 22, 2017—a document I only recently found. It states:
C. The parties desire to modify the Regulatory Agreement for the purpose of, among other things, i) increasing the number of 100% AMI Units by eleven (11), (ii) decreasing the number of 165% AMI Units by eleven (11)…
That phrase “among other things” is an understatement. After all, as a letter from the developer’s lawyer, part of that Tenth Amendment, stated:
The affordable units at 535 Carlton Avenue may be used for purposes of satisfying the requirement of having onsite affordable housing to qualify the building at 550 Vanderbilt Avenue to receive 421-a tax benefits.
So HPD approved the distribution chart below of DUs, or dwelling units.
Rest assured, no one had previously seen the two buildings as combined, only for the purposes of this tax break. Indeed, there was no mention of this in the initial Dec. 14, 2014 Regulatory Agreement for 535 Carlton, which set initial rents.
An easy lift
This meant no additional burden on the condo buyers. Wrote the lawyer:
It should be noted that although the building at 550 Vanderbilt Avenue will now be deemed part of an affordable project for 421a purposes, as well as being included in the same joint 421a application as the affordable building at 535 Carlton Avenue, there will be no requirement to have any affordable units in 550 Vanderbilt Avenue nor shall there be any restriction on the ability of unit owners to sell their units and maintain 421a eligibility since such restrictions are only applicable to the building at 535 Carlton Avenue. The joint application results in ten additional years of exemption with no residential cap on the 421a exemption and is a far better benefit than the benefit set forth in our previous letter included in the original offering plan.
How did this happen?
How this came about was complicated: as I wrote, the developer had expected that all 100% market-rate buildings would get a 15-year tax exemption, itself a governmental bonus—specific to Atlantic Yards—otherwise unavailable to fully market-rate buildings, as long as the project overall maintained 20% affordability below a certain threshold.
Indeed, that was in the initial 550 Vanderbilt Offering Plan.
A curious switch
As I wrote in City Limits, this change was triggered—or, perhaps, an advantage was spied—by a change in state policy:
After the passage of Affordable New York this year, however, Greenland Forest City recognized that the condo building could not get the 15-year tax break, [Forest City executive Ashely] Cotton said, apparently because the Atlantic Yards/Pacific Park “carve-out” wouldn’t be triggered until a cumulative 1,500 units were built. Instead, they pulled a rabbit out of a hat, concluding 550 Vanderbilt could take advantage of other 421-a provisions that few, if any, expected would be invoked for market-rate buildings in this project.
In retrospect, I’m not so sure. There was nothing in the Tenth Amendment that disclosed the possibility that 550 Vanderbilt might get no tax break at all.
Nor does the original bill’s language—”a multi-phase project that includes at least 2,500 dwelling units and (i) being implemented pursuant to a General Project Plan adopted by the New York State Urban Development Corporation”—set a 1,500-unit threshold.
Could it have been that the developers took advantage of the best opportunity, not the only remaining one?
A strategy obfuscated
It’s worth noting that The Real Deal, an industry publication presumably able to get “a source close to the companies”—likely a representative of Greenland Forest City—to talk, did not mention 550 Vanderbilt in its Aug. 1, 2017 account of Atlantic Yards/Pacific Park troubles:
When planning out Pacific Park, Forest City and Greenland used a provision in the old 421a: Rather than put affordable units into every structure, they could concentrate them into single buildings and still receive abatements for the rest of the project. The developers applied that to two of the rental buildings, 535 Carlton and 38 Sixth Avenue, which are both entirely composed of affordable units, the source said on the condition of anonymity.
That’s not exactly true: the initial plan was to ensure that condo buildings would get the tax exemption as long as the rental buildings, expected to be 50% affordable, contained enough below-market units.
Only in 2014 did the notion of a “100% affordable” (but 65% middle-income) towers emerge.
The Real Deal continued:
Under the new legislation, that provision is gone. So if the partners still want to get the tax abatement for a 245-unit condominium building at 615 Dean and a more than 300-unit rental tower at 664 Pacific Street, they may need to include affordable units in those new structures.
Those, of course, were future towers. There was no indication that 550 Vanderbilt was jeopardized.
What about 38 Sixth?
You might be wondering: did the same situation occur with 38 Sixth Ave. (B3), which, like 535 Carlton, was a “100% affordable” building skewed toward middle-income households?
The answer is no. I could find no similar revised regulatory agreement. After all, there was no market-rate building to pair it with.
Another curiosity at 535 Carlton
There’s no explanation for the change, but the two regulatory agreements for 535 Carlton disclose a shift in configuration.
In each of the first four income “bands”—two low-income, one moderate-income, one middle-income—the total number of studio apartments was reduced by one, while the number of one-bedroom units was increased by one.
However, in the upper middle-income band, the number of studios was increased by four, and the number of one-bedroom units was cut by four.
The bottom line is that the number of studios and one-bedrooms stayed steady, but were assigned to different income categories.
(Update: to clarify, the shift was reflected in the initial housing lottery advertisement, before the “zoning lot” maneuver, so it was unrelated to the “affordable” project.)
Was it to more easily attract rents?
Who knows.
Affordable housing totals?
Does factoring in these eleven apartments help us get an accurate count of the Atlantic Yards/Pacific Park affordable apartments?
Not yet. My own tally and that of Empire State Development are at odds for other reasons, so, after clarifying the configuration at 535 Carlton, I will drill down further. Stay tuned.