>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:
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Whether or not the affordable units will now become permanently affordable, or if they will become subject to market rents at some point?
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Will it be necessary to require the condominium unit owners to subsidize the tenants of affordable apartments so that the building is properly maintained?
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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?
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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.
Herrick's Real Estate Development Forum
On November 20th, 2014, Assemblyman Keith L.T. Wright, Chair of the New York State Assembly Committee on Housing, will join Michael McMahon, Herrick Partner and former U.S. Congressman, and Jennifer Dickson, Herrick's Senior Planning and Development Specialist, for a discussion on the future of the 421-a tax exemption for real estate developers and property owners. The breakfast event will be held from 8:30 - 10:00 am at Herrick's New York Office.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.