REAL ESTATE

Real Estate’s Wins and Losses in New York’s 2022 Budget

All in all, the $212 billion budget is a mixed bag for the industry. (Getty/Illustration by Kevin Rebong for The Real Deal)

As the dust clears on New York’s $212 billion budget, the real estate industry finds a changed landscape.

The agreement includes more than $2 billion in federal and state rent relief, but also tax hikes exceeding $4.3 billion. And several provisions that the real estate industry had supported were dropped.

Here’s where things landed on key issues:

Rent relief

The budget includes $2.3 billion in federal rent relief and another $100 million in state funds. It bars evictions and rent increases for one year if landlords accept aid for that tenant. The program is not mandatory, but there is some confusion over when landlords can take a tenant to court. Tenants making 50 percent of the area median income or less get priority, along with several other groups.

Commercial-to-residential conversions

Language to fast-track conversions is missing from the budget, but it includes $100 million toward turning commercial properties into permanent affordable housing. That potentially paves the way for a measure introduced by Sen. Michael Gianaris allowing the state to acquire and convert distressed hotels and offices into housing for homeless New Yorkers and those earning up to 50 percent of the area median income.

The Senate had wanted $250 million allocated for Gianaris’ program. The governor had proposed a different framework, a month after the Real Estate Board of New York pitched the concept. That proposal was criticized by affordable housing groups for prioritizing market-rate housing.

Local Law 97 workaround

A proposal to give property owners another option to offset their building emissions and avoid large fines did not make it into the budget. Elected officials and environmental advocates felt it would circumvent the 2019 city law.

“Local Law 97 was years in the making, the result of painstaking work and thorough analysis by many people, and to swoop in and try to override it through the state process was a huge mistake,” Gianaris said in a statement.

Environmental, labor and planning groups have pitched their own proposals to ease compliance with the law. They might yet gain traction.

Penn Station

Following opposition from some lawmakers and community groups, $1.3 billion for the Empire Station Complex was budgeted with some key restrictions: Funds cannot go toward construction of office towers surrounding Penn Station, though they can be used for acquisition, demolition, construction and other costs associated with expansion of the transit hub and incurred before April 1.

Business leaders took a dim view of the restrictions.

“As stewards of the district for nearly three decades, we’ve seen how a lack of investment and neglect can leave a community behind,” Dan Biederman, president of the 34th Street Partnership, said in a statement. “Now is not the time to stop momentum in its tracks for the Penn District.”

Taxes

Lawmakers and the governor agreed to $4.3 billion in “temporary” tax increases on the personal income of New York’s highest earners and on corporate income. They expire in 2027, but could be extended, as the 2009 millionaires’ tax has been several times.

To the relief of the industry, the budget does not tax mezzanine debt and preferred equity investments. Sen. Julia Salazar and Assembly member Harvey Epstein have pushed for these taxes as part of separate legislation, but such bills are harder to pass outside the budget.

The budget also left out proposed hikes on capital gains and estate taxes. During a press conference Wednesday, Gov. Andrew Cuomo said these tax increases anticipate the repeal of the $10,000 federal cap on state and local tax deductions, or SALT, passed in 2017. President Biden has faced mounting pressure from House Democrats and governors from states hit hardest by the cap to undo it.

Prevailing wage

The budget mandates union-level wages on certain renewable energy projects. Specifically, project owners with renewable energy credit agreements with public entities must pay prevailing wages to construction workers on renewable energy systems of 5 or more megawatts. Last year, the state extended prevailing wage to projects where public funds cover at least 30 percent of construction costs and such costs exceed $5 million.

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