26 City of Yes Housing Opportunity- new zoning framework for unlocking residential development in NYC by Barak Wrobel, Holland & Knight LLP
28 25% MWBE Participation Goal Compliance under 485-x Tax Incentive Program AKA Affordable Neighborhoods for New Yorkers by Anna Martynova, NYP Consulting
30 The Strategic Advantage of a 1031 Exchange by Robert Sharfstein, RPS Capital Management
32 Navigating Real Estate Development in New York City by Andrew Setiawan & Panithi Tawethipong, Development Site Advisors®
34 The Impact of Opportunity Zones on Development Land Acquisition and Underwriting in NYC by Panithi Tawethipong, Development Site Advisors®
37 How To Unlock & Create One-Million Housing Units In Nyc. The Case For Repealing New York City’s Industrial Business Zones by Rubin S. Isak, Development Site Advisors®
SPRING 2025 DEVELOPMENT WHITEPAPER – THE EXPERTS TAKE
FOUNDERS LETTER
WRITTEN BY RUBIN ISAK & LEV KIMYAGAROV
Dear Colleagues, Partners, and Visionaries,
What an issue! When we launched Development Site Advisors® in 2019, we set out to create a firm unlike any other in New York City—a hyper-focused, specialized brokerage & advisory firm dedicated exclusively to development sites and air rights. We knew that by focusing solely on this niche, we could provide unparalleled expertise and value to our clients. Over the past six years, that vision has become a reality, and today, we are proud to present the Spring 2025 Development Whitepaper.
This whitepaper is a testament to the collective expertise and collaboration of some of the brightest minds in the industry. From unlocking Transferable Development Rights (TDRs) through Zoning Lot Mergers and navigating the complexities of 485x to capitalizing on the City of Yes initiatives, our contributors have provided invaluable insights that will help shape the future of development in NYC.
As our market continues to evolve, we remain committed to empowering developers, owners, and investors with the knowledge and tools they need to maximize value and navigate an increasingly complex regulatory landscape.
Our in-house zoning architects, Due Diligence Accelerator Package®, and Neighborhood Focused Platform® are just a few ways we’ve redefined what a development site brokerage can be.
Our next service line is part of our organic growth, which is our Development Consulting Services, where we are helping owners develop, and developers execute site selection with pin-point accuracy. We launched this arm in Q4 2024 and so far have 6 fantastic clients utilizing our new services.
We want to extend our deepest gratitude to the esteemed contributors of this whitepaper. Your expertise and collaboration have made this publication not only possible but truly exceptional.
We are excited for what lies ahead and remain dedicated to being the Number 1 development site brokerage in NYC.
For those seeking to capitalize on the most valuable and complex asset class in the city, there is no better team to partner with than Development Site Advisors®
Let’s keep building.
Sincerely,
RUBIN ISAK
Managing Principal, Co-Founder
Development Site Advisors®
LEV KIMYAGAROV
Managing Principal, Co-Founder
Development Site Advisors®
DEVELOPMENT GROUND LEASES ANDJOINT VENTURES - A PRIMER FOR OWNERS – 2025 VERSION
by Matthew E. Kasindorf, Esq., Meister Seelig & Fein PLLC
2025 Version
What follows is an update to an article I wrote for the Development Whitepaper back in 2021. While most of the strategic and legal fundamentals remain the same, the dynamics of how to optimize the value of your property in 2025 have changed, in many cases for the better.
If you own real estate in an up-and-coming area or own property that could be redeveloped into a “higher and better use”, then you’ve come to the right place! This article will help you summarize and hopefully demystify these two methods of improving a piece of real estate while participating handsomely in the upside.
THE DEVELOPMENT GROUND LEASE
The Development Ground Lease is a contract, typically ranging from 49 years to 150 years, where the owner transfers all the benefits and burdens of ownership (fancy legalese for future revenues and costs!) to a developer in exchange for a monthly or quarterly ground rent payment that will range from 5%-6% of the fair market value of the property. It allows the owner to enjoy a stabile return on the value of its property without having to sell it (and paying capital gains tax) and doesn’t require the owner itself to take on the tremendous risk and complication of constructing a new building and finding tenants to occupy the new building, skills which many real estate owners simply don’t have or want to learn. You may have also heard that ground lease rents are “triple net” which means that the owner incurs no costs of operating of the property (other than income tax on the received rent) and gets to keep the full “net” return of the negotiated rent payments. All true! Put another way, during the term of the ground lease, the developer/ground lease tenant, takes on all responsibility for real estate taxes, construction costs, borrowing costs, repairs and maintenance, and all operating costs of the dirt and the new building to be built on it. Sounds pretty good right. There’s more!
This ground lease structure also allows the owner to enjoy a reasonable return on the current value of its property WITHOUT having to sell it, WITHOUT paying capital gains tax and, under current law, WITH a tax basis step-up (which reduces the amount of gain the owner would ultimately pay tax on) when the owner passes away and ownership of the property is transferred to its heirs. All you give up is control of the property for the term of the lease and a greater participation in the profits derived from the new building, but without most of the risk that goes with building and operating a new building. More on risks later.
To make the deal sweeter, most ground leases are structured with periodic increases in the ground rent to protect against inflation and have fair market value ground rent “resets” every 20 or so years, so that the owner gets to enjoy that 5%-6% return on the future, hopefully increased value of the property.
Another positive attribute of a development ground lease is that once the new building has been built and leased up, the landlord’s ownership of the property including the rental stream from the ground lease is a sellable and financeable interest in real estate. At the same time, the developer’s rental stream from operating the property is also sellable and financeable, and if the lease is drafted properly, either can be sold or financed without risk to the other party’s interest in their property. That is, the owner can borrow money against the value of the ground rents paid by the developer without impacting the developer’s ability to finance the building, and vice versa.
Despite the current volatility being experienced for all investment asset classes including real estate, new statutory incentives for newly constructed affordable or partiallyaffordable housing projects make this an opportune time to get in the game. First, Section 485-x to the Real Property Tax Law was adopted last year. While the specifics of the new programs are beyond the scope of this article, tax exemptions for the value of the new construction can be abated up to 100% and for up to 40 years depending on the size of the
Development Ground Leases Andjoint Ventures - A Primer For Owners – 2025
project, its location, and the number of units designated as affordable. In addition is the newly passed “City of Yes For Housing Opportunity” legislation. This legislation, which the City estimates will help create 82,000 new apartments in the next 15 years, modifies the New York City Zoning Resolution to increase the size of renovated and new buildings over current code requirements, reduces parking requirements and allows for accessory dwelling units. The legislation also expands the ability to obtain transferrable air rights to further increase the size of the new development projects.
The bottom line is there are substantial new opportunities to take advantage of these programs to maximize the size of potential new construction projects. That makes your land more valuable to you as the property owner and more valuable to a developer, whether the new development is structured as a ground lease or a joint venture.
So, what are the downsides, you may ask. Well first, the owner gives up all control and all potential profits to be derived from building and operating a new building for between 49 and 150 years in exchange for the security of the mostly fixed ground rent. Second, there is risk. It is predominantly frontloaded during the lease term, but the risk is real. The minute you transfer your property to the developer and the old building gets demolished, the property won’t be generating any revenue. That will last for 2-3 years until the new building is built and fully tenanted. If the developer fails to start construction of the building or stops halfway, the owner can get the property back by cancelling the lease, but with a partially built building on it that generates no revenue and worse, will cost millions to finish and lease up. That’s why you must make absolutely sure that whoever you lease the property to is a skilled and experienced builder who has the financial wherewithal to both pay the ground rent and complete the construction of the building. Complicated legal and business solutions to provide protection against these risks are beyond the scope of this article, but they exist and require that you find the right business advisors and legal counsel.
THE DEVELOPMENT JOINT VENTURE
Not satisfied with a boring, coupon-clipping, long-term ground lease with limited involvement and limited upside? Do you want to leverage your ownership of an undeveloped or underdeveloped piece of property into an exciting, new, bigger and better investment? Then perhaps a development joint venture is for you.
In a development joint venture, the owner contributes ownership of the property to a limited liability company whose owners (members) are the property owner and the developer. The owner trades its ownership of the land in exchange for a percentage ownership in the joint venture, which percentage is determined by dividing the fair market value of the land by the total project cost of the new building. So, for example, if the value of the land is $ 3million and it will cost $21 million to build the new building and lease it up, the owner will be credited with a 12.5% ($3mm divided by $24mm) interest in the entity that owns the new building and will participate in 12.5% of the operating profits, any refinancing proceeds, and the profit on sale.
There is no income tax or state and local transfer tax on the contribution of the property to the joint venture and for now, a basis step up to fair market value is still available to the owner of the 12.5% joint venture interest upon death. Putting the joint venture together raises numerous questions that must be negotiated and resolved.
For example:
1. if more cash is needed to finish the building than was originally budgeted, who is responsible to come up with the extra funds?
2. does the owner get its $3mm dollars returned first (a priority distribution) or do all dollars come out 12.5%:87.5% (pro rata)?
3. does the owner get a guaranteed return on its $3mm investment (a preference payment)?
4. who gets to control the day-to-day business decisions or major decisions like when to refinance or sell the new building?
5. an either of the members transfer their interests when desired? or
6. if you build condominiums, can the members take their profit out by getting ownership of certain apartments or retail spaces instead of cash?
There is a lot to unpack in putting a strong and fair joint venture agreement together.
And then there is a risk analysis to be done here too. In the development joint venture, the now-former property owner no longer owns or controls the dirt. The owner has acquired a 12.5% MINORITY interest in the operation, albeit a bigger project than before. The risk of a failure of the project doesn’t just result in the termination of the ground lease, it could result in a foreclosure and perhaps total loss of the property. And then there is the possibility that the market for the new building isn’t as strong as originally projected and the new building doesn’t generate the level of rental income that was expected. Conversely, the building gets built on time, on or under budget, into a robust leasing market and it’s a home run where the value of the 12.5% joint venture interest far exceeds 100% of the value of the undeveloped parcel. The taking of these risks can be significantly reduced by selecting the same competent, experienced and financially strong developer partner and if the expected benefits are large enough, a well-prepared property owner would be more than justified to take on those risks.
WHAT’S AN OWNER TO DO?
My first piece of advice to anyone considering the redevelopment of their property is to surround themselves with experienced professionals. Brokers who understand development, accountants and other financial advisors, development consultants who will work on behalf of an owner and of course, good experienced legal counsel. My second piece of advice is to utilize those experts to determine the economic, market and legal dynamics of the potential transaction. The dollars and the deal potential will drive the decision to develop or not, and the structure. My third piece of advice to my clients is to be true to themselves and try to come to an honest realization about the level of risk they will be willing to take, their ability to find the right developer partner and then trust that developer to
control this process for both party’s mutual economic benefit. More easily said than done, I can assure you.
FINAL THOUGHT – 2025 VERSION
Both of these structures work and have for years. They are particularly popular now because the cost of land and the cost of construction labor and materials are so expensive. The magic is that these development ground leases, and joint ventures provide a less expensive way for a developer to control and redevelop a piece of property. Less expensive in that the ground rent a developer pays the owner, or the profit the developer shares with a joint venture partner is either less expensive, less risky or both, than if the developer had bought the land outright, and that’s a good thing. The new incentive programs outlined above require you to engage zoning experts to navigate, but will provide the foundation for some creative and profitable deal structuring. Regardless of whether you prefer a ground lease or development joint venture structure, these are sophisticated transactions that demand sophisticated experts working on your behalf to keep you safe from the risks inherent in any redevelopment of real estate and guide you to the increased value in your property that you seek.
Matthew Kasindorf is an accomplished transactional lawyer specializing in sophisticated real estate and investment ventures in New York and throughout the United States. Mr. Kasindorf has extensive experience in crafting joint ventures, investment funds and other strategic alliances with particular emphasis on business, tax and finance issue.
MATTHEW E. KASINDORF Co-Chair, Real Estate Group
LEVERAGING THE LANDMARKS
by Margery Perlmutter, Urban Factors
One small but very important new provision in the City of Yes zoning text amendment, approved last December by the New York City Council, will finally enable owners of New York City’s individual landmark buildings to realize more of the site’s economic potential by tapping into new income opportunities to facilitate essential building maintenance and restoration.
Historic preservation aims to protect the historic character of the built environment, ensuring the architectural and cultural history of the city is not destroyed in the wake of modern development. The New York City Landmarks Law (NYC Admin Code. Title 25, ch. 3), which created the New York City Landmarks Preservation Commission, sets the parameters for designation of historic properties. The Commission has the power to designate for protection individual historically significant buildings, historic districts, scenic landmarks and interior landmarks. According to LPC’s website, «there are more than 38,000 landmark properties in New York City, most of which are located in 157 historic districts and historic district extensions in all five boroughs. The total number of protected sites also includes 1,464 individual landmarks, 123 interior landmarks, and 12 scenic
landmarks.» Typically, scenic sites are public parks, including Central Park and Prospect Park, while interior landmarks are spaces that are accessible to the general public, such as lobbies and public buildings.
Once a property has been designated, the extent to which a building, a building’s interior or a scenic site may be modified is governed by the Landmarks Law and the Landmarks Rules (RCNY Title 63) and will require at minimum permission from LPC staff to make such modifications. More significant modifications require approvals from a majority of the LPC’s eleven commissioners after presentation of the proposal to the local community board and at LPC public hearings and meetings. Typically, existing buildings within historic districts are allowed more latitude to make visible changes, such as rooftop enlargements or facade modifications, than are individual landmarks. Individual landmarks are subject to strict review and few visible exterior modifications are permitted to them because generally the designation of the property as an individual landmark is based on its individual and special, often unique, historical, cultural or architectural contributions as compared to collections of buildings found within historic districts. Such individual landmarks may be the grandest examples we have of a particular style, period, architect, cultural phenomena or owner. The Beaux Arts 42nd Street public library designed by Carrère & Hastings, or the mid-Century modernist TWA terminal at JFK by Eero Saarinen are two great examples of individual landmarks that include designated interior landmarks.
However, of the 1,464 individual landmarks, there are many buildings that are held or operated by not-for-profit organizations that depend on donations and endowments to support their missions and maintain their facilities. Caring for a landmark building can be more costly than caring for a non-landmark, since the integrity of the landmark’s historic character requires sensitive and faithful attention to the building’s original design, form, materials and detail.
Often repairs, restoration, replacement of more significant building elements when needed to maintain the building’s structural integrity, or permitted enlargements will demand the work of expertly skilled design and restoration architects, technicians and contractors. As stewards of these important individual landmark buildings, the not-for-profit owner is faced with the dilemma of fundraising to support two essential missions: their cultural, educational or religious purpose and the enduring tangible memory of that purpose embodied in their carefully preserved landmarked building.
And one might ask, why should a not-for-profit take on the additional burden of caring for a costly individual landmark? Often, however, the identity of the organization is tied directly to its relationship to the building itself. Take, for example, the many private clubs in New York City that were built either as homes for a founding member or built expressly by the club by a notable architect. The University Club and the Metropolitan Clubs on Fifth Avenue, are two such individual landmarks. Museums, such as the Guggenheim and Frick Museums, are another typical example of expressly built buildings of grand, important design that have been designated as individual landmarks. Houses of worship, many of which are great buildings designed by important architects expressly to fulfill the needs of the congregation they serve, are yet another example, such as Saint Patrick’s Cathedral on Fifth Avenue or Saint Bartholomew’s on Park. The West Park Presbyterian Church on West 86th Street and Columbus Avenue is one house of worship now suffering from its inability to afford to maintain its neglected Romanesque Revival individual landmark building and, at least its tenants are looking to neighborhood celebrities to come to the rescue.
City of Yes, NYC Zoning Resolution (ZR) Section 75-42 is here to save the day! Hopefully.
Sitting on a 10,157sf zoning lot in a C1-5/R10A zoning district with only 16,003 sf built on its site, West Park Presbyterian is underbuilt by more than 85,000 sf. No wonder Church ownership argues that they cannot afford to restore the building and should be freed from landmarks designation so that it can sell the site to developers who will tear it down to build luxury housing in a choice Manhattan neighborhood.
Until last December, there was no other choice than that short of finding a benefactor.
Before the approval of City of Yes, an individual landmark that had excess air rights could only transfer them as of right to an adjacent property in the same zoning district, or with special approvals through a very expensive and elaborate special permit process requiring review by the City Council, the City’s Department of City Planning, the borough president and the community board. With this special permit, the individual landmark could only transfer these rights to an
Leveraging the Landmarks
immediately adjacent property in a different zoning district, or to one that is directly across the street from the landmark. This earlier process had been used only rarely and only to benefit large developments, such as the Museum Tower building adjacent to the Museum of Modern Art at 15 West 53rd Street in Manhattan, because navigating the complex Uniform Land Use Review Process, more commonly known as ULURP, as well as satisfying NYC Landmarks Preservation Commission mandates for the landmark, required wellheeled developers with teams of land use and real estate lawyers. Developers used this process when the amount of air rights were significant, leading to the construction of larger, taller buildings that translate into better views and higher sale prices.
For most individual landmark buildings under those now obsolete regulations, there were no receiving sites to which the landmark could transfer, and often, the buildings could not be enlarged to utilize their air rights themselves without compromising and even destroying the historic character that entitled them to such individual landmark status in the first place (one example is the University Club on Fifth Avenue at East 54th Street that supplied the air rights for the MoMA tower). With no receiving sites, these landmark buildings could not sell their air rights to support essential repair work.
ZR Section 75-42 addresses this issue by expanding the area into which an individual landmark can transfer its air rights. The text now allows such transfers to travel anywhere on the block on which the landmark is located and to lots located across the street and across the intersection from the subject block.
To reduce the bureaucratic red tape, the City of Yes changes the process by which such transfers are possible to a City Planning Chair «certification,» which is a non-ULURP process and is much less cumbersome.
To avoid over-development on a given receiving site and to respond in advance to community concerns, the amendment limits the amount of air rights that can be transferred to a single receiving site to not more than 20% above the maximum allowable floor area ratio (FAR) permitted as of
right on the receiving lot. Consequently, where a landmark has a large quantity of air rights to sell, it would need to sell those rights to several sites within the allowable transfer zone. The only exception to the 20% limitation is for highdensity commercial and manufacturing districts where the allowable FAR is 15.0 or greater, such as what one would find in certain parts of Midtown. In such cases, a receiving site could achieve an increase in floor area equal to 30% of its maximum allowable FAR. For increases higher than 30%, the more complex City Planning special permit under ZR Section 74-79 would be required. That same special permit can also be pursued to obtain modification to the ZR’s bulk regulations, such as height, setbacks and yards.
To ensure that the granting individual landmark site will indeed be maintained as a result of the transfer, ZR 75-42 requires that an LPC-approved «continuing maintenance» program is established. In addition to addressing the immediate repair needs of the landmark, the proceeds from the air rights sale will often be placed in an endowment fund, the interest income from which will be drawn for ongoing maintenance.
As an example, the Paul Rudolph Foundation’s Modulightor Building on East 58th Street is a 6-story recently designated individual landmark on a 20 x 100 lot. It is located in a zoning district that allows 10 times the lot area of the lot and is using only half of that area for the landmark building. This leaves 10,000 square feet of air rights available for transfer. Under the pre-City of Yes zoning, it could transfer to only one immediately adjacent lot and none of the lots directly across the street from it were viable receiving sites. This situation
gave the owner of that one adjacent lot unequal bargaining power in the potential air rights sale; hence it offered to acquire the air rights at far below market value. With the enlarged transfer/receiving area made possible by ZR 75-42, there would now be at least 14 potential receiving sites on the block on which the Modulightor is located. This number doesn’t even factor in the additional potential receiving sites located on the block frontages to the north, south, east, west and across intersections from Modulightor’s block. And, since the receiving sites may not accept more than 20% of the maximum allowable FAR permitted on each lot, the typical transfer would only represent a one-story enlargement to an existing building, a small but valuable addition for any owner. Of course, larger assembled sites within the permitted radius may be able to take on all of Modulightor’s excess development rights to incorporate into a new building without exceeding the 20% receiving cap.
The 20% increase in FAR to support historic preservation serves an important public policy purpose and is equivalent to existing and recently approved City of Yes regulations that allow a similar increase where affordable housing is provided.
Keeping the transferable amount small and noncontroversial in most neighborhoods, allows for a simple approval process that would be affordable to both seller and buyer. This is a great first step that should encourage owners of individual landmark buildings and their neighbors to begin negotiations. It remains to be seen how many buyers will come forward to participate in this process and whether a 20% increase is enough to justify it.
Raising the 20% cap on maximum allowable FAR also is important because it will inspire private-sector investment in our communities and give property owners more options and flexibility while infusing landmarks with additional capital. The concept of a wide district of receiving sites saving landmarks is best represented by the zoning-incentivized renaissance of the Theater Sub-District in West Midtown. The world-renowned landmark theaters in the Theater District were saved because their owners were allowed to sell their air rights to commercial buildings located within the transfer zone, and the profits from these transfers
paid for the restoration and ongoing maintenance of these fabulous historic buildings. Likewise, the East Midtown sub-district, approved in 2015, enables the transfer of development rights from individual landmarks, including Saint Patrick’s Cathedral, to receiving sites within specially designated sub-districts.
Giving landmark buildings greater ability to sell their development rights can generate billions of dollars in new economic activity and spur the creation of thousands of new jobs while continuing to preserve the built symbols of our City’s history. Cutting red tape and relaxing antiquated restrictions to spark economic growth is what the City of Yes was designed to accomplish.
The real estate and development community should begin now to leverage our landmarks to enhance development of new buildings and enlargements. This will in turn reinvigorate our communities with new business opportunities and support our non-profit institutions with real solutions for their very real problems.
Margery Perlmutter is a land use lawyer, an architect and the founder of consultancy firm, Urban Factors, as well as a former Chair and Commissioner of the NYC Board of Standards and Appeals and a former commissioner on the New York City Landmarks Preservation Commission. She is a contributing author to Housing the Nation: Social Equity, Architecture, and the Future of Affordable Housing (Rizzoli).
MARGERY PERLMUTTER Founding Principal and Development Consultant
TRANSFERRING DEVELOPMENT RIGHTS BY ZONING LOT MERGER
by Michael A. Smith and Robert Huberman, Herrik
The most successful marriages are combinations that benefit both individuals.
So it goes in a zoning lot merger, which is like a marriage between New York City properties. In a zoning lot merger, owners combine adjacent lots into a shared zoning lot, and pool together their development rights. For example, two owners with lots that each have 100,000 square-feet of development rights could agree to a zoning lot merger that gives them 200,000 square-feet of collective rights. They could then agree to a development rights transfer that sends 50,000 square-feet from one site to another, leaving one with 150,000 square-feet of development potential, and the other with 50,000 squarefeet. These transfers are increasingly common because owners with untapped development rights profit, and the developers who purchase them can construct larger buildings. While there are other ways to transfer development rights in New York City – such as the recently expanded transfer mechanism for individually landmarked buildings, which now requires only a ministerial approval for transfers and increases the roster of eligible receiving sites to zoning lots on the same block as the landmark and zoning lots across the street from the block –zoning lot mergers are still the most popular way property owners unload their unused development rights.
Aside from transferring development rights, a property owner may also choose to merge zoning lots to allow for more development flexibility. This flexibility stems from the fact that zoning compliance is based on the metes and bounds of the zoning lot, not the tax lot.
So, for example, if two properties are merged into a single zoning lot, a proposed development could, among other things, utilize the entire merged lot to comply with required open space and light and air regulations. This will allow for a larger building envelope than would be permitted had the zoning lots not been merged.
To consummate a zoning lot merger marriage, owners typically enter into a prenuptial agreement of sorts, called a zoning lot development agreement (ZLDA).
A ZLDA (pronounced Zelda) is supremely important because it dictates how the development rights will be split up, and without one, unused square footage would be free for the taking by any owner. Frequently the subject of misconception: while recommended, technically you do not need a ZLDA to merge zoning lots (rather, the marriage is actually consummated separate from the ZLDA, by recording a number of zoning exhibits which include a marriage certificate of sorts called a declaration of zoning lot restrictions).
Owners play the lead role in ZLDAs, but the marriage can’t proceed without all the parties (in interest)! That’s because under New York City’s byzantine, 1,300-page Zoning Resolution, zoning lot mergers require waivers from all “parties in interest,” including mortgagees of the sending and receiving sites.
Lenders are the classic example of parties in interest, and they often play a role because mortgage collateral typically includes development rights. To consummate a zoning lot merger, a borrower typically requests (1) a waiver of the lender’s “party in interest” status under the Zoning Resolution, (2) the lender’s consent to the borrower’s ZLDA, and (3) a subordination of the mortgage lien to the ZLDA. When lenders consider these borrower requests, it’s important to perform the due diligence necessary to ensure their rights and collateral are protected.
Moreover, beyond lenders, a party in interest should always conduct an independent zoning analysis before consenting to a zoning lot merger. After a fee title closing, purchasers walk away with physical property that can be seen and touched (land, building, keys, etc.). Development rights, however, are invisible. Until a developer pulls a building permit to use the rights (which may be long after money has changed hands), New York City provides no confirmation that the transaction was correctly completed.
A specific item to focus on is zoning compliance. Let’s say a property owner enters into a zoning lot merger with a lot that contains an illegal hotel. Building violations occur on a zoning lot-by-zoning lot basis, so in that scenario, the hotel violation becomes the subject property owner’s problem as well. To avoid such complications, parties in interest should conduct a zoning compliance analysis of every property that will be joining the zoning lot, and include ZLDA terms that limit further zoning lot expansion without its consent. In addition, parties in interest should ensure that the ZLDA provides for the means to fix future problems, including through self-help remedies and zoning lot divorces. As with zoning lot marriages, a zoning compliance analysis is critical for zoning lot divorces because they are prohibited where the resulting zoning lots will not separately comply with all zoning regulations.
ZLDAs also typically have multiple provisions devoted to a property owner’s ability to rebuild damaged improvements after a casualty, in part because New York City can downzone areas. If a downzoning occurs, and an owner with no remaining development rights suffers a catastrophic event, such as a building collapse, they would be unable to rebuild a true replacement building – they would have to build smaller! Similarly, most ZLDAs contain an allocation of any future additional development rights that would become available to the applicable zoning lot if an upzoning occurs.
ZLDAs can also include easements, purchase options, rights of first refusal and first offer, and unusual provisions. Among the most common provisions are light and air easements, which restrict the height of future buildings, and provisions that give a developer the right to cantilever a new building over its neighbor’s airspace. Parties entering into a ZLDA may also be executing an unrecorded construction license agreement (CLA) that requires temporary scaffolding, access to the neighboring property or permanent underpinning beneath it. Parties in interest should pay close attention to these ZLDA provisions,
and ensure that CLAs protect the stability of buildings on the property in which they have an interest.
Zoning lot mergers are increasingly common, and as major development continues to expand into the boroughs, we should see more of them.
Michael has extensive experience on a wide array of sophisticated commercial real estate transactions, including acquisitions, dispositions, financings, leasing, joint ventures and construction projects.
Robert is a partner in Herrick’s Land Use and Zoning Group where he advises developers, property owners, attorneys, architects and engineers on all aspects of land use and zoning in New York City.
MICHAEL A. SMITH Partner
ROBERT HUBERMAN Partner
FROM VOLUNTARY TO UNIVERSAL: NAVIGATING NYC’S EVOLVING AFFORDABLE HOUSING FRAMEWORK
by David Shamshovich, Esq., Belkin • Burden • Goldman, LLP
Four Decades of Evolution: NYC’s Affordable Housing Incentives Landscape
New York City’s approach to incentivizing affordable housing production has evolved dramatically over four decades, responding to changing political priorities, economic realities, and community advocacy. What began as a modest zoning bonus in high-density areas has developed into a sophisticated citywide framework blending voluntary and mandatory mechanisms. These tools have become increasingly comprehensive, reflecting the City’s ongoing effort to balance growth with equity while leveraging private development to deliver public housing benefits.
Each iteration of the City’s inclusionary housing program has built upon lessons from previous versions, refining eligibility requirements, bonus structures, and affordability levels to better align policy goals with market realities. The progression from the original R10 Inclusionary Housing Program to the geographically targeted Inclusionary Housing Designated Areas (“IHDAs”) of the 2000s, to the Mandatory Inclusionary Housing (“MIH”) framework of 2016 demonstrates this continuous adaptation. Most recently,
Universal Affordability Preference (“UAP”) under the City of Yes for Housing Opportunity (“COYHO”) initiative marks a significant evolution—providing an as-of-right zoning bonus across nearly all medium and high-density residential districts. Unlike earlier programs that concentrated affordable housing in highrent neighborhoods, UAP aims to democratize affordability by stimulating development across a broader range of communities.
However, zoning incentives alone have proven insufficient. The effectiveness of New York City’s inclusionary housing framework has consistently depended on complementary property tax exemptions—most notably the various expired 421-a programs and the newer 485-x and 467-m programs,
which similarly mandate affordable units to qualify for benefits. These tax exemptions work synergistically with zoning bonuses to create financially viable development pathways. Without them, affordable housing in highcost areas—or often anywhere—would rarely pencil out economically. While earlier programs offered generous bonus ratios (3.5:1 in R10 districts and 1.25:1 in IHDAs), UAP provides only a 1:1 floor area ratio (FAR) bonus, where only affordable units may occupy the additional zoning floor area. Unlike its predecessors, UAP does not independently offer additional market-rate floor area beyond as-of-right allowances. This makes tax exemptions increasingly vital: when UAP combines with 485-x, 421-a or 467-m, developers can “double dip,” counting the same affordable units toward both zoning and tax exemption requirements—preserving their full market-rate entitlement under base zoning. When paired with tax benefits, UAP can become a useful tool to support affordability requirements while preserving project economics—particularly in strong-market areas where the bonus can be fully leveraged.
The Genesis: R10 Inclusionary Housing Program (1987)
New York City’s original Inclusionary Housing Program emerged in 1987 as a targeted zoning mechanism limited to R10 districts—the city’s highest-density residential zones—and commercial districts which are R10 equivalents (C1-9, C2-8, C4-7, C5-2, C6-4). These districts were primarily concentrated in Manhattan with select areas in the Bronx and Queens. Under this purely voluntary framework, developers could increase their floor area ratio (“FAR”) from 10.0 to 12.0—a substantial 20% bonus—by providing affordable housing that satisfied specific criteria. This pioneering program operated under Zoning Resolution (“ZR”) §§ 23-90 et seq., predating the program’s 2005 expansion. Developers pursuing this zoning bonus for their “Compensated Development” could fulfill requirements either through on-site integration (within the same zoning lot or building as the Compensated Development) or off-
site provision (on a separate zoning lot within the same Community District or within a half-mile radius of the Compensated Development).
To qualify for this valuable density bonus, the program mandated permanently affordable units for households earning no more than 80% of Area Median Income (“AMI”) . The affordability commitment was secured through a regulatory agreement with the Department of Housing Preservation and Development (“HPD”), the City agency charged with administering the program, then and now, and governed by both the Zoning Resolution and the program guidelines. To ensure genuine quality parity between affordable and market-rate units, the program requires compliance with rigorous standards for unit mix, minimum sizing, physical distribution throughout the building, and equal access to amenities. HPD evaluated compliance with these requirements as part of its comprehensive oversight.
The R10 program established the foundational administrative framework that would govern all subsequent inclusionary housing programs, though with important refinements in later iterations. This administrative sequence—consistent across all program variants—follows a carefully structured progression: Once developers satisfy all program requirements and execute the appropriate legal instrument (a regulatory agreement for R10 or IHDA inclusionary housing or an HPD-approved restrictive declaration for MIH and mixed-income UAP developments), HPD issues a permit notice to the Department of Buildings (“DOB”). This notice authorizes DOB to issue building permits for the bonus floor area (in R10 or IHDA inclusionary housing and UAP contexts) or the residential floor area (in MIH contexts). Upon completion of construction, HPD reviews documentation and other evidence submitted by the developer to verify that the affordable units have been built according to approved plans and program standards. Only after this verification does HPD issue a completion notice—a critical document that serves as an
absolute prerequisite for DOB to grant Temporary or Final Certificates of Occupancy for any portion of the bonus floor area (in R10 or IHDA inclusionary housing and UAP contexts) or, in MIH contexts, for any residential stories in the building that do not contain an affordable housing unit. This rigorous administrative oversight ensures that affordability commitments materialize in physical form before developers can realize the full value of their projects.
Though geographically constrained and incrementally implemented, the R10 program introduced a transformative principle that would shape New York City’s housing policy for decades: the concept that additional zoning entitlements could be directly linked to the production of permanent income-restricted, rent-stabilized housing. The program proved most effective in strong-market areas where the economic value of additional FAR outweighed affordability costs, particularly when combined with tax incentives like the then-available 421-a tax exemption, which helped bridge financial feasibility gaps. This pioneering model established the foundation for the more comprehensive IHDA framework adopted in 2005, which extended the zoning bonus concept to a wider array of districts through strategically mapped rezonings—the next step in the complex interplay between zoning and tax incentives that characterizes today’s affordable housing landscape.
AMI is a metric calculated annually by the U.S. Department of Housing and Urban Development (“HUD”) to reflect the midpoint of household incomes in a given area. In New York City, AMI determines eligibility and rent levels for affordable housing programs like VIH, MIH and UAP. It varies by household size and is adjusted each year to reflect changes in regional income data.
Strategic Expansion: The IHDA Framework (2005)
In 2005, New York City significantly expanded its inclusionary housing framework by restructuring what would later become referred to as the Voluntary Inclusionary Housing
From Voluntary to Universal: Navigating NYC’s Evolving Affordable Housing Framework
(“VIH”) Program, through the creation of IHDAs. This strategic evolution extended the zoning bonus beyond R10 and R10 equivalent zoning districts, introducing a more targeted approach where bonus availability was explicitly limited to formally mapped areas designated through zoning map amendments. According to prior ZR § 23-933, the VIH Program applied only in these designated areas, which were officially mapped and cataloged in Appendix F of the Zoning Resolution. These designated areas were established predominantly through City-initiated rezonings, ensuring that inclusionary zoning bonuses were deployed precisely where new development capacity was being introduced and where resulting land value increases could be leveraged to generate affordable housing.
The Bloomberg administration mapped the first IHDAs as part of the transformative Greenpoint-Williamsburg and West Chelsea rezonings in 2005—both of which dramatically increased residential development potential. In these areas, the Zoning Resolution established a new incentive structure enabling developers to secure additional floor area by providing permanently affordable housing under clearly defined programmatic standards.
Under former ZR § 23-154(b), the IHDA framework offered developers two pathways to increase their permitted residential FAR. The first utilized a fixed 1.25:1 bonus ratio, granting 1.25 square feet of bonus floor area for every square foot of affordable floor area provided up to the maximum FAR (the “Max FAR”) permitted in that zoning district pursuant to that provision. Alternatively, developers could automatically access the Max FAR—typically 33% above the base FAR—by designating at least 20% of the total residential floor area on the zoning lot where the Compensated Development is located (excluding any ground floor non-residential floor area as defined in the Zoning Resolution) as affordable floor area. This bonus structure refined the earlier R10 Inclusionary Housing framework, creating a more geographically targeted and standardized mechanism for obtaining additional floor area directly linked to strategic rezonings.
To qualify for this zoning bonus, affordable housing had to satisfy the same substantive and procedural requirements of the R10 program, including complying with the affordable housing unit rents, which were capped at 80% of AMI, and the size, mix and distribution of the affordable
housing units. Developers also retained flexibility to provide affordable housing either on-site or off-site, provided, as with the R10 program, that off-site affordable housing units (the “Generating Site”) were located within the same Community District or within a half a mile of the Compensated Development.
The IHDA program represented a pivotal advancement in New York City’s inclusionary housing strategy. By tethering bonus eligibility to formally mapped areas adopted through City-initiated rezonings, the City created a mechanism to translate increased land value directly into public benefit through permanently affordable housing. While participation remained voluntary, the program became increasingly prevalent in high-rent areas where additional FAR delivered substantial economic value. Developers frequently paired the inclusionary bonus with prior iterations of the 421-a tax exemption program and the newer 485x tax exemption program, which provides property tax relief from increases in the assessed value of the property resulting from the construction of the subject development, in exchange for meeting detailed affordability, construction, labor and other requirements. This strategic combination of zoning and tax incentives—the interplay highlighted in the introduction—became increasingly central to the City’s approach to mixed-income housing production, setting the stage for the mandatory framework that would follow.
From Incentive to Mandate: The MIH Revolution (2016)
In 2016, New York City fundamentally transformed its affordable housing strategy with the adoption of the MIH Program—establishing for the first time a zoning framework that required rather than merely incentivized the production
of permanently affordable housing. Introduced under the de Blasio administration, MIH marked a watershed policy shift from the voluntary R10 and IHDA frameworks. While earlier programs offered zoning bonuses in exchange for affordable units, MIH created a legal obligation to provide affordable housing whenever new residential development rights were conferred through zoning map amendments.
MIH applies exclusively to areas where the City approves a zoning map amendment that introduces or increases residential floor area and designates the area as a Mandatory Inclusionary Housing Area, as defined in the ZR, which were documented in Appendix F, similar to the designation of IHDAs prior to the introduction of MIH into the Zoning Resolution. Significantly, all qualifying rezonings—whether City-initiated or privately proposed—must incorporate MIH obligations, with no option to opt out. For private applicants seeking rezonings that enable residential development, MIH applies by operation of law and constitutes a nonnegotiable precondition to securing the zoning change.
During the rezoning process, the City (typically through the Department of City Planning and City Planning Commission) selects and maps one or more specific MIH options that will govern the subject site. These options are drawn from the menu codified in former ZR § 23-154(d)(3) (now ZR § 27-131 (a)(3)), and formalized in Appendix F. Critically, developers must comply with one of the designated MIH options; they have no discretion to choose freely among all possible alternatives. The MIH program offers four distinct compliance options:
• Option 1 requires at least 25% of the residential floor area of the MH development to be affordable with rents
at or below a weighted average of 60% AMI, with at least 10% at 40% AMI, no more than three AMI levels, and no AMI level exceeding 130% AMI.
• Option 2 requires 30% of residential floor area to be affordable with rents at or below a weighted average of 80% AMI, with no more than three AMI levels, and no AMI level exceeding 130% AMI.
• Deep Affordability Option (Option 3) requires 20% of the residential floor area of the MIH development to be affordable with rents at or below a weighted average of 40% AMI, with no more than three AMI levels, and no AMI level exceeding 130% AMI.
• Workforce Option (Option 4) requires 30% of the residential floor area of the MH development to be affordable with rents at or below a weighted average of 115% AMI, with no more than four AMI levels, no AMI level exceeding 135% AMI, with at least 5% percent of the residential floor area being affordable at or below 70% AMI and at least another 5% percent being affordable at or below 90% AMI.
At that time, MIH and VIH programs maintained largely parallel requirements governing the design, distribution, and quality of affordable units in mixed-income buildings. Both programs mandated that the bedroom mix of affordable units reflect that of market-rate units, offering two compliance pathways: either ensuring proportionality (matching the percentage distribution of unit types) or satisfying the “two-bedroom test” (requiring at least 75% of the affordable housing units to be 1-bedroom units or larger, with at least 50% of the affordable housing units consisting of two-bedroom units or larger). Similarly, both programs imposed vertical distribution requirements to prevent clustering, mandating that affordable units appear on at least 65% of residential stories to ensure physical integration throughout the building.
The programs diverged most significantly in their treatment of unit size and horizontal distribution. VIH imposed fixed minimum net square footage requirements (studios: 400 sf; one-bedrooms: 575 sf; two-bedrooms: 750 sf; threebedrooms: 975 sf). MIH offered a more flexible framework: developers could either demonstrate that the average size of the affordable units of any given bedroom type equaled or exceeded the average size of corresponding market-rate
From Voluntary to Universal: Navigating NYC’s Evolving Affordable
units or the same statutory minimums for VIH affordable housing units. Regarding horizontal distribution (i.e., the distribution of affordable housing units on any given floor), pre-amendment VIH rules limited affordable units to no more than one-third of the total units on any given residential story—unless all stories included at least onethird affordable units. MIH imposed no such horizontal limitation, requiring only the vertical distribution across 65% of residential stories.
The COYHO amendments harmonized these requirements across MIH and the new UAP framework, creating identical standards for unit mix, size, and distribution. The twooption compliance framework for bedroom mix remained unchanged, as did the vertical distribution requirement. UAP also adopted the unit size requirement previously applicable only to MIH. Both programs still require affordable units to be visually comparable to market-rate counterparts in design, fixtures, and finishes, with equal access to building amenities regardless of whether such amenities carry fees. While developers may charge for amenity spaces, HPD encourages waiving or reducing such charges for inclusionary tenants to promote equity. Importantly, where amenity spaces constitute zoning floor area it is only when no user fees are charges to access such amenity spaces that the pro rata share of such amenities attributable to affordable housing units may be included in affordable floor area calculations. This attributable share is calculated based on the ratio of affordable unit net square footage to total residential net square footage, ensuring bonus floor area is awarded only for amenity spaces serving the affordable component without undue financial barriers.
All MIH units must be permanently affordable and subject to rent stabilization in perpetuity, with affordability restrictions enforced through a recorded restrictive declaration running with the land. This legal instrument must encumber all properties on the MIH zoning lot where the MIH development (i.e., the development that is within a MIH Area and therefore needs to comply with the requirements of the MIH Program), ensuring continued compliance by current and future owners.
While the MIH and VIH programs established predictable, enforceable frameworks for affordable housing production, their geographic applicability remained fundamentally
constrained. MIH operates exclusively in areas that have been upzoned or rezoned for residential, while VIH was limited to R10 and other specifically mapped designated areas. As a result, vast portions of the city— particularly communities resistant to rezoning efforts or those characterized by low-density contextual zoning— remained entirely untouched by either program. This inherent limitation created a patchwork implementation of inclusionary housing across New York City, with affordable units concentrated in select neighborhoods while others saw minimal production. The resulting geographic disparity prompted substantive debates among policymakers, developers, and housing advocates about equity in land use and affordable housing distribution. This uneven landscape of opportunity presented a significant challenge that UAP is attempting to now address through its citywide, as-ofright approach—representing perhaps the most ambitious attempt yet to democratize affordable housing production across the five boroughs.
Universal Affordability Preference: Democratizing Affordable Housing Production (2024/2025)
On December 5, 2024, New York City introduced its most ambitious inclusionary housing innovation yet—UAP— through a comprehensive zoning text amendment as part of the COYHO initiative. UAP replaces the former VIH program in most districts where it now applies, though legacy VIH provisions may still apply to vested VIH projects and in grandfathered areas, and establishes a new, as-of-right zoning incentive that significantly expands both geographic applicability and standardizes program structure. Unlike the VIH Program’s restriction to R10 districts and mapped IHDAs, UAP is available as-of-right across nearly all R6 through R10 residential zoning districts, with the strategic exception of MIH areas.
Like its predecessor, UAP enables developers to increase permitted residential floor area by providing qualifying permanently affordable housing. However, the fundamental distinction between UAP and the now-superseded VIH program lies in its scope and mechanics. UAP offers a straightforward 1:1 zoning bonus—for every square foot of qualifying affordable housing provided in accordance with the UAP program requirements, developers may build one
square foot of bonus floor area, up to the maximum FAR for residences with qualifying affordable housing specified in ZR § 23-22. This bonus is calculated based solely on the affordable floor area generated under UAP. While the program’s geographic availability vastly exceeds previous frameworks, its 1:1 bonus structure provides a more measured incentive than the VIH Program. Developers receive only one square foot of additional floor area for every square foot of affordable housing provided—without the supplemental density for market-rate units that characterized the VIH Program’s R10 and IHDA frameworks.
Consequently, UAP’s effectiveness hinges critically on its strategic integration with tax exemption programs like 421-a, 485-x, and 467m. When deployed in tandem, as with VIH and MIH, developers can “double dip”—counting identical affordable units toward both zoning and tax exemption requirements. This powerful synergy preserves as-of-right market-rate floor area while simultaneously unlocking bonus floor area for affordable units, thereby maintaining project economic feasibility.
By contrast, participating in a tax exemption program without leveraging UAP would force developers to allocate a portion of their standard (market-rate) FAR to affordable units—substantially diminishing project value. UAP unlocks additional density which, in concert with tax benefits, ensure the preservation of a UAP development’s economic viability. The UAP Program’s true power is revealed through this carefully calibrated interplay with tax exemption programs.
UAP operates under substantive affordability and design standards closely aligned with MIH. All UAP units must be permanently affordable, comply with HPD rules, and remain subject to rent stabilization in perpetuity. The UAP Program imposes affordability structuring requirements that offer more flexibility than MIH in certain respects while establishing more prescriptive guidelines in others. Specifically, the average rents across all UAP affordable housing units cannot exceed 60% AMI, the rent for any individual UAP affordable housing unit may not exceed 100% AMI, there can be no more than three distinct AMI tiers, and for projects providing at least 10,000 square feet of affordable floor area, a minimum of 20% of that
affordable floor area must have rents at or below 40% AMI. This carefully calibrated structure balances inclusion across income bands while ensuring meaningful deeper affordability in larger-scale UAP developments.
From a design and distribution perspective, the COYHO amendments have fully harmonized UAP’s unit mix, size, and integration standards with those of MIH. Affordable units must maintain proportional bedroom mix to marketrate units, or alternatively satisfy the two-bedroom test. Units must also be distributed across at least 65% of residential stories, with no more than 2/3 of the units on any given residential story being affordable (altered from the VIH Program’s requirement that limited affordable housing units to not more than 1/3 and altered the MIH Program which prior to the amendment had no restriction on the percentage of affordable housing units on any given residential story).
Just like the VIH Program it replaces, UAP affordable units must remain visually comparable to market-rate units in finishes, appliances, and fixtures. Tenants must receive equal access to common area amenities, including those requiring user fees. Notably, where developers impose user fees for amenity spaces that are not exempted from zoning floor area calculations, the portion attributable to affordable housing residents cannot be counted toward generating affordable floor area. When calculating affordable floor area under UAP, just as under the VIH and MIH programs, only the net square footage of the affordable units plus the proportional share of genuinely accessible common space—based on the ratio of affordable to total residential floor area—is credited toward the bonus. This nuanced rule ensures alignment between affordability and meaningful access while preventing inflated bonus calculations based on inaccessible or financially restricted residential space.
While MIH remains a mandatory tool inextricably linked to rezonings, UAP represents a voluntary yet universal approach. It requires no process under the Uniform Land Use Review Procedure (the standardized public review process required for rezoning and certain other land use changes in NYC), no discretionary action, and no specialized mapping. Instead, it functions as a standing offer from the City to the private market: any project meeting the established requirements may utilize the bonus as-of-right.
From Voluntary to Universal: Navigating NYC’s Evolving Affordable
In this transformative way, UAP expands access to the inclusionary framework by offering a citywide, as-of-right mechanism available in most medium and high-density neighborhoods, though actual uptake may vary depending on local market conditions—addressing the geographic limitations that characterized previous programs and delivering on the promise of a more equitable distribution of affordable housing production throughout New York City.
Conclusion: Leveraging Universal Tools in a Complex Market
New York City’s inclusionary housing programs have evolved dramatically over nearly four decades, reflecting a persistent attempt to balance market-driven growth with equitable outcomes. From the pioneering yet geographically constrained R10 program, to the more targeted IHDA framework, to the mandatory approach of MIH, and now to the universal accessibility of UAP, each iteration has built upon its predecessors while addressing their limitations. This evolution reveals not just a policy trajectory, but a fundamental urban philosophy: that the private market, properly incentivized and regulated, can be harnessed to produce critical public goods.
With the creation of UAP, New York City has unveiled its most sophisticated mechanism yet for incentivizing incomerestricted housing development—one that is remarkably
nimble, scalable, and universally accessible. Where MIH ensures public benefit through the lens of discretionary rezonings, UAP addresses a critical structural gap: providing a citywide, voluntary, as-of-right incentive that advances affordability without being tethered to the unpredictable politics or extended timelines of the land use review process.
This policy evolution crystallizes the hard-won lessons accumulated over four decades of experimentation. The fundamental insight is clear: affordability cannot function as an episodic or exceptional intervention—it must be woven into the very fabric of the City’s zoning framework as a repeatable, default practice. UAP makes no pretense of being a comprehensive solution to New York City’s housing challenges. Rather, it represents a carefully calibrated tool that is structurally sound, economically rational, and deliberately aligned with real-world development incentives. Its genius lies in its universality: it extends to every developer, in every eligible district, the meaningful opportunity to participate in building a more inclusive city.
Also critical to understanding the MIH and UAP programs is comprehending their essential symbiosis with tax exemptions. Neither exists in isolation; rather, they function as complementary tools within a larger housing production ecosystem. The now-expired 421-a and the newer 485-x and 467-m programs create the financial runway necessary
for affordable housing to take flight under the UAP and MIH Programs, as they transform what might otherwise be economically infeasible into viable development opportunities.
Perhaps most fundamentally, the evolution of inclusionary housing in New York City demonstrates the necessity of adaptive policy in response to changing urban conditions. The housing challenges of 1987, when the R10 program was introduced, differ markedly from those of the present. Rising construction costs, shifting neighborhood dynamics, evolving household structures, and escalating affordability pressures all demand ongoing policy innovation. The introduction of UAP represents the latest—but certainly not the last—chapter in this continuing narrative of urban experimentation.
Looking ahead, the success of New York Cit’s inclusionary housing strategy will depend on several factors. First, the continued availability and structure of complementary tax incentives will remain crucial, especially given UAP’s reliance on such programs to make mixed-income development financially viable. Second, the administrative capacity of agencies like HPD to efficiently process applications, monitor compliance, and enforce long-term affordability will determine whether policy intentions translate into lived reality. Finally, the geographic distribution of affordable housing production—historically concentrated in certain neighborhoods—will test whether newer tools like UAP can genuinely democratize access to opportunity.
When viewed in historical context, UAP represents the culmination of New York City’s four-decade journey through voluntary, mandatory, and now universal approaches to inclusionary housing. The R10 program demonstrated the concept’s viability in select high-value markets. The IHDA framework proved that geographically targeted incentives could drive meaningful production in rezoned areas. MIH established that affordability could be mandated as a condition of increased development rights. Now, UAP completes this policy evolution by democratizing access to the inclusionary framework across nearly all medium and high-density neighborhoods.
This universal approach acknowledges a fundamental reality: that building a truly inclusive city requires tools
that transcend the limitations of mapped areas and discretionary processes. By creating a standing pathway to affordable housing production that operates as-of-right, UAP may ultimately prove more transformative than its more prescriptive predecessors. While it may not compel inclusion through mandatory obligations, by enabling it broadly and aligning it with existing tax incentives, UAP introduces a widely available incentive that could become a meaningful tool in the City’s affordability framework, though its full impact will depend on market uptake and alignment with tax exemption programs.
For developers navigating this complex landscape, understanding the nuanced interplay between programs is not merely an academic exercise but a practical necessity. Each decision point—from site selection to financing structure to design approach—carries implications for program eligibility, economic feasibility, and ultimate impact. Those who master these intricacies position themselves not just to comply with regulations, but to creatively leverage them in service of both mission and margin.
· Goldman, LLP, where he co-leads the firm’s Tax Exemptions and Zoning Incentives Group and serves as a member of the firm’s Transactional Department. With a focus on maximizing development potential, David navigates developers through New York City’s zoning incentives initiatives, including the Universal Affordability Preference (UAP), Voluntary Inclusionary Housing (VIH), and Mandatory Inclusionary Housing (MIH) programs.
DAVID SHAMSHOVICH Partner
David Shamshovich is a Partner at Belkin · Burden
DEVELOPMENT WHITEPAPER
SPRING 2025
THE EVOLUTION OF CONSTRUCTION FINANCING IN A SHIFTING MARKET LANDSCAPE
by Morris Betesh, Arrow Real Estate Advisors
Executive Summary / Introduction
The construction financing market, particularly in New York City (NYC), has undergone significant changes driven by regulatory pressures, economic challenges, and evolving development initiatives. Traditional banks have scaled back their involvement in commercial real estate (CRE) due to regulatory constraints, leading private debt funds to step in and provide much-needed liquidity. Meanwhile, NYC’s «City of Yes» initiative, new tax incentives, and zoning changes are further stimulating development. This white paper explores the key drivers of these trends, examining the roles of banks, debt funds, and government incentives in shaping the future of construction financing in the current economic environment.
State of Bank Financing in Construction
Due to growing regulatory pressures and higher capital requirements, banks have become more cautious in expanding their commercial real estate (CRE) portfolios, leading to a reduction in the availability of traditional financing for construction projects, especially those with higher risk profiles. Current bank lending practices include conservative Loan-to-Cost (LTC) ratios of 65%-70% for projects with minimal entitlement risk and clear exit strategies, and higher recourse requirements, which often necessitate significant deposits or personal guarantees from developers. These factors are creating additional barriers for new developers seeking financing.
Rise of Debt Funds and Private Lenders
As banks tighten their lending practices, debt funds have emerged as a key source of capital, raising record amounts of capital and offering more flexibility and faster execution than traditional banks. Many debt funds provide non-
recourse loans, making them more appealing compared to banks that require personal guarantees. Additionally, debt funds are offering favorable pricing, sometimes better than banks, leading to increased competition and bidding wars to secure deals.
Risk Management and Market Uncertainties
In response to supply chain disruptions, price surges, and economic uncertainties, lenders are emphasizing detailed project budgets and proformas, with stress testing for price fluctuations becoming a key part of underwriting. Rising material costs and supply chain issues are increasing risks for developers, which lenders are factoring into their decisions. Additionally, regulatory and political risks, such as zoning changes and uncertain approval timelines, are adding complexity to construction financing.
Asset Conversions and New York City’s Development Incentives
Despite market challenges, construction financing remains a catalyst for economic growth. With shifting demand for office space, many developers are converting offices into residential units, opening new financing opportunities, supported by local government tax abatements. The City’s ‘‘City of Yes’’ initiative is easing zoning restrictions and programs like 485-X and 467-M are providing tax incentives for residential projects, encouraging conversions and maximizing the value of underutilized properties. These incentives are promoting new development and increasing transaction volume.
Current Construction Interest Rate Environment
In today’s market, construction loan interest rates vary widely depending on the lender, project risk, and borrower profile.
Traditional banks are pricing construction loans at SOFR + 250-350 bps, while debt funds, which take on greater risk, may price between SOFR + 400-700 bps. With SOFR currently around 4.30%, this means bank loans may range from 6.80% to 7.80%, whereas debt fund loans could be 8.30% to 11.30% or higher.
Conclusion
The future of construction financing in New York City is poised for strong growth, driven by increased liquidity, a competitive lending environment, and favorable terms for developers. Policy-driven growth, such as relaxed zoning restrictions and new tax incentives, is stimulating construction activity and unlocking the potential of underutilized assets. This combination of private lender support and government initiatives is expected to drive economic expansion, create jobs, support housing, and foster community development in the years to come
Morris Betesh is the Founding Principal of Arrow Real Estate Advisors, where he leads a team of thirteen professionals. Mr. Betesh specializes in sourcing debt and equity for developers nationwide. To date, Mr. Betesh has financed over 1,000 buildings across the United States and has closed well in excess of over $20 billion in transactions throughout his career.
MORRIS BETESH Founder and Managing Partner
CITY OF YES HOUSING OPPORTUNITY- NEW ZONING FRAMEWORK FOR UNLOCKING RESIDENTIAL DEVELOPMENT IN NYC
by Barak Wrobel, Holland & Knight LLP
New York City recently adopted comprehensive changes to its Zoning Resolution known collectively as City of Yes - Zoning for Housing Opportunity (COYHO). The amendments are designed to stimulate the production of additional housing through a variety of reforms. The enacted text constitutes the broadest and most sweeping changes to the New York City Zoning Resolution since its original passage in 1961.
The most overarching zoning change made through COYHO includes increasing maximum permitted floor area ratios (FARs) within most zoning districts throughout the City in order to spur the production of more affordable housing. The changes generally maintain existing FARs for market rate housing, while providing a twenty-percent FAR increase provided any housing above the base maximum FAR is provided as affordable. This framework is called Universal Affordability Preference (UAP).
In tandem with the above, other changes were made to the Zoning Resolution including eliminating or reducing parking requirements for existing and new buildings, reducing minimum distance between buildings requirements, eliminating open space requirements that previously applied to height factor developments, and significant increases in height limits for larger sites and for buildings on zoning lot utilizing UAP FARs. Together, these changes are meant to unlock a significant amount of as-of-right housing development opportunities throughout the City, and facilitate the increased density of buildings resulting from utilizing the higher UAP FARs.
For instance, many campus-sized zoning lots in the City were previously developed under height factor zoning restrictions designed to incentivize and preserve tower-in-the park buildings in vogue during the 1960’s and 1970’s. The rules required very large open spaces in exchange for maximizing the full potential FAR generated by the zoning lot. However, due to the excessive open space requirements, many of these sites include significant undeveloped areas (often occupied in large part by underutilized parking lots), which up until the adoption of COYHO have been required to be preserved - even
where the zoning lot utilizes far less FAR than would otherwise be permitted under contextual zoning bulk rules.
By way of example, consider a hypothetical zoning lot with an area of 80,000 sf in a R7-2 district (where residential FAR was limited to 3.44 under height factor zoning), which includes existing tower in park buildings utilizing 140,000 sf of floor area. Depending on the configuration of the existing buildings and on the amount of open space that can be maintained in connection with siting of a new building it may prove very challenging to actually utilize the potentially remaining 135,200 sf of floor area the zoning lot is otherwise theoretically entitled to.
Under the new framework, open spaces that were previously provided in connection with height factor developments are no longer required to be maintained, and prior restrictions on developing new contextual buildings on zoning lots with existing buildings that were constructed under height factor zoning have been lifted.
Instead, buildings simply have to comply with new minimum distance requirements, maximum lot coverage restrictions, and minimum yard requirements that typically apply to new
contextual development. Because the zoning amendments also reduced parking requirements for existing and new residences, and significantly increased allowable heights of buildings on large sites, taken together, it is now much more likely to identify as-of-right design solutions that will produce new infill contextual buildings on underutilized open spaces that are no longer required for parking on larger zoning lotsmixed in with tower in the park buildings previously constructed under height factor zoning.
Taking the above zoning lot under consideration, since open spaces on the zoning lot previously allocated to parking and excess landscaping can now be unlocked under COYHO, it may actually be achievable to locate most or all of such floor area in new infill buildings. Taking it one step further, if the zoning lot includes qualifying affordable housing it can be constructed up to the maximum UAP FAR of 5.01, or up to 260,800 sf of additional floor area above the existing amount.
Before COYHO, a zoning lot encumbered by existing towerin-the-park buildings generally had to undergo a privately sponsored application to rezone the property to a higher density contextual district - resulting in the “legalization” of the existing building under prior Quality Housing bulk restrictions to realize its full development potential. However, this required going through the lengthy, costly and uncertain ULURP process.
By removing the need to go through ULURP to unlock additional development on such site, COYHO successfully eliminated an extremely burdensome barrier to infill development of new housing.
The success of COYHO producing more affordable housing rental units in particular largely depends on a tax incentive program, similar to the expired 421-a program in order to make such developments financially feasible without the need for other forms of increased and additional government subsidies and financing programs. Unfortunately, developers are finding
the replacement program, 485-x, that was adopted by the State legislature in spring 2024 does not work to incentivize the inclusion of affordable units within a new development, largely in part because of the construction wages requirements that are imposed under the program.
Finaly, on March 25, 2025, a petition was filed with the Supreme Court of the State of New York, County of Richmond by a number of elected officials and civic associations against the City of New York under Article 78 asserting that the adoption of COYHO was in violation of the State Environmental Qualify Review Act and the City Environmental Quality Review. While it is likely the city’s adoption of COYHO will ultimately be upheld, as this matter winds its way through the courts, the ability to construct under COYHO is brought into question since lenders may be reticent to provide funding on projects until it is clear the zoning changes will withstand judicial scrutiny.
Wrobel is an attorney in Holland & Knight’s New York City office and a member of its Land Use Practice. Mr. Wrobel also is a regional co-chair of the firm’s national Land Use and Government Team. Mr. Wrobel has extensive experience appearing before and securing approvals from agencies and officials involved in the regulation of land in New York City.
BARAK WROBEL Partner - National Land Use Team Co-Chair
Barak
25% MWBE PARTICIPATION GOAL COMPLIANCE UNDER 485-X TAX INCENTIVE PROGRAM AKA
AFFORDABLE NEIGHBORHOODS FOR NEW YORKERS
by Anna Martynova, NYP Consulting
Understanding the role of Minority/Women-owned Business Enterprises (MWBE) 25% Participation Goal is crucial for applicants of the 485-x Tax Incentive Benefits Program. This program represents a significant shift from the previous 421-a(16) Tax Exemption by imposing a requirement for applicants to demonstrate that at least 25% of the total applicable costs incurred during the design and construction phases of a project are awarded to contracts with MWBE certified firms or to demonstrate that reasonable effort was taken toward achieving compliance with this goal.
What does MWBE stand for?
MWBE refers to Minority/Women-owned Business Enterprises, which are businesses that are at least 51% owned, operated, and controlled by individuals who are minorities or women. The MWBE certification gives these businesses the opportunity to compete for contracts that may have been historically harder to access.
485-x 25% MWBE participation goal requirements
The new 485-x Tax Incentive program mandates that at least 25% of the total applicable costs associated with the design and construction phases of a project must be allocated to MWBEs.
This requirement aligns with New York City’s broader mission to promote economic equity and create opportunities for small and disadvantaged businesses. By setting this threshold, the City seeks to foster an inclusive business environment where MWBEs can compete for and secure lucrative contracts.
Compliance with the MWBE participation goal
To demonstrate compliance with the 25% MWBE participation requirement, applicants must submit an MWBE Affidavit along with their 485-x application. The
affidavit serves as proof that the applicant has either met the 25% MWBE Participation Goal or made reasonable efforts to achieve it. The affidavit requires the following key information:
• Total Applicable Costs: A breakdown of the total costs related to the design and construction of the property applying for the 485-x program.
• Total Amount for MWBE Contracts: The amount of those costs that were specifically contracted to MWBEs.
• Details of MWBE Entities Contracted: Names, Employer Identification Numbers (EINs), and the total contract amounts for each MWBE involved in the project.
It is essential for applicants to maintain detailed contract records, ensuring transparency and providing solid evidence of compliance with the MWBE participation goal.
What happens If the 25% MWBE participation goal is not met?
If the applicant finds that their project has not met the 25% MWBE participation goal, the applicant must show that they have made reasonable efforts to achieve it. Not reaching the goal is not enough to secure eligibility for the 485-x Tax Incentive Program, the applicants are required to demonstrate that they took substantial and timely steps to engage MWBEs but were ultimately unable to meet the target.
Failure to demonstrate reasonable effort may result in the denial of tax incentive benefits under the 485-x program.
What constitutes «Reasonable Effort»?
The term «reasonable effort» is defined by several actions a developer must take to show good faith in trying to meet the 25% MWBE participation goal. Here are some examples of what qualifies as reasonable efforts:
1. Engaging with Department of Small Business Services (DSBS): Applicants can request assistance from the DSBS, share the details describing how help provided by the Agency was applied to the project.
2. Collaborating with the Economic Development Corporation (EDC): Applicants are encouraged to collaborate with the EDC to identify certified MWBEs through programs like HireNYC.
3. Direct Outreach: Timely and proactive outreach to certified MWBEs listed in governmental or quasi-governmental databases, with direct bid solicitations to these businesses.
4. Advertising Contract Opportunities in Relevant Media: Publishing bid opportunities in general circulation media, small business publications, or outlets specifically geared toward MWBEs.
5. Notification of Opportunities: Sending timely notifications to MWBEs directly about specific opportunities to participate in the design and construction phases of the project.
6. Responsive Communication: Demonstrating thorough and timely responses to any inquiries from MWBEs about the project.
7. Adjusting Scope: Identifying portions of the design or construction work that could be adjusted or substituted to accommodate MWBE participation.
8. Hosting Pre-bid Meetings: Holding informational meetings before the bid or proposal deadline to explain the project scope and clarify how MWBEs can participate.
It’s crucial that applicants maintain thorough records of all the steps they have taken to engage MWBEs. That includes the following:
• Copies of correspondence (emails, letters, meeting notes) with MWBEs, DSBS, and EDC.
• Records of advertisements placed in media.
• Lists of MWBEs contacted and responses received.
• Documentation of adjustments made to project scopes to facilitate MWBE inclusion.
By keeping detailed records, applicants can effectively demonstrate that they made reasonable efforts to reach the 25% MWBE participation goal compliance. Failure to adhere to these guidelines may result in disqualification from receiving the 485-x tax incentives, making it imperative for applicants to carefully plan their procurement strategies early in the project lifecycle.
Anna is a hands-on Managing Director with a wealth of knowledge and experience delivering outstanding returns on two premier global bank portfolios. Anna routinely navigates challenging market conditions by contributing strong fixedincome analysis and offering innovative recommendations that align with senior leadership’s strategic vision. She strives to evaluate risk and place proper controls that eliminate financial threats to the entire organization. She also builds and leads talented teams of professionals through interactive training and mentorship programs.
ANNA MARTYNOVA Director Consulting Services
SEIZING OPPORTUNITIES IN NEW YORK CITY’S REAL ESTATE MARKET:
THE STRATEGIC ADVANTAGE OF A 1031 EXCHANGE
by Robert Sharfstein, RPS Capital Management
Frank Sinatra famously captured the essence of New York City when he said, “If I can make it there, I can make it anywhere.” This iconic sentiment speaks to the unparalleled allure and challenges of the city, where success is earned, and the stakes are high. However, in recent years, an increasing number of real estate investors have voiced concerns about the shifting dynamics of local politics, prompting some to reconsider their investments in the city. While these concerns are not without merit, it is important to remember that the fundamental aspects of New York’s real estate market remain robust and resilient.
Despite political uncertainties, New York City’s real estate market continues to be driven by a unique set of factors that offer significant opportunities for long-term investors. Chief among these is the city’s extremely high barrier to entry. The result is a market where demand for housing consistently outstrips supply, keeping occupancy rates extraordinarily high. This, in turn, has led to residential rents that are increasing at a pace unparalleled in any other city in the United States.
One of the most compelling advantages of owning real estate in New York City is the inherent potential for what is commonly referred to as a ‘‘covered land play’’. This concept allows investors to acquire property with the expectation that the value of the land itself—often driven by the potential for future development—far exceeds the value of the existing structures.
In practical terms, this means that many properties in New York City are not just generating income through rent but also benefiting from the increasing value of the land beneath them as the surrounding neighborhood evolves and gentrifies.
While the fundamentals remain strong, today’s market presents a number of challenges. Rising interest rates, combined with political headwinds, have led to a softening of property valuations in the past few years. The pressures of debt maturities, deferred maintenance, or changing partnership dynamics are pushing some property owners to sell, creating a window for buyers to acquire assets at a discount. While valuations may not be what they were a few years ago, this moment presents a chance for those with access to patient capital to take advantage of lower prices.
This is where the power of a 1031 exchange becomes especially relevant. For real estate investors, the 1031 exchange offers a significant tax-deferral strategy. By using this provision, investors can sell their current investment properties and reinvest the proceeds into like-kind properties without incurring immediate capital gains taxes. This allows them to defer taxes and strategically reposition their capital, all while improving their cash flow and maintaining their investment portfolio’s growth trajectory.
In today’s market, where properties are being acquired at 20-30% less than they were just a few years ago, the 1031 exchange offers an opportunity for investors to make up their lost sale value on the buy. Investors can sell underperforming assets with deferred maintenance and acquire prime, cash flowing assets in growing neighborhoods at a lower cost basis than a few years ago, which will ultimately enhance the future upside on these investments. While interest rates may have risen and property values may be down, the ability to purchase assets at a more attractive cap rate—closer to 6% compared to the previous mid-4% range—creates a compelling opportunity for investors looking to park their capital in a vehicle better suited for their current needs.
Moreover, the current market conditions also provide a unique advantage for buyers. The highly competitive nature of New York’s real estate market has shifted in recent months, with fewer buyers actively bidding for properties. This has resulted in less competition, giving buyers the opportunity to negotiate more favorable terms. Sellers, who may have previously been unwilling to offer extended due diligence periods, are now more open to providing buyers with the time they need to feel comfortable about their acquisitions. This flexibility is a rare advantage in a market that has traditionally been fast-paced, giving investors the confidence to make well-informed decisions.
Despite the current challenges in the market, New York City’s real estate sector remains a beacon for long-term investors. While values may be down in the short term, the city’s longterm prospects remain strong, supported by the continued demand for housing and workers returning to the office. By utilizing the 1031 exchange, investors can relocate capital from assets they’ve outgrown into properties better suited to their current and future needs, while still benefiting from the upside of New York City’s recovering real estate market.
Investors who own underperforming assets today, particularly those with deferred maintenance or operational challenges, can turn these properties into high-performing, cash-flowing assets, turning headaches into cash flow while remaining positioned to benefit from the inevitable future growth of New York City’s real estate market.
New York City remains one of the highest barrier to entry real estate markets in the world, offering significant long-term rewards for those who can see beyond the current challenges.
In conclusion, while New York City’s real estate market may face short-term challenges, its fundamentals remain strong, and the potential for future growth remains unparalleled. Investors with a long term vision can advantage of the opportunities created by today’s market, particularly by moving capital into assets better suited for their current investment objectives through the strategic use of a 1031 exchange. By acting now, investors can secure prime assets at favorable prices and prepare for the inevitable rebound of one of the world’s most resilient real estate markets.
As the Managing Principal of RPS Capital Management LLC, Robert P. Sharfstein brings unparalleled expertise in navigating complex generational real estate portfolios. Since founding RPS in 2018, Rob has grown the firm into multiple service lines, including 1031 exchange advisory, asset management, leasing, and construction oversight.
ROBERT SHARFSTEIN Managing Principal
NAVIGATING REAL ESTATE DEVELOPMENT IN NEW YORK CITY
by Andrew Setiawan & Panithi Tawethipong, Development Site Advisors®
Introduction
Venturing into real estate development in New York City is like solving a complex puzzle, filled with nuances, uncertainties, and potential gains. It requires careful attention to detail, strategic planning, and skilled maneuvering through regulatory frameworks. This journey, from its inception to completion, spans over several years and is marked by numerous challenges. However, these challenges often pave the way for lucrative investment opportunities as development projects bring forth innovative solutions to meet market needs.
At the heart of every successful real estate development lies a comprehensive understanding of the site and its inherent potential. Before initiating any project, developers must undertake a thorough assessment of various factors that could significantly influence feasibility, costs, and potential returns.
This due diligence process serves as the bedrock, frequently determining the success or failure of a deal, as it provides critical insights into market dynamics, regulatory hurdles, financial viability, and community impact.
These critical factors encompass:
1. LAND SURVEY AND SITE ANALYSIS
Conducting a comprehensive land survey is imperative, providing essential insights into property dimensions, boundaries, topography, utilities, and easements. Armed with this data, developers can make informed decisions regarding design, permitting, and development potential.
2. DEED RESTRICTIONS AND EASEMENTS
Thoroughly reviewing legal limitations on property use and development, such as deed restrictions and easements, is essential. These constraints, imposed by prior owners, neighbors, or government agencies, can shape the scope and design of a project.
3.
ZONING ANALYSIS
a. Significance of a Zoning Analysis: Understanding why a Zoning Analysis is crucial for successful real estate development. It serves to ascertain the development possibilities for a given property within the framework of applicable zoning codes.
b. Components of a Zoning Analysis: Zoning can be categorized into three main areas: Use, Bulk, and Parking. A thorough analysis involves:
i. Building Use Analysis: Determines whether a desired use is permitted in the desired location.
ii. Building Bulk Analysis: Determines the shape and size of the building, encompassing regulations on various elements like allowable floor area, building height, setbacks, yards, lot coverage, density, open space requirements, and more.
iii. Accessory Off-Street Parking Analysis: Parking regulations are adopted to provide needed off-street parking due to new developments to reduce traffic and to provide a higher standard of development.
iv. Key Parameters:
1. Calculating ZFA: Floor Area Ratio (FAR) or Zoning Floor Area (ZFA) is a mathematical formula that determines the ratio of the total floor area of a building to the total area of the lot on which it stands.
2. Lot Coverage: Determines the percentage of the total lot area that a building can occupy.
3. Base Height, Max Building Height and Sky Exposure Plane: Height regulations set key parameters for development that must fit within the zoning envelope.
4. Rear, Side, and Front Yard: Regulations governing setbacks and yards play a crucial role in shaping the physical relationship between buildings and their surroundings.
5. Parking Requirements: Each zoning district with its
respective use has its own parking requirements to address the practical aspects of urban development.
v. Development Rights (Air Rights): Developers must assess zoning regulations, prior to air rights transactions, and opportunities for acquiring air rights. Acquiring development rights will lead to a bigger and taller development which may increase development value as well as lowering costs basis for the project.
vi. Future Zoning Changes: An up zoning to a denser district or allowing residential use may increase a feasibility of a development that may not be possible in the existing zoning.
vii.Landmarks and Historic Districts: Properties situated within historic districts or landmarked are subject to stringent preservation regulations from Landmark Preservation Commissions necessitating careful consideration of any alterations or additions that may impact their character.
c. Violations and Penalties: Promptly addressing any violations is essential to mitigate the risk of fines, penalties, or stop-work orders that could disrupt project continuity.
4. MARKET ANALYSIS
This analysis provides a critical insight of what is happening in the market of the targeted site. The interaction of demand and supply in the market will indicate the price sold per sf, rental rates per sf, absorption rates, vacancy rates, filing permits, interest rates, bedroom unit mix, demographics and construction pipelines.
5. LOCATION ANALYSIS
Location on the neighborhood also drives the attractiveness of a site to a developer. A property located on big avenues and served with good transportation will attract commercial tenants. On the other hand, quiet tree-lined streets and proximity with school and park will bring a lot of value to a residential development.
6. FINANCIAL ANALYSIS
All the data collected can be critically analyzed to have a clear understanding of the financial feasibility of the development. Financial aspects include acquisition cost, construction cost, loan cost, cash flow projections, IRR returns over the projected period. This analysis will show the potential risk and gain for all stakeholders involved in the development.
Conclusion
In essence, embarking on a successful real estate development journey in New York City hinges greatly on meticulous due diligence during the predevelopment phase.
This critical initial step lays the groundwork for navigating the multifaceted complexities inherent in this dynamic urban landscape. By meticulously examining legal, regulatory, financial, and community aspects from the outset, developers set their projects on a trajectory primed for success. Though the journey may be intricate and challenging, investing substantial effort early on significantly enhances the likelihood of achieving desirable outcomes and maximizing returns on investment.
ANDREW SETIAWAN
Senior Associate, Zoning and Development, Development Site Advisors®
PANITHI TAWETHIPONG
Senior Associate, Zoning and Development, Development Site Advisors®
THE IMPACT OF OPPORTUNITY ZONES ON DEVELOPMENT LAND ACQUISITION AND UNDERWRITING IN NYC
by Panithi Tawethipong, Development Site Advisors®
Introduction
Opportunity Zones (OZs), created under the Tax Cuts and Jobs Act of 2017, were designed to drive long-term private investment into undercapitalized census tracts through preferential tax treatment (Tax Cuts and Jobs Act, 2017).
In a complex and capital-intensive market like New York City— home to 306 federally designated OZ tracts—this policy overlay has added a distinct layer of nuance to both development site acquisition and project underwriting. Beyond a simple tax incentive, Opportunity Zones are fundamentally reshaping land assemblage, entitlement, and development deals in NYC, driving measurable changes in pricing, hold periods, and risk management. This article provides a ground-level perspective on how OZs are practically influencing acquisition behavior and financial modeling within active development submarkets.
OZ Designations Across NYC
New York City’s Opportunity Zones are distributed as follows:
• Bronx: 75 tracts
• Brooklyn (Kings County): 125 tracts
• Manhattan (New York County): 35 tracts
• Queens: 63 tracts
• Staten Island (Richmond County): 8 tracts
These zones intersect with some of the city’s most dynamic development geographies — from the industrial edges of the Harlem River in Mott Haven to transit-linked hubs in southeast Queens. While some OZs reflect deep structural need, others overlay areas already experiencing investment tailwinds. The designation alone doesn’t drive transformation — but it does create catalytic opportunities where fundamentals are supportive.
OZs and Development Land Acquisition
- Increased Capital Competition
In the first 24 months following designation, many OZ tracts in NYC saw sharp increases in acquisition activity. Local and out-of-state capital flowed quickly, particularly from highnet-worth individuals and family offices seeking deferral and exclusion on large capital gains. As a result, OZ qualified sites often traded at 10–20% premiums to similar parcels outside the zones.
Neighborhoods such as Mott Haven, Bushwick, and East New York demonstrated a trend of owners testing the upper limits of land pricing. In certain instances, bidding wars emerged, fueled by OZ driven funds competing with traditional merchant builders, resulting in temporary dislocations between land pricing and as-of-right yield.
Compressed Timelines and Aggressive Terms
The policy mechanics — specifically, the 180-day window to reinvest gains and the 10-year minimum hold to realize the exclusion — pushed developers to transact more
quickly. Diligence timelines shortened, exclusivity periods were compressed, and buyers were more willing to take entitlement or environmental risk to stay on schedule.
In Gowanus, prior to the rezoning, we saw OZ-qualified sites east of the canal go hard much faster than comparable parcels just a few blocks west. This demonstrated how the incentive could affect not just pricing, but velocity.
Supply Constraints in High-Demand OZs
While NYC has over 300 OZ tracts, the actual supply of development-ready sites within those zones is relatively limited. Many are either fully built, fragmented across multiple owners, or constrained by industrial zoning. The scarcity of well-located sites — particularly those with transit access, infrastructure, and rezoning momentum — has prompted land banking strategies among groups seeking to assemble portfolios for future vertical development. This trend is evident in areas like Jamaica (Queens), Sunset Park (Brooklyn), and the Bronx waterfront 4. A Shift in the Capital Stack OZs brought new players into NYC development — especially OZ-specific private equity funds and REITs. These groups often approach deals with a lower cost of capital and longer investment horizons than traditional syndicators.
Consequently, development sites in target zones faced heightened competition and deal terms were restructured. From a land development perspective, this meant more intricate project structuring, alongside access to a broader investor base, which enabled the development of previously stagnant sites and drove up land values in select submarkets.
Impacts on Underwriting Strategy
1. AFTER-TAX IRR UPLIFT
OZs significantly impact after-tax return modeling. The exclusion of capital gains on appreciation after a 10-year
The Impact of Opportunity Zones
on Development Land Acquisition and Underwriting in NYC
hold results in an estimated 200 - 400 basis point increase in investor IRRs, varying with leverage and asset type. This has allowed developers to underwrite lower yield-on-costs and still meet return hurdles for equity. In several multifamily OZ deals we’ve modeled, effective IRRs jumped from 12% to 15% simply due to the tax overlay.
2. EMPHASIS ON BUILD-TO-CORE
Previously, NYC’s mid-market development was geared towards short-term investment horizons with 3 - 5 year dispositions, but OZ structuring has reoriented underwriting towards long-term ownership. With the full benefit only realizable after year 10, many sponsors now assume stabilization followed by refinancing, rather than sale. This supports stronger neighborhood retention, encourages higher quality design and materials, and attracts capital seeking durable income.
3. REFINANCE INSTEAD OF SALE
The OZ timeline creates a natural liquidity pinch: investors must pay tax on the deferred gain by 2026 (or later if rules change), but ideally want to hold the asset beyond year 10. To resolve this, many deals are structured with a refinance at stabilization — allowing investors to recoup some or all of their equity before exiting fully after year 10. Lenders underwriting these deals now assume extended amortizations and may build in flexible prepay structures.
4. DOWNSIDE MITIGATION
OZs offer a built-in cushion in downside scenarios. If an asset merely holds its value over a decade, investors still benefit from the elimination of capital gains tax. This has allowed for slightly more aggressive underwriting in frontier neighborhoods, where future comps may be sparse and absorption timelines uncertain. That said, we always advise modeling base-case assumptions without the OZ benefit—and treating the tax exemption as upside rather than core value.
Case Study: South Bronx Waterfront Transformation
The South Bronx Waterfront, particularly in Mott Haven, has witnessed a striking impact from Opportunity Zones. Between 2018 and 2022, over $1.5 billion in capital was directed towards OZ designated sites along this waterfront, with Brookfield’s Bankside, at nearly $1 billion in total capitalization, serving as a focal point. Land value appreciation in these tracts, since designation, has ranged from 15 - 30%. This appreciation reflects not just OZ incentives, but also long-term infrastructure enhancements like Metro-North access, residential rezoning, and consistent demand for mixed-income housing near Manhattan. Mott Haven now commands pricing and investor interest comparable to core outer-borough markets, a significant shift from a decade ago.
Conclusion Opportunity Zones have reshaped development deal structures in New York City, creating new locations, expanding capital sources, and encouraging longterm holdings. However, the program’s effects are not universal, and it cannot replace sound market fundamentals. Opportunity Zones are best viewed as a strategic catalyst: an incentive that can transform marginal deals into feasible projects or justify premium pricing on superior sites. With thoughtful structuring that prioritizes compliance, community impact, and cash flow, the program remains a powerful tax policy tool for real estate developers.
PANITHI TAWETHIPONG Senior Associate, Zoning and Development, Development Site Advisors®
HOW TO UNLOCK & CREATE ONE-MILLION HOUSING UNITS IN NYC. THE CASE FOR REPEALING NEW YORK CITY’S INDUSTRIAL BUSINESS ZONES
by Rubin S. Isak, Development Site Advisors®
New York City stands at a critical juncture. With a population of 8.48 million (and growing) and a housing market strained by an ever-widening supply-demand gap, the need for more bold land-use reform has never been more urgent. Thousands of acres remain sequestered within Industrial Business Zones (IBZs), an outdated construct that, while originally designed to safeguard industrial employment, now acts as a significant constraint on urban growth. If the city is to remain a global leader in economic dynamism and housing innovation, it must confront the inefficiencies embedded in its IBZ framework and implement strategic rezoning initiatives.
Despite a record 33,974 housing completions in 2024, the highest in nearly six decades, the city’s long-term housing pipeline faces stagnation. New building permits issued in 2024 fell to 15,626 units, the lowest level since 2016, reflecting a dwindling supply of properly zoned developable land. While Brooklyn led the city’s housing surge, accounting for 40% of new completions, the Bronx and Queens also saw robust growth. However, without an intervention in zoning policy, future housing production will struggle to keep pace with demand. Even this “record” is not nearly enough for NYC.
Meanwhile, IBZs, established to insulate industrial activity from encroaching residential and commercial development, have, in many cases, outlived their original purpose. While preserving critical industrial infrastructure is necessary, the widespread prohibition of residential development across vast tracts of underutilized land is an antiquated policy. Many IBZs contain low-density warehouses, vacant lots, or obsolete facilities that no longer serve a meaningful industrial function. In a city where housing scarcity drives affordability concerns, maintaining a rigid land-use orthodoxy is no longer justifiable.
Mayor Bloomberg put Industrial Business Zones in place in 2006 as part of a larger rezoning effort in order to keep
manufacturing in NYC. In the city’s own whitepaper on the topic in 2005 it read: “Guarantee not to rezone to allow residential uses. To alleviate land use uncertainty, the Bloomberg Administration will guarantee not to rezone IBZs to allow residential uses. IBZ boundaries will be provided to the Board of Standards and Appeals, which will consider the impact any proposed variances in the context of the industrial character of these neighborhoods and any land use changes would have on surrounding businesses.” It also pointed to “making City-owned land available for industrial use” I say let’s do a lot more of that, using city owned land in IBZ accessible to manufacturing use and rezone the privately owned sites to allow much needed housing in our neighborhoods.
Written in our NYC Charter under § 22-626 Industrial business zones, it speaks specifically to looking at the possibility of repealing an existing IBZ: “The commission may repeal an existing industrial business zone if it determines that the market conditions in such zone are such that the availability of an industrial business zone tax credit is no longer required in order to encourage industrial and manufacturing activities in such zone.”
And who are the powers that be who can effectuate this change? There is an IBZ Boundary Commission. “The industrial business zone boundary commission shall consist of the commissioner of small business services, the director of city planning, the commissioner of buildings, the commissioner of finance, the commissioner of housing preservation and development, the commissioner of citywide administrative services, the president of the economic development corporation, a member of the community associated with industrial and manufacturing activities who shall be appointed by the mayor and serve at the mayor’s pleasure, and the five borough presidents.”
How to Unlock & Create One-Million Housing Units in NYC.
The Case for Repealing New York City’s Industrial Business Zones
So, you’re saying there is a path?
Consider as one example an entire city block, a 90,000-squarefoot parcel of land within an IBZ in Queens in an M1-3 zoning district. Currently the property is comprised of auto repair shops, used car sales, tire shops and the like and is situated across from a Public School. Under existing zoning, it carries a Floor Area Ratio (FAR) of 5.0, permitting up to 450,000 square feet for industrial or commercial development. However, such a project lacks viability. The reality is that industrial and office demand does not justify large-scale development of this nature on a lot of this size. Conversely, if this site were to be rezoned to an MX/R7X residential type zoning district, the lots FAR could increase to 6.0, yielding 540,000 square feet for a mixed-use residential project, yielding 90,000sf for a mix of retail and light manufacturing on the ground floor with 450,000 SF for housing, which translates to approximately 661 apartment units, 132 to 165 designated of these units designated as permanently affordable under the city’s Mandatory Inclusionary Housing (MIH) or Universal Affordability Preference (UAP) programs. This is just on oneblock of this great city.
Moreover, many IBZ sites are environmentally compromised due to their industrial legacy. By integrating these properties into the Brownfield Cleanup Program (BCP) as part of rezoning efforts, the city can incentivize developers to undertake environmental remediation, effectively converting blighted industrial remnants into habitable urban spaces without imposing remediation costs on taxpayers.
It is imperative that the city removes regulatory barriers that inhibit housing production, IBZ reform being chief among them. Reforming IBZs does not necessitate an abandonment of industrial protection but rather a recalibration of zoning policy to align with contemporary economic realities. A targeted approach can ensure that industrial activity remains viable while unlocking the housing potential of underutilized IBZ parcels. The city must undertake a comprehensive audit of IBZs to differentiate between zones that remain critical
to industrial activity and those that have lost their economic justification. IBZs situated near transit nodes, residential corridors, and commercial hubs should be prioritized for mixed-use rezoning.
Maintaining Core Industrial Hubs While Phasing Out Obsolete IBZs: High-value industrial clusters, such as advanced manufacturing, logistics, and distribution centers, should remain protected. However, IBZs characterized by low-density, inactive, or marginal industrial uses must be reconsidered.
Expanding Brownfield Cleanup Incentives for Housing Development: Rezoning should be accompanied by enhanced tax credits and streamlined environmental approvals to encourage developers to remediate contaminated IBZ land for housing.
Strengthening Affordable Housing Requirements in Rezoned IBZs: Any IBZ sites transitioned to residential use should be subject to MIH or UAP mandates, ensuring that at least 20% to 25% of new units contribute to affordability objectives.
Integrating IBZ Reform with Broader Housing and Tax Incentive Policies: The success of rezoning efforts hinges on alignment with complementary initiatives, such as the City of Yes framework, the 485-x tax abatement, and ongoing affordable housing policies.
New York City’s IBZ framework was conceived to preserve industrial employment, yet in many instances, it now functions as an artificial constraint on urban evolution. By selectively rezoning underutilized IBZ land, the city can simultaneously address its housing deficit and repurpose stagnant industrial zones for modern economic needs.
How do we get there you ask? Let’s do the math to get to one million housing units: There currently exists 21 IBZ Zones in NYC: 5 in the Bronx, 7 in Queens, 6 in Brooklyn and 3 in Staten Island. For the purposes of this article, let’s look at unlocking housing in just the Brooklyn, Queens and Bronx IBZ.
In these 3 boroughs alone, there are 8,011 privately owned properties “locked” within the Industrial Business Zone. These sites account for a total lot area of 143,581,456 SF or 3,296 Acres of Land. If these lots were rezoned to an MX/R7X with an MIH component, that would bring us to an FAR of 6.0 (On average, these sites can likely be rezoned to R7A, R7-1 & R7X with a FAR of 5.01 to 6.00. Many areas will fall under R6 with a FAR of 3.90, as industrial sites tend to be farther from transit. However, some locations could be rezoned to R8-R9 with a FAR of 7.2-8.64.)
This would give us the potential to add a total of 861,488,736 ZFA. If we assume the ground floor would be used for a mix of Retail and Light Manufacturing, that will leave us with 717,907,280 ZFA for Residential Use. Utilizing a Dwelling Unit Factor of 680 SF, this gets us to 1,055,746 Housing Units, including 263,936 permanently affordable units!
A further breakdown by borough:
3,850 sites in Brooklyn, totaling 66,050,689 total lot area SF or 1,516 acres; giving us the potential to add 396,304,134 Mixed Use ZFA or roughly 330,253,445 in Residential ZFA which will equate to roughly 485,667 Housing Units.
2,833 sites in Queens, totaling 52,610,940 total lot area SF or 1,208 acres; giving us the potential to add 315,665,640 Mixed Use ZFA or roughly 263,054,700 in Residential ZFA which will equate to roughly 386,845 Housing Units.
1,106 sites in The Bronx, totaling 24,919,827 total lot area SF or 572 acres; giving us the potential to add 149,518,962 Mixed Use ZFA or roughly 124,599,135 in Residential ZFA which will equate to roughly 183,234 Housing Units.
The City & State needs revenue, correct? We can also study the potential of NYC and NYS real estate transfer taxes gained from the sales of these newly rezoned lots alone. If we use a
number of say $125/ZFA for these newly rezoned MIH sites, that brings us to a total sales value of $107.7 billion.
This will ultimately equate to unlocking $2.8 billion in NYC sales transfer tax revenue and $700 million of NYS transfer tax revenue. $3.5 billion in NYC & NYS sales transfer tax revenue unlocked. Billions of dollars of tax revenue created plus over 1 million homes including almost 300,000 permanently affordable homes: not a bad route to take to solve real issues.
NYC is the greatest city on earth and is growing every year, but we have a housing shortage and affordability crisis. We have the land. Let’s think about what 10, 20, 50+ years from now looks like and utilize our land the right way. Let’s roll back Bloomberg’s “No-Rezoning” guarantee that probably made sense back in 2005 and 2006, and may have made sense for that decade, but it is obvious that it is no longer feasible to hold this guarantee in place.
The imperative is clear: unlocking IBZs for strategic redevelopment is not merely an option but a necessity if New York is to sustain its economic competitiveness and provide housing for its growing population. The moment for decisive action is now.
RUBIN ISAK Managing Principal, Co-Founder Development Site Advisors®
