The projects of many developers hit by the credit crisis are at risk for missing the 36 month window allowed to fulfill the new 421a completion requirement.
What is a 421a Tax Abatement , you ask? It is an incentive to developers offered by the city to stimulate development and keep housing costs reasonable by offering a ‘temporary relief’ from property taxes. For the typical 10-year abatement, tax relief peaks when the building is first ready for occupancy and then increases every 2 years (20% every 2 years) until the 10 years are up. (15, 20, and 25-year abatements are also granted, though more rare.)
As monthly expenses rise, asking prices generally decrease to compensate for affordability, explaining the built-in premium of apartments benefitting from 421a, when you compare them to their resale counterparts. Investors should consider tax abatement schedules when establishing their exit strategies.
