On paper, New York should serve as a linchpin for the Opportunity Zones program. With a major housing deficiency and 514 Opportunity Zone (OZ) designated census tracts, it would appear that the state is prime for investment by Qualified Opportunity Funds. However, state politics alongside a declining population complicate New York OZ investment prospects. Today we will look at the current state of the real estate market in New York, including in the arena of new affordable housing. We will also take a look at new tax rules in New York State and how they impact Opportunity Zones. Finally, we will learn more about two Opportunity Zone projects that prominent Opportunity Zone investor GTIS Partners has going in and around New York.
An Overview of New York Real Estate
While census data suggests that the population is shrinking in New York, there is still a massive need for new housing inventory. The New York State Association of REALTORS reports that there is only a 2.6 months inventory of housing available as of April 2022. With rising inflation rates stretching consumers buying power thin, rental units are becoming in higher demand due to their lower cost of entry. This makes build-to-rent an attractive option for developers and investors. Particularly for OZ investments, as a minimum 10-year hold in a strong rental market is a good hedge against inflation. The post-pandemic work-from-home environment has changed what many people look for in housing, and with that new and reimagined housing units are highly desirable.
However, New York politics are making it increasingly less attractive to take advantage of the real estate market in New York. Policymakers have allowed the most lucrative tax benefit to building new affordable housing to expire as of June 15, 2022. The Affordable New York Program (ANY) had what was called the 421a tax benefit which allowed developers to not pay any property taxes on new housing developments for at least 10 years in exchange for offering a portion of their developments units at affordable rates. The Real Estate Board of New York found that more than half of the multifamily residential units built in the last 8 years have utilized this tax savings program. With the expiration of this program, OZ experts agree that developers are unlikely to seek out new affordable housing projects in New York that they have not already broken ground on.
New York eliminates state tax incentives for opportunity zone investments
In addition to allowing the 421a tax provision to lapse, New York has elected to eliminate state tax breaks on Opportunity Zone investments. Real Estate Board of New York’s president, James Whelen told the Commercial Observer, “If enacted, this legislation would be yet another move to shift investment away from New York, as it encourages residents with investments to go to other states and take their taxable incomes with them. Furthermore, New York should not walk away from opportunities to spur development that can address our housing crisis and create jobs in historically underserved neighborhoods, especially as we try to recover from the negative economic impacts of the pandemic.”
While several other states charge capital gain taxes, at least in part (California and Maryland, for example), it is yet another sign that New York’s government is hostile to development brought in by the Opportunity Zone program.
GTIS Partners Projects In & Near New York
Despite the recent difficulties of new Opportunity Zone developments in New York, GTIS Partners has a planned OZ project in Brooklyn. This new mixed-use building is centrally located, and will offer nearly 200 housing units with roughly 25% being offered at affordable rates. This project is one of the last to receive a 35-year residential tax abatement and a 15-year ICAP commercial tax abatement. With rising rents in post-pandemic New York, it is a promising project for the community and investors alike.
Meanwhile, in a bedroom community outside of New York City, GTIS has another large multifamily project in progress.This project will bring a two-building, with 389 residential units to the community of Hackensack, New Jersey. Shovel ready at purchase in July 2020, delivery is expected in Q3 2022. With easy train access to New York City, this development is located just across the street from Foschini Park, which is currently under redevelopment and offers breathtaking views of NYC.
Are you interested in investing in projects like these? Have you recently experienced a capital gain, or are you anticipating one in the near future? Use our fund finder tool today to get connected with a Qualified Opportunity Fund that meets your investment goals.