News, Analysis and Commentary On Affordable Housing, Community Development and Renewable Energy Tax Credits February 2012, Volume III, Issue II

Published by Novogradac & Company LLP

FOCUS ON New York City Boroughs: Manhattan, N.Y. By Jennifer Dockery, Assignment Editor, Novogradac & Company LLP

T

he New York City government has long recognized that its cost of living and population density create a shortage of affordable housing. More than 30 percent of families across the city pay more than 50 percent of their income toward rent, according to surveys cited by the New York City Housing Development Corporation (NYCHDC). The average monthly rent for a non-doorman two-bedroom apartment in Manhattan jumped 17 percent this year, reaching $4,100. Yet, land and development costs dictate where developers can afford to build and operate safe housing at rents affordable to low- and middle-income families. Because of the high cost of developing affordable housing in Manhattan, affordable housing developers generally need to acquire city owned land at low cost in order to build 100 percent affordable housing developments or they need to include affordable housing units in a mixed-income property. Despite the high cost, the borough’s strong demand, low vacancy rates and numerous funding options make affordable developments viable.

Bronx, Brooklyn, Queens and Staten Island, and parts of New Jersey and Pennsylvania. In April 2010, Manhattan had a population of almost 1.59 million people. Its population is projected to grow at a rate of 0.5 percent annually and reach more than 1.68 million by 2015; households are expected to number 793,631 by 2015. Manhattan’s projected growth rate is slower than that of the nation at large, but is expected to have a greater than average effect on housing because of the area’s population density. The U.S. Census Bureau recorded

About Manhattan Manhattan, New York County, New York City, New York is part of the New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa. metropolitan statistical area (MSA), which includes the five New York City boroughs of Manhattan, the

Manhattan, N.Y. Median Household Income

continued on page 2

NOVOGRADAC JOURNAL OF TAX CREDITS

continued from page 1 a median household income of $68,295, but more than 60 percent of renter households in Manhattan earned less than that in 2010.

PUBLISHER

Michael J. Novogradac, CPA

“The issue is that we have an influx of new residents in Manhattan. The city’s population is growing and there’s just a great need for affordable housing here,” said Carol Nixon, director of AFLCIO Housing Investment Trust’s (HIT’s) New York office. The map on page one shows the 2010 median household income for Manhattan.

Household Tenure Novogradac & Company LLP estimated that there were 616,260 renter-occupied units in Manhattan in 2010. This is 79.4 percent of Manhattan’s population. When “rent overburdened” is defined as households contributing more than 35 percent of their monthly income to their rent and utilities, 30.4 percent of families would be considered rent overburdened. Manhattan has a population density of 69,500 persons per square mile, the highest population density of the five boroughs. Nearly 55 percent of the borough’s housing units are rent regulated and nearly 22 percent are public or subsidized units. The New York City Housing Authority reported on November 30, 2010, that 9,104 Manhattan families were leasing units under the U.S. Department of Housing and Urban Development’s Section 8 program. Manhattan ranks third, behind the Bronx and Brooklyn, for the number of units leased through the Section 8 program. The following table illustrates the household tenure patterns for the primary market area in 2000, 2010 and 2015.

www.novoco.comFebruary 2012

Year

OwnerOccupied Units

Percentage OwnerOccupied

MANAGING EDITOR

Alex Ruiz EDITOR

Jane Bowar Zastrow TECHNICAL EDITORS

Robert S. Thesman, CPA James R. Kroger, CPA Owen P. Gray, CPA Thomas Boccia, CPA Daniel J. Smith, CPA ASSIGNMENT EDITOR

Jennifer Dockery STAFF WRITER

Jennifer Hill CONTRIBUTING WRITERS

Brandi Day Brad Elphick Tony Grappone Jim Kroger Peter Lawrence John P. Lee John Leith-Tetrault

Diana R. Letsinger George F. Littlejohn Forrest David Milder Charles A. Rhuda III Rodney C. Sommers John Tess Phong T. Tran

CARTOGRAPHER

David R. Grubman PRODUCTION

Jesse Barredo James Matuszak

Novogradac Journal of Tax Credits Information Correspondence and editorial submissions: Alex Ruiz/ 415.356.8088

Tenure Patterns PMA

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Novogradac Journal of Tax Credits Editorial Board

RenterOccupied Units

Percentage Renter-Occupied

2000

148,732

20.1%

589,911

79.9%

2010

160,246

20.6%

616,260

79.4%

2015

164,739

20.8%

628,892

79.2%

Source: ESRI Demographics 2010, Novogradac & Company LLP, January 2012

Inquiries regarding advertising opportunities: Emil Bagalso / 415.356.8037 Editorial material in this publication is for informational purposes only and should not be construed otherwise. Advice and interpretation regarding the low-income housing tax credit or any other material covered in this publication can only be obtained from your tax advisor.

Rental Market Manhattan’s rental market is highly competitive and the marketrate rents are some of the highest in the nation; the borough’s rents have risen despite the recession. According to the Furman Center for Real Estate & Urban Policy, Manhattan monthly contract rents averaged $1,243 in 2009. Manhattan residents pay the highest rents in New York City, but higher average incomes offset their rent burden, resulting in a smaller percentage of their income paid in rent. continued on page 3

© Novogradac & Company LLP 2012 All rights reserved. ISSN 2152-646X Reproduction of this publication in whole or in part in any form without written permission from the publisher is prohibited by law.

continued from page 2

LOW-INCOME HOUSING TAX CREDITS Bud Clarke

BOSTON FINANCIAL INVESTMENT MANAGEMENT

Jana Cohen Barbe

SNR DENTON

Tom Dixon

BOSTON CAPITAL

Valerie White

STANDARD & POOR’S CORPORATION

Rick Edson

HOUSING CAPITAL ADVISORS INC.

Richard Gerwitz

CITI COMMUNITY CAPITAL

Rochelle Lento

DYKEMA GOSSETT PLLC

John Lisella

U.S. BANCORP COMMUNITY DEV. CORP.

Phillip Melton

CENTERLINE CAPITAL GROUP

Thomas Morton

PILLSBURY WINTHROP SHAW PITTMAN LLP

Stephen Ryan

COX, CASTLE & NICHOLSON LLP

Arnold Schuster

SNR DENTON

Mary Tingerthal

MINNESOTA HOUSING FINANCE AGENCY

Rob Wasserman

U.S. BANCORP COMMUNITY DEV. CORP.

Manhattan, N.Y. Rental Household Percentage PROPERTY COMPLIANCE Rose Guerrero

CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE

Sharon Jackman

SIG SERVICES LLC

Michael Kotin

KAY KAY REALTY

Michael Snowdon

MCA HOUSING PARTNERS

Gianna Solari

SOLARI ENTERPRISES

Ruth Theobald Probst Kimberly Taylor

THEOPRO COMPLIANCE & CONSULT. INC. HOUSING DEVELOPMENT CENTER

HOUSING AND URBAN DEVELOPMENT Sheldon Schreiberg Monica Sussman

“Tax credit rent is below street rent in every part of Manhattan,” said Adam Weinstein, president and chief executive officer of Phipps Houses, which has developed affordable housing in Manhattan for more than 100 years, including about 2,500 affordable housing units and 1,600 low-income housing tax credit (LIHTC) units. He said that high land costs make developing affordable housing in Manhattan, and generally throughout New York, a challenge.

PEPPER HAMILTON LLP NIXON PEABODY LLP

NEW MARKETS TAX CREDITS Frank Altman

NOVOGRADAC JOURNAL OF TAX CREDITS

Novogradac Journal of Tax Credits Advisory Board

COMMUNITY REINVESTMENT FUND

Bruce Bonjour

PERKINS COIE LLC

Neil Kimmelfield

There also has been an increase in unit demand. When NYCHDC held lotteries for 1,600 new affordable housing units in 2011, it received 93,000 applications. In 2010 and 2009, lotteries for a comparable number of units had attracted 84,000 and fewer than 80,000 applicants, respectively.

LANE POWELL U.S. BANCORP COMMUNITY DEV. CORP. SNR DENTON

Ruth Sparrow

FUTURES UNLIMITED LAW PC

Herb Stevens

NIXON PEABODY LLP

Tom Tracy

HUNTER CHASE & COMPANY

Joseph Wesolowski

ENTERPRISE COMMUNITY INVESTMENT INC.

HISTORIC TAX CREDITS Don Holm

HOLM LAW FIRM

John Leith-Tetrault Bill MacRostie Donna Rodney John Tess

NATIONAL TRUST COMM. INVESTMENT CORP. MACROSTIE HISTORIC ADVISORS LLC BRYAN CAVE LLP HERITAGE CONSULTING GROUP

RENEWABLE ENERGY TAX CREDITS Ed Feo

USRG RENEWABLE FINANCE

Michael Hall

BORREGO SOLAR SYSTEMS

Jim Howard Forrest Milder Darren Van’t Hof

The borough lost many affordable units as owners and developers rushed to cash in on the housing boom. When the market crashed and funding for market-rate developments dried up, many owners abandoned plans to convert affordable units to market-rate developments, creating an opportunity for the city to get buildings back into the affordable housing programs in which they had participated previously, said Joan Tally, NYCHDC executive vice president.

DUDLEY VENTURES NIXON PEABODY LLP U.S. BANCORP COMMUNITY DEV. CORP.

“We’ve seen a continued interest in renting and that’s driven rental prices back up,” said Tally. Weinstein said that Phipps has also seen high demand from every neighborhood in Manhattan.

Available Units and Vacancy Rates Strong demand for units results in low vacancy rates among both market-rate and affordable units. Furman’s 2010 report showed 847,090 Manhattan housing units in 2010 and rental vacancy rates of 3.4, 3.4 and 4.4 percent for 2000, 2008 and 2009. Tally reported a continued on page 4

www.novoco.comFebruary 2012

Marc Hirshman Scott Lindquist

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Annual Employment Change New York-Northern New Jersey-Long Island, NY-NJ-PA MSA 9200000

81081

9000000

8800000

-270323

8600000

136110

-53597

12480.3

96276

-10168

-30701

2001

2002

-18620

8400000

8200000

8000000 2003

2004

2005

98 percent occupancy rate across NYCHDC’s portfolio. In a September 2011 report, Novogradac & Company found in Harlem’s Mount Morris Park district in Manhattan that unit turnover ranged from around 0 to 10 percent with an average of 3 percent, which averages to only one unit vacancy every other year. The study also found an overall vacancy rate of 1 percent for the surrounding apartments. The three LIHTC properties within the study area also reported stable rents.

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22552

150006

Total Employment

NOVOGRADAC JOURNAL OF TAX CREDITS

continued from page 3

2006

2007

2008

2009

2010

2011 YTD Average*

October, the BLS reported Manhattan’s average weekly wage was $2,634, three times the national average. High incomes in the financial and information sectors accounted for the high weekly average; however, leisure and hospitality workers in Manhattan averaged less than $800 per week.

“When [we] have a 0 percent vacancy rate … we have to develop creative solutions for providing new housing,” said Nixon. “We see people who work in New York City literally traveling up from Pennsylvania each day because they can’t find affordable housing in New York.”

BLS reported employment in Manhattan had increased 1.9 percent in March 2011 when compared to March 2010. The largest gains were in leisure and hospitality, professional and business services, and financial activities. A Novogradac & Company market study reported that employment between August 2010 and 2011 decreased by only 0.4 percent. The above table shows the annual employment change for the New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa. MSA.

Employment

Rent Control and Stabilization

Like the rest of the country, Manhattan has experienced recession troubles. In September, Novogradac & Company reported that unemployment in New York City was holding steady at about 9.1 percent. Service occupations, such as health care and social services, provide jobs for many people in Manhattan and the surrounding boroughs.

In New York City, 52 percent of apartments are subject to rent control and stabilization programs. This artificially limits the rents on the units depending on the length of time the unit has been occupied and other factors. Tally said that the policies have had little to no effect on NYCHDC’s properties. Weinstein said that the policies rarely affected Phipps’ properties; when they did, the effect was a built-in rent increase, which Weinstein said provided the properties with capital for maintenance and repairs. Nixon said that the policies served to reduce demand for affordable housing to a small extent, because rent at the units remained stable. continued on page 5

The U.S. Bureau of Labor Statistics (BLS) reported on January 5 that when compared to November 2010, New York City unemployment levels for those age 16 and older increased by 2.4 percent in November 2011. In late

Land Costs and Inclusionary Zoning The main barriers to entry are Manhattan’s land cost and availability. Those interested in developing affordable housing usually work with the city through a competitive process to acquire land at a low cost for new construction. Much of the city owned land in areas that were considered undesirable or blighted several decades ago, including parts of Harlem, the Lower East Side and Clinton/Hell’s Kitchen, have been transformed with new affordable housing and retail development. In areas where city owned land is not available, inclusionary housing requirements and real estate tax exemptions spur the development of affordable housing units. Tally said that many of the affordable units in Manhattan are part of mixed-income developments.

Conclusion Manhattan falls under New York City’s New Housing Marketplace Plan, which aims to create or preserve

165,000 units of affordable housing. NYCHDC says that the program has resulted in nearly 127,000 affordable housing units, 34 percent of which are in Manhattan. Developers and funders report an increase in demand for affordable units and the administration is committed to completing all 165,000 affordable units during the next two years. Although developing in Manhattan can be a challenge, the borough offers opportunities for developing new properties and renovating existing properties. Inclusionary housing laws encourage mixed-income developments and the city provides bond financing for many of these properties. The city is also willing to work with developers to produce 100 percent affordable developments on city owned property. NYCHDC and HIT reported strong investor interest in LIHTCs and tax-exempt bonds for Manhattan developments. NYCHDC, HIT and Phipps expected strong demand and low vacancy rates to continue.

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This article first appeared in the February 2012 issue of the Novogradac Journal of Tax Credits. © Novogradac & Company LLP 2012 - All Rights Reserved Notice pursuant to IRS regulations: Any U.S. federal tax advice contained in this article is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties under the Internal Revenue Code; nor is any such advice intended to be used to support the promotion or marketing of a transaction. Any advice expressed in this article is limited to the federal tax issues addressed in it. Additional issues may exist outside the limited scope of any advice provided – any such advice does not consider or provide a conclusion with respect to any additional issues. Taxpayers contemplating undertaking a transaction should seek advice based on their particular circumstances.

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This editorial material is for informational purposes only and should not be construed otherwise. Advice and interpretation regarding property compliance or any other material covered in this article can only be obtained from your tax advisor. For further information visit www.novoco.com.

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