New York Business Journal
August 9, 2022

Expiration of tax abatement program will create A Tale of Two Cities in NYC condo market, executive says

By Julian Nazar – Staff Reporter

French Revolution

The expiration of a key tax abatement program will create a "tale of two cities" in the New York City condo market, Robert Dankner, president of Prime Manhattan Residential, told the New York Business Journal.

This tax abatement, under a program called 421a, gave property tax breaks to new residential real estate developments in the city provided that they included some affordable housing units. It expired on June 15.

"Condo developers that don't have access to 421a will have to produce more expensive units, otherwise it just doesn't pay," Dankner said. "So that market will be serviced. The low-income housing is low-income housing. Everybody in the middle is going to be unserved."

Robert Dankner has been a real estate investor and broker for more than 25 years. Within the last 10 years, he has closed around 100 condo deals.

One of his more notable deal's was a condo he sold for $12.4 million in October 2021 at 207 W. 79th St.

"It was the highest dollar per square foot trade in that building," Dankner said. "I was very surprised that I was able to achieve that price. This sold for 25% more than he bought it for which was very unusual because most people that bought things between 2016 and 2018 that were selling them in 2021 and 2022 were selling them at a scratch or a loss."

Currently, he has five condos in contract that will close later this year.

Dankner spoke with the New York Business Journal about trends in the city's condo market, the impact 421a's expiration will have on the market, and what neighborhoods are best for condo investment.

What trends are you noticing in the New York City condo market?

We're seeing a lot of people that left the city during Covid that are coming back. No foreigners could even look at anything here because they couldn't get here. So a combination of people wanting to be back in New York and believing in the city long-term combined with the ability of foreigners to get here. They were out of the market for the better part of the year. Unless they were buying something over zoom, they weren't coming here. That has created a good demand picture.

There's also real value in New York's condo market relative to other parts of the country. You look at the Hamptons. You look at Miami. There is people jumping over one another to buy houses. That hasn't happened. So somebody that's losing every bidding war in Miami, they come back to New York and the trading prices are calmer. They don't fear missing out. They are able be a lot more deliberate with how they're approaching their purchases. And they're also finding that, from the way that price trajectories ran outside of New York, New York didn't have that run. New York looks inexpensive, relatively speaking, next to a lot of other markets where New Yorkers have second homes, third homes, or fled to during Covid.

What impact will the expiration of 421a have on the condo market?

For condos, I think what it's going to do is it's going to create a tale of two cities for the very wealthy and the very poor. Condo developers that don't have access to 421a will have to produce more expensive units, otherwise it just doesn't pay. So that market will be serviced. The low-income housing is low-income housing. Everybody in the middle is going to be unserved. It's not going to happen tomorrow. But that's the effect of the 421a going away.

From a buyer standpoint, I don't think that's going to make a massive dent in somebody's decision to buy something. I think where it's going to have a dent is the new development. There was tons of permits that were filed before June 15. Foundations were in the ground. I think there's going to be a real slowing in forward activity because financing is tougher now. Money is more expensive now. You have to produce more expensive units. I think it's going to give a lot of developers pause.

I think it's going to be good for the market on one hand because it's going to slow down inventory growth. Not a lot of new inventory is going to be created. I would predict it's going to be slower the next year and the year after. In the condo market, there's a fair amount of inventory in the pipeline that will be absorbed. It's going to be good for prices. There's going to be less to buy which is going to put upward pressure on prices. Potentially.

What are the best neighborhoods for condo investment in today's market?

My opinion is that the West Village is one of the best places for condos just because you're limited in what you can build. You can't do what you can do on 57th street, for example, such as build a 60-story tower. There's a lot of restrictions that prohibit mass development which leads to lower creation of inventory. There's incredibly high demand. You have some of those similar elements in Tribeca, SoHo and Greenwich Village.

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