While 99 is still the magic number for most New York City multifamily developers these days, some apartment developers are still going big.
Of the 281 multifamily construction permits filed in the first half of the year, 19 were for buildings with 100 or more units, according to an analysis of Department of Buildings data by the Real Estate Board of New York.
On its face, those projects would appear encouraging at a time when the prevailing narrative is that not enough housing is being built.
But developers and brokers say that the developments don’t actually serve many of the middle-income residents that lawmakers hoped to target when they passed the massive City of Yes rezoning and 485-x, the state’s new tax abatement for NYC mixed-income rental housing.
“Most of the registered projects are relatively small, under 25 units per building on average, which works for lower-scale, lower-density areas,” Besen Partners Chief Sales Officer Ron Cohen said. “But bigger picture, [that] isn’t making a huge impact on the goal of 500,000 new units.”
Of the large project filings in the first six months of the year, just one is in the middle of Manhattan.
Of the large project filings in the first six months of the year, just one is in the middle of Manhattan, where city and state officials have tried to encourage housing to inject more life into business districts.
That project, along with the majority of the others aiming for 100 or more units, isn’t tapping into the 485-x program. Just four have registered for 485-x, and every one of those has a 421-a letter of intent, meaning they expect their projects to be completed before June 15, 2031, in order to use the expired, more developer-friendly tax abatement.
The LOIs indicate that the developers are viewing the new tax incentive as a backup to its predecessor — and a way to show stability to lenders — but not a preferred route to take.
Many of those developers previously spent decades building huge new apartment towers with a portion carved out for middle- and lower-income renters under the now-expired 421-a tax program. Now, they say that wage requirements under 485-x have made it economically unfeasible to create housing in core parts of the city.
In the first six months of the year, just 820 multifamily housing units were proposed in Manhattan, according to REBNY. In that time, the Bronx and Brooklyn had more than 5,000 units proposed each.
Regardless of location, in the second quarter, there were just four buildings with 150 or more units that were seeking building permits, totaling 1,215 dwelling units. Those numbers are 75% and 71% below the historical average since 2008, according to REBNY.
The reason why is exemplified in an analysis done by the Urban Land Institute New York and Meridian Capital Group.
In a prime area of Brooklyn, a potential undisclosed project larger than 150 units would generate net income 11% lower under 485-x than 421-a, primarily driven by the lower maximum rents developers can charge under the new program. Additionally, the new wage requirements would increase overall development costs by 9%.
The combination of reduced income and higher cost would have resulted in a 120-basis-point decline in the developer’s projected yield on cost, from 6.4% to 5.2%, according to the ULI/Meridian analysis.
In the analysis, land costs are estimated at $200 per buildable SF. To achieve the 6.4% yield under 485-x, the developer would need to acquire the land at no cost. By contrast, if the developer were to erect a project with fewer than 100 units, thus not triggering the wage requirements, it would have a tighter spread, with a yield of 6.4% under 421-a and 6.1% under 485-x.
“On the projects my team has reviewed, the stabilized yield on costs ends up being very similar to, or only marginally better than, just buying an existing building,” said Helen Hwang, the chair of ULI’s New York District Council and head of Institutional Investment Sales at Meridian. “So why would anyone like to take on construction risk, market risk, lease-up risk, only to wind up in the same place?”
Push Into The Boroughs
The passage of the City of Yes at the end of 2024 sent developers back to their drawing boards, eager to rethink what was possible after a pronounced slump in new project starts.
The measure overhauled the city’s zoning code, removing long-outdated barriers to building and upping allowable density across the five boroughs.
A handful of neighborhood rezonings happening on a parallel track are expected to clear the way for thousands more housing units to be allowed in neighborhoods like Midtown South and Long Island City.
But those areas are included in 485-x’s Zone A and Zone B — defined as South of 96th Street in Manhattan, and select neighborhoods of Brooklyn and Queens — making projects with 150 or more units subject to higher wage requirements.
Zone A — with a wage requirement of the lesser of $72.45 per hour or 65% of prevailing wage — includes Long Island City and Williamsburg. Zone B — where the requirement is $63 per hour or 60% of prevailing wage — is home to Astoria, Downtown Brooklyn, Clinton Hill and Park Slope, among other highly coveted neighborhoods.
As a result, Hwang said that the majority of her team’s large-scale rental development assignments are either 421-a vested or 485-x projects outside of the zones. In those areas, the wage requirement is $40 an hour, even if the project is over 150 units.
Going deeper into the outer boroughs has become more of an option under City of Yes, brokers said, but new issues arise. Though the requirements for developments with 150 or more units outside of Zone A and B are lower at 20% affordable and 80% area median income, those areas often also have lower-income residents and are typically further away from transit hubs — factors that pique developer interest.
Instead, what rezonings have done is bump the amount of housing that small projects can produce. In May, Haussmann Development bought a vacant lot at Harlem’s 16-20 Convent Ave. with plans to build a 75-unit tower.
To do so, the developer is using both 485-x and the City of Yes’ Universal Affordability Preference, which allows buildings to include 20% more housing if the additional homes are permanently affordable, according to Cohen, who brokered the sale alongside colleague Jay Bernstein.
Haussmann also has plans to construct more than 200 units of affordable housing in Jamaica. The city council is expected to approve a rezoning for the Queens neighborhood in the coming weeks, allowing the construction of 12,000 new homes, 4,000 of which would be affordable.
Haussmann Development plans to use 485-x to build a 75-unit project at this empty lot in Harlem. Under 421-a, a larger project would have made more financial sense.
The developer doesn’t plan to use 485-x at the project, instead exploring the city’s Extremely Low and Low Income Affordability or Mix & Match affordable housing programs, according to Crain’s New York Business. Haussmann didn’t respond to Bisnow’s request for comment.
“We are, in fact, seeing new lands being conquered,” Cohen said. “That’s largely due to good rezoning plans that have come through.”
‘Tale of Two Cities’
Joy Construction principal Eli Weiss is among the developers building big deeper in the boroughs. He is pursuing a 213-unit supportive housing project in The Bronx’s Mount Eden neighborhood in partnership with Services for the UnderServed, a nonprofit that will own and operate the property.
The project would replace a strip of auto repair shops at 1545 Jerome Ave. and is expected to cost $130M. Given the nature of the development — serving those with mental illness or without housing — as well as the nonprofit’s role, the developer is able to get subsidies that are otherwise unavailable for those looking to construct housing for moderate-income households.
He’s got company. At least five of the 19 major project filings this year are planned to be supportive housing, including a 160-unit homeless shelter at 1605 Mermaid Ave. and a 129-unit shelter at 118-08 Jamaica Ave.
Weiss calls the current development math a “Tale of Two Cities outcome.”
“It’s very, very tough targeting that middle tranche [of incomes],” Weiss said. “There’s a lot of support from the federal government and tax laws for the very low. And one could make the argument there’s the same very high in our federal tax code.”
The Others
More recently, news has emerged of developers doing what others have deemed impossible, or at the very least, unpalatable.
Vornado Realty Trust is eyeing a $350M, 475-unit apartment tower near Penn Station. Executives from the REIT revealed earlier this month that they plan to use 485-x on the building, though there were few additional details. Vornado has already spent $1.2B redeveloping the One and Two Penn Plaza office towers nearby.
Brooklyn-based developer David Halberstam also recently landed $80M in financing from S3 Capital to build a 131-unit tower at 303 E. 44th St. in Manhattan. Site work has already begun for the project, according to an announcement by the developer and lender.
Neither project is represented in the REBNY analysis, which covers the first half of 2025. The only Midtown Manhattan project included is the Hiwin Group’s proposed 125-unit building at 16 W. 45th St. The developer bought the vacant lot for $38.5M in March in an all-cash transaction.
The project is not registered to use 485-x, and DOB filings show that it secured additional density rights from a separate senior housing project. The developer did not respond to Bisnow’s request for comment.
But many other less capitalized, less risk-tolerant or less passionate developers are walking the line of building as large as they can while skirting the wage requirements. In the first half of the year, there have been 58 buildings with 50 to 99 units proposed, according to the REBNY data. Eighteen had exactly 98 or 99 proposed units.
Some have gotten creative, buying land where large towers could rise, only to split the lots. That includes the Jay Group, which is planning 450 units across five Downtown Brooklyn buildings, at least two of which will contain 99 units exactly.
That may make projects larger than they seem on paper, but such complexes can result in less housing than what would otherwise be built.
In a city that needs 50,000 new units a year to combat its housing crisis, with rents at historic highs and vacancy at historic lows, Hwang said the strategy only “creates inefficiencies with land this scarce and affordability this strained.”
“We’re in need of housing, and we have developers who are willing to develop. Meanwhile, New Yorkers are paying the price as rents climb faster here than almost anywhere else in the country,” Hwang said. “We can’t regulate our way to affordability. We have to build our way there.”