According to the PHFL`s long-standing interpretation, at least two-thirds of housing must be affordable for households with a median income in the region of 165% or less. However, in the application, HPD usually exists at significantly lower AMI levels, often with a certain number of AMIs in each project. The restrictions agreed upon by HPD and the landlord are set out in a registered regulatory agreement against the property, which, among other things, subjects the property to rent stabilization beyond the duration of the exemption. Under Section XI of the New York State Private Housing Act („Section XI“), which is administered by HPD in New York City, the City Council may exempt real estate from tax for up to forty years if there is an agreement to rent only to tenants eligible for affordable rents. Article XI is one of the most important tools at the city`s disposal to maintain existing affordable housing, even in completely unregulated real estate.  www1.nyc.gov/site/hpd/owners/homeowner-hdfc.page In organizing the HDFC, NYC will sometimes require the HDFC to enter into a regulatory agreement to ensure that the HDFC continues to operate the premises as intended as affordable housing. The HDFC will enter into the regulatory agreement with Nyc through its Department of Housing Preservation and Development („HPD“), and these agreements typically cover a long-term period of several years. „They put us all in the same bag,“ said Richard James, a retired lawyer and board member of a stately Riverside Drive HDFC co-op that sold a unit for more than $2 million in 2014. „Everything in this proposal – from the removal of DAMP to price caps to external monitors – is essentially a breach of contract of our agreements with the city, and I think it calls for a lawsuit.“ In general, the regulatory agreement provides for regulations and restrictions related to corporate matters, such as. B: Principal residence requirements, environmentally-based income requirements, rent and subletting restrictions, profit sharing or reversal taxes payable to hdFC on resales, and annual reporting and building monitoring programs. Sometimes the HDFC needs to hire a co-op monitor (for example, the Urban Homestead Assistance Board („UHAB“), which are non-profit organizations that monitor THE ACTIVITIES OF THE HDFC and help them comply with regulatory requirements.
HDFC (Housing Development Fund Corporations) are essentially limited income co-operatives; They limit a potential buyer`s ability to buy depending on whether their annual salary falls below the calculated income cap. The creation of HDFC was aimed at buyers who were looking for a dwelling house for a longer period of time, with the possibility of passing it on to family members. They make up a large portion of New York City`s affordable housing. HGDs are further classified based on how the low-income cap is calculated, either through a regulatory agreement with the city or without an agreement. The Private Housing Finance Act (PHFL) states that in order to qualify for an Article XI exemption, the project must be owned by a housing fund company („HDFC“), a specific type of New York corporation typically formed under the PHFL and the New York State Nonprofit Corporations Act and subject to HPD oversight. This is most often achieved through a nominee structure where the HDFC holds the simple legal right to the property, while a for-profit entity, typically a limited liability company or limited partnership, holds the economic and equitable interest under an appointment agreement between the for-profit entity and the HDFC. If the building has a regulatory agreement, the income limit is based on a percentage of the median income in the surrounding neighborhood. If the building does not have a regulatory agreement, the revenue limit is generated by a formula based on maintenance and ancillary costs of the building.
Typically, the standard is to quantify income at about seven times the annual maintenance costs. In addition, the income cap will mimic the region`s economy and increase as the region becomes more prosperous. For example, if maintenance costs increase in an HDFC building, the income limit will follow and allow for a higher annual salary. While HCFDs require a buyer to fall below the low-income cap, there is no requirement based on resale price. Thus, a seller has full discretion in determining the market price of HDFC. Nevertheless, the resale price is often regulated by the high turnaround tax that HDFC buildings charge (often about 30% of profits) and the relatively limited supply of potential buyers who meet income requirements to buy. After the expiry of the regulatory agreement, these restrictions would no longer apply, however, the HDFC could continue to voluntarily (intentionally or by default) comply with these restrictions in the operation of the premises. „Obviously, the city is trying to grab land,“ says John McBride, a co-op owner and a member of the HDFC Coalition, a rights group. „These changes would penalize buildings that have worked hard to reverse their properties and follow the rules of the city for decades. It`s unfair, [and] shareholders are angry. The term sheet requires that all exemptions and related affordability restrictions have a term of forty years, which is the maximum duration allowed under the PHFL.
In the past, projects often had a duration of thirty years. Prices are based on the U.S. Department of Housing and Urban Development`s AMI, which aims to create affordable housing opportunities in certain areas. Selling prices are usually significantly lower than the market price – they could even be 50% lower. For example, a five-bedroom apartment could cost $600,000 instead of $1,500,000. But the price variation is determined by the AMI for a particular neighborhood. Several factors make HDFC units very different from other cooperatives. This goes beyond the lower cost. The differences include: However, the HDFCs worked under a confusing hodgepodge of rules. Some have resale price caps; many do not.
Revenue limits for first-time buyers also ranged from about $100,000 to $135,000. But without restrictions on the wealth of buyers, the units of successfully renovated buildings were sold at ever higher prices, sometimes for seven-figure amounts. „If we don`t take action to protect our stock of HDFC co-ops, we risk losing one of the city`s most valuable sources of affordable housing,“ said Elizabeth Rohlfing, hpd spokeswoman. „The goal of the agency`s proposal is to put HDFCs in difficulty on a solid foundation while ensuring the long-term affordability of all HCFDs. The New York City Department of Housing Preservation and Development („HPD“) recently released a new term sheet for its Housing Preservation Opportunities program, which offers partial property tax exemptions to homeowners who accept long-term affordable housing requirements. . We discuss housing preservation opportunities from HPD`s recently updated termsheet, which includes notable changes to the Article XI property tax exemption available to apartment property owners in New York City. Board member Richard James, pictured in front of his cooperative RIVERSIDE Drive HDFC, says the city „puts us all in the same bag.“ (Photo by Jennifer We) Another search option is Housing Connect. This website, operated by the city, serves as a portal for rental lotteries and affordable co-ops.
Of course, you can also consult a broker. „There are brokers and even some lenders, including small regional banks and credit unions, that specialize in HDFCs,“ Kostiw says. „Not all lenders will lend to HDFC co-operatives. A key question that listing agents should ask themselves is, „Who are the approved lenders for the building?“ The above has been prepared for general information of clients and friends of the firm. It is not intended to provide legal advice in relation to any particular matter and should not be dealt with without professional advice. If you have any questions or need more information about these or other related matters, please contact your regular Nixon Peabody LLP representative. .