We were excited to be working with cooperative and condominium multifamily buildings that typically had a few rent regulated units held by a holder of unsold shares. They were able to file a rent increase application for large major capital improvements that they performed and get a tax abatement based on the approved application. Often tenants were able to use SCRIE to keep their current rents as people who haven’t moved for 30+ years are usually over 50 years old.
While the new State legislation (HSTPA 2019) doesn’t specifically address the City abatement, it does make all buildings with 35% or fewer rent regulated units ineligible for rent increase. Very few coops or condos will fall into the narrow window of “enough apartments purchased to be declared effective” and “over 35% still in rent regulation.” This is particularly because so many buildings became effective cooperatives more than 30 years ago, in the 1980’s.
We are saddened that State legislators have effectively blocked cooperative and condominium home-owners from this tax abatement.
The work we have seen performed was often a triple benefit to the economy of New York:
- construction jobs, especially skilled labor jobs, pay salaries for local people
- work has to be done legally with all necessary permits and safety standards to maintain eligibility for benefits and even encourages building ownership to clear old violations and unsafe situations
- housing stock is improved for the current residents and the value of the stock increases
The program encouraged people to do the big job that completely fixed long term problems instead of patch jobs that may not hold up in the long term.
Ed Tristram is president of Ed Tristram Associates, a real estate consulting firm specializing in paperwork related to capital improvements. In the last 35 years, the firm has done thousands of filings related to capital improvements, all for clients who own or manage apartment buildings.
As you may already know, the State Legislature extended the amortization period for major capital improvement (MCI) rent increases when the Rent Act of 2015 was passed. As a result of the Act, the amortization period for buildings with 35 or fewer apartments was increased to 96 months and the amortization period for buildings with 36 or more apartments was increased to 108 months. The purpose of these changes was to reduce the amount of the monthly rent increase for tenants resulting from the MCI.
In order to offset the impact of these changes to the law, a tax credit for MCI applications was created for rental property owners through the City Department of Finance (DOF). Properties that qualify for the abatement will receive the tax credit for one tax year only. Rent Stabilization Association members who have been approved for the MCI tax credit over the last year have already started receiving them. Ed Tristram Associates strongly encourages owners to take advantage of the MCI tax credit.
Here are important FAQs that you should know when applying for an MCI tax credit:
When will the MCI abatement be applied?
The MCI abatement will be applied in the tax year beginning after the approval of the application. Any applications that were submitted after May 15, 2017 will be considered for Fiscal Year (FY) 2019, commencing on July 1, 2018.
Can the MCI abatement be carried over to another tax year?
The MCI abatement cannot be carried over to another tax year.
Is the abatement renewable?
The tax abatement for a specific MCI increase is not renewable in subsequent years.
Will the abatement affect other City and State tax benefits?
The MCI abatement does not reduce or offset any other tax benefit provided, calculated or approved by the City or State. For additional information, give us a call at 212-979-8720, or email us. We will be more than happy to discuss the particulars of your project with you.
How Both The Co-Op As Well As The Holder Of Unsold Shares Benefit From Filing For The Major Capital Improvement
At 3410 De Reimer Ave, Bronx, NY (left), Westchester Property Management Group, with manager Alex Solovyev, contracted for a building-wide window replacement job. The building includes 49 rent stabilized, sponsor owned apartments. Windows were installed by Tindel Windows, architectural & engineering services were provided by Ivan Brice Architecture. Work was completed circa 2/2014; Ed Tristram Associates was hired on 08/27/2015 to secure the MCI. The MCI was submitted for work totaling $1,289,575.00, which equals a $14.28 per room rent increase. The MCI Tax Abatement for Mark Terrace Owners Corp was approved on 10/18/2016 for $143,286.11.
The Financial Background
THE RENT INCREASE. A rent increase in an unsold shareholding is more valuable to its owner than even a rent increase in a rent stabilized building because the value of the holding is affected so strongly by its cash flow — the “carry.” These increases are a permanent part of the base regulated rent. Also, all units in the building tend to be worth more if the unsold shareholding has positive carry because it makes the entire building more financially stable.
THE MCI ABATEMENT. This is a credit on the property taxes, equal to 1/9 of the cost of the work. It is received all in one year, and unlike the J-51 program does not contain special requirements and rules that can become a catch-22.
To find out more about how ETA can improve your return on investment, give a call or email us today.
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When the NYS legislature renewed rent regulations effective July 2015, there were some significant changes that affect co-ops and condos.
If a co-op/condo has an unsold shareholding with one or more rent controlled and/or rent-stabilized apartments and the holder of unsold shares obtains an MCI rent increase order, now there is a significant financial benefit for the building as well — a large credit on property taxes.
Example: Cooperative has 55 units, gets a $400,000 exterior restoration job. The Holder of Unsold Shares has 6 rent stabilized apartments, and applies for and gets a rent increase. (That’s a minor benefit for the building since improved cash flow on an unsold shareholding increases the value of all apartments.) Now the building can also get a one-time tax abatement of $151,888.89 — 22% of the cost of the work.
This is not a J-51 abatement (which sometimes come with many strings attached) but a new “MCI Abatement” arranged by NYC Dept of Finance and the NYC Housing Division (DHCR). It goes to the building — not the Holder of Unsold Shares — since the improvement was paid for by the building through special assessments, mortgage proceeds, etc.
In the last 25 years, Ed Tristram Associates has arranged over 1,000 MCI rent increases , as a consultant to owners and managers of rental buildings and unsold share holdings. Call us at 212-979-8720 with questions about what’s eligible, time requirements, how the math works, etc.
The adoption of the HSTPA of 2019 has altered the laws regarding preferential rents. At this time, any rent regulated tenant who has a preferential rent keeps the preferential rent as their base legal rent for the entire time of their tenancy. When they move out permanently, the rent may possibly be increased if “the legal regulated
rent upon which these increases are based must be written in the vacancy or renewal lease in which the preferential rent was first charged and in all subsequent renewal leases.” Registering the rent is not enough, it must also be written down in the lease. This may have a catastrophic impact on the value of a multi-family building and we suggest that all owners examine the tax assessments for their buildings. All residential buildings are valued by their rental income or the estimated value of rental income for similar apartments. Some neighborhoods may have lower comparable rents so co-ops and condos should consider challenging their assessment.
Additional information can be found in DHCR Fact Sheet #40 which is available on DHCR’s website Fact Sheet 40