The era of 99-unit buildings has arrived

Joseph Safdie bought a Gowanus development site a little over a year ago, betting on a replacement for the expired 421a tax abatement.

The bet seemed to pay off in April when the state passed a revamped version called 485x. But it had deeper affordability requirements than 421a, and a higher wage scale for workers depending on location and project size.

Safdie grabbed his pencil and started calculating construction costs for his property on the corner of Fourth Avenue and 14th Street.

“Normally, the density for such a site would be 140 apartments or so,” said Safdie, chief executive of JSAF Capital Holdings. “It doesn’t pencil out, given that if you add an extra 20 to 30 units your cost of construction goes up dramatically.”

Safdie scaled back the number of apartments to 99 to avoid the $40 wage floor that kicks in at 100 units. He isn’t the only one who has drawn that conclusion.

Seventeen new building permits for projects with exactly 99 units have been filed since January, when 485x went into effect. Those include several projects where developers subdivided large properties into multiple 99-unit projects. By some estimates, construction costs for buildings with more than 100 units are up 15 to 25 percent under the new program.

That’s motivating many developers to weigh the cost of subdividing large lots.

“Every large site that I have where rental housing is the highest and best use, developers are spending more time trying to figure out how to subdivide the site to create pads on which they could build 99-unit buildings than thinking about anything else,” said BKREA’s Bob Knakal, adding that the cost of multiple building cores, heating plants, roofs and other infrastructure, still pencils out to less.

Knakal is marketing a large development site in East Harlem owned by the Durst Organization, where buyers are exploring that strategy. Nearby, Cheskel Schwimmer’s Chess Builders filed plans for two adjacent 99-unit buildings on the Upper East Side.

In Brooklyn, developer Yitzchok Katz of Goose Property Management has filed three new building plans for 99-unit buildings at a Boerum Hill development site he bought in April. And the Jay Group filed plans for 450 units in Downtown Brooklyn, spread among five buildings, in an apparent nod to the 485x wage requirement.

“It has had the opposite effect of trying to get better wages for construction workers — in some cases $40 minimum wage an hour, in some cases $72 minimum wage per hour,” Knakal said, referencing the higher wage floor for projects with more than 150 units in some parts of the city. “Make it $472 an hour. What’s the difference? No one’s getting those jobs anyway.”

Laborers unions that lobbied for the wage floor argue that large affordable housing developments have been built in the South Bronx, East Harlem and Brownsville in recent years with a $40 per hour wage standard after the construction unions reached deals with individual developers.

“These projects clearly show that construction laborers can be paid a $40 per hour wage while increasing the supply of affordable housing in our city,” said Mike Prohaska of Laborers’ Local 79.

Gary LaBarbera, president of the Building & Construction Trades Council of Greater New York, said, “It is clear that these developers [building 99 units] are trying to unashamedly circumvent the law to avoid paying hard-working New Yorkers the fair and family-sustaining wages they deserve.”

But developers also need construction loans, and lenders might deem projects with more than 99 units too risky.

“If we were concerned about it, then I’m sure the bank would be concerned about it,” Safdie said. “We’re only going to do a project that makes sense on our level, and we know what the banks will lend.”

A few developers will still opt for rentals with more than 100 units — if they bought their land cheap, have held it for a while and prefer the steady income of rentals over condo development, said Mark Willis of the NYU Furman Center. But the 485x program makes most of those larger projects apparently unworkable.

“Developers are dividing lots up, and it’s all about the higher labor costs for bigger buildings,” Willis said. “The resulting proliferation of separate structures with more lobbies and elevator banks and, in some cases, less units makes you wonder if 485x has ended up impairing the goal of expanding the supply of housing — and of affordable housing, in particular.”