Nearly two months behind schedule, New York finally has a state budget.
State lawmakers approved the $268.5 billion spending plan late Wednesday, with Gov. Kathy Hochul signing much of it into law Thursday afternoon.
Buried within the budget’s thousands of pages are several measures poised to reshape the real estate landscape, from environmental review reform to a controversial pied-à-terre tax to the much-anticipated revival of a tax break for certain residential properties investing in upgrades.
Here’s a look at the policies with the biggest implications for the industry and property owners.
Environmental review reform
The state budget delivered the first major overhaul of New York’s environmental review process since 1975. The reforms entirely exempt certain housing projects from the State Environmental Quality Review Act, or SEQRA — a change long sought by developers and housing advocates who say the law slows development through lengthy reviews.
Under the reforms, New York City projects with up to 500 units in medium- and high-density districts or 250 units in low-density areas can bypass SEQRA. Developers still must comply with other regulations and local laws designed to protect the environment. Projects located on manufacturing-zoned sites or within flood zones would remain subject to the state review.
“That covers the universe of projects where you actually tend to see impacts,” said David Rosenberg, a transaction attorney with Rosenberg & Estis.
One of the biggest frustrations with SEQRA, said Rosenberg, is that housing projects falling under the new unit thresholds rarely generate significant environmental impacts. The process also exposes builders to lawsuits from opponents, who may latch on to minor issues uncovered during the review. Even when legal challenges fail, they can still add months or years to project timelines and bust budgets.
“So all SEQRA does is add time and cost, and then provide grounds for people to just grab at something and use it for litigation for a project they don’t like,” said Rosenberg.
Environmental review is the most time-consuming and costly step in the city’s pre-certification process, where the Department of City Planning advances land-use changes for public review.
For a 500-unit residential project, the typical two-year pre-certification period adds an estimated $41 million in costs — about $82,000 per apartment — expenses that are often passed on to future tenants or offset through city subsidies, according to analysis from the Citizens Budget Commission, a nonpartisan fiscal watchdog.
The Mamdani administration said it intends to leverage the SEQRA changes to eventually streamline the pre-certification process at DCP from two years down to six months. Those efforts will include the creation of a new, dedicated review team focused on advancing the newly exempt projects into public review, according to City Hall.
Outside of New York City, the SEQRA changes also exempt projects with up to 300 units in other urban areas, 100-unit developments in more rural communities and projects with 20 or fewer units in areas without zoning codes. Those projects can only qualify if located on “previously disturbed” land that is connected to existing water and sewer systems, meaning projects would not be exempt from the state review if they seek to pave over wilderness.
Moses Gates, vice president for housing and neighborhood planning at the Regional Plan Association, a policy research and advocacy organization, said the changes will stack with recent city zoning amendments and other initiatives to speed up affordable housing for a more efficient and predictable development pipeline.
“If you’ve got sand in one of the gears, it affects the whole machine,” said Gates. “SEQRA reform is about fixing one of those gears so the machine runs better.”
Pied-à-terre tax
The budget approved a tax on luxury second homes in New York City after months of prodding for it by Mayor Zohran Mamdani, who is banking on an estimated $500 million of annual revenue to help close the city’s multi-billion dollar budget gap.
The phased-in pied-à-terre tax targets an estimated 10,000 second homes valued at $5 million and is set to take effect July 1, in some cases tacking on hundreds of thousands of dollars annually to tax bills. It excludes properties that are being rented out on a full-time basis to tenants, or to family members, among some other carve-outs.
Tax experts and real estate attorneys say the levy could prove complicated to administer and create some serious bureaucratic headaches.
The tax will kick off with a lower value threshold for co-ops and condos to account for the fact that the city’s Department of Finance values these properties as if they were rental buildings, meaning their assessed value is far lower than the price they’d go for on the market.
To that end, for the first two years of the tax, condos and co-ops valued between $1 million and $3 million will face a 4 percent annual surcharge. Those valued between $3 million and $5 million will be hit with a 5.25 percent levy. And properties worth $5 million or more will face a 6.5 percent fee.
It’s especially tricky to administer the tax for co-ops because those buildings receive a single tax bill that is split up and worked into maintenance fees paid by shareholders.
State lawmakers settled on an approach that would assess co-ops that are non-primary residences using a calculation that takes into account the value of the entire building and a ratio of the co-op unit’s shares. The value of a specific unit will be determined by dividing the shares of that individual co-op unit by the total shares in the corporation that controls the building and multiplying that by the building’s market value.
Two years from now, the DOF aims to have a new process for assessing co-ops and condos based on their actual sales value. Once that process is established, as of 2028, condos and co-ops would face the same rates that currently apply to one- to three-family homes: A 0.8 percent fee for properties valued between $5 million and $15 million, 1.05 percent for those between $15 million and $25 million, and 1.3 percent for properties worth more than $25 million.
Ana Champeny, the Citizens Budget Commission’s vice president of research and a former DOF property tax analyst, said the novel approach aims to solve the core issues that have stalled previous pied-à-terre tax proposals in the State Legislature. She finds it problematic, however, because it requires city officials to effectively maintain two separate valuation systems — one for standard property taxes and another for pieds-à-terre.
“I think that will open the door to a whole lot of challenges,” said Champeny. The split framework, she added, could lead to a swell of property owners contesting the assessment and potential legal fights over how the tax is calculated.
As structured it appears managing agents of co-ops — firms hired to be the operational backbone of a building — would collect information on whether a tenant is a part-time or apermanent resident, said Stuart Saft, a real estate attorney and partner at Holland & Knight.
That would add to managing agents’ already hefty workloads and even open them up to lawsuits, said Saft. Only a few years ago tax officials relied on managing agents to collect and certify residency information to determine if shareholders would qualify for a primary resident tax abatement, but the city partially backed away from that model after agents faced a wave of litigation.
The tax also requires the corporations that control co-op buildings to collect the surcharge from the specific stockholders whose apartments are subject to the levy, which could get messy if tenants are unwilling to pay up. Saft described the structure as “putting co-op boards in a tug-of-war between the Department of Finance and shareholders.”
It’s also worth noting that analysis from the city’s Comptroller Mark Levine found the revenue generated by the tax could be anywhere between $340 million and $510 million, depending on whether owners decide to sell, rent out units or move in full-time to avoid the levy.
The tax is set to expire on June 30, 2031.
J-51 tax break
State lawmakers revived a property tax break that allows certain multifamily landlords, co-ops and condos to offset part of the cost of building-wide upgrades. The J-51 reboot increases the abatement’s value and expands eligibility for co-ops and condos, but it does not bump the threshold to allow more rent-regulated building owners to participate.
As written, the new version is largely in line with Gov. Kathy Hochul’s original budget proposal. It renews J-51 for 10 years, instead of the program’s typical four-year cycle, and increases the benefit cap to cover up to 100 percent of what the city deems a “reasonable” project costs, up from a 70 percent ceiling. The annual abatement remains capped at 8.33 percent of renovation costs over the life of the benefit, which can stretch up to 20 years.
Not much changed for multi-family building owners. The revised program keeps intact the previous requirement that rental buildings be at least 50 percent affordable, receive substantial government assistance or be part of the state’s Mitchell Lama program. A bill proposed by State Sen. Brian Kavanagh and Assembly member Ed Braunstein sought to boost eligibility to buildings where at least 90 percent of the units are rent-regulated, but the provision didn’t make the final cut.
Real estate attorneys representing multifamily landlords say the unchanged affordability threshold deals a blow to aging buildings facing costly capital repairs.
“It’s not going to be helpful for the buildings that need it the most,” said Alvin Schein, a tax attorney and partner at Adler & Stachenfeld. “We’re dealing with a lot of distressed buildings right now, and in many cases their owners are really hanging on by a thread.”
J-51 had fallen out of favor because of its declining value and its regulation of rents landlords can charge in buildings that receive the benefit. Martin Heistein, a partner at Belkin Burden Goldman who works with rent-stabilized building owners and developers, agreed that the program leaves certain multi-family properties in the lurch.
Still, Heistein said the revisions mark meaningful improvement. The updated program raises the cap on eligible renovation costs and requires city housing officials to revisit the schedule of “reasonable costs” every two years to keep pace with inflation.
“This doesn’t go far enough, but it certainly moves the needle,” said Heistein.
The true winners of the J-51 reboot are co-op and condo buildings.
In the prior program, co-op and condos qualified if they had an average assessed value of $45,000. The budget agreement raises the threshold to $60,000, in line with Hochul’s proposal, though short of Kavanagh and Braunstein’s push for a $75,000 cap indexed to inflation.
Instead, lawmakers struck a sort of compromise: the new $60,000 threshold will increase annually based on changes to the consumer price index.
Heistein said many Manhattan co-op and condo buildings will still exceed the value cap, but that it will allow more buildings to qualify in the other boroughs where assessed property values tend to be lower. J-51 will be a particular boon for those properties working to comply with Local Law 97, which requires building invest in climate-friendly retrofits to meet increasingly strict greenhouse gas emission limits.
The City Council must still sign off on the revamped tax break. In the past, the Council has moved slowly on renewing J-51, taking more than a year to enact the program’s last iteration after state lawmakers approved it in 2023. The new 10-year extension appears designed, in part, to account for the drawn-out approval process.
City Council spokesperson Rendy Desamours said in prior legislative sessions the chamber went through “an iterative process” before approving the J-51 program, implying that city lawmakers may seek tweaks to the program before implementing it.
“We look forward to reviewing the latest changes to the program in a thorough but efficient manner in the upcoming months,” said Desamours.
Read more
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For co-ops, pied-à-terre tax leaves more questions than answers
What’s wrong with J-51? Plenty, landlord reps say
