Tax Update: Capitalizing on tax-class 2A and 2B properties
- July 1, 2024: Vol. 11, Number 7

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Tax Update: Capitalizing on tax-class 2A and 2B properties

by Matan Kurman

Multifamily residential deals have always been complex in New York City, but with elevated interest rates, ongoing regional bank turbulence and the loss of the 421a incentive program, it is nearly impossible to make residential projects pencil out. Despite these stiff headwinds, developers have found a way to create much-needed new housing in the city, notably by embracing projects that fall in the class 2A and 2B tax categories.

Unlike 421a deals, which required a significant affordable housing component, tax class 2A and 2B properties are fully market rate — meaning there is no cap to future rent growth under current rules. There is, however, a cap to the growth of taxes on the properties, enabling developers to invest in these assets, enhancing existing units, or adding additional units up to a total of 10 per building. Class 2A and 2B redevelopments are one of the few types of residential projects whose economics make sense.

New York City’s property tax system

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