Inside Third & Bond: Week 124

The Third & Bond bloggers discuss the two sides of being a developer: Hot-tubbing with hotties and filing forms with HPD.

Because being a real estate developer is mostly about flying around the world in private jets and sipping champagne in hot tubs with attractive strangers with dangerous secrets, you are forgiven for assuming that it’s the glamour and intrigue that attracted us to this way of life. But during quiet evenings in Cabo, when our celebrity friends ask us to name our favorite part of this job, it’s an easy question to answer: applying for real property tax exemptions. Nothing can stir the blood quite like submitting redundant forms in triplicate or begging bureaucrats to respond to our requests for status updates.

Yes, we kid you.

At Third + Bond, we’re eligible for 421-a, a real estate tax exemption program that excludes the increase in property values brought about by new construction from the tax rolls. On June 19, 2009, back around Week 88, we submitted our 421-a application to HPD, expecting to have our application approved within one to two months. Nine months later, we’re still waiting for HPD to conduct its preliminary review of our application. Just think, we could have created a human life in that time.

For as long as anyone can remember, the 421-a unit has had what is merrily referred to by developers-in-hot-tubs as The Backlog. It has been known to take over three years for HPD to approve an application, but the rule of thumb is more like one to two. This is for a review process that takes all of an hour or two to complete. There are simply hundreds of applications waiting for their turn at any given time, and not enough staff to handle them all.

The 421-a unit occupies an uncomfortable niche at HPD…

…As a market-rate program within a department with a mandate for affordable housing, it’s a little out of place. HPD would rather devote staff and resources to programs that contribute to the City’s affordable housing goals than to a program that takes market rate housing off the tax rolls. And so, despite dedicated administration, 421-a has never been given the staff it needs to clear out its backlog and stay current with new applications. (We try not to think about the fact that the 421-a application fee for Third + Bond alone would cover three years of salary for an application processor.)

So why did we expect our application to take only a month or two? Because at the time, 421-a was undergoing a transformation. They had just implemented a new system for filing applications online that promised to streamline the process, and they had hired new staff. The City Council had passed a law that restricted the areas where the exemption was allowed, and the recession had put a brake on new construction, so new applications for exemption were declining. For a few brief months, applications were being turned around in less than six weeks. It seemed as though things at 421-a were finally under control.

We could have submitted our application as early as 2008. But we decided to wait to file until we were sure we wouldn’t make any changes to our unit configurations or room counts. If we made those changes after we filed for 421-a, we would have to file an amendment, which would have complicated the process.

But by the time we did file, the streak of efficiency had ended. The hiring freeze and staff reductions at HPD had hit 421-a especially hard. Most of the staff assigned to the new online filing system had been hired as contractors while they waited for the City to approve their employment in the midst of the freeze. Many of them moved on when the process dragged on for more than six months; we know because one of our coworkers was among them before he joined us. Then online applications began piling up again, faster than staff could process them. The Backlog was back, and our application was caught in its web.

Fiscal year 2010 begins on July 1, and on that date our real estate taxes will skyrocket tenfold unless the exemption is in place. It won’t be the end of the world if that happens. The exemption is guaranteed to be approved sooner or later, and when it is, the Department of Finance will have to refund any overpayments we’ve made. In fact, this would give us an opportunity to perform our second favorite part of this job: badgering the City treasurer to process tax refunds. Oh joy!

Inside Third & Bond: Weeks 1-123 [Brownstoner]

Our legal fine print: The complete offering terms are in an Offering Plan available from Sponsor. File No. CD080490. Sponsor: Hudson Third LLC, 826 Broadway, New York, NY 10003.