Trammell Crow’s recent acquisition of a 99-year ground lease for the vacant site at 126 Lafayette Street ignites anticipation regarding the future of multifamily development in New York City.
The firm purchased the lease from a joint venture between Carolwood and Stellar Management for $14.7 million.
This pivotal decision could signal a shift in the city’s approach to rental projects, which have seen many developers limiting unit counts to below 100 since the introduction of the 485x tax break in 2024.
The 485x program imposes a high wage floor for projects consisting of 100 units or more, compelling developers to reconsider their strategies.
Recent zoning changes from the Soho/Noho rezoning in late 2021, coupled with development rights obtained from a nearby property, position the 126 Lafayette Street site as capable of supporting approximately 115 rental units.
This translates to a total building size of around 100,000 square feet given its zoning floor area of 87,000 square feet.
Trammell Crow now faces a critical decision: construct the maximum number of units permissible, thereby activating the 485x wage scale of $40 per hour for projects containing between 100 to 150 units, or opt for 99 units and save on labor costs while sacrificing potential revenue from additional units.
There exists a third possibility as well: refrain from any construction and await legislative modifications to the 485x wage scale.
While New York lawmakers exhibit a strong affinity for labor unions, they also acknowledge the necessity of increasing housing availability to tackle the affordability crisis plaguing the city.
Critics of the housing abundance strategy, as highlighted by Ezra Klein’s book, question the need for more luxury units in neighborhoods like Soho.
However, in areas that have undergone rezoning, Mandatory Inclusionary Housing (MIH) requirements come into play, alongside affordability stipulations tied to the 485x tax break.
Thus, constructing larger projects could lead to more affordable rental options.
For instance, should Trammell Crow decide to build 115 units, around 29 of those would be designated as affordable housing.
Conversely, a 99-unit project would yield approximately 25 affordable units.
If the firm were to postpone construction in hopes of a favorable legislative change, it could result in a barren site devoid of any rental units.
Predictions suggest that altering 485x may take considerable time, if at all, primarily due to the influential stance of labor representatives like Gary LaBarbera from the Building and Construction Trades Council.
LaBarbera expressed strong convictions in an April interview with TRD, claiming that developers frequently prioritize their profits over the welfare of workers and effective policy making.
He argued that the preference for the open-shop model allows developers to build wealth at the expense of low-wage workers.
Real estate factions backing Andrew Cuomo’s candidacy for mayor speculate that if he wins, he will facilitate negotiations with LaBarbera and initiate changes in Albany regarding the 485x law.
Cuomo had previously altered the 421a tax incentive in 2017, suggesting potential for similar negotiations surrounding 485x.
However, for Trammell Crow, delaying the project might be risky given Albany’s unpredictable legislative environment.
Last-minute decisions during legislative sessions often lead to uncertainty regarding which bills will ultimately pass, making it challenging to forecast the future.
That said, if 485x does get revised, the potential financial gains over the duration of the ground lease could be significant.
Trammell Crow, with a portfolio boasting $31 billion in ongoing or planned property developments, has the resources to afford holding off on 126 Lafayette.
While LaBarbera argues that developers are deliberately evading wage mandates, several neighborhoods are contending with rent levels insufficient to support the high labor costs associated with sizable projects.
Notably, the average rent in Soho hovers around $6,205, despite unit sizes averaging just 611 square feet, indicating that a project with elevated labor expenses might be feasible.
The development at the Trammell Crow site may not be expansive by New York standards, but the decisions made there will likely reverberate across the city’s multifamily housing efforts.
With a focus on projects encompassing between 100 to 150 units being vital to alleviating the housing supply crisis, the developments in prestigious areas like Soho are equally critical, especially given past issues with housing production despite rezoning efforts.
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