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NEW YORK CITY-  Active negotiations for storagedevelopments have come to a screeching halt, and existing contractsare in threat of default due to an updated amendment in the NewYork State 2021 budget bill moving up the deadline for qualifiableself-storage facilities to earn tax abatements, DJ Johnston,partner and senior managing director at B6 Real Estate Advisors,tells GlobeSt.com.

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In the state's fiscal year 2020-2021 budget bill, also known asS7506B, storage developers now have up until July 1, 2020, insteadof June 2022 to get approved for a New York Department of Buildingspermit to enter into the city's Industrial & CommercialAbatement Program. ICAP grants tax exemptions for ground-up,renovated or redeveloped industrial commercial properties. " [It's]only two months from now, and two years ahead of when it wassupposed to sunset," Johnston said. "That makes it impossible forany pending storage site to secure the abatement."

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The average time to file a building permit and get DOB approvedplans is usually one year from start to finish. Any new projectsstarted between now and a year ago will be at risk of notqualifying, despite the entire project depending on the ICAPabatement financially, according to Johnston.

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Developers with private capital on hand have long touted storagefacilities as the highest and best-use of land in high densityindustrial zones. Storage facilities can generate the same amountof income on the third floor as on the first floor, which allowsthem to justify construction costs.  "It simply comes downto the cost of building, compared to the net income the space cangarner once complete," Johnston said.

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Without the abatement, Johnston foresees that net income forsome projects will get drastically reduced due to greater taxexposure, making them economically unfeasible to justify respectivedevelopment costs. "It would reduce the value of a finished projectby roughly 35 percent, which leaves no margin for the developerafter land and construction costs," he said.

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In response to the updated budget bill, developers are arguingthat while eliminating abatements will increase the state's taxrevenue in the short term, it will prevent the collection of taxeson non-existent projects, missing out on transfer taxes, incometaxes, mortgage taxes and construction taxes, according toJohnston.

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Another concern about the current budget bill stipulation, isthe message it sends to the broader real estate community about thesusceptibility of other abatements to similar legislation,eliminating the tax exemptions for other asset types such asmultifamily and office properties, Johnston said. "One of the greatbenefits of building in NYC is the "as of right" zoning framework,"he said. "If developers don't trust the policy makers, it willultimately lead to drawn out and risky closing periods, or seriousadjustments to land values."

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Mariah Brown

Mariah Brown is the New York Bureau Chief and Real Estate Reporter for GlobeSt.com, covering the New York Metro area, Northeast region and national real estate trends. She is responsible for producing multi-media content, including articles, podcasts and video. Before joining the GlobeSt team, she served as a New York Times fellow, reported for the Associated Press in New York and Philadelphia and several other New York City-based outlets.