Controversy has swirled around the 421-a tax abatement program lately, with critics claiming that it gives massive tax breaks to developers and wealthy condo owners while providing relatively little in the way of affordable housing. This criticism has led to increased scrutiny from the government, which has now claimed a casualty: the building at 49 East 34th Street, which was illegally operating as a hotel while still receiving 421-a subsidies for which it was ineligible, will be closed on March 11 and the parent company of its owner, CIM Group, will be forced the pay the $4.4 million in tax breaks it received back to the city. The company will also pay the city $275,000 to cover the cost of the investigation, and will be forced to convert the building to rent-regulated apartments.
The history of the building, though short, is rather complicated. It was developed in 2007 by Esplanade Capital as a condo project, making it eligible for the 421-a program. However, Esplanade's plan to sell the building to an Irish company fell through, causing Esplanade to default on its construction loan. It was at that point that operations were turned over to Bridgestreet Corporate Housing, which began using the building for "extended-stay housing." After Esplanade lost the property to the lender on the construction loan, iStar, it was sold to CIM Group, which kept Bridgestreet on and began renting the units short-term.
"We cannot and will not allow the 421-a program to act as a giveaway to line the pockets of the rich and powerful," state attorney general Eric T. Schneiderman said. "The 421-a program provides massive tax benefits to developers. We will continue to make sure that the prerequisites for receiving those benefits are enforced."
· State Closes an Illegal Hotel in Manhattan That Was Hiding in Plain Sight [NYT]
· 421a coverage [Curbed]
· CIM Group coverage [Curbed]