In 2023, the New York City Industrial Development Agency (NYCIDA), in partnership with the New York City Economic Development Corporation (NYCEDC), introduced a new tax incentive program known as the Manhattan Commercial Revitalization Program (M-CORE). M-CORE is aimed at revitalizing Manhattan’s commercial districts south of 59th Street by providing substantial tax benefits to owners of aging office buildings. While the program is discretionary and recipients are selected based upon a variety of factors, the potential benefits are robust. In the current post-pandemic world of hybrid and remote work, those owners selected to receive benefits would possess a decided advantage over their competitors in attracting high-quality tenants.
Although M-CORE is a new and largely untested program, the real estate team at Manatt has extensive experience working with governmental agencies such as NYCIDA and NYCEDC and is well positioned to assist you in navigating the complex process, including negotiating the myriad of legal agreements required by NYCIDA at closing. We would be happy to discuss M-CORE further with owners of office buildings experiencing high-vacancy rates who believe they may meet the minimum requirements outlined below. As will be further discussed, it is critical for such owners to initiate the process as soon as possible, since the total benefits to be awarded under the program are capped and decline with each 2.5 million square feet of projects approved.
Four (4) basic eligibility requirements must be met for consideration under the M-CORE program:
- Location: Manhattan, south of 59th Street (excluding Hudson Yards and Penn Station areas);
- Building Age: constructed prior to 2000;
- Size: at least 100,000 gross square feet (gsf); and
- Capital Investment: a minimum of 75% of the project’s assessed value (land + building) for the most recent tax year.
It should be noted that, when the M-CORE program was originally introduced in 2023, the building size requirement was 250,000 gsf. This figure has since been reduced to 100,000 gsf. Property owners of smaller buildings who initially believed that they would not qualify based upon the size requirement should reconsider submitting applications.
There are three (3) categories of benefits that will be awarded under the program:
- Property Taxes: Property taxes are stabilized under a PILOT program based upon the value of the land and the improvements that exist at the time of closing of the award. Property taxes attributable to new improvements will be abated ranging from 70% to 100% (discussed more fully below) for a period of 20 years, with the abatement being phased out at 20% per year over the final four (4) years;
- Sales Tax: Machinery, equipment and materials used in the renovation of the building will be exempt from the 8.875% combined NYC and NYS sales tax; and
- Mortgage Recording Tax: Owners obtaining mortgage financing for construction of the project improvements will receive a reduction of the mortgage recording tax otherwise applicable from 2.8% to .3%.
The process for applying for and obtaining benefits under the M-CORE program consists of the following three (3) stages:
- Pre-Application Screening: Owners of buildings that meet the basic eligibility criteria outlined above must prepare a narrative project description which does not exceed 15 pages in length and which provides certain information including: (a) an overview of the project; (b) details about the site including building characteristics, status of building vacancy and current tenants and building emission levels in light of NYC Local Law 97 (LL97) energy efficiency standards; (c) the proposed scope of renovations, including plans for LL97 compliance, planned building amenities, construction budget and timeline, financing sources and tenant leasing plans; and (d) the applicant’s organizational structure, experience and project team members.
- Application: Applicants whose pre-application is selected by NYCIDA will be required to submit a formal NYCIDA application accompanied by additional project details, including term sheets from lenders, an environmental assessment, a background questionnaire, financial statements, a detailed construction budget, letters of interest from potential tenants and additional information as requested by NYCIDA.
- Closing: If the application is successful, the Board of Directors of NYCIDA will adopt an Inducement Resolution and an Authorizing Resolution, which will allow the project to proceed to closing. At closing, the applicant shall be required to lease the property to NYCIDA for a term of 20 years and NYCIDA will lease the property back to the applicant for the same term. A guaranty of the lease to NYCIDA will be required from the applicant, its affiliates or its principals. The parties will also enter into an agreement setting forth the terms of the benefits to be provided, which will be subject to recapture if the applicant fails to perform its obligations. Additional materials will be required at closing including a survey, insurance certificates, a title report, organizational documents, certificates from architects and/or contractors and other project-related documents.
While the process is complex, the potential benefits of the M-CORE program are significant. Landlords offering space in older office buildings are unable to compete with the modern amenities and infrastructure demanded by today’s commercial tenants. The M-CORE program provides a critical financial tool to allow such buildings to modernize and compete in the marketplace. The significant property tax savings can be passed through to tenants to lower their effective rents while providing access to a renovated building with world class amenities. Such buildings will become more financeable, and the property owner stands to benefit from substantial savings in transaction and construction costs resulting from sales and mortgage recording tax savings.
NYCIDA will only award benefits to buildings covering an aggregate of 10 million gsf. As NYCIDA selects projects to receive benefits, the available property tax abatement declines at specific gsf thresholds in accordance with the following scale: (1) the first 2.5 million gsf will receive a 100% abatement; (2) the second 2.5 million gsf will receive a 90% abatement; (3) the third 2.5 million gsf will receive an 80% abatement; and (4) the fourth 2.5 million gsf will receive a 70% abatement. Therefore, it is important for owners to apply as soon as possible to ensure that, if selected, they will receive maximum benefits.
NYCIDA and NYCEDC established an initial deadline for pre-applications on August 1, 2023, which yielded the first two (2) M-CORE awards announced in January 2024. The projects combine for roughly 1.2 million gsf, leaving ample room for additional awards at the 100% abatement level. The next submission deadline is April 15, 2024. Subsequent deadlines have not yet been determined but are expected to be announced soon.
There are many nuances to the M-CORE program that are beyond the scope of this article, and potential applicants should be aware that projects should contain particular features in order to maximize the likelihood of selection.
