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Opportune Developments: The Marriage of Rezoning and Opportunity Zones in Inwood

by Lev Kimyagarov

Upper Manhattan’s northern most point now finds itself on the verge of big changes. Inwood has been rezoned, now joining the ranks of East Harlem, Jerome Avenue in the Bronx, East New York, and the Downtown Far Rockaway Special District in Queens. The rezoning has headlined publications during its lifespan in the Uniform Land Review Process (ULURP) and even before when community discussions first began in 2015. This rezoning is special and has the potential to be the most influential of the De Blasio administration, because of § 13823 of the Tax Cuts and Jobs Act of 2017. Almost the entirety of Inwood, save for the land owned by Columbia University and a pocket of condos and co-ops west of Broadway, lies in the newly christened Opportunity Zones. These Opportunity Zones offer powerful incentives to investors, and combined with the rezoning of the neighborhood, has put Inwood on the radar of everyone in New York and beyond.

The development of Inwood has stagnated over the past few decades. The housing stock has remained relatively unchanged and development sites for sale are few and far between. To stymie this worrying trend in such a dense area, there are various municipal programs and incentives that were put in place to encourage more development. The FRESH Program and Transit Zone designation serve other areas of the city well, however in Inwood they do not seem to have taken hold. With the new rezoning comes the chance to change that troublesome reality.

The rezoning allows for the construction of taller buildings with relaxed height and parking restrictions, if the developer includes inclusionary housing in their project. Much of the area will be forced to have an affordable component. The newly created residential zones, as well as the significantly up-zoned existing residential zones all fall in the Mandatory Inclusionary Housing (MIH) Zone. The city itself intends to build over 900 units of affordable housing, and early projections point to a total of 2,600 affordable housing stock will enter the area due to the combined efforts of the public and private sector.

Opportunity Zones are all the rage as the real estate world holds its breath awaiting the final details and guidance from the Treasury Department and the IRS concerning this novel tax incentive program. Capital gains are invested in Opportunity Zones, taxes are deferred, the basis is lowered, taxes are then paid in 2026 (same nominal value as in 2018), and after 2028 the Opportunity Zone holding can be sold with no capital gains tax due. Currently, there are very few restrictions on the properties that can be invested in. There is an estimated $2.3 trillion worth of unrealized capital gains in the United States. Even if only 15% of this is invested in Opportunity Zones across the country, that will exceed FY2017 corporate income tax revenue and almost match the Medicaid spend of that same year.

Inwood is at the crossroads of federal, state, and municipal programs to incentivize investment in the neighborhood. The synergies that can be achieved here are unmatched by any other neighborhood in New York City. The natural housing market demand in Manhattan is unlike any other market in the world, East Harlem has seen this phenomenon, but the gentrification of the neighborhood has surprisingly disqualified much of the neighborhood from Opportunity Zone designation. The FRESH Program that offers zoning and discretionary tax incentives for qualifying grocery stores allows for bigger developments at a lower basis while the proximity to public transit reduces the parking requirement that stifles large scale development in other areas. The Inwood Rezoning unlocks the full potential of these programs and incentives, at long last granting them a foundation in economical reality.

Inwood is about to light up, it is no longer a question of if, but when. Waterfront high rises next to riverside greenspace reminiscent of Long Island City are only a few years away. The city is allowing for the reclamation of underutilized warehouses, garages, and parking lots to ease the housing crisis, while the MIH Zone element ensures that the affordable housing stock is not only preserved but expanded upon. Inwood has the potential to become the neighborhood to watch for the next decade, poised to take a more central position on the vibrant, ever changing canvas that is New York.