For decades, the comic strip “Goofus and Gallant” has taught generations of children lessons on how to act, and how not to.

Goofus might let a door slam in someone’s face, while Gallant holds it open until the person walks through. Goofus races for the first available subway seat, while Gallant sees the pregnant woman approaching and makes way for her instead. 

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That sort of thing.

For the past few years, New York City commercial real estate has had its own version of Goofus and Gallant, and it goes something like this:

The development incentive 485-x forces developers to downscale affordable housing projects so they can pencil, creating fewer housing units at a time of immense shortage. The incentive 467-m allows developers to turn office buildings into residential buildings of any size that will fit the footprint. 485-x sets construction wage standards that go beyond what is feasible. 467-m has no such requirement, freeing developers to pay what the market (and construction unions) demand.

And, perhaps most importantly: 485-x is utterly failing in its mission to help make a dent in the city’s affordable housing crisis, while 467-m is producing as much new housing as conversion-available space will allow, with more on the way.

New York State Real Property Tax Law 485-x, adopted on April 20, 2024, to replace the sunsetting — and much more popular among CRE types — 421a, states that construction on eligible sites of at least 100 units in Manhattan below 96th Street and throughout large swaths of Brooklyn and Queens must offer a minimum wage for construction work of $40 per hour. For residential projects of at least 150 units in most of those areas, the wage requirement can rise to $72.45 per hour.

There are many other details and provisions in the law, but it’s the construction wage requirements that have turned 485-x into an albatross around the neck of New York’s multifamily developers, preventing them from building the sort of massive housing developments needed to provide all the new housing New York City requires. 

“What I understand from knowledgeable people who’ve done the math is that the lowest construction wage requirement for 100 or more units would add perhaps 5 to 10 percent to construction wages, and the highest 150 or more unit threshold, depending on location, could add 15 to 20 percent to the cost of construction,” said Dan Bernstein, a member and leader of the tax incentives and affordable housing department at the law firm Rosenberg & Estis. 

“Developers are trying very hard to not be subject to the highest construction rate requirement,” Bernstein said. “Everything’s more expensive these days, and everything’s been affected by inflation. Paying an extra 10 or 20 percent for construction wages and getting nothing for it causes developers to consider economies of scale — whether building one larger building or two separate adjacent buildings of 99 units makes more sense.”

As an illustration of just how restrictive the law has been, New York developer TF Cornerstone is the only area developer that is working on any ground-up residential developments in the applicable locations of more than 150 units. 

The company is currently developing three of them, all expected to deliver in 2028 or 2029: 2 Oak Street in Greenpoint, Brooklyn (268 units); 10 Noble Street, also in Greenpoint (792 units); and 273 West 22nd Street in Manhattan’s Chelsea (278 units).

But Jeremy Shell, a principal at TF Cornerstone, made it clear that in the face of 485-x, the creation of such large residential developments will be a limited strategy for the company at best.

“These will be less profitable projects for us, and that’s not sustainable over the long term. We can’t do an unlimited number of 485-x projects,” said Shell. “We’re going to be delivering those 485-x projects into a supply-constrained market, which means that the rents should be strong and the top line should be there when we deliver. There’ll be significant velocity to lease up these projects. But, frankly, we can’t continue to do this going forward.”   

Shell explained that the reason the company proceeded with these projects at the full construction wage rates set by 485-x goes back to certain ways TF Cornerstone operates differently from most New York developers.

According to Shell, TF Cornerstone, a family firm that is around 55 years old, is probably the most truly vertically integrated developer in the city. It owns its own in-house general contractor, funds its projects using only its own capital, and plans to retain ownership of all of its projects over the long term.

“We employ a multi-generational hold strategy,” said Shell. “Many [developers] have to achieve an internal rate of return [IRR] over a short period of time. We’re in it for the long ter…