Rent-stabilized owners seeking the Article XI tax break are real estate’s version of Andy Dufresne.
Who could forget the wrongly imprisoned character played by Tim Robbins in “The Shawshank Redemption”? Dufresne’s escape was an act of desperation requiring intricate planning, years of paperwork and a 500-yard crawl through raw sewage. But it was his only way out of an unjust, punishing situation.
Many owners are in the business equivalent of that bind, with the city and state having frozen their rent as expenses inexorably rise.
“It’s brutal,” said one, whose family has a slew of Washington Heights properties with unaffordable mortgages coming due. “We have six months to a year to figure out an exit.”
They could hand the keys back to their lender, Flagstar, or ask the bank to allow a short sale. Their buildings are not sustainable, even though their mortgages were conservative — 65 percent loan-to-value — when issued. Some properties are so broke that they are incurring 18 percent interest on unpaid water bills.
In theory, Article XI could save them: It wipes out a building’s property taxes for 40 years and replaces it with a much lower PILOT, or payment in lieu of taxes.
In reality, they have almost no chance for a Hollywood ending.
The program was created to preserve low rents at properties with expiring affordability agreements. It is almost never awarded to unsubsidized, rent-stabilized buildings rendered insolvent by the Housing Stability and Tenant Protection Act of 2019, the rent freeze and rising taxes, interest rates, insurance premiums and utility costs.
From the perspective of the Department of Housing Preservation and Development, “the property has to deserve subsidy,” said Rosenberg & Estis partner Daniel Bernstein, who helps landlords apply. “They have to decide you’re worthy.”
Before the pandemic, the Washington Heights landlord got Article XI from the city for a building with a project-based federal subsidy that was expiring. “We loved the process,” he said. “That was a home run for us.”
The abatement capped property taxes at 10 percent of gross revenue, rising gradually to 17 percent. Previously, taxes were 26 percent to 28 percent of gross revenue.
The family agreed to make aging-in-place improvements to accommodate elderly tenants and to register the apartments as rent-stabilized with legal rents of twice the current rents. That probably won’t affect rents, which were already low, until 30 years into the 40-year agreement.
But when they applied again in 2022 for other distressed buildings in Washington Heights, they hit a wall.
“Every six months I would hear from my attorney, ‘HPD is requesting additional information,’” the owner said. “A month or two later I would hear, ‘They did not assign any project managers to your application. We’ll try again the next cycle.’”
This went on for three years. “The last time I heard from [the lawyer] was October. She told me that cycle had 96 applications and they approved one or two. At that point, I was like, ‘There’s no point in continuing.’”
Shot in the dark
HPD, for its part, claims it approved 94 Article XI applications from July through December. But conversations with attorneys and owners suggest approvals are rare. According to an email exchange shared with The Real Deal, in November the agency deferred every application until February, citing project capacity.
“In the fall 2025 round, HPD had more than 75 applications and capacity for only one to three projects,” said David Shamshovich, a partner at Belkin Burden Goldman who specializes in Article XI.
The firm had five applications deemed complete by HPD in October. Nine months later, one was selected. That seems like a good batting average.
Approvals are limited because the tax break costs the city money and the few project managers are overwhelmed. HPD got funding to hire more in the city budget that began July 1 and also plans to improve the process.
That cannot come soon enough for an owner who received Article XI at a Woodhaven building. Applying, which can cost six figures in consulting and legal fees, took nearly two years. “It’s just tons and tons of paperwork,” the owner said.
HPD’s term sheet is 13 pages, single-spaced. The requirements go on and on, including a violation clearance plan and a physical needs assessment. The building must be transferred to an HDFC, run by a nonprofit that gets fees, although the landlord retains beneficial ownership.
At least 15 percent of tenants must come from homeless shelters but often it’s more; the final terms are negotiated at the end of the approval process.
“This isn’t a conventional tax exemption you apply for and receive,” Shamshovich warned. “It’s a 40-year regulatory relationship.”
The bureaucracy frustrates landlords, who must rely on the city and caseworkers to fill vacant units. What would otherwise be a 30-day process takes several months or longer.
“It’s been really, really difficult, unnecessarily difficult, renting apartments with this program,” the Woodhaven landlord said. “It’s going to be months of lost rent and you don’t know if you’re going to be able to rent it in the end.”
One potential tenant recently gave up after waiting a few months. Another is hanging on.
“I approved someone in February,” said the owner. “It’s now August. I am hoping to get the tenant in by September.”
One person who deals with Article XI project managers said, “It’s a typical, slow process with limited accountability on the other end. I never really know if they receive what I sent them. We’re supposed to send financial reports; I was given an email address that doesn’t work. I call, I leave a message, I don’t get a response.”
She decided to send them via certified mail.
The Washington Heights owner, for his part, hasn’t given up on Article XI. Hearing that the Mamdani administration is trying to improve the program, he plans to try again. As Robbins said to Shawshank co-star Morgan Freeman, “Remember Red, hope is a good thing, maybe the best of things, and no good thing ever dies.”
But this is New York, not Hollywood, and the owner is realistic.
“The Article XIs are as close as we will ever get to some sort of subsidy,” he said. “It’s such a far-fetched dream. It’s not going to save us.”
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