Zoning & Land Use


Zoning is a legal mechanism that enables a local government to regulate development  of privately owned property. In 1916, New York City adopted the nation’s first comprehensive zoning rules and regulations known as the “Zoning Resolution.” The law was prompted by the construction of the 42‐story Equitable Building in Lower Manhattan (see Figure 1, below) that caused concerns regarding height, form of the buildings, and shadows that affected property owners and the value of their property. The Zoning Resolution became the model for future laws and is still the traditional method of land use regulation. The constitutionality of zoning rules and regulations was confirmed in the 1926 United States Supreme Court landmark case Village of Euclid, Ohio v. Ambler Realty Co.

Figure 1 – Equitable Building, Manhattan

New York City’s Zoning Resolution controls the use, density, and bulk of development within the entire city, with the exception of parkland, which does not have a zoning designation.    New York City is divided  into  three  basic  zoning  districts:  residential  (R), commercial (C), and manufacturing (M). The three basic categories are further subdivided into lower, medium, and higher‐density residential, commercial, and manufacturing districts. Development within each residential, commercial, and manufacturing district is subject to use, bulk, and parking regulations. The Department of City Planning oversees NYC’s Zoning Resolution and according to their website:

Zoning is the language of the physical city. It aims to promote an orderly pattern of development and to separate incompatible land uses, such as industrial uses and homes, to ensure a pleasant environment. The Zoning Resolution is a legal instrument to regulate and establish limits on the use of land and building size, shape, height, and setback.

The NYC Department of City Planning created a web‐based application that provides the public with up‐to‐date zoning and related information for New York City.  The web‐based application is known as “ZoLa” – the Zoning and Land Use Application – and can be accessed through the following link:


Within this application, one can search a property by address, block/lot, intersection, or place of interest. The results provide the site’s block and lot number, zoning district, zoning map, and historical zoning map. Within these results, there are hyperlinks that provide further information. For example, entering an address that results in an “R8” zoning district and  clicking on the “R8” zoning district links to the NYC Department of City Planning’s website providing additional information about the “R8” zoning district including floor area ratio (“FAR”), building height, and required parking. The NYC Department of City Planning also publishes a “Zoning Handbook” that is available for purchase online and at their Manhattan office at 120 Broadway, 31st Floor, New York, NY 10271. The “Zoning Handbook” greatly assists any user in interpreting the Zoning Resolution, which is estimated almost 1,300 pages.

Zoning is enforced by the NYC Department of Buildings, which holds the primary responsibility for interpreting and enforcing NYC’s Zoning Resolution to ensure the safe and lawful use of buildings and construction sites across the five boroughs.  Much development in New York City occurs as‐of‐right. Once the NYC Department of Buildings is satisfied that the proposed structure complies with all relevant provisions of the Zoning Resolution and the Building Code, a building permit is issued and construction can begin; no further action is required.

Land Use

Land use refers to the activity that is occurring on land and within the structures that occupy it. Types of uses include residential, retail, commercial, industrial, vacant land, and  parks. In each case, where appropriate, the number of buildings and their heights, the number of dwelling units, floor area, and square footage should be noted.

Land Use information and maps can be found on the ZoLa website, under “Show Zoning & Related Data on Map.”  For example:

For more detailed information, the NYC Department of City Planning provides a  database called “PLUTO,” which stands for Primary Land Use Tax Lot Output, and provides data on the following land use types: one‐and two‐family residential buildings, multi‐family walk‐up residential   buildings,    multi‐family   elevator   residential   buildings,    mixed   residential   and commercial buildings, commercial and office buildings, industrial and manufacturing, transportation and utility, public facilities and institutions, open space and outdoor recreation, parking facilities, and vacant land. The website also provides “MapPLUTO” that merges PLUTO tax lot data with tax lot features from the Department of Finance’s Digital Tax Map. The  website can be accessed through the following link: http://www1.nyc.gov/site/planning/data-maps/open‐data/dwn‐pluto‐mappluto.page

Public Policy

Public policy has a significant role in how a city develops. Policies are shaped by public stakeholders, interest groups, politicians and local community boards; and they are enforced by government agencies. This section outlines prominent agencies, regulations and incentives that directly affect and oversee real estate development in New York City. A majority of the information provided focuses on residential and multifamily development, as housing is the most regulated sector of real estate. Commercial (office and retail) and industrial development is mostly controlled by zoning and land use law as previously discussed in Sections II A and B.

New York State and New York City Development Agencies 

While New York City has an “as of right” building policy3, there are federal, state and city agencies that oversee new development, preservation and sustainability of the City’s buildings and neighborhoods. Some of these agencies are named and profiled in further detail in this section. Contact information is also provided for each of the agencies, as well as details about how to gather information about the actions and policies of a particular agency that may relate to a prospective development site or project. A full list of New York City agencies that specifically oversee housing and development can be found at the following link of the City of New York’s website:


We have selected a few specific agencies that are particularly active in the financing and regulation of new developments and preservation projects in the five boroughs. These agencies may have encumbrances on properties, and their approval may be required for the sale of a specific property. Furthermore, these agencies may be responsible for interim ownership and transfer of title of blighted and foreclosed properties throughout the City. They are in essence the “owner” of many sites throughout the City, and take on the role of financier and partner of many private and not‐for‐profit developers. Valuable financing and subsidy programs are provided and administered by these agencies, and may be imperative to the success and feasibility of a project. The term “public‐private partnerships” is often thrown around in regards to urban development and revitalization. It is precisely these agencies that comprise the “public” side of such a partnership. They offer financial incentives to private developers and real estate owners to encourage them to invest private capital and resources in community development and rehabilitation projects. It is, therefore, imperative to understand the role that development agencies play and how to navigate them when considering the acquisition or development of specific NYC sites.

US Department of Housing and Urban Development (HUD)

HUD is a federal agency that distributes funding in the form of mortgage financing and rental subsidy to each of the fifty states. The states then allocate these public monies to developers and their individual residential projects. Each state housing agency has their own application process and scoring system to determine how funds are allocated. Funding for HUD programs is determined by the federal budget. The agency has regional offices that oversee a specific geography, or “catchment area”. A list of the regional HUD offices and their respective Directors can be found on the HUD website:


New York State Homes and Community Renewal (HCR) 

This agency is responsible for allocating and managing HUD funding to the state of New York, and project management for the construction and preservation of affordable housing. HCR is further divided into five separate divisions:

  • HCR Division of Housing and Community Renewal (DHCR)
  • HCR Housing Trust Fund Corporation (HFTC)
  • HCR Housing Finance Agency (HFA)
  • HCR State of New York Mortgage Agency (SONYMA)
  • HCR Affordable Housing Corporation (AHC).

HCR and its subdivisions are important to become familiar with should an owner/developer pursue the development or acquisition of multifamily or SFR rental housing in NYC. Property site research may reveal that one of these agencies is a mortgagor of the property. Often times, HFA and SONYMA loans are assumable for future buyers. Alternatively, the mortgage may have an accompanying Regulatory Agreement that encumbers the property, and may require agency approval to sell.

SONYMA has a first‐time homebuyer loan product to promote homeownership that requires minimal down payment and boasts a low interest rate. There are a variety of similar incentive programs and loan products to promote residential acquisitions by New Yorkers. While some of these are reserved for primary residences, others can be used to purchase a single family or townhome rental property. These programs originate and evolve over time. For the most up to date program information, always refer to the HCR homeownership and rental owner links (below).

New York City Housing Development Corporation (HDC) & New York City Housing Preservation and Development (HPD) 

HDC and HPD function in a similar capacity. They are both financing and development corporations that fund and oversee the construction and preservation of multifamily housing in NYC. HDC was created by the New York State Legislature in 1971 as an alternative means of supplying financing for affordable and mixed income housing separate from the City’s capital budget. Flexibility was built into the agency’s mission, and it has amended its tools and resources over time to now include the issuance of bonds and low‐cost loans, and a variety of subsidy programs to develop and preserve housing.

HPD was established in 1978, and operates in a similar capacity as HDC, with additional responsibilities of compliance monitoring, management and regulation of the City’s housing stock. HPD oversees city government programs to reach specific housing targets (ie Mayor Bill De Blasio’s Housing New York Plan: 200,000 affordable housing preserved or constructed units in ten years). HPD is often a partner of developers and community organizations to ensure that these projects are feasible and in compliance with the City’s neighborhood planning initiatives. Some of the unique functions and development resources offered by HPD include: tax abatements, issuance of tax credits and low‐interest loans. The agency participates in oversight of its projects through issuance of fines and penalties to owners for failure to maintain compliant and up‐to‐code housing. In this manner, HPD is a tenant advocate, proactive neighborhood planner, and ultimately ensures quality, not just quantity, of housing for New Yorkers.

Like most community development agencies, HDC and HPD originate projects through a Request for Proposal (RFP) process. RFP links are available for both agencies.

HDC RFP Link: http://www.nychdc.com/Current%20RFP

HPD RFP Link: http://www1.nyc.gov/site/hpd/developers/rfp‐rfq‐rfo.page

City owned land and foreclosed properties with City mortgages fall under the jurisdiction of these two agencies. An agency may issue an RFP for developer proposals for the new development or redevelopment of a blighted property. The requirements and selection criteria are published in the RFP and made available to the public. The overseeing agency establishes a list of qualified developers to acquire these sites, and to develop them per the agency’s specifications. Through a public‐private partnership structure, the agency assists the developer with assembling the capital stack to realize a feasible and profitable project. The next section discusses public policy in the form of legislation and initiatives that incentivize developers to build in‐demand assets; in New York City, this is almost always housing.

New York City Development Incentives 

Development incentives are imperative to successful city planning. These incentives provide financial justification for a developer to construct a property that may not necessarily be best and highest use, or one that may accommodate reduced income units (ie affordable or supportive housing). It allows the City to have an active role in creating and maintaining vibrant and diverse communities. This section will briefly discuss some of the major tax‐related incentive programs, as well as 80/20 developments which allow owners to build beyond as‐of‐ right square footage per zoning and floor to area ratio (FAR). As a potential investor or developer in an 80/20 project, or one that has received special tax treatment, it is important to understand the mechanism in place and how it will affect future property tax rate assumptions. It may also become necessary to be in open communication with the City to maintain or extend tax exempt status for a property after you have acquired it.

Tax‐Exemptions: 421a and J51 

The 421a program offered developers a ten‐year tax abatement if they opted to develop multifamily housing on a vacant site. The program originated through the NY State Legislature in 1971. The impetus for this program, amongst others, was to encourage developers to create more housing options throughout the five boroughs for New Yorkers. During the construction period, developers paid no tax (up to three years), which was followed by a ten‐year tax abatement period which reduced by 20% every two years until expiration ten years out. There are several variations of the 421a program that offer additional benefits to owners that develop partially or entirely affordable housing projects, as well as those that convert commercial spaces to residential. The program expired in 2015 with no alternative or renewal in place. At the time this paper was written (Spring 2017), the new 421a Bill was still being debated by state legislature. Debated additions to the Bill include modifying the applicable zones for the program, as well as a contentious requirement for union wages.8 Per the below diagram, it is clear that the program was an effective tool to encourage new housing development through the eighties, nineties and early 2000s. More information regarding properties that receive special tax treatment per 421a, and about the evolving revision of the Bill can be found on the New York City website:


Similar to 421a, J51 is a New York City tax abatement program for owners and developers of multifamily residential. However, J51 is and as‐of‐right program that is specific to the rehabilitation (not new construction) of aging and blighted rental housing in the five boroughs. HPD is the agency that determines a project’s eligibility for a J51 exemption and administers the program over the term of the exemption. In exchange for the providing this benefit to ownership, HPD requires that the units be rent stabilized throughout the period of the tax exemption.10 As previously discussed in Section I B, property searches will indicate if a property receives this tax benefit. The City also makes this information available to the public via a compiled and updated list of J51 properties found at the below site:


The program includes two benefits: 1) The exemption reduces the taxable assessed value of a property (which is the basis for calculating real estate tax), and 2) The exemption reduces the actual tax that has been charged against a property.11 The duration of a J51 tax exemption is ongoing, so long as the rental units remain rent stabilized and compliant with HPD program requirements. As these programs are evolving over time, it is important to refer to the NYC City website for the most up‐to‐date specifics regarding Tax Incentives:


80/20 Multifamily Housing Developments 

80/20 Developments are not unique to New York City, and exist throughout the nation. This development program has become a widely popular and successful means of incentivizing developers to construct desperately needed affordable housing throughout American’s cities and suburbs. In New York City, a developer is able to build beyond the maximum square footage as defined by zoning and FAR for a lot if the project will be housing that offers 80% market‐rate units, and 20% affordable housing units.12 In addition to the ability to build additional rentable square footage, HFA offers tax‐exempt financing for 80/20 developments to help create a feasible project. HFA will require the owner to enter a Regulatory Agreement that will assure rent regulation and compliance for the affordable component. Furthermore, if 80/20 developments are built in specific districts of NYC, additional tax incentives may be available through the City. These developments may take the form of a public‐private partnership to redevelop City owned land and revitalize a neighborhood (ie Battery Park City).

There are a variety of tax‐exempt financing options available for the development and preservation of affordable housing that warrant a discussion beyond the scope of this report. The key takeaway is that when acquiring or developing residential projects in New York City, it is imperative to understand the financing terms, requirements and restrictions of a project, as well as any compliance related matters (related to tenant income and rental rates) should a project have an affordable component. This information is readily available through property searches and City agency websites. The HCR website offers an exhaustive list of the various financing programs available and details their accompanying tax incentives:


Valuation Indicators

Average Asking Price

Why it’s important

The average asking price for a comparable property type should provide a loose guideline for the feasibility of a proposed project. If you are able to achieve your target revenue with projected prices that are in line with average asking prices, your project has passed an important test and may be viable.


This does not take costs into consideration, so has only limited utility on its own. Ideally, one is able to achieve their target return by combining this figure with a conservative expense budget. There is also the risk of comparing asking prices with properties that have underlying difference. For instance, a condominium may be a near perfect match physically, but one association may be in a much worse financial situation than the other and can expect substantially higher HOA fees. An additional risk worth stating is that there may be a lack of substitutable inventory. This lack of data may lead to unrealistic projections.


The multiple listing service and an experienced broker will generally understand the local market dynamics. If feasible, a boots on the ground approach allow you to identify competing product and interact with tenants in the area. Ideally you are in a position to cherry pick the most desirable aspects for your own projects.

Historical Sale Price Trends

Why it’s important

In order to forecast appreciation rates, it is helpful to understand historical trends. While momentum is not a guarantee of future performance, it can help you identify markets which may be overheated and which markets may be undervalued.


Black swan events are not captured with historic data. Over-reliance on historic trends can lead to undue risk for a project.


While the multiple listing service is a solid resource for residential properties, commercial transactions tend to be more opaque. The county recorder or local property tax office generally keeps a copy of the deed, as well as any mortgage notes on file. This information is often available online direct to the public or through third party data aggregation services.

Cap Rates

Why it’s important

Cap rates can indicate a number important characteristics about a project. A cap rate is calculated dividing the net operating income by the purchase price of the asset. One key use of cap rates is price setting. Knowledge of cap rates on comparable projects can help you to project the value of your project, given a projected net income. In general, a lower the cap rate should indicate a less risky cash flow projection. Projects with inherent challenges, should produce a higher cap rate. These challenges can include high vacancy rates, high crime and lack of investor demand.


Cap rates can be analyzed with and without leverage. Because each loan has unique terms and characteristics, a levered cap rate can distort the underlying nature of the project. However, unlevered cap rates do not reflect the unique impact debt service can have on a particular project. Since cap rate data can often be difficult or impossible to come by, one can alternatively look to the gross rent multiplier (GRM). This figure is derived by dividing the purchase price by the gross rents. This obviously has less value in one’s analysis due to the lack of expense figures. Other issues with cap rates include lack of knowledge of non-property inclusions in the sale and the use of projected vs. historic income.


The authoritative source for cap rates has been the Korpacz Real Estate Investor Survey. Knowledgeable local brokers are usually your best alternative to costly data subscriptions like Korpacz.

Competing Supply

Why it’s important

Knowledge of alternatives or substitutes for your product are key to understanding the local market dynamics of supply and demand. This understanding will aide you in setting pricing, incentive offerings, and whether a market can support the project you have planned.


Real estate is known for being a heterogeneous asset type. You will never find a perfect substitute, as each plot of land is unique in its precise location. In addition, you will find differences in the age of various components, layouts, styles, construction materials and more. One must compensate for this by adjusting for differences when comparing.


The multiple listing service and an experienced broker will generally understand the local market dynamics. If feasible, a boots on the ground approach allow you to identify competing product and interact with tenants in the area. Ideally you are in a position to cherry pick the most desirable aspects for your own projects.

Cost Indicators

Wages, Labor costs & Job Markets

Why it’s important

When conducting due diligence and creating your project proforma, wages, labor costs and the job market can weigh heavily on your expected returns.

On the revenue side of your income statement, changes in these markets can impact your rent inflator, bad debt rates and vacancy rates. To cite one of the more dramatic recent examples, have a look at the building boom in North Dakota, fueled by high oil prices and the requisite demand for labor. With the decline in oil demand, the result is a glut of homes on the market, shuttering businesses and over-leveraged local governments. Not a recipe for a healthy real estate market.

On the expense side, labor costs commonly make up a disproportionate amount of real estate development costs. Typically 45-50% for of the budget for commercial projects, with unionized labor, costs can be 20 to 25% higher.


Labor and wage indicators are an important component of market research, but should be taken in context. What would it look like if we saw a geographic area with a sudden increase in U6 (underemployment)? Is this a sign of a weakening economy or an aging population working fewer hours?


Source Name Link
Bureau of Labor Statistics Regional Data. NYC.

Construction Material Costs

Why it’s important

After acquisition and labor costs, your next largest development project cost is likely to be construction materials. Various factors can influence these costs, luckily, the Bureau of Labor Statistics compiles this information on a regular basis. In a large project, small changes can have a big impact.


To the extent a project relies on a volatile commodity component, the developer can purchase insurance in the form of futures contracts for that good. Additionally, when considering which materials to use, a developer should consider the risk of functional obsolescence. Functional obsolescence accelerates the effective depreciation of your building components as the result of a more desirable substitute good. This can be caused by technological innovation in energy efficiency, fire safety or a number of other building features in high demand. The result could be higher than expected vacancy rates at your project.


The Bureau of Labor Statistics collects and publishes data on the producer price index (PPI). This includes regional PPI data which is further separated into various construction industry components. There is also census related data available at: https://www.census.gov/construction/.

Supply & Demand Indicators

Absorption rate

Why it’s important

Carrying costs can push out your project’s break even point substantially. The market absorption rate offers a window into how substantial your carrying costs will be for your project. The absorption rate is calculated by dividing the total available space or available housing units by the average number of sales or space leased per month. In addition, absorption rates should also compensate for new construction and removal of existing space from the market, often due to physical depreciation. Absorption rates can also be used as a key indicator for developers considering new projects in an area.


Calculating residential inventory is an easier task than calculating commercial inventory. This creates more inherent risk in a commercial project. Due to less centralized records, absorption rate calculations can also overlook pre-sold homes and destruction of existing stock. In the event of a natural disaster, one’s knowledge of local conditions would enable a more thorough understanding of the impact on absorption rates. Absorption rates may also differ across different sub-geographies and price segments of the market. Therefore, it is critical to understand how substitute product may differ from the broader market absorption trends.


Your local multiple listing service will generally capture enough of the market to provide a clear view of absorption trends in the residential market. Various appraisal and brokerage firms also publish absorption rates online.

Total Inventory

Why it’s important

The number of housing units or square feet is a critical component in the supply and demand picture of a market. When combined with population, we get a good barometer of the supply/demand equilibrium or lack thereof.


Total inventory does provide a picture of deteriorating inventory or the pipeline of new inventory. It’s simply a snapshot of what’s in service today. The real value of this data is unlocked when used in tandem with population data; specifically projected changes in population. Any differential between these numbers can be compared with additions and subtractions from the total inventory to determine whether the future conditions will drive up prices due to undersupply or will drive prices down due to oversupply.


The US census conducts a study every other year called the American Housing Survey. It provides an estimate of total housing inventory, plus many other valuable data points for the professional real estate researcher.

Vacancy Rates

Why it’s important

Your vacancy rate will determine how long a space is empty between occupancies. Your effective vacancy rate will be determined by a number of factors, including: market conditions, pricing strategy, management policies and physical characteristics of the space. Key considerations during due diligence should include identifying the price at which rent revenue is maximized and degree to which the space is in demand for transient tenants. A transient tenant means more turnover and is generally less desirable.


While all properties have a “natural vacancy rate” (i.e. unoccupied time due to turnover), many of these factors are under control of the owner/manager. It’s important to understand which factors you have control over through effective management techniques and which must be acceptable as a condition of ownership. In fact, a high vacancy rate due to under-management can be a desirable characteristic to an investor, as that would indicate potential cash flow upside once they are able to apply their superior management acumen.


In addition to US census’ American Housing Survey, vacancy rates can be assessed by speaking with other owners and brokers in the area, as well as conducting research through the local MLS. Much can be uncovered about the vacancy rate for a particular property through the due diligence period.