Certain New York City apartment hotels may be eligible for real property tax abatements under the Industrial and Commercial Abatement Program (“ICAP”), according to a new ruling by the New York City Department of Finance (the “Department”). Developers in New York City who plan to seek a real property tax abatement under ICAP for an apartment hotel should consult with a tax advisor to ensure that the building will meet all requirements to qualify for ICAP.

ICAP is a real property tax abatement program intended to incentivize improvements to and new construction of industrial and commercial properties in specific areas of New York City. To be eligible for the tax abatement, commercial properties must meet certain conditions. For example, the property must be used for a qualifying commercial use, the owner must make minimum expenditures for the construction or improvements, and the property’s retail space, if any, may not exceed certain square footage percentages, among other conditions.

Given these restrictions and conditions, it is critical that developers and property owners correctly categorize the various uses of their properties in order to take advantage of ICAP benefits. In Letter Ruling FLR 22-5026, the Department provided new guidance for applicants seeking ICAP benefits for apartment hotels.

According to the ruling, an apartment hotel must meet many of the same requirements as a typical “transient hotel” serving “transient guests” to qualify for ICAP benefits. To serve transient guests, the Department stated that an apartment hotel must: (1) offer its units for rental for a minimum of 183 days per year; and (2) a guest’s stay must not exceed 183 days per year. Further, units must be available to the general public; a more limited market may make the property ineligible for ICAP benefits. For example, an apartment hotel serving people associated with a nearby hospital, such as patients, families, medical staff, graduate students, etc., is more likely to be interpreted as serving the general public than an apartment hotel serving only undergraduate students of a nearby university.

The ruling also clarified that the inquiry into whether a property fulfills the requirements of a transient hotel will consider the property as a whole. Consequently, a property containing a community facility, like a charter school, in addition to an apartment hotel complex will need to submit separate ICAP applications treating the facilities as separate properties.