Assessment preview for the 00/01 tax year.

The New York City real estate market continued its growth during the 1999/2000 tax year. Since the market down-swing during the late 1980's and early 1990's, the New York City market has consistently demonstrated its health, momentum and overall recovery.

Leading the way in this resurgence were hotels, Class A office buildings, and residential properties, including co-ops, condos and rental apartment.

During the 1999/2000 tax season, average hotel occupancy rose to well over 80 percent. By September, standard rack rates topped $200 per night. Within a city which boasts more than 66,000 available hotel rooms, hotel development and conversion/redevelopment is widespread.

Class A office vacancy levels in both Midtown and Downtown have reached a decade low. Sales acquisition prices remain strong. Traditional and offshore buyers continue to fuel the markets, while more new construction is on the horizon. The tax assessor's response to this market growth has been steady yet conservative assessment increases.

Apartment rental rates have continued to increase toward previously unseen heights. Co-op and condominium prices have returned to 1980's peak levels. Therefore, numerous residential developments and conversions have been added over the last few years. The City has seen that new developments are virtually 100 percent preleased. Developers are in a virtual frenzy bidding on disappearing sites.

This growth and development has led to continued investment in the New York markets. Along with the profit and growth, investors and taxpayers continue to await a real estate tax assessment response to this prosperity more directly in line with market conditions.

It has become increasingly clear that the New York City Department of Finance and Tax Commission is aware of the upward market trends as well, and that assessment increases have been conservative in the recent past. The questions of what the cost in terms of real estate taxes of this market prosperity will be is on a lot of minds.

The mood behind the 1999/2000 assessments had been of continued conservatism, while some pocket markets and individual properties may have deviated slightly from this standard. The overall tax roll only increased modestly from the prior year. The implied tone is a desire not to diminish or destroy the new market trends towards growth and prosperity.

However, the continued strength of the market will now relieve pressure on the assessor's office. The mood will shift from not wanting to "kill the Golden Goose' to now collecting its fair share of "golden eggs."

This is evident in recent threats by the City to assess based upon sales prices. Truthfully, the prospect of current assessments chasing sales prices is extremely remote in the foreseeable future. Many sales are not uniform and are difficult to quantify. Appraisal science over the past decade has taught the assessor better assessment methodology. Therefore, the jurisdiction maintains a direct capitalization approach to value.

As a result, however, market strength will drive capitalization rates down. The new rates applied against higher rents and lower vacancy factors will increase assessments. The Midtown South marketplace and individual properties with improving returns hold the greatest potential for increases. The Midtown South submarket has flourished even though its assessments lagged over other markets. Look for overall assessments in this area to increase by 12 to 15 percent. Downtown post-war property increases will likely avenge 5 to 10 percent.

The hardest hit market segment last year was undoubtedly hotels. Despite another banner year, their assessments will not likely increase at a level proportionate to that market's growth.

The overall trend for 2000/2001 in the remainder of New York will entail nominal increases for the outer boroughs and the Downtown pre-war marketplace. Due to outside forces such as luxury rent de-stabilization, expect pre-war cooperative and condominiums to experience double digit increases.

The "free" ride is over, according to the Department of Finance. No longer does it feel it will substantially hurt the market if it brings assessments up to market levels. Careful, aggressive assessment control measures should be implemented by all types of property owners, as the City feels all properties are increasing in value. While lower tax rates may be on the horizon to ensure the City does not over-collect taxes based on higher assessments, taxpayers can only appeal assessments, not the rate. This year, such appeals likely have a substantial impact on the bottom line.