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Action plan for Downtown owners offered.

Mayor Rudolph Giuliani and his administration recently turned a bright spotlight on Downtown Manhattan. Rather than bemoan a structural decline of this once vital commercial district, the Mayor wisely laid out a multi-point, multi-year program of tax, zoning and service incentives and initiatives coupled with a capital investment program designed to bolster this important district.

Implementation of much of the Mayor's program, however, will require legislative action by the Senate legislature and by the City Council. This will take time and adds an element of uncertainty to the proposals. Nevertheless, there is much a Downtown property owner can do to reposition his or her property, compete for tenants and make new deals as the Mayor's program makes its way through the legislative mill. Here, for example, is a possible action plan for owners:

Challenge Real Property Tax Assessments: With the publication of the tentative assessment roll scheduled for January 15, owners once again should seize the opportunity to challenge their assessments. Given that the Mayor has reported that since 1991 billable assessed values Downtown have eroded by almost one-third, owners will want to measure their properties against that standard, at a minimum, and develop an appropriate tax reduction strategy. Working with tax reduction counsel, owners should marshall information about operating income and expenses, lease expiration dates, the cost of making new leases, any capital investments that have been (or should be) made and the like for presentation to the assessor and/or the Tax Commission.

This effort can be particularly important if an owner anticipates any major changes in a building's operations in either 1995 or 1996, such as a lease expiration or renegotiation which would effect the property's value and which have not yet been brought to the assessor's attention. In some instances it may be appropriate to begin working with an appraiser to further document a property's low current market value. With respect to real property assessments, the lesson of the 90s has been that those owners who took a proactive approach to the City's assessment practices, realized the greatest reductions in assessed values. This lesson still has great relevance in the moribund Downtown market.

Use Real Property Tax Incentives: Owners considering redeveloping their buildings should not fail to take advantage of the City's as-of-right, real property tax incentive programs, the Industrial and Commercial Incentive Program (ICIP), and the 421-a and J-51 programs. The ICIP program, as its name makes clear, is targeted at industrial and commercial projects where an owner makes a qualifying investment equal to at least 20 percent of the property's then current assessed value. For commercial projects, the full value of any physical increase will be exempt from taxation for eight years, and thereafter will be added to the taxable assessed value in increments of 20 percent per year until fully included in the 13th year. The ICIP incentives can be even richer for the bold owner who seeks to redevelop a property for an "industrial" use.

For example, the Downtown Business Alliance, working with the New York City Partnership, is spearheading an effort to create a home for the software industry Downtown which is predicated, in part, on the Department of Finance determining that such a use qualifies for "industrial" strength ICIP benefits under which the full value of any physical increase will be exempt from taxation for thirteen years, and thereafter added to the taxable assessed value in increments of 10 percent per year until fully included in the 23rd year. In addition, industrial projects may qualify for substantial reductions of up to 30 percent in the cost of its energy under the City's Energy Cost Savings Program.

On the housing side, owners with buildings suitable for residential redevelopment will want to explore qualifying for benefits under the J-51 program. Subject to certain limitations, this program exempts the full value of "certified reasonable costs" from real property taxation for at least 12 years. In the 13th year the value of the improvements would be fully taxable. Additionally, the J-51 program, subject to certain technical requirements and limitations, provides for an abatement of property taxes equal to a portion of the "certified reasonable costs" incurred on a project.

Should new residential construction make sense on a Downtown site, an owner would certainly want to pre-qualify for benefits under the 421-a Program. This program, long favored by the developers of luxury apartments in the City's traditional Uptown residential neighborhoods, phases in the real property taxes that would be due on qualifying new residential construction over a ten-year period.

In addition, owners considering residential projects also would want to consider qualifying for low-income housing tax credits by making at least 20 percent of the units created affordable to qualifying low income tenants. By qualifying under this program an owner would open the door to qualifying for richer and deeper 421-a or J-51 benefits as may be applicable. For example, under the 421-a program, the full value of the qualifying new construction will be exempt from taxation for 11 years, and thereafter will be added to the taxable assessed value in increments of 20 percent per year until fully included in the 16th year.

Use Federal Rehabilitation Tax Credits: Given the age of much of Downtown's building stock, owners considering the "substantial rehabilitation" of their properties, either for residential or commercial use, will want to qualify for the Rehabilitation Tax Credit (RTC) available under Section 47 of the Internal Revenue Code. For qualifying projects the basic tax credit is 10 percent of qualifying rehabilitation expenditures. To be eligible for the RTC, among other requirements, the particular building must have been put in service pre-1936 and, over a 24-month period (subject to extension), an owner must invest an equal amount equal to his of her basis in the building.

Owners who might otherwise feel themselves burdened with an "historic" property, whether or not formally designated a "landmark" by the City, may qualify for an additional 10 percent tax credit if they follow a somewhat more bureaucratic process. Where an existing building is being redeveloped for residential use, the Internal Revenue Code permits an owner to enjoy both the RTC and the low-income tax credit and, thereby, maximize the tax credits generated by the project.

Lobby for the Mayor's Downtown Program: The programs and strategies outlined above discuss what owners can do for themselves as they await enactment of the Mayor's program. In addition, all Downtown owners can do themselves a great service by joining together to lobby the City Council, the City Planning Commission, the Governor and the State legislature in support of the Mayor's program. With the Lower Manhattan BID formally opening its doors on January 1st under Carl Weisbrod's leadership, the Downtown community now has a focal point for its continuing involvement in the rebirth of lower Manhattan.
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Title Annotation:Review and Forecast, Section II; Manhattan, New York, New York
Author:Kandel, Robert A.
Publication:Real Estate Weekly
Date:Jan 25, 1995
Previous Article:Dealing with sick building liability claims.
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