Battery's down, Midtown remains flat.
Neither Mayor Rudolph Giuliani or Council Speaker Peter Vallone mentioned real estate taxes in their recent State of the City speeches. This is unlike past years, where promises were made to keep taxes low or frozen, as well as reduce the burden on co-ops.
Steven Spinola, president of the Real Estate Board of New York, says he has no reason to doubt that there will continue to be a tax rate freeze. "Everything the Mayor and Vallone have said is that they do not desire to increase real estate taxes. If they were thinking about it, it's a terrible solution."
Assessments Downtown are expected to decline, but assessors have ignored a group of sales under $20 a square-foot for pre-war office buildings - effectively deeming a policy that these are not representative sales. "If we see evidence of that in the roll, it will have to be challenged," said Spinola.
In the early 1980s, as a contrast, city assessors were quick to jump on the high prices paid for trophy properties by Japanese investors as being market indicators and threw entire areas out of assessment whack to true value. The city is still recovering from some of those assessment decisions and paying for others through the courts.
In two recent decisions regarding 84 William Street and 67 Broad Street, the court dropped values and the resulting assessments extensively. In tax year 1993, for instance, the city argued the building at 67 Broad should be valued at $53.1 million, while the owners said it was only worth $6 million. The court valued the building at $9.3 million.
REW will be examining that decision next week, along with the court's agreement with the city that the State Board of Equalization and Assessment did not properly calculate the 91/92 and 92/93 years' ratios and equalization rates.
For this year's tax roll, Midtown office buildings will be seeing small upticks or staying flat, reflecting the psychological market buoyancy and not actual bottom lines. Even with new leases often lower than the previous escalated rentals, the market cannot capture the new rental income until after the year or more of free rent is up - some a year or two from now, given the lag in build-outs, move in's and income and expense reporting. The current roll is based on income and expense statements for 1993.
Robert Von Ancken, MAI CRE, executive managing director of Grubb & Ellis Appraisal & Consulting, explained the income generated from the buildings is constantly going down. "When you renew leases you can't renew at the same rents," he said. Many of the old leases were based on a porter wage escalation plus fringes, and the new lease escalations result in lower step-ups.
One problem for the city's coffers and the Dept. of Finance - that oversees the assessors and the release of the roll - is that transition assessments have caught up or passed actual assessments.
In this manner, the transition assessments artificially prevent Finance from collecting more money from owners - exactly what they were designed to do in a time of rising markets. Owners pay taxes on the lessor of the transition or actual assessment, and that becomes known as the billable assessment. The billable assessments are the key to the city's fiscal health.
Taxes for the current fiscal year 1995 are based on billable assessments of $76.019 billion, continuing the downward trend that was caused, for the most part, by the decline in Manhattan commercial values. Total billable assessments for the other boroughs, however, had continued to go up, even while certain segments of the marketplace faced steep declines. Taxes for FY94 were based on billable assessments of $78.177 billion, down from the all-time high of $79.179 billion the year before.
The roll announced this week is expected to stay flat, remaining in the $75 billion to $77 billion billable range. A drop of $1 billion in billable assessments could cause a loss of more than $100 million in taxes based on an average tax rate of 10 percent - last year's tax rate averaged at 10.37 percent.
Sources said the Dept. of Finance was having difficulty getting the roll to where they wanted it for collection purposes, precisely because certain areas of the city remain so depressed.
To collect $7.5 billion plus another $215 million through the sale of tax lines - as they did this fiscal year through Chemical Bank - the levy will have to exceed $8 billion.
The other question is how the city will treat co-ops. Although Vallone and the Mayor had actually budgeted $70 million in relief, they have both stopped referring to it in public.
"They've kind of put it aside and are wondering if they can continue to do it," said Spinola. While some were hoping they would provide relief by holding the line on co-op assessments and not bringing them up as much as they could - indeed early reports indicate the buildings are pretty much flat or have gone up as much as ten percent - Spinola says it doesn't make any sense to hold the line on assessments because they don't get any political credit for it.
"The best political way is through the rate, so they can take credit," said Spinola. Such a move would also involve legislation and helping other multi-family residential properties at the same time. Unless, of course, an entire class of co-ops and condos is created, as is being discussed in West-chester County.
But of course, that could prove to be political trouble for the co-ops and condo, which by law (Section 581) are required to be assessed as if they were rental buildings and not based on the combined value of their apartments. A separate class could keep them assessed fairly, and a different rate would keep them taxed fairly. But Section 581 might become a target to be eliminated by frustrated municipal officials who think these vertical residential owners "are getting away with something."
High tax delinquency rates in small residential buildings, store buildings and industrials in the outer boroughs, particularly Brooklyn, Queens and The Bronx, have also made it politically unfeasible to raise assessments too much in those boroughs, even in areas that have been lately underassessed, sources say.
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|Title Annotation:||Battery Park, New York City, Midtown Manhattan tax assessments|
|Publication:||Real Estate Weekly|
|Date:||Jan 18, 1995|
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