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Income property assessments may still be too high.

There's no question that owners of income property would be well advised next year to consider filing for an assessment reduction -- despite the fact that the city in 1991 and 1992 began to lower some assessments on its own.

The inflationary engine that drove up income property assessments to record highs in the 1980% was followed by steep, recessionary declines in market values and the latter are not reflected, as yet, in many assessments. Because of the city's great need for revenues, owners should not be sanguine about the city hastening to bring down assessments.

We, of course, know it's too late to file for a lower assessment for the tax year 1993, because under the law owners of income properties must file by March 1 of the year the tentative assessment is issued. These tentative assessments are issued in January and an application to lower the assessment of an income property must be filed with the city Tax Commission by the March 1 deadline or it won't be taken up. But, if this year is lost as an opportunity to seek a reduction, next year obviously is not lost, and it isn't too early to begin to think and plan for it.

The city has been emphasizing that it has recently reduced assessments. But real estate has experienced a long period of hyper inflation. Sales were made at the higher values, and assessments in the city soared along with inflated market prices.

However, as is all too evident, economic conditions have changed, and for several years many office buildings, store properties and luxury apartment buildings have had substantial vacancy rates.

In addition, in the past year or so, many smaller rent-regulated multi-family properties have developed vacancy patterns. And even if they are fully leased, regulated apartment buildings containing high-turnover units often are being rented at below the allowed regulated rents.

Owners of regulated apartment properties may find themselves in a tighter situation than owners of other types of income property: Commercial property owners were able to offer leases that permitted them to pass through certain operating costs such as higher tax, fuel and utility expenses. But owners of regulated residential properties have had to wait for Rent Guidelines Board increases to be compensated for such higher costs, and the Board's authorized increases too often aren't adequate.

The fact is that many assessments, which during the inflationary period were increased substantially, have not been reduced as low as they should be considering the poor health of the rental market. Assessments sometimes bear little resemblance to today's lower market values. And this is reflected in the fact that assessment reduction filings with the Tax Commission are up some 75 percent compared to a half dozen years ago.

While the city undoubtedly should lower assessments in line with the recession impacting New York, there are pressures on the city that foster a hold-the-line assessment policy. These pressures provide insight into why many assessments still are too high, why they are not likely to be reduced adequately by the city, and why owners should be prepared to take the city to court on the issue of assessments.

Earlier this year, for example, the city announced that total actual real estate assessments had declined by 16.3 percent since the height of the market. But because of the transitional assessment mechanism, by which changes in actual assessment are phased in over five years, billable assessments only first declined this year - and by a meager 2.4 percent at that.

This means the city will lose some $350 million in property taxes at a time when the city Administration is trying to cover what was originally a $1 billion budgetary short-fall. One can sympathize with the city's plight: It counts on real estate for some $8 billion of revenues. Nevertheless, real estate market values have fallen more than the 2.4 percent decline in billable assessments, and assessments should have come down much more. City assessment reductions are like band aids given to a man having a hemorrhage.

The importance to the city of maintaining real estate tax revenue may also help explain why in the early part of the 1990's the city still was hiking some assessments even while businesses leasing office space here were cutting back on their office space requirements.

The city Tax Commission is the first stop on the way to asking for an assessment reduction. But the review is often made not by the Tax Commissioners, but by hearing officers who frequently are former city property assessors. Even with the best of professional intentions, they tend to look at cases based on their experience as former assessors. As a result, we sometimes have the feeling that they are not fully conversant with market realities. Perhaps reflecting this, the backlog of lawsuits aimed at achieving assessment reductions rose some 12 percent in a year, according an estimate in Crain's.

Could your building be over-assessed? The odds are you will need professional help to determine this. Though your building may look like another property whose assessment was - or was not-reduced, the key is not in appearance but in the comparable income profiles. It may take an expert to determine this. However, when assessment reduction is pursued aggressively, the rewards can be substantial: Recently, the courts reduced assessments 45 percent going back several years and the tax rebate came to many millions of dollars.
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Title Annotation:Mid-Year Review & Forecast, Section III; evaluation of New York, New York real estate market
Author:Podell, Herbert S.
Publication:Real Estate Weekly
Article Type:Column
Date:Jun 23, 1993
Previous Article:Software plays matchmaker.
Next Article:Market recovery a fact, not cry of wolf.

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