Let NYC underwrite commercial renovations.
ICIP originally benefitted owners who were constructing new buildings. The statute was amended in September of 1992 to extend tax benefits for "renovation construction work," which generally encompasses the modernization, rehabilitation or improvement of an existing building for use as commercial property. This amendment is particularly important because many owners must now renovate their buildings in order to attract new tenants and retain existingones.
The ICIP tax benefit offsets the physical increase in a building's AV [assessed valuation] that will ordinarily result from a subtantial rehabilitation. If, for example, a construction project results in a physical AV increase of $5 million, the owner will receive a 100 percent exemption from real estate taxes on that $5 million for eight years, with the tax exemption declining by 20 percent per year over the next four years. Thereafter, the owner pays real estate taxes on the full AV of the building.
The ICIP amendment for renovation construction is so new that few attorneys are aware of it, and even fewer have actually filed applications under the new law. In October of 1992, Rosenberg & Estis filed one of the first post-amendment ICIP applications, relating to a $77 million construction project. The application had been planned and prepared months before the bill authorizing the amendment was passed by the City Council.
Although the statute authorizing such applications has been enacted, the regulations, policies and even forms needed to guide practitioner on a day-to-day basis have not yet been developed. Attorneys who have recently filed applications have discovered that some of the pre-existing regulations are being strictly enforced, while others are being disregarded. It is only by establishing a relationship with ICIP administrators that an attorney can be sure that his client is being adequately protected. Frequent telephone calls and in-person meetings are usually required.
The eligibility requirements for obtaining ICIP benefits are highly complex. The most important eligibility rule is that an ICIP preliminary application (a three-page form with a $100 filing fee) must be filed before the Department of Buildings issues a building permit that relates in any way to your renovation project. This rule has no exception, and failing to adhere to it will result in immediate and total disqualification from all potential benefits. If plans have been filed and a permit is about to be issued, contact an attorney immediately.
Geography is a second consideration. Buildings in Manhattan between 23rd Street and 96th Street will qualify for benefits as long as a preliminary application is filed by June 30, 1994; the deadline is June 30, 1999 for buildings south of 23rd Street. Buildings north of 96th Street will not qualify for renovation construction work benefits under any circumstances.
Small renovation projects will not qualify. The cost of the renovation must be equal to at least 20 percent of the building's AV at the time the work begins. Not all costs need be directly related to construction: brokerage, architectural and engineering fees can all be counted toward the 20 percent requirement even though these expenditures will not result in a physical AV increase.
The nature of the renovation work is an important consideration. Ordinary maintenance such as pointing or roof replacement will not qualify as renovation construction work, although money spent in this respect may count toward meeting the 20 percent requirement. The safest bet is base building work relating to such items as mechanical systems, elevators, HVAC and fire safety. Significant ADA compliance work may also qualify, especially when done in conjunction with a larger renovation project.
ICIP filing fees can be prohibitive. The fee is based on scale which measures the present AV of the building. The filing fee can be as little as $500 for a building assessed at less than $250,000. The fee increases to $12,500 for building assessed at more than $5 million and $25,000 for buildings assessed in excess of $1 million. The maximum filing fee is $60,000.
Because the fee is non-refundable, the owner must be assured that the application will be successful. A careful analysis is required to determine if it is worth filing the application and paying the fee. If the project is substantial enough, however, the tax exemption will be far in excess of the filing fee and attendant costs.
Owners must also consider the impact of ICIP benefits on tax escalation clauses. There is nothing in the statute which require the tax savings to be passed on to a tenant, this would enable the building owner to pocket the full value of the exemption. Savvy owners can take advantage of this fact by adding appropriate language to tax escalation clauses in all future leases and renewals.
An ICIP application is best seen as part of an overall strategy to improve the profitability of the building. While the application primarily deals with a tax abatement, elements of certiorari, commercial leasing and landlord-tenant law are intimately involved. At Rosenberg & Estis, we found that our experience in all of these fields, and with other tax abatement programs such as J-51 and 421-a, was particularly helpful.
The mid-1990's do not promise to be a boom time for commercial owners. A comprehensive renovation program, coupled with significant ICIP tax benefits, will allow some owners to ride out the storm and position themselves for better days ahead.
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|Title Annotation:||New York City's Industrial and Commercial Incentive Program outlined|
|Publication:||Real Estate Weekly|
|Date:||Mar 3, 1993|
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