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Tax assessments down, but 'not enough!'

Tax assessments down, but |not enough!'

Real estate industry leaders and attorneys were unanimous in believing that the 1992 tentative assessment roll released last week was not low enough. Apartment houses, co-ops and condominiums (Class II's) were raised 5.78 percent city-wide in tentative billable assessments. The borough of the Bronx also saw an increase of 7.42 percent in tentative billables despite a 7.83 percent decline in full market value.

Total city-wide tentative billable assessments are $80.58 billion, up from $78.47 billion last year.

Total assessed value of all taxable properties however, dropped from 83.61 billion to $83.22 billion, a .47 percent drop.

As part of the continuing effort to make the tax process more accessible, property owners will be receiving a notice of their property's assessment together with what the Finance Department has determined to be its market value. Those owners who believe the assessments to be wrong may file an application for correction of the tentative assessment until March 2 for Classes II, III and IV while Class I home-owners may file until March 16.

The most significant change of all was the decline in the actual taxable value of Manhattan office buildings by $700 million. These office buildings account for 30 percent of all taxable value in the city. The other Manhattan properties in Class IV - industrial, warehouse, and factory, however, kept their value and made for an overall decline of 1.98 percent for Manhattan Class IV. Finance Commissioner Carol O'Cleirecain deemed the figure both "a surprise and not a surprise." Billable assessments for Manhattan overall, however, rose 2.36 percent with the largest rise being 5.59 percent for Class II's, and a 1.62 percent rise for Class IV's. "Clearly there are some problem buildings," she said, adding that her office focuses more on individual buildings when a situation is brought to their attention.

Steven Spinola, president of the Real Estate Board of New York, said the decline in office building assessments does not represent the true losses in value the industry has experienced over the last year.

Paul Korngold a tax certiorari and J-51 specialist with TuChman, Katz, Schwartz, Gellis & Rorngold, said while in many cases there is room for further reductions, the city made a "significant concession" by decreasing the value of these office buildings.

While a lot of the prime buildings either had no increase or went down, Spinola agreed, some of those assessments did go down substantially.

According to the tentative roll, Two Broadway will be paying on $11.7 million less in billable assessments -- a savings of approximately $1.17 million. Exxon's billable assessment dropped by $15.75 million, a tax savings of $1.57 million. The Sperry Rand building, however, could be paying on an increase in billable assessments totalling about $13.2 million or roughly $1.32 million in taxes. The Bank of America Plaza also saw a steep rise in billable assessments of 12.54 million, which is an increase in taxes of $1.254 million. Owners pay taxes on the lesser of the transition or actual assessment and this is called the "billable."

The World Trade Center, had a large drop in billable assessments from $1.23 billion to $1.125 billion, a savings of $10.6 million dollars in taxes.

Of the 55 buildings with the highest assessments in the city [see table on Page 15], at least 38 have tax assessment challenges pending from last year, an indication, attorneys say, that the Tax Commission was not making offers of reduction in assessments substantial enough for owners to accept in light of the falling values.

Experts use a rounded tax rate of 10 percent when approximating the tax payments. The actual payments will be billed beginning July 1 based on the tax rate set by the Mayor and City Council. Although a "freeze" has been proposed, the freeze is only on the average tax rate for all the classes, which is 10.591, and could go up or down for each class at the time the levy is fixed in June.

Roy M. Sparber a tax certiorari partner with Brauner, Baron, Rosenzweig, Kligler Sparber Bauman & Klein said, "It's unfortunate that when Dinkins said he was freezing the average rate that people didn't understand it was not freezing their taxes.n Sparber said even though the rolls went down, the values went down even more.

"Because the transition assessments keep going up from prior years people will still be paying increased taxes," he said.

Joseph L. Forstadt, a partner with Stroock & Stroock & Lavan, said it is impossible to determine the overall impact of the roll until the rate comes out but, he noted it is a positive sign for owners that the city is beginning to recognize there is a problem.

Spinola thought the addition of the estimated market value to the notices might be helpful to smaller owners but also saw it as a way to "open the door" to challenge the assessments in court. This is the first time the city has publicly acknowledged the ratio it uses to equalize values. Ratios are one component of assessment litigation. O'Cleireacain said the city is using 45 percent for Class II and IV, 50 percent for the utilities in Class III and is "striving" for 8 percent for Class I.

Hubert J. Brandt, a certiorari expert with Peter H. & Hubert J. Brandt, questioned the city's motives when admitting these ratios. "Of what real value is the 45 percent to be when the state has already told us that the class ratios are down somewhere in the 30's" he said. "Who's kidding whom? The industry is bleeding at the gut and they did not take account of it."

Brandt noted the trend in the assessments did not match the trend in the market. "Is that not the price of the industry pressing for a rate freeze," he wondered, "whether the price of the rate freeze comes out as assessments not going down as far as they should have?"

Overall, attorneys said, assessments were brought down to where the Tax Commission should have placed them at last year's hearings.

Spinola deemed the roll "disappointing." "The city has decided that the recession is over for what may have been the worst year for real estate in New York City history, and to say the values have declined by less than half a percent (.47 percent) citywide among all property, while apartment buildings city wide went up nearly 2 percent in assessed values is not based in reality," he said. "The assessors functioned as conservatively as they knew how in lowering assessments."

Jeff Gural, president of Newmark & Co. and co-chair of the Property Tax Fairness Coalition, said the Finance Department had "woefully overassessed" the city. Of the 40 properties his company owns, Gural believed there was "progress" on two-thirds. But it was a "hit or miss" situation, he noted, even though he provides the assessors with more to work with. "Where you give them additional information, two-thirds of the time the assessor read it and took it into account and one-thirds of the time they ignored it."

Deputy Commissioner Revin Roshar, explaining the rise in apartment house assessments, said these buildings are "full, except for the most upscale" while "income is up."

"If he thinks the apartment buildings are full then he's full," jibbed Dan Margulies, executive director of the Community Housing Improvement Program (CHIP). "We have the highest vacancy rate since World War II," he said. "The treatment of Class II is completely illogical and counter to the market and public policy."

Commissioner O'Cleireacain made it clear when announcing the release of the roll that she felt the Class II properties were "undervalued" because the law requires that co-ops be valued as rentals and that sales prices must be ignored. Not surprisingly, attorneys found many of their co-ops with higher tentative assessments.

"The city, "Korngold said," didn't recognize the severity of the crisis of many middle class co-ops."

"If the city has in mind to make it more difficult for the middle class," Forstadt agreed, "increase the taxes on co-ops and you'll lose the guts of the middle class taxpayers."

The commissioner blamed the 4 percent rise in value in the Bronx on the rehabilitation of affordable housing, some of which, she said, could later receive tax abatements. Billable assessments in the Bronx went up an astounding 7.42 percent, primarily due to the 11.44 percent increase for the Class II billables. City-wide, the Class II's billable assessments went up 5.78 percent or $88 million in tax dollars.

Forstadt, who is also a public member of the Rent Guidelines Board, said it was "disturbing" for the city to find an increase in value in housing properties at the same time it is lowering the values on commercial properties and with the knowledge that the market for the sale of multiple dwellings is at the bottom.

"I frankly don't understand the city's philosophy," Forstadt said, "or know how they can be increasing assessments on properties that do not command the prices they once did in the heyday of the 80's. If the net effect is to increase taxes at the same time the water meters are phasing in, we're looking at a calamity." Forstadt predicts this will open the door to further abandonment as owners are unable to pay their taxes.

Ruben Rlein, president of Bronx Realty Advisory Board, called the rise in value outrageous.

"Any increase for the Bronx is another nail in the coffin for its housing which is suffering vacancies and has the largest amount of defaults in the payments of rent," he said. "This is a shock to me because this borough has the largest amount of affordable housing and tenants who can't pay even that amount of money. To assess it more is to seek to destroy it more."

John J. Gilbert III president of the Rent Stabilization Association called the rise in full market value for Class II "totally unrealistic and outrageous" and said it "makes no sense when compared with reality. Gilbert said Operations and Maintenance data showed that 10 percent of a Class II sample did not have enough money to pay their debt service, "much less put anything in their pocket."

"If the objective is to make the Bronx poorer again, that's the way to do it, "Margulies said. "A little burst of light could be extinguished."

Margulies said the city deserved credit for trying to make the system clearer. "Unfortunately, trying to make it clearer makes it show its faults," he said.

A program on real property tax reform and economic development will be held at the Association of the Bar of the City of New York on Monday, Jan. 27 at 7 p.m. and is free and open to the public. Commissioner O'Cleirecain; City Council Finance Committee Chair Herbert E. Berman; Council Economic Development Chair Jerome X. O'Donovan; David Rose of Rose Associates; and Dean M. Mean of the Citizens Budget Commission are the scheduled speakers.

Bush to Propose RE Cuts

President George Bush is expected to propose a budget package for the nation that will include the ability for those in the real estate business to deduct real estate losses from income earned from other businesses and investments. This was one item requested by industry lobbyists. [Tabular Data Omitted]


PHOTO : LEASING SUCCESS The Macklowe Organization announced that its 550,000-square-foot office building, Avenue of the Americas Plaza, is now more than 96 percent leased. Present at the lease signing celebration were Harry Macklowe (center) and a number of his tenants.
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Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jan 22, 1992
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