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Tax reform: a personal commitment.

Tax reform: A personal commitment

Tax reform is a personal commitment by property owner Leslie W. Himmel, who is determined to be a responsible member of the real estate community as well as long-term investor and operator.

"We need to keep a long-view," Himmel said recently, "and not get caught up in the severe, but hopefully short, economic depression."

As part of her commitment to the industry, Himmel is a participant in the Real Estate Board of New York's (REBNY) Real Property Tax Study Group, along with Stephen Green of S.L. Green Properties, David Greenbaum of the Mendik Company, Jeffrey Gural of Newmark & Company Real Estate, Inc., Gerald D. Kelfer of Olympia & York, and William C. Rudin of Rudin Management Company, Inc. Steven Spinola, Michael Slattery and Deborah Beck of REBNY also participated.

The committee members, she said, were chosen to represent the community in formulating positions to help make taxes fair and logical. "We've had monthly meetings and each one of us has taken on the role of specializing in an area," Himmel explained. "I worked on the income and expense forms, others worked on a report on capitalization rates."

Steven Spinola, executive director of the Real Estate Board of New York, said the group is trying to determine if properties are being assessed fairly. "Is there logic behind the assessments and are they accurately reflecting the market." She said the committee has studied the income and expenses of buildings and compared them with the assessments and given this information to the city to use to accurately reflect the market. "The city has been lagging behind in reflecting the downturn of the market," Spinola noted, "and even if it is not going up in the dramatic way it was a few years ago, it is still lagging behind the downturn."

The income and expense forms, also known as RPIE's, are supposed to be the basis for determining the assessment of income producing property, Himmel said. Owners and industry representatives have consistently complained about the overall set-up of the forms that has been evolving in response to these complaints. "I feel sorry for people who have one or two buildings," Himmel said, "we are trying to simplify the form."

This year, industry pressure on the Department of Finance resulted in more than cosmetic changes, she noted. "The specific categories of Tenant Improvement Work and Leasing Commission were fairly deducted from net income as distinct from being omitted in the past years," Himmel said.

Himmel explained that while tenant improvement work and leasing commissions should lead to higher revenues for owners, they still should be fairly amortized to reflect the true lower net cash flow resulting from an increased expense. As an example, she said, a tenant improvement cost of $35 per square foot versus no tenant improvement dollars would result in the same space being rented, but the income for an improved space would bring in $24 dollars versus $17 for the unimproved space. "To compare fairly," she said. "it's essential to deduct the costs of improving the space which did not lead to a higher cash flow number but did lead to a higher revenue number." Previously, she added, those costs were not a deduction to the net income of the property.

The capitalization rate report, she said, which was made by the consultants Hamilton, Rabinowitz & Alschuler, Inc., recommended that the city adopt fair and consisted industry standards.

The city is making great headway in working with the industry, Himmel noted, particularly in response to the reform group. "They will continue to make headway," Himmel said, "but if revenue is falling and expenses are going up, for building owners to stay afloat, the taxes have to come down."

Besides her work on the committee, she and Stephen J. Meringoff, who were classmates at the Harvard Business School, run Himmel & Meringoff Properties. Himmel oversees the acquisition and management of all their New York commercial properties. Some of the properties currently held by Himmel are 45 West 45th Street, 989 Sixth Avenue, 411 Lafayette Street, 5-12 West 125th Street, 43-02 Queens Boulevard in Long Island City and 2101-19 31st Street in Astoria. Even with over 1 million square feet in the portfolio, they have managed to show an average 95 percent occupancy rate in those buildings.

"We're both very conservative from our analytical training and we learned to totally analyze any deals," she said. During the last few years, Himmel said they kept thinking there was something wrong with them because they were looking into many deals but deciding not to buy. "Most numbers did not make sense," she said. "We thought something was wrong with us. We looked at 100 deals a year in 1988, 1989, and 1990 and bought one and sold one."

That building has already caused some industry ribbing and embarrassment due to out-to-date Department of Finance records. The property was sold in December of 1989 Himmel said, and turned up this year on a city-generated list of delinquent real estate taxes, with Himmel's name still listed as owner of record.

Himmel said, "The city has always seemed to pick up transfers when it was in their best interest, but here there was a transfer, whereby they did not get an increase in real estate taxes, and they did not pick it up." Himmel believes part of the problem is that we all have come to rely on computers. "We're all so used to using computers and they look infallible and so we forget to look for human errors." They are faster, she said, but there are mistakes.

Himmel said they are still looking to buy properties. "We have 30 individuals in management and are equipped to take on a larger management portfolio," she explained.

Himmel & Meringoff's formula, she said, is "to create value through an infusion of new capital, invested in renovation, and re-tenanting the property with smart marketing." Part of that is accomplished by conducting a detailed marketing study of the area, and developing a niche for the marketing position of the property. "The position would be created through small ads, telephone calls and flyers," she said, "and carried through in the service of the property." For instance, she said, 45 West 45th Street is positioned to be an avenue building on a side street. "We give the same quality of service as a Rockefeller Center, she added.

"We're trying to work as best as we can within the industry with terrific service, 100 percent clean buildings and the maintenance up to par," she said. "We see our competitors cut services, cut security guards and we continue to provide services, because we are in it for the long run."

Himmel said a number of tenants are also protesting the tax increases. "The city is smart to try to lower the taxes because it will keep sales and payroll taxes here which are the linchpin," she said. "We want to avoid the exodus which we saw in the 1970's.

Himmel said the tax reform group has discussed other incentives which the city can give to individuals and companies to remain, including packages for rehabilitation. The city has been talking about expanding the ICIP formulas, which Himmel said, are badly needed, even if it is not a big dollar impact. "It's a psychological benefit for staying here and we desperately need that," she said.

Spinola said the committee is exploring if there are any legal remedies by challenging the system in the court. "We think we have a couple of arguments," Spinola said.

"Leslie continues to be just a strong voice for pushing the city toward functioning in a fair way and to treat properties equally," Spinola said. "She has been one of the people who started the committee and continues to be important."

Himmel said the REBNY group will continue to work to modify income and expense forms, pursue cap rates to fairly reflect market conditions and press for some tax incentive packages to give people reasons to stay in New York City.

"It's the greatest city in the world," the native New Yorker declared. "From the standpoint of an intellectual and cultural environment there is no city like it in America." She said it bothers her that because it is in vogue to badmouth New York, it is hard to get investments. "All the people will be laughed at," she predicts, "because it's just a cycle."
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Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Sep 25, 1991
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