Owners of New York City real estate, whose taxes make up a sizable portion of the city’s revenue, are gearing up for a possible fight with the Tax Commission next year as the impact of the pandemic continues to wreak havoc on the local economy.
Real estate-related taxes made up 53% of total New York City tax revenue last fiscal year, according to the Real Estate Board of New York, and property taxes make up the lion’s share of the payments. But with many property owners now dealing with commercial and residential vacancies, low leasing volume and tenants unable to pay their bills, some landlords say their ability to meet their tax obligations is imperiled.
Attorneys and accountants are preparing for a spike in the numbers of owners who will fight the city in the next fiscal year, potentially further jeopardizing the city's cash flow amid the health and economic crisis.
“I think we are going to have to fight very hard, we may have to take many matters in front of a judge and go to trial,” said Joel Marcus, an attorney at Marcus & Pollack who specializes in tax certiorari, a term which refers to the process in which owners appeal their property assessments.
“I don’t think it’s going to be pretty, what the property owner is justified in demanding and what the city is prepared to offer is a big gap, in my estimate ... even if there were significant reductions, they might just raise the tax rate and collections.”
Property taxes are based on values as of Jan. 5 and paid half July 1 and again on Jan. 1, Marcus said. Each year, thousands of owners petition to have their values lowered, as a matter of course. What is different this year is that the real estate community is paying taxes based on values before the coronavirus hit the city.
Marcus said he has some clients now claiming properties are worth around 50% less than before — and while most have accepted there will be no ability to shift this year’s payments, Marcus expects many will be arguing to pay less tax next year.
“I think it's going to be a very challenging year, because the values have significantly decreased in every sector,” he said. “Property owners are looking for very significant tax reductions, but balanced against that, the city of New York has greater need than ever for revenues."
"This will be a battle,” he added.
Rosenberg & Estis Property Tax Department Leader Benjamin Williams said he hasn't seen a plan from the city about how the crisis will be dealt with.
“People got offers this year from the Tax Commission, and it was like COVID never happened,” he said. “But I’m not surprised because the Tax Commission never indicated they would give reductions because of COVID. There is a disconnect between expectations and legal reality.”
He said many of his clients are instead trying to work out deals with their lenders to conserve cash. Still, he expects if the city’s Department of Finance doesn’t cut assessments next fiscal year, the Tax Commission will be inundated with protests.
On July 1, the city reported a 6% increase in property tax collections, Crain’s New York Business reported. Some $15.2B in taxes was into the city as of Oct. 15. However, analysis by the publication found the delinquency rate in the commercial property sector is now at 4% — double the rate from last year.
Overall, the city is preparing for a $13.5B budget shortfall over the next two years, and both the city and state are being hit with a $1.4B tax revenue loss from last year, thanks to a 34% drop in residential and investment sales volume, per REBNY data released Thursday.
Across the board, real estate players are pinning their hope on a federal bailout. But GFP Real Estate co-CEO Eric Gural is hoping for local action and more understanding from the city.
“No one pays sales tax on things that are free, but some of the owners are feeling, 'Well, I’ve lost a tenant and I’m being taxed as if I haven’t,'” he said.
GFP's portfolio of approximately 11M SF of commercial space in the city had a 1% vacancy at the start of January, but Gural said his company is only collecting 70% of its expected rent.
He said he was hoping the city would give him a break on his taxes this year, considering the unprecedented nature of the crisis, as he has been offering relief to tenants wherever possible.
"I don't want to put anyone out of business," he said. "At the same time, I don't want them to collectively put me out of business."
He thinks landlords to industries that haven't suffered as significantly in the city — notably the owners of buildings leased to Amazon, Facebook and Google — should be helping out more, as property owners did in the 1970s when they prepaid their taxes.
“Everyone is in dire straits, and some people are worse off than others,” he said.
Multiple calls to representatives for the New York City Department of Finance were not returned.
Citizens Budget Commission Director of City Studies Ana Champeny said the city’s expectation is that payments in the new year won't drop off significantly and that July 1 payments were encouraging. Still, she said, a looming potential decrease in valuations — and how badly the city’s real estate values are hit — is a concern for the city long-term.
“While there may be some decrease in collections and an increase in delinquency rate, the major problem, generally, is commercial real estate values going forward," she said. "You could have a drag on property tax revenue for a few years."
She noted that the city has built in a cushion to prepare for any non-payments, but Jan. 1 tax payments could be worse than July 1, as many businesses are no longer benefiting from the Paycheck Protection Program and people out of work are no longer receiving federal unemployment.
Anchin, Block & Anchin Real Estate Group co-Chair Robert Gilman said some of his clients haven't put aside enough to cover the Jan. 1 payment, and he expects there will be more owners fighting real estate tax assessment than ever before.
“The last thing we want to do is not make the payment … some landlords are trying to refinance debts or restructure existing debt, some have a low loan-to-value ratio,” he said. “But there are some real estate companies out there that are not sure what they are going to do.”
https://www.bisnow.com/new-york/news/economic-development/property-tax-commission-appeals-battle-106705
No comments:
Post a Comment