Landlords Prepare For Property Tax Fights As Values Slide

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.

Wikimedia Commons/Beyond My Ken

The New York County Supreme Court building, where property tax appeals are heard.

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.

Bisnow/Miriam Hall

An empty storefront in Manhattan

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

Multifamily REIT Aspire Real Estate Investors sets terms for $300 million IPO

Aspire Real Estate Investors, an affordable housing REIT targeting Opportunity Zones formed by Avanath Capital, announced terms for its IPO on Friday.

The Irvine, CA-based company plans to raise $300 million by offering 15 million shares at $20. The company plans to raise an additional of $27 million in concurrent private placements to senior management and other investors. At the proposed price, Aspire Real Estate Investors would command a market value of $327 million. The company intends to pay a dividend.

Formed from predecessors Avanath Affordable Housing I and II, this REIT is focused on acquiring existing income producing affordable and workforce multifamily properties. Its initial portfolio will be comprised of nine multifamily projects, six of which are located in Opportunity Zones.

Aspire Real Estate Investors was founded in 2008 and booked $23 million in revenue for the 12 months ended September 30, 2020. It plans to list on the NYSE under the symbol ASPI. Morgan Stanley, B. Riley FBR, Wells Fargo Securities, BMO Capital Markets and KeyBanc Capital Markets are the joint bookrunners on the deal. It is expected to price during the week of November 16, 2020.

Relevant Profile: ASPI

https://www.renaissancecapital.com/IPO-Center/News/72959/Multifamily-REIT-Aspire-Real-Estate-Investors-sets-terms-for-$300-million-I

NYC restaurants are bracing for street chaos on Election Day

New York City restaurants are getting ready in case Election Day comes served with a side of civil unrest.

As retail shops from the Gucci boutique in Soho to the Macy’s flagship on Herald Square board up their storefronts in case of riots, restaurants across Manhattan say they aren’t fooling around, either.

Patsy’s Italian — the 75-year-old Neapolitan eatery at 236 W. 56th St. that was famously a favorite of Frank Sinatra — will be closed on Election Day “for security reasons,” said Sal Scognamillo, the restaurant’s third-generation chef/owner.

Scognamillo boarded up the eatery on Monday and also beefed up security — hiring two ex-NYPD armed guards for Election Day and Wednesday, when he plans to reopen. However, he says he will be “monitoring the climate to see how it goes. We hope to reopen for dinner on Wednesday but will play it by ear.”

In the case of restaurants, the New York Police Department has warned that outdoor tables and chairs that lately have become ubiquitous on sidewalks could be weaponized by riled-up crowds. The advisory was addressed to Manhattan eateries south of 59th Street, but Avra Madison Estiatorio, the splashy fine dining Greek eatery at 14 East 60th St., says it will have extra security on site, anyway.

“We will be able to board up the restaurant quickly if rioting starts from either side,” said Avra’s owner, the veteran restaurateur and real-estate mogul Marc Packer.

Madison Square Garden-owned Tao Group — which kept eight of its many New York City restaurants open during the pandemic — will likewise close all but one of its restaurants on Tuesday. Tao Downtown will be open for delivery only “as we expect people will be home watching the election and may want food delivered,” Tao Group co-owner Noah Tepperberg told Side Dish.

In addition to worrying about the windows, some restaurants have been busy bolting safes to their venues’ floors — despite the fact that the lock boxes typically are back-breakingly heavy, said restaurant consultant Rick Camac.

“It has happened,” Camac said. “Four guys will break in and just walk out with a safe that weighs hundreds of pounds unless it is bolted to the cement floor.”

In an Oct. 22 letter to business owners and managers south of 59th Street, NYPD assistant chief Stephen J. Hughes warned that “demonstrations, rallies, and/or protests” are likely, and asked business owners to move or secure street items including furniture, trash cans, dumpsters, small planters, and “any non-fastened miscellaneous items in front of stores or buildings.”

Downtown in TriBeCa, some developers are even “bullet proofing” their windows — to make sure protesters won’t be able to smash them, which is what happened over the summer, Camac said, citing the case of one developer on Duane Street.

“People are prepared because of what happened over the summer, even though those riots feel like years ago,” Camac said. “We have to do our own sanitation and hire our own security guards. It doesn’t seem like we have enough police.”

An NYPD spokesperson declined to comment beyond the department’s written advisory.

https://nypost.com/2020/11/02/many-nyc-restaurants-beefing-up-security-closing-on-election-day/

Redfin policy makes it harder to sell homes in minority neighborhoods: lawsuit

Housing advocates have accused Redfin of “redlining” minority neighborhoods with a price policy that can make it harder for people of color to sell their homes.

Redfin will only act as a real estate broker for homes if they’re above a minimum price that varies for each housing market — meaning the company is less likely to offer its full range of services in predominantly non-white neighborhoods, according to the National Fair Housing Alliance.

The Washington, D.C.-based group brought a lawsuit against Redfin asking a court to put an end to the practice, which it likened to the racist redlining policies that shut black families out of the housing market for decades.

A two-year investigation by the National Fair Housing Alliance found that Redfin offered no real estate services to non-white ZIP codes at a disproportionately higher rate than white ZIP codes in 10 metropolitan areas, including Long Island, Baltimore, Detroit and Philadelphia.

Not having access to those services can cause homes in those neighborhoods stay on the market longer, which can make the area look less desirable and drive down property values, according to the group’s lawsuit accusing Redfin of violating the Fair Housing Act.

But Seattle-based Redfin said it follows the Fair Housing Act, which supports businesses’ decisions to determine the areas and customers they serve based on “legitimate business reasons” such as price.

In a statement, Redfin CEO Glenn Kelman acknowledged that the company’s agents don’t work in some rural towns or low-priced neighborhoods because “we don’t know how to sell the lowest-priced homes while paying our agents and other staff a living wage, with health insurance and other benefits.” He also noted that Redfin hasn’t turned an annual profit in 16 years as a brokerage.

“Even though the suit is wrong about the law, the issues it raises are important to Redfin, to our society and to me,” Kelman said. “We have a long history of expanding into lower-priced communities; we want to expand faster.”

Redfin offers several “perks” to buyers and sellers who use its real estate agents to sell their homes, including professional photos of the property, premium placement on Redfin’s website and even discounts on the agent’s commission in some cases, according to the suit.

But such services aren’t available for homes that don’t hit Redfin’s minimum price threshold, which varies widely even within major metro areas, the complaint says. For instance, the minimum for brokerage services in the city of Detroit was $700,000 this June but just $250,000 outside the city limits in Wayne County, the suit alleges.

“Redfin’s policies and practices amount to separate and unequal treatment of communities based on the racial composition of the area,” the alliance said in its 76-page complaint, filed last week in Seattle federal court. “In short, Redfin’s policies and practices constitute real estate redlining in a digital age.”

https://nypost.com/2020/11/02/redfin-accused-of-redlining-in-federal-housing-lawsuit/