Real estate industry “working around the clock” to close big deals before new taxes hit

Lawyers and brokers are trying to help mostly all-cash buyers lock down homes before closing costs spike on July 1

Jun.June 24, 2019 11:45 AM
For the past three months, the race against the clock has been on for opportunistic buyers and sellers who want to avoid paying the extra taxes. (Credit: iStock)

For the past three months, the race against the clock has been on for opportunistic buyers and sellers who want to avoid paying the extra taxes. (Credit: iStock)

Daniel August Cordeiro spent the summer solstice preparing for a weekend to remember — from picking out flowers to pitchers of lemonade — with the expectation that a handful of all-cash buyers would each decide to drop more than $20 million on the spot.

“We’re pulling out all the stops,” said Cordeiro, the senior managing director of Corcoran Sunshine Marketing Group, the new development brokerage that represents a portfolio of 30 projects across the city. He’s got a series of conference calls lined up to negotiate contract terms and back-to-back catered showings in units priced at “north of $20 million,” all as work crews finish hanging art and moving in furniture.

Cordeiro is one of many players in the luxury residential market who’s racing to get deals done in this week before New York State’s new progressive taxes on high-end home transactions go into effect on July 1.

The new transfer and mansion taxes were instituted as part of the state budget in April and will tack on an additional .25 to 2.9 percent on in closing costs for properties sold for more $2 million (plus an extra .25 percent transfer tax on homes sold for over $3 million) — unless the sale closes before the July 1 deadline. So, for the past three months, the race against the clock has been on for opportunistic buyers and sellers who want to avoid paying the extra taxes.

Now, it’s the final days of the brief window to sidestep the taxes and “the entire industry is working around the clock to make [closings] happen,” said Cordeiro, particularly “triple-booked” real estate attorneys.

Bruce Cohen, of Cohen & Frankel, LLP, said his firm has 40 deals to close by Friday. One day last week, he ended up crashing at the Roosevelt Hotel — for $113 a night plus tax — to be closer to his office on East 44th Street. “Thank God I have gym clothes, so I was able to change,” he said. “I called it the walk of shame.”

Craig Price, a partner at Belkin Burden Wenig & Goldman, is scrambling on two fronts as his multifamily clients are reeling after the passage of the new rent laws and residential clients trying to stay ahead of the new taxes.

“It’s been a double dose of pleasure from our government,” he said. He’s working to close on six deals ranging in value from $3 million to $35 million. “It is insanity,” he said.

Take Adam Turk, a partner at Fentin, Goldman, Turk & Davidoff LLP, who says he hasn’t been sleeping much: “It’s the perfect storm,” he wrote in an email. “We have the combination of low rates, this [tax] deadline, as well as the fact that it is the summer and some managing agents have already started summer hours.”

This week, Turk said he has scheduled closings from 7 a.m. — “Bringing donuts to that one” — to 8 p.m. “Drinks are on the other attorney after that one,” he said.

Though market data hasn’t yet reflected the frenzied pace of deals, brokers claim the buyers most affected by the looming taxes are the ones ready to lay down millions.

According to Cordeiro, Corcoran Sunshine has been logging “huge uptick” in transactions between $8 million and $30 million since April — and buyers are mostly paying in cash.

“All-cash buyers are really coming out of the woodwork to close before the increase kicks in,” he said. “The higher the price point, the more the taxes increase.”

Ryan Serhant of Nest Seekers International said “there’s nothing like a tax increase to really push buyers off the fence.”

The “Million Dollar Listing New York” star pointed to a deal he claims he struck at the Time Warner Center to sell Unit 68AF, last asking $17.5 million, so long as it closes by July 1. In Greenwich Village, he’s selling a $5.7 million condo that’s contingent upon signing the contract — and closing — on the same day next week.

“It’s a dream to a seller’s ear [when a buyer says,] ‘I’d like to make an offer and take a contract out and also, can I close tomorrow?’” he said

Prime Residential broker Robert Dankner also said he’s representing clients in at least six deals, ranging from $7 million to $19 million that “probably would have schlepped along had [the new taxes] not been an issue.”

He said he sees the added urgency to close ahead of the tax deadline for properties over $6 million, where the new transfer and mansion taxes add up to an additional $90,000, according to The Real Deal’s calculations.

“That’s real money. That’s a nice car — or half a car — or a nice vacation,” he said.

But buyers and sellers are also planning for the worst case scenario, where a closing doesn’t meet the July 1 deadline.

Serhant noted that his Greenwich Village deal could be canceled if the July deadline is missed. And many of attorney Price’s contracts include clauses that require the party responsible for a delay in the transaction to pay the new taxes should the closing stretch into July. Other times, sellers are agreeing to foot the additional tax bill in the event of a delay, explained real estate lawyer Michael Strauss, a solo practitioner who says he’s got “a logistical nightmare” of 10 closings to wrap up this week.

Frankel said he’s going on vacation in Italy on July 2. “At that point, the crush will be over,” he said. “It will have closed or it won’t.”

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