Pols take aim at private equity with plan to tax mezz debt

The revenue from the proposed tax would directly fund public housing

TRD New York /
Jan.January 17, 2020 05:11 PM
State Senator Julia Salazar and Assemblymember Harvey Epstein (Credit: Getty Images)

State Sen. Julia Salazar and Assembly member Harvey Epstein (Credit: Getty Images)

A new bill seeks to raise money for public housing while bringing more transparency to the complex world of mezzanine financing.

A new state bill introduced by State Senator Julia Salazar and Assembly member Harvey Epstein would include mezzanine debt in mortgage recording and include such transactions in the mortgage recording tax. The bill defines mezzanine debt as debt carried by the borrower that may be subordinate to the primary lien, or common shares and reported assets that are used to finance a primary lien.

Essentially, that means that the current mortgage recording tax — which is 0.5 percent for mortgages of any amount (and 0.8 percent in the 12 counties serviced by the Metropolitan Transportation Authority) — would include even debt that is currently not publicly recorded. The proposed legislation would upend New York’s real estate finance practices and generate hundreds of millions of dollars for public housing.

Epstein said that he has long considered the lack of transparency in private equity financing into multifamily housing to be a problem. “Why should debt on a property that’s not collateralized by a mortgage be treated any differently than normal debt?” he said.

New York City collected $1.4 billion from 66,180 mortgages last year, according to the annual statistical report of New York State tax collection.

East Village (Credit: iStock)

East Village (Credit: iStock)

Under the proposed bill, that revenue would directly fund public housing. In New York City, proceeds from the mortgage recording tax would go directly to New York City’s public housing system. That also means the proceeds would skip New York City’s general fund. (Outside of New York City, the funds would go toward the county’s affordable housing system.)

The New York City Housing Authority’s capital need has soared to $40 billion, up from $32 billion, according to Greg Russ, who was appointed to head the beleaguered agency last year.

Though the bill appears aimed at private equity firms that have provided junior debt on multifamily developments, prominent developers interested in other asset types could also be affected. Developers such as Madison Realty Capital, Mack Real Estate Group, Silverstein Properties, SL Green Realty and Moinian Group have launched mezzanine and other debt platforms in recent years, though many are primarily focused on the construction debt space.

In many cases, the lender makes a good payday from mezzanine yields, which are typically higher than senior debt because they entail more risk. Unlike a mortgage lender, which upon foreclosing takes the property and is not bound by liens that came after the mortgage loan, a mezzanine lender that forecloses gets the borrower’s ownership interests, not the property itself. The lender also takes on the owner’s liabilities.

Write to reporter Georgia Kromrei at [email protected]


Related Articles

arrow_forward_ios
Senate Minority Leader Chuck Schumer and Senate Majority Leader Mitch McConnell (Schumer by Tasos Katopodis/Getty Images; McConnell by Ting Shen/Xinhua via Getty)

Schumer v. McConnell on SALT: Who’s gonna give?

Schumer v. McConnell on SALT: Who’s gonna give?
Joe Biden (Getty)

Biden’s $775B “caring economy” plan to be funded by RE taxes

Biden’s $775B “caring economy” plan to be funded by RE taxes
Rich Barton, Howard Lorber, Jay Hennick, Brett White

Real estate firms are raising billions in debt and equity. Here’s why

Real estate firms are raising billions in debt and equity. Here’s why
NYCHA CEO Gregory Russ and NYCHA houses (Credit: Minneapolis Public Housing Authority, Spencer Platt/Getty Images)

NYCHA tenants with zero income pay zero rent

NYCHA tenants with zero income pay zero rent
Photo illustration of Governor Andrew Cuomo (Credit: Cuomo by Stefani Reynolds/Getty Images; iStock)

Escaping New York? Tax man is right behind you

Escaping New York? Tax man is right behind you
Blackstone's president Jonathan Gray and CEO Stephen Schwarzman (Credit: Gray via Drew Angerer/Getty Images; Schwarzman via Himanshu Bhatt/NurPhoto via Getty Images)

Blackstone: “We don’t need financing to get things done”

Blackstone: “We don’t need financing to get things done”
New York City Comptroller Scott Stringer (Credit: Andrew Burton/Getty Images, iStock)

Coronavirus will cost city billions in tax revenue: comptroller

Coronavirus will cost city billions in tax revenue: comptroller
Taxes would rise for owners of Manhattan mansions and penthouses, but the biggest shock would be on homeowners in Brooklyn neighborhoods (Credit: Pixabay)

City’s property tax overhaul would increase burden for single-family homeowners

City’s property tax overhaul would increase burden for single-family homeowners
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...