NYC’s most valuable building, and other nuggets from the tax roll
GM Building is No. 1; bills rise as apartments lose 421a
Buried in the bewildering data dump that is the city’s tentative property assessment are nuggets of interest to real estate.
For one, the 1.8 million-square-foot GM Building just became the most valuable in the city with a market value of $1.9 billion — up 17 percent from a year ago. Its billable value increased by 6.4 percent to $796 million.
For the lay reader wondering why the two values are so different and went up by vastly different amounts, understand that the city makes property taxes inscrutable. Perhaps the idea is to create jobs for accountants and tax certiorari lawyers, whom building owners routinely hire to challenge their assessments.
The city estimated gross income for the tower, 767 Fifth Avenue, at $304 million and its expenses at $65 million. It figured a base capitalization rate of 7.46 percent, “which is the Department of Finance’s estimate of the rate of return that an ordinary investor would expect on their investment in this type of property.”
Note to DOF: Ordinary investors don’t own skyscrapers. In this case, Boston Properties, Chinese property tycoon Zhang Xin and the Safra banking family do.
But never mind. Back to the data:
The market value of the Empire State Building, once the city’s most valuable property, increased by nearly 10 percent to $993 million. Its billable value rose by 7.8 percent to $440 million.
The iconic skyscraper has in recent years received an energy-saving overhaul, suffered a retail slump and enjoyed a revival, but also endured the pandemic’s wipeout of its observation deck revenue.
(For a brief but amazing look at the tower’s history, watch this video.)
Also of note in the tax roll, the luxury rental building at Blackstone’s 8 Spruce Street saw its assessment leap from $4.4 million to nearly $31.6 million. Based on the current Class 2 apartment tax rate of 12.67 percent, the tax bill of the Frank Gehry–designed tower will go from $379,000 to $4 million.
This one is easy to explain: The Manhattan building’s 421a tax break is starting to phase out.
For the same reason, the Rockrose-developed 709-unit rental tower known as the Linc LIC at 43-10 Crescent Street in Hunters Point had its billable value boosted from $740,000 to $12.9 million, despite its market value dropping from $163.7 million to $137.3 million.
This means its $90,700 tax bill this fiscal year will rise to $1.58 million starting in July.
Opponents of the abatement program, which for new projects expired June 15, 2022, love to point out that it wipes out almost $1.8 billion in annual taxes, including at luxury buildings (available apartments at 8 Spruce run from $4,672 to $32,000 a month). They never mention how much is collected from buildings after their abatements end.
Of course, no one knows if these buildings would have even been built had 421a not existed.
Commercial properties can also get temporary tax breaks.
At Two Court Square in Long Island City, the office property’s ICIP exemption is ending, bloating its billable value from $1 million to $24.7 million and its tax bill from $109,000 to $2.7 million starting in July, based on the current tax rate of 10.755 percent — despite its market value dropping by $4.5 million, to $54.9 million.
ICIP stands for Industrial and Commercial Incentive Program. The program offered exemptions of up to 25 years for constructing or rehabilitating industrial and commercial buildings but was killed in 2008 and succeeded by ICAP, with “abatement” replacing “incentive.”
An oddity in the new tax roll is that some hotels’ market value was increased by identical or nearly identical percentages.
The figure for the city’s most valuable hotel, the Hilton in Midtown, rose by 7.47 percent, while the Plaza’s went up 7.69 percent and the Ritz Carlton’s by 7.66 percent. Three more of the highest-value hotels were given market-value increases of exactly 15.5 percent and a fourth got a 15.4 percent bump. Another three got matching 8.15 percent increases.
It was as if a computer rather than trained assessors came up with the numbers, which are supposed to stem from income and expense statements submitted by the hotels.
Vijay Dandapani, president and chief executive CEO of the Hotel Association of New York City, surmised that the Department of Finance improvised because the pandemic so disrupted hotels’ 2021 revenues, on which next year’s tax assessments would normally be based.
The agency also lacks data from last year, when revenue per available room remained below 2019 levels despite about 15,000 rooms being closed at any given time, the hotel owners’ trade group leader said by email.
“Incidentally,” Dandapani added, “some hotels, particularly luxury hotels, were within 10 percent of their 2019 performance on the revenue side with a few even better, while most others were worse.”
Overall, hotels’ market value increased by 9.7 percent and their billable values by 7.8 percent.
Home is where the tax is
On the residential side, Class 1 homeowners’ market values were raised by 6 percent to $25.1 billion. If the numbers hold, homeowners’ tax bills will increase by 6.3 percent in Brooklyn and by 6.1 percent in Queens and Staten Island — although Staten Island homes’ market value increased by 12.1 percent, the most of any borough.
The Department of Finance has made efforts to explain these figures on the notices of property value it mails to residential owners. It remains a work in progress.
This year’s four-page notice estimates next year’s property tax on the first page, but omits the current year’s tax. Taxpayers who want to know the increase they are facing must find their current taxable value on page 3, multiply it by the 0.12267 tax rate on page 1, and subtract the result from next year’s projected tax.
Owners unhappy with the result can challenge their assessed value with the New York City Tax Commission. The deadline is March 1, except for Class 1 (single-family) owners, who have until March 15.
The assessed value for Class 2 and 4 is a straight mathematical calculation — 45 percent of the market value and 6 percent for Class 1 — so it is not clear from the mailing what good it would do to challenge it.
The key is the market value, which should not be confused with what a home would sell for, but that’s another story (it’s explained online but not on the mailed notices). Class 1 owners can request a review of their market value or other potentially incorrect facts until March 15 while Class 2 and Class 4 owners have until April 3, but don’t bother the Tax Commission. Another agency, the Department of Finance, handles that.
The big picture
The new proposed value of all city property is $1.479 trillion, a 6.1 percent increase from the current fiscal year, which ends June 30. Taxpayers will be billed 4.4 percent more starting in July, but changes for specific properties depend on individual assessments and the city budget hashed out later this spring by the mayor and City Council.
The tax roll reflects “mixed signs of growth and economic recovery,” said Finance Commissioner Preston Niblack, noting “improvements in subsectors of the residential market while key commercial sectors still lag behind pre-pandemic levels.”
His summary: Office, retail and hotels are struggling, while single-family homes, which make up a majority of residential properties, “have exhibited a robust recovery.”
All in the multifamily
Class 2 residential apartment buildings rose in value by $3 billion to $351 billion. Condominiums’ market value increased 5.1 percent but co-ops went up a mere 0.5 percent and rentals just 1.6 percent. The increases were small in part because not enough buildings were constructed.
Rentals’ tax per unit will drop slightly from $5,396 to $5,385, perhaps because of Covid-era rent decreases. Co-ops’ per-unit tax will rise from $8,859 to $8,936 and condominiums’ from $13,520 to $14,095.
Among the five boroughs, billable values rose the most in the Bronx, up 11.6 percent. It appears that new construction of higher-quality buildings led to the increase. The average tax per unit in the borough rose by $182, to $2,495.
Property values can run up faster than tax bills, thanks to another convoluted tax law that especially benefits property owners in gentrifying neighborhoods. Increases in assessed value for both Class 2 and Class 4 are “transitioned” in over five years.
In the realm of commercial buildings, Class 4’s market value rose overall by 7.4 percent, to $317.2 billion, and billables by 5.2 percent, to $129.7 billion.
Office buildings rose 7.1 percent in market value and 4.4 percent in billable value. Taxes per foot for Class A towers are rising from $16.25 to $16.97 but trophy towers will see a drop from $20.81 to $20.67 per foot.
Despite Class B rents starting to drop like stones, their taxes per foot will rise from $13.76 to $14.24. The phrase “lagging indicator” comes to mind.
Retail buildings’ market value went up 5.4 percent and billable values rose 4 percent.