The owners of three Manhattan retail condos — including the building where Kim Kardashian’s company just scored a huge discount — are suing the city’s Department of Finance, claiming its tax assessments are too high.
The properties have lost millions in rental income since Covid pummeled the retail sector and are now “grievously overassessed,” according to a lawsuit filed in state court by Vornado Realty Trust, Oxford Properties, Crown Acquisitions and the Zucker Organization. Assessed values are based on income and expense information from 2022.
The anchor tenants at all three buildings — 697 Fifth Avenue, 647 Fifth Avenue and 205 East 59th Street – have either ended or renegotiated leases since 2022.
“Basing a property’s assessment on two-year-old gross income is unlawful and results in a tax liability that is severely disjointed from the condition and use of the property as of the taxable status date,” the owners argue in the suit.
The owners filed a case against Finance Commissioner Preston Niblack and his department, demanding that they recalculate the assessed values of their properties.
Owners who want to challenge their assessments usually make their case to the Tax Commission. If the commission doesn’t offer a reduction, the next step is to negotiate with the city’s Law Department. If that doesn’t work, property owners can go to court.
These owners are going straight to the last step.
The lawyer for the owners sent several desperate emails imploring the city to use the current leases to determine the assessed values instead of outdated income statements.
The finance department denied the request.
“How anyone could possibly think that using pre-Covid rent from a 2015 lease was a better indication” of market value than a lease inked in 2023 “is beyond me,” attorney Jeremy Friedman wrote in an angry email to several finance employees in November, after his request was rejected.
The suit offers a glimpse into how much some retailer owners are suffering, even in prime Midtown locations.
At Vornado’s 697 Fifth Avenue, for example, luxury jeweler Harry Winston surrendered occupancy of its upper three floors last year. The new lease provides annual income of about $6 million, not the $22 million estimated gross income used to calculate the assessment, according to court documents. The three vacant floors are unusable without major upgrades, the suit says.
At Oxford Properties and Crown Acquisitions’ 647 Fifth Avenue, Kardashian’s company inked a deal that will net the landlord about $5.5 million a year. But the city used an estimated gross income of $18 million for its assessment, the suit says.
At Zucker Organization’s 205 East 59th Street, which also uses the address 999 Third Avenue, Ikea was paying about $2 million in annual rent until its lease expired in November. The company closed the location in 2022.
“The mortgage is coming due in 2024 and this property is likely to be another newspaper headline ‘deed-in-lieu of foreclosure,’” Friedman emailed city employees, arguing the only way to avoid that was to use “market rents, and not unattainable pre-Covid rents” to calculate the assessment.
Friedman declined to comment. A spokesperson for the Department of Finance said the agency would review the lawsuit.
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