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EisnerAmper Blog

Building Success: An EisnerAmper Real Estate Blog

What You Need to Know About the NYC Property Tax Assessment Process

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February 26, 2015
By Michael Benison, CPA, MST

The Big Apple real estate market is booming, and in turn, the New York City Tax Commission office has been receiving between 50,000 and 53,000 applications for property tax assessments each year. EisnerAmper Senior Tax Accountant Michael Benison recently sat down with New York City Tax Commission President Glenn Newman to learn valuable information about the process.

Newman told Benison that most of the city’s major players are filing applications through the Tax Commission’s office these days. The most important factor and starting point in reviewing a tax assessment, he noted, is an honest and accurate application. “Taxpayers need to pay attention to all of the details listed in the application and complete a true and accurate income and expense statement of the assessed property.” By way of background, it should be noted by law that all commercial property in the city must be valued using the income and expense approach solely

It’s also critical to understand the key differences between the NYC Department of Finance and the NYC Tax Commission, Newman said. The Department of Finance calculates the initial property assessment based on data that is collected and available; the Tax Commission can review and reduce the property assessment but not increase the assessment or decrease an exemption. “The Tax Commission has no control over the Department of Finance’s descriptive information,” he explained. “Any issues concerning descriptive information should be addressed to the Department of Finance.”

Documentation pertaining to what the property is and its correct usage is essential in order to get an appropriate assessed value, he said.  “If some discrepancies exist with Department of Finance, applicants should state the accurate amount,” Newman noted.  For example, if the Department of Finance says a property is 50,000 square feet, but the property is actually only 35,000 square feet, the applicant should state the correct amount in the Tax Commission’s application and inform the Department of Finance about the updated figure.

A new, explicit item that is being listed on assessment documents is the use of outdoor space, which is becoming more popular as high-tech industries continue to grow. That said, the use of cell towers, telecom equipment, signage, and generators is expanding. “The Tax Commission needs to be informed that there is outdoor space usage and how the property is utilized,” Newman said—important information if owners want an accurately assessed value. Another item recently modified: Form TC309 (an accountant’s certification attached to the income and expense statement) with the help of Newman and the NYSSCPA Real Estate Committee. The form now conforms to AICPA professional accounting standards. An auditor’s report on the income and expense statement is required if the property is assessed at $1 million or more.

The Tax Commission office also works on construction and not-for-profit exemption cases. While construction exemptions are fairly straightforward, Newman said there has been an uptick in non-for-profit exemptions. The not-for-profit entities often own real estate and may have underutilized properties, which they can rent out. But if they rent out this space to other not-for-profit entities, it can have an impact on the exemption. For instance, there’s a limit on how much rent a non-for-profit organization can receive. While it can recover its costs of operation (including mortgage interest, and depreciation), any profit from renting can significantly impact an exemption.

“It’s extremely important for practitioners to inform their not-for-profit clients to check their assessments and renewal notices annually,” Newman said. In many instances, not-for-profit organizations may not pay attention to property valuation details, and this can result in a loss of their full exemption. The result can be a drastic increase in the property valuation, which can affect a future sale of the property and partial exemptions. “They may be exempt from tax now, but they should think about future concerns as well.”

International Investors Target U.S. Hotel Properties

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February 23, 2015

Friedland, DeborahBy Deborah Friedland and Michael Benison, CPA, MST

Foreign investments in the U.S. continue to increase. This last year marks one of the largest foreign investment influxes in real estate investments. U.S. real estate is a very attractive investment to international investors, as U.S. real estate is viewed as a safe haven investment option. These investors are willing to put their money and pay a premium in price to hold an investment in a relatively stable market compared to their home countries. Foreign capital has been one of the main drivers in the rise of price escalation in the NYC real estate market. Demand remains high and supply limited.

International investors have shown an increased appetite in investing in hotel properties. Here are some of the deals that took place recently. 

  • On February 6, 2015, Chinese insurer Sunshine Insurance Group agreed to buy the Baccarat Hotel from Starwood Hotels & Resorts Worldwide for more than $230 million. The sale of the 114-room hotel at 20 West 53rd Street would tie or potentially exceed that of the Plaza Hotel in 2014 as the priciest ever for a U.S. hotel based on per-room cost – at more than $2 million per room. 
  • Beijing-based Anabang Insurance Group agreed to purchase the Waldorf Astoria New York for $1.95 billion in October 2014. 
  • In January 2014, the Al Rayyan Tourism and Investment Company acquired The St. Regis Bal Harbour Resort in Miami, FL from Starwood Hotels and Resorts Worldwide Inc. 
  • In November 2014, Kuwait based investment group KFH Capital Investment Co. purchased the Hampton Inn United Nations and Holiday Inn Express Manhattan Times Square South.  
  •  In December 2014, Rockpoint Group sold its investment in The Manhattan at Times Square Hotel, also to the Al Rayyan Tourism and Investment Company.

Foreigners are also expanding their investments to the outer boroughs; Brooklyn, Long Island City, Queens.  Recently, U.K.-based Ennismore Capital purchased a development site in Williamsburg for its Hoxton hotel brand.

According to a recently released Jones Lang LaSalle cross-border study, Japanese investors were the top foreign investors in U.S. hotels during the first nine months of 2014, investing $1.94 billion. Chinese investors were at the top of foreign capital sources for development projects investing $1.34 billion. Chinese inflow into the U.S. is growing largely because of a recent change in the Chinese Ministry of Commerce allowing Chinese companies to invest overseas without preapproval from the Ministry. Chinese investors are also enticed by the EB-5 immigrant investor program, which grants foreign investors green cards in exchange for job-creating investments.

Hotel investors remain optimistic about the future outlook on hotel investments and sector growth. The hospitality industry continues to see large increases in rates and revenues across the country. Core cities with high tourism such as Miami, Orlando, New York, and San Francisco should continue to attract international investors. Even markets like Dallas, Houston, Atlanta, Chicago, and Philadelphia are gaining traction in attracting foreign funds. International investors are not only considering luxury, full-service assets but are also investing in portfolios of select-service hotels. EisnerAmper expects foreign investments in U.S. hotels will continue in 2015 as the geopolitical climate remains unstable in many areas of the world.

New York City Mayor Bill de Blasio Unveils ‘Housing New York: A Five-Borough, Ten-Year Plan’

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February 10, 2015

By Ariel Cabral, JD

Overview

New York City Mayor Bill de Blasio recently unveiled a new housing plan aimed at building 160,000 market-rate apartments, in addition to constructing and preserving 200,000 affordable housing units over the coming decade.  The plan calls for new development projects throughout the five boroughs and pledges more than $200 million dollars to help foster this development. The city also plans to provide developers and property owners with incentives aimed at promoting affordable housing development. These incentives include making changes to the city’s zoning laws, as well as creating new tax programs and modifying existing programs.

The Plan’s Impact on Tax Programs

Under the plan, the city will seek to create new tax programs that provide developers and property owners with tax exemptions in exchange for ensuring affordability for the life of the exemptions. The city will also target and strengthen existing tax incentives by modifying the 421a, J-51, and 420-c tax programs.

The 421a tax program currently grants partial tax exemptions to developers who set aside at least 20% of their units as affordable. Under the plan, the city will increase the percentage of affordable units and the level of affordability required for developers, in strong housing markets, to obtain 421a eligibility. The city is also considering requiring condominium developers, who seek to benefit from the program, to construct off-site affordable rental units or make payments into a fund for that purpose. The plan does, however, eliminate the Preliminary Certificate of Eligibility and make construction period benefits retroactive, thus eliminating burdensome eligibility and oversight requirements.

The J-51 tax program provides property owners with incentives, in the form of real estate tax exemptions and abatements, to rehabilitate residential buildings. The new plan will expand incentives by increasing tax abatements that would allow property owners to recoup more of their investment. The city is also considering changes that would enable landlords to increase the legal rent for rent-stabilized units.

The 420-c tax program provides a tax exemption for low-income housing developments financed through tax credits and controlled by charitable organizations. The city will make a series of administrative reforms aimed at removing unnecessary eligibility requirements from the 420-c program and increasing predictability for owners regarding the value and timing of the exemption.

Conclusion

Overall, these changes appear to benefit developers and property owners, by making it easier and more economically appealing for them to participate in these programs. However, many of these programs will require developers and property owners to make bigger commitments to affordable housing than in the past. In the end, the plan will benefit those who are willing to invest in weaker housing markets and provide greater affordability.

Portions of this article were taken from ‘Housing New York: A Five-Borough, Ten-Year Plan.’ To read the Mayor’s entire proposal please click on the following link: http://www.nyc.gov/html/housing/assets/downloads/pdf/housing_plan.pdf 

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