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Pepperdine University School of Law

Sunday, December 31, 2006

NY Times: The Condo and Co-op Tax Bargain

Park720 Interesting article in the Sunday New York Times:  The Condo and Co-op Tax Bargain, by Josh Barbanel:

It takes a rare touch of whimsy to imagine selling a 14-room apartment with 5 maids’ rooms and a 37-foot gallery in one of the great Park Avenue co-ops for $750,000, the going price for some studios. But that is the remarkable value that city tax assessors have placed this year on the huge prewar apartments at 720 Park Avenue, under the seemingly illogical collection of state laws that govern property taxes in New York City.

In the last year, while property tax assessments across the city rose by more than 9%, the assessors reviewed 720 Park. But rather than raising taxes on the building, they reduced them. City records show the official market value of the building and the tax burden on it were cut by 12%. The market value of the 17-story building, which has 34 apartments and was designed by Rosario Candela, was put at $22.5 million this year, down from $28.7 million a year ago, even though sale prices on Park Avenue have been rising to record highs. The total tax bill was just over $1 million.

Last December, John E. Beerbower, a partner in Cravath, Swaine & Moore who was then the co-op board’s president, said that the board routinely appealed its tax assessment on the advice of the building’s professional managers. Then in June, riding the wave of rising Park Avenue property values, Mr. Beerbower and wife, Cynthia, decided it was time to downsize. They sold their 14-room apartment on the seventh floor for $20 million, nearly the same value placed on the entire building by the city’s Finance Department. ...

The sale price works out to about $3,400 a square foot. But based on figures from the Finance Department, the apartment was valued at a tiny fraction of that, under $130 per square foot, less than a tenth of the recent average selling prices per square foot of three- or four-bedroom apartments in Manhattan. The Beerbowers spent close to $5.1 million for a smaller apartment on East 72nd Street....

Owen Stone, a spokesman for the Finance Department, confirmed that the assessment and taxes at 720 Park went down. But he said this was an unexpected side effect of a change in the way assessments on co-ops and condominiums were calculated, a change made at the request of the city’s lawyers. He said that the city’s finance commissioner, Martha E. Stark, was mulling recommendations to the Legislature to change the assessment laws to make them fairer.

A primer on the problems of the tax system might go like this:

Owners of individual houses — defined as one- to three-family homes — are assessed based on the actual sale prices, but taxed at a lower rate than apartment buildings.

Rental apartment buildings are taxed at a higher rate, but their assessments are based on the rental income and expenses they report to the city. These assessments are typically far lower than they would be if they were based on actual building sale prices.

Co-op and condo owners are assessed neither on the sale prices of their apartments nor on their building’s income and expenses. To keep their taxes low, the Legislature required that they be taxed as if they were rental buildings. Mr. Stone said the policy change this year required assessors to compute the value of co-ops and condos using specific nearby rental buildings, rather than a neighborhood average. Since the rental buildings near 720 Park had relatively low taxes, he said, the building’s taxes were lowered accordingly....

Mr. Beerbower, the former board president, suggested that some of the extraordinary value of older prewar co-ops had nothing to do with bricks and mortar or even location, and that perhaps these intangibles should not be taxed as real estate. He said that moving into 720 Park was more akin to paying to join a private club, rather than buying a piece of property.

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what does this mean? should all co-ops get re-assessed?

Posted by: mathias | Jan 1, 2007 3:13:49 PM