Given the sharp decline in real estate values, double-digit unemployment and depressed rent rolls, reducing real estate taxes is crucial this year. Property taxes often represent anywhere from 20% to 50% of a property’s operating expense. Therefore, an annual review of your property’s tax assessment can provide you with much needed savings.
In New York City the Department of Finance conducts its property assessments in January. It is this value assessment that serves as the basis upon which property taxes are determined. The deadline to file a protest of the new assessment with the NYC Tax Commission is March 1.
Although there are two approaches used by tax assessors, sales comparables and capitalized income, the income capitalization approach is often used for commercial properties located in New York City. This approach is based on the expectation of the future benefits of owning the property. For tax assessment purposes, the valuation is predicated on the net operating income of a property, excluding any income that might be generated by a business located within the property. Upon determination of the net operating income, a specified CAP rate is calculated, and the income is capitalized to ascertain present value. This amount then, serves as the basis upon which the property tax is arrived at.
This year in particular, owners need to conduct a sophisticated analysis and effective presentation to ensure their property taxes are aligned with the current market conditions in New York City. Accordingly, in the first instance when the assessment is taking place -as well as-when filing a protest with the Tax Commission, a compelling presentation to the assessor regarding the rise in capitalization (CAP) rates is key. In lowering the amount of the net capitalized income by using a higher CAP rate, you lower the present value of your property, and thus the attendant property tax assessed by the City.
In an article by Joel R. Marcus, partner in the law firm Marcus & Pollack, LLP, he provides the following suggestions to New York City commercial property owners in preparing for their presentation to the tax assessor(s):
Hotels. It is essential to collate and distill data that accurately reflects current market conditions, andto include labor and staffing requirements. Also a demonstration of how the increase in new rooms and new hotels resulted in lower rates and higher vacancies will be vital to the presentation.
Condos. Showing condo price reduction is the beginning of an effective presentation to reduce taxes. Rather valuation models which use realistic market conditions, high CAP rates and broad comparables assessments and data will more effectively support a decrease in a property’s present value.
Office and the remaining types of commercial properties need to show the lack of net absorption of the property, indicating a 15% vacancy and loss factor in the a 100% occupied property. It is also key to show how the continued vacancy is foreseeable given the current economic conditions.
Accordingly, a meaningful consultation with a real estate attorney who specializes in property tax assessments and filing protests (or tax certiorari applications) can prove to give a New York City property owner much needed tax relief.
[Data Sources: NYREJ; Lawfirms.com; Real Estate Forum Magazine, November/December, Joel R. Marcus, "Trouble Coming in 2010 Assessments."]
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Great info buddy, thanks for useful article. I’m waiting for more