Name: Live Webinar: Smart Strategies for Lowering Your Cooperative Housing Corporation and Condominium Property Taxes
Uploaded: 2025-02-20T17:30:11.999Z
Duration: 1 h 30 min 8 s
Description: Live Webinar: Smart Strategies for Lowering Your Cooperative Housing Corporation and Condominium Property Taxes

Transcript for "Live Webinar: Smart Strategies for Lowering Your Cooperative Housing Corporation and Condominium Property Taxes": Good morning. Welcome to our live webinar, Smart Strategies for Lowering Your Cooperative Housing Corporation and Condominium Property Taxes posted by BF Before we get started, I'll go ahead and open up how to participate in today's. You will have the opportunity to submit text questions to today's presenters by clicking on the q and a tab on the right hand panel. You may send in your questions at any time during the webcast. We have a lot of material to cover and if time permits we'll make an effort to respond. If we cannot get to your questions a response will be sent post event. Please note we will be saving the q and a portion for the end towards the end of this webinar. This webinar is offering one CPE credit and specialized knowledge. Polling questions will be launched in the polls tab on your right hand panel and you will need to respond to three of the polling questions to receive credit. Polling questions will only appear as they launch, so please pay special attention as these polls will be launched periodically. CP certificates will be issued within eight to ten days via email. Please note a copy of the PowerPoint slides and a recording of today's webinar will be made available to you via email twenty four hours post event. As we near the end of the webinar, we do have a very short survey, which will be greatly which will be prompted and your response is greatly appreciated. At this time, I would like to introduce Thomas Sorrentino, partner of our real estate practice. Tom. Thank you, Alana. Appreciate the introduction. And, good morning to everyone. On behalf of all of us here at PKF, Okada Davies, and in particular, my colleague partners Sam Bada and Paul Kruger, We'd like to welcome everyone who's joining us today. We appreciate you taking the time to be with us for this one hour. We think this is a very interesting session. You know, one of the things that we will discuss with our clients, as part of our annual audits is the status of certiorari proceedings, the tax assessment process, because that's one of the disclosures we do include in the financial statements. And, as part of that process, we do work, many times with various attorneys who basically provide information on the status of the years that are being assessed and being challenged. And we are lucky enough today to have a very, great good panel, very expertise panel, from Marcus and Pollock, the law firm. We have Joel Marcus, we have Bob Pollock, and we have Nicole Pollock joining us. They're going to spend about thirty to forty minutes going through the process of trends in the property tax assessment world, understanding the process of challenging assessments, and how you can appeal property taxes. And their insights are valuable. We're happy to have them today. And we as we all know, real estate taxes are probably the most significant expense to co op co ops and condominiums, and we think this, webinar will provide some insight that will be very useful. So I welcome you all. We we appreciate you taking the time. We know we have a lot of friends on the call, today, some of our board members, some of our managing agent representatives that we work with hand in hand, and we're very happy that you could join us. So I wanna just turn over quickly to Sam Barra and enjoy the the, presentation. Thank you. Thank you very much, Tom, and good morning, everyone, and welcome. As Tom mentioned, my name is Sam Bada. I'm, an auto partner in our real estate and Kolb and condominium practice. The Kolb and condominiums, as most of you know, who are attending is an industry I've been very heavily involved in the last twenty years or so. I first wanna thank everybody who, registered as and is attending today's webinar. I also very much wanna thank, our guest speakers from Marcus and Pollock, who we believe today is gonna be presenting a very informative informative session in the next hour. As Tom mentioned, they're gonna be discussing the process of how New York City Tax Commission determines real estate taxes for Cobbs and condominiums. You'll you'll get an idea of how they determine the assessed value for each of the properties, how property taxes are determined. But more importantly, what's the process of how Cobbs and Condos can petition the assessed values that, New York City determines, in an effort to lower property taxes. You know, for as you know, for co ops, it's and even condos, it could be a very large, line item on your income statement. We feel everybody who's attending is gonna leave this session very well educated in in the process. If you're a co tenant shareholder or you're a condo unit owner who's very open to paying less property taxes, or even if you're a representative of a managing agent who acts on behalf of a board of a corporate condo who's very, very normally heavily involved in the process, we really think that this is the webinar for you. So, again, thank you for attending. And on that note, I'm gonna pass it along to mister Joel Marcus and mister Robert Pollock, for today's session. So, Joel, Bob, the floor is yours. Hello. Joel Marcus and my partner, Bob Pollock, here. We're not only partners for many, many years. We've been in this practice forty five years a piece, and, we have a a good background. Bob, might say something? Sure. We yeah. Exactly. We've been practicing in this area. My partner, Joel Marcus, started off at the New York City law department defending these cases, but then, went to the side of the angels. And I similarly, was formerly a senior assessor for the City Of New York and and saw the light and went to the the right side. And we represent a number of co ops and condos throughout the city and, the the issues that they confront. So co cooperatives and condominiums, you know, they're they're, started out uniquely in New York, experience, particularly with cooperatives. The first cooperative was created in the eighteen eighties, and these, cooperatives were, you know, more or less like a like a private membership, club, was considered to be, exclusive and special. And then later on, they they were the, you know, precursors of, of homeowners associations, etcetera. And we're gonna cover topics, how did we get here, the problems in assessment valuation, legislation that changed the face of, how property tax assessments are administered in New York City, the law that that covers it. And then we'll cover some strategies for success because there's always a way to get ahead and pay less taxes. And if you, you know, follow the strategies, you will end up in a much better place, on your tax situation, which is a very significant, portion of the taxes, of the of the budgets of a cooperative and a condominium. I just wanna say that, although they start in the eighteen eighties, cooperatives were the way, of New York City, you know, housing with private ownership of individual units. And, basically, cooperative is, shares in a corporation that owns the entire building, and you have a proprietary lease that gives you the right to reside in that apartment. Generally, a lot of cooperatives, have restrictions on subletting where condominiums do not. Condominium gives you a deed. You actually literally own the exact space of your unit. So that's a difference there. Cooperatives tend to have slightly lower taxes than condominiums, but also some of that has to do with the fact that the most cooperatives are significantly older, building stock than condominiums, which are relatively new. So that's a factor. When the first cooperatives were recreated, there was a real question on how to value them. So they knew how to value an apartment building. They saw the rents. They knew what the expenses were. They would apply a capitalization rate, a rate of return. They could get in the ballpark of what, an investor would pay, you know, for that income stream. When they got to, you know, cooperatives, well, there was no income that they could look at because the maintenance was really equal to the cost of operating it, so it really didn't give anyone any indication of what the thing was worth. So the courts grappled with it, and the first thing they did was they said, well, we'll we'll take a look at the sales prices. Well, all of a sudden, if you added up all of the sales prices of the cooperative, you came up with a value that was $3.04, you know, times greater than it was assessed when it was a rental. So then some court cases said, well, maybe we have to apply a bulk discount so they would take 20% off the prices. But the numbers were just way too high. And to remember one thing about cooperatives and condominiums, these are the citizens of the city, and they vote. So the state legislature came up with what they thought was a great solution, and it really was a solution that ameliorated many of the problems. They said you cannot use the sales prices of cooperatives or condominiums to value the assessed value of the property, and you had to instead substitute a hypothetical of what the property would be worth if it were operated as a rental building. And that basically is, the status of the law today, and it does produce, you know, materially improved assessed values that aren't as high as adding, you know, the, the the cumulative sales of every unit in the building. The the, the condominiums do allow sublet, and so some some people have advanced the theory that they would take the the rental that they could get from StreetEasy or they get from other sources and try to figure out what the value of that is, and that's an area of valuation dispute today. And later on, I will get into a landmark settlement on 520 Park Avenue where we disputed it with the city, and we came out ahead, for the value of that condominium. Bob, you wanna talk about the the impact of property taxes, on the budgets and, the city budget and the impact of it for cooperatives and condominiums. Sure. Well, I those of you that represent co ops are well aware that real estate taxes, typically are at least 50% of the overall budget. So imagine that they can run the building, pay the super, the insurance, and all the expenses associated with running the building for the equivalent amount of the the real estate taxes. Real estate taxes last year result, result in revenue of $34,000,000,000, which is 44% of the the old tax revenue that the city collected. And so, you you know, we can't pick the building up and take it to New Jersey. You're stuck. You're gonna pay this tax. It's a very easy tax for the city to administer. It's the only tax where the government sends you a bill and tells you how much you owe them. So when you do your income taxes, for example, you you fill out your income tax return. You say, government, I owe you x amount of money. Well, here, it's it's the other way around. And so you of course, you have a right to contest it. You say, well, wait a second. That's that's that's not correct. My my partner often points out that it's the second oldest profession in the world, because as soon as the, kings would impose a tax on the land, somebody would come up and say, well, wait a second. My land isn't as fertile, and it's steep. It's rocky. It should I shouldn't be paying as much as my neighbor. So we we've got these, you know, enormously heavy taxes, and we can go to the next slide. And the law that Joel was referring to was in 1981, the city enacted a comprehensive change in the real estate tax assessment scheme. The courts had ruled that the the policies we that the city had been living under, were unlawful. The the law had said that all property shall be assessed at its full value, and the court said, well, that meant it's a % of its value. Well, that would have resulted in a big shift in tax burden from commercial under residential. Residential were obviously where all the the voters resided. So the legislature said, well, we we can't have that as the solution. And they worked out this share of the pie concept under this comprehensive change in the in the tax laws. And those those tax laws were, at the time, criticized. They were enacted over a gubernatorial veto. They thought they would be unfair. They were difficult to administer. And meanwhile, that was in 1981. So so here we are forty four years later, and we're still working with the same law, and it's been coming under enormous criticism for many years, but yet it endures. And the reason it endures is it's collecting $34,000,000,000 a year, and it's you know, nobody's marching in the streets contesting it. So we ended up with four classes of property. Class one, we are one, two, and three family homeowners. They got certain advantages. They were entitled, to their increases were limited to no more than 6% a year, no more than 20% over any five year period. Then you talked about the multifamily residential. That became class two. So those that's where you put your co ops and condos and your residential rentals. And as Joel mentioned, the court said, look. We're not you're not gonna allow you to utilize the sales price to value a co op or condo, but instead, treat it as if it were rental. Value it as if it were rental. So that means the city has to go through the process of what would the rent be if it were a rental, what would the expenses be if it were a rental, and what rate of return would an investor seek, in order to value you know, what what is the value of this theoretical rental asset? And, and, of course, we we have our our regular residential properties. They also provided that to the extent there was any increase in assessment, it would be phased in over a five year period. So we continue to live with that. So every increase in assessment that you have is phased in not all of them, but if equalization changes, changes in general value are phased in over a five year period as are any reductions in assessment that you realize. The exception is if there's a physical change to the building. For example, if it was demolished or had or if you add it on an extension, those increases are not phased in over a five year period, but go on immediately. Class three is your utility properties, Con Ed, and they pay a very hefty tax. So when you get your Con Ed bill, if you if you, you know, of course, you're mad at Con Ed, what you don't realize is a very significant portion of that bill is actually paying real property taxes. And the and the last category, tax class four, is the catchall, all other, commercial, office buildings, hotels, etcetera. So our our focus obviously is on the COPS condos, wherein we have the the the problem of reducing the assessment. If we can go to the next slide. And, the Department of Finance is the agency that is deter you know, is charged with arriving at this assessment. So, the assessment the tentative assessments come out every January 15 of each year, and you have a very short time frame in which to submit a protest to that application. You have until March 1 to contest that assessment. And we think almost every coop or condo of any size should be contesting their assessment for a number of reasons. Even if you're relatively happy with your taxes, you certainly wanna be on record as contesting them nonetheless. And there's a number of advantages, to to doing that, notwithstanding the fact that you might feel you're you're reasonably assessed. So the Department of Finance issues these, assessments every January 15, the tentative assessment roll. And then shortly thereafter, they will post on their website a notice of property value. And they'll say, essentially, here's how we arrived at your assessment. And they'll also say, we looked at a handful of comparable rentals. We took the rental values from these three rental properties, and we imputed it into your property. And we also looked at their expenses, And we we took some variation of their expenses and applied it to your property. And then we developed a cap rate and came up with the value. Now one thing you'll find when you look at these comparables, you'll look at them and immediately say that property is nothing like my property. So there's an opportunity. You can test this with the tax commission. The tax commission is an administrative agency charged with resolving assessment disputes. And when you you know, if you file an application, it will result in a hearing before the tax submission where the taxpayer gets the opportunity to say, I selected my own rental comps, that are more similar than the ones the city did, And I think you've overstated the income. I think you've understated the expenses, what it cost to really run a building. Now we don't look at just the expenses that the coop itself incurred because if it were a rental property, it would have other additional expenses. For example, you know, a landlord has to change appliances. A landlord has to paint the building. So there you know, we don't use just the coop expenses as reported. We've got we wanna adopt it from comparable rental buildings, which typically have higher expenses. And, of course, you know, there's some some smaller buildings. You know? The expenses will look out of line to the city, but there could be legitimate reasons for that. For example, a small building which has twenty four hour doorman, well, if you only can spread it amongst 30 units, it's a very, you know, high expense per square foot. But the the rents the city is imputing would be the rents that a a doorman building achieves, so we're entitled to that expense. Unfortunately, the tax commission doesn't always agree, and there's a a desire on the part of the city to to maintain these assessments high. And so the the number of reductions that they give are very low. I think the most recently, they they made offers on 15% of all applications, in the most recent hearing period. And of those 15% offers, not all of them are you know, should be accepted. Some of them are very you know, not sufficiently high enough, to warrant acceptance. In which case, we're on to the court where, you have to file a petition in New York State Supreme Court essentially saying, we challenge one, we think the Department of Finance arrived at too high an assessment. We appeal this to the tax commission, which is considered an exhaustion of administrative appeals and, entitling us to now go to court where this petition, you know, will lie dormant until one takes action on it. Joel, you wanna Yes. Yep. So so because there are these three levels, the Department of Finance, creates the assessment. The tax commission will review it, and if you don't agree with the tax commission's treatment of the property, we take it to court. And we, and we have taken a number of these cases to court. There are fundamental differences of opinion between the taxpayer, the cooperative and condominium, and the tax assessor, who's looking to generate the most revenue. So one of the things that, you know, that the the city is doing when you contest the taxes on a cooperative or condominium is that cherry picking the rent. So they look at the building. They look at some rents that they may see on StreetEasy or other services that report rents, and they're, you know, imputing that throughout the entire building. But the law says it has to be treated as if it were a rental apartment building, which we have interpreted as you take a look at a rental building and you have some high rents, you have some low rents, you have to you get an average rent that that's in the building, and add to some extent if there are stabilized rents, we take that into consideration as well. In in addition to that, even if you were taking a a look at the the StreetEasy, by the way, we did a study and we found that that, you know, the brokers like to say that they got the highest rent. But if there was a big concession, like, take the first, you know, you could move in three months earlier or or this, without paying any rent or, you know and then, you know, they have to repaint the apartment. They have they have to pay the brokerage commission. So the really the net effect of rent is really substantially less, and very often we find that the reported rent is actually higher in these studies like StreetEasy than they are actually. So we had some cases where the managing agent, you know, and the managing agents are very helpful, and they say, well, we know what the what the rent was, and it's not the same as what the StreetEasy is reporting. So this these are useful, tools in, evaluating and challenging the assessments. In addition, as Bob pointed out, you know, not all you know, in addition to the expenses of maintaining the building that a cooperative or condominium has, individual owners are out of their own pocket providing a lot of additional, costs that are over there. So some of the strategies, that we employ is, you know, all real estate has a unique feature to it. So you can have a building that may be in a in a location where there are, negative influences. You know, you may have a garbage depot nearby or you may have it may be a noisy section or it may have it may have some significant crime issues. And in addition to that, we look at the functional, and the economic obsolescence. You know, some some buildings, you know, you know, people think of it a building that's maybe on Park Avenue. It's a nice building, but there are some older buildings that have really poor layouts, and, ability to provide certain amenities, that, other buildings are able to provide. And so these are things that we could explore and elaborate and come up with a, little evaluation. We find that the best way to challenge an assessment is to team up with your managing agent and if the board is active with the board and find out what are the problems that you have in the buildings and why they are, they are affecting the valuation if this was treated as a, rental building. We recently had, a major luxury condominium, and, the city came back and said, well, we went on StreetEasy, and we found these high rents. And we said, well, StreetEasy doesn't list every rent in the building, and so you're only cherry picking the high rents and you're extrapolating that to the entire building. We think it's wrong. And secondly, we don't even think that these numbers are accurate. We dispute it, that that you don't have the correct number, and you don't have the expenses that went into obtaining that particular, rent. And, in addition to that, we we took, you know, entire buildings where we had an entire rent roll, so we knew what the rent was for the entire building. And you'll see that there's a mixture. Some some apartments you know, by the way, you know, apartments that get the highest rents are the best located apartments in the building. But you can have apartments that are not so well located or don't have the best layouts, and they have difficulty renting. So when you look at the statistics, it skews it in favor of a higher rent when that's really not the case. We also compared, the the tax assessments on a per square foot basis, and so the city said, well, you really can't do that. You can't point to a neighbor and say they're paying less taxes than me. And we said, well, we're really not doing that. We're saying, you know, here's a bunch of buildings that are very similar to the building that we're contesting the assessment. And over here, look at what the rental value that the city is ascribing to this property. Why are why are you not using the same kind of statistics with our building? And we we fought very hard on this issue and, ultimately, the city, you know, blinked and they gave us a pretty significant settlement. And this is after they said, we're not gonna give you a penny on the case. So it was a 520 Park Avenue. As a matter of fact, the settlement papers literally went in, you know, yesterday. So, that's that's, one feature. Bob, you wanna Yeah. I They're called condo abatement. You wanna talk about that? So, yeah. Let's just go to and, by the way, as long as we're passing by the slide, we'll just quickly run through through out back up. You know, we'll we'll run through those dates again real quick. I didn't wanna miss that. Okay. So there's a taxable status date is January 5. So the city takes a snapshot in time as of January 5. So if this building burnt down on January 6, that's just tough luck. The the the valuation date is January 5. What was the status of it? And that's the the status that applies to the ensuing tax year. So on January fifth of twenty five is going to the status of the building on that date is gonna dictate what your 2526 real estate taxes are. We're on a fiscal year running from July, first to June 30. So I mentioned before on January 15 that they published the tentative assessments. Before March 1, you've gotta file and contest your assessment at at the tax commission. Some you know, you but one of the things you do give them, you give them an income statement, and you can go on extension in providing the income statement to the city. And, then then hearings take place throughout the balance of the year. And the petition we discussed earlier must be filed prior to October 24. So let's let's go on to the next slide then, which is Joel mentions the the co op condo abatement. So one of the one of the things that came from the the law we discussed earlier where the four classes of property were created, class one were your two one, two, and three family homeowners, which got the benefit of caps on their assessments. And this went into effect in in 1996. I'm I'm sorry. The law went into effect in 1981. By the time 1996 rolled around, it was it was very obvious that the benefit that class one got of limitations on increases in assessment was far better than the break that co ops and condos got. The break that co ops and condos got is that they weren't going to be based upon their actual sales prices. So and needless to say, during that in in the mid nineties, co ops and condos were becoming more and more prevalent. That means more and more voters. So the city finally did something to try to, even out the tax burden. They said, look. And they struggled with this for a long time. It finally came up. Alright. You know what? We're gonna we're gonna knock. Eventually, it it it faced up to 17 and a half percent off your tax bill for all co ops and condos to put them in greater parity with, the one, two, and three family homeowner. But it has to be owner occupied. Well, as as time went on, the the the city said, well, maybe we're giving away too much money. Well, first, you know, we're we're gonna make it owner occupied. You know, it has to be that person's primary residence. It cannot be owned by an LLC or corporation. It it we you know, we want this to go to the actual individuals who are paying New York City resident tax. They this is their primary resident. So that limited, the number of of units that were eligible for this benefit. And then more recently, they also have to now file a a prevailing wage affidavit that all the the building workers And building workers doesn't mean necessarily an employee of the coop or condo. It could be as, an outside contractor. For example, if you have, landscapers, if any in individual spends an average of eight or more hours a week on a regular basis, that's considered a building employee, and that person has to be paid prevailing wage. Some buildings use private security companies as as their doorman. Similarly, those those private security companies have to be paying their their employees, prevailing wage, which is typically what the equivalent union wage is. And that that knocked out a number of additional co ops from from receiving this benefit. By the way, the the benefit is 17 and a half percent, but in the, outer boroughs where your assessments are lower, it's, you know, it it the amount can go up to 28% benefit deduction on your tax bill, which is is huge. And, managing agents have, you know, we're always under the, you know, enormous pressure to, you know, is this individual a resident or not a resident? And, there's been a lot of pushback from managing agents that they put the managing agent in having the obligation of of stating whether or not an individual unit owner is a resident of the city or not. So the more recent the city has recently enacted a portal, and the law has been changed that they have to make a a a true effort to find out whether that individual is a a resident of the city or not. And the city now is gonna take it upon themselves. If they don't believe that person is a resident, they'll reach out to that in individual unit owner directly, send them a letter saying, you know, please demonstrate to us that you are this is your primary residence. Yeah. So Bob alluded, some buildings have actually, thought, if they have, you know, they didn't wanna pay the prevailing wage, that was a big issue. You know, some buildings, you know, may be located near, high crime area where they need to have a lot of private security. Others may be in, you know, exclusive areas where there are a lot of protests, you know, some buildings near the United Nations, and so they, have to occasionally do that. And and and in some of these buildings, maybe the majority of the unit owners actually have purchased their units in an LLC, so they wouldn't be eligible or it's really just a second home of Pied A Terre. So, that's that's a decision that the that the co op condominium board has to make, but there is an evaluation that some buildings are making that maybe it doesn't pay for us, to get this particular, 17 and a half percent if we're gonna be paying more money in wages. And there's and there's no assurance that the city's gonna continue this program. In fact, they've advanced, a committee was set up that we'll we'll talk about later as, you know, what would be the the change in laws that the the city would would need in order to make our real property tax system more equitable. And and one of the the changes is they would eliminate the co op condo abatement, which essentially So if you go and you raise all your your employees' wages, you're never gonna get the toothpaste back in the tube. It's not as if this program disappears and you can just tell your, you know, your people, oh, we're going back to your old wages. That that's not gonna happen. So there was a true cost benefit analysis that that each co op and condo had to make. How many of our unit owners are truly gonna benefit from the co op condo abatement? What's the magnitude of the benefit? And what's it gonna cost us as a building to pay prevailing wage? So we found that a number of buildings, you know, did did that analysis and concluded, no. They're they're not going to avail themselves of the co op condo abatement. There's also talk about the changes in legislation. I don't wanna spend, a lot of time on it, but, I will tell you this, this it is a it it's like 40% of the city's budget to collect real estate taxes. And, you know, we've concluded that, any kind of tax reform just shifts around who's paying, but they're still gonna collect the same amount of, money. And some of these changes could be radical, and and I I you have to think about it that, particularly the, more valuable areas, the Gold Coast areas, the the if there's any tax reform, they're gonna be paying more real estate taxes, and other communities may be in the outer boroughs that have, you know, less less of a, a base of, wealthy owners, they're gonna maybe get a break. But I would think that, any tax reform is not gonna result in less taxes being collected. It's just a question of who's gonna be ahead and who's going to be, behind. And, and and and you can take it as a an article that the one, two, or three family home homeowners are not gonna pay an increase in taxes because they're a very large part of the tax base. So and then if you shift it to commercial, then you're affecting, the jobs and the the viability of the city on an economic basis. So it's a very complicated, equation. And as Bob alluded that, the law has been in effect for, you know, forty four years, and I think every time they took a look and kicked the tires, they realized that the current system is even with the flaws, it seems to collect the money and provide relief for, apartment dwellers and one, two, and three family homes to some, degree. So Right. And in fact, you know, de Blasio is the one who start he he established this advisory council to come up with recommendations. It took them years to publish this report. Of course, the pandemic occurred in the midst of it, but they finally got it out. And even, Eric Adams early on in his administration said we're gonna tackle the real property tax equity issue. And there's been a a recent, court of appeals decision, 10 e, which puts some more pressure on this whole our existing, tax system. But, you know, we've heard from politicians, and certainly with everything that's happened in recent events, there's there's no appetite political appetite to touch the system currently. And it it really just has been getting lip service. My takeaway you know, there there's a number. They made, 11, or 12 major recommendations in this advisory, council. But my takeaway is that the better apartments are gonna if there's a shift, it's it's really gonna be the better apartments, and more valuable apartments are gonna pay more, than the, you know, outlined borrowers would pay. Right. And, you know, I wanna tell you something that, and and it's, like, a macroeconomic, analysis. And, I think in terms of the deep thinking about this is, you know, let's say, you were in a a a a rental apartment building. Your family's lived there a long time, and then it converted in the nineteen eighties, to becoming a cooperative. And you're living there, and everybody in in in your building is very similarly situated economically. And then, you know, because it's a it's a quiet area and the crime rate is relatively low and peep and people like to live there. So your your your building, you know, becomes more and more valuable. But your income, you know, what let's say you're a school teacher or something. Your income did not go up significantly with the market value of your apartment. And do you really wanna have a policy that makes you sell your apartment to pay the real estate taxes? You know, that's not a very good, social, situation. So that's the the change and shift in property taxes has many, many facets and, you know, some of them really are are unspoken. But the truth of the matter is you have these old line neighborhood particularly, you saw them, you know, in in Williamsburg and and then Greenpoint, some ethnic neighborhoods that have roads were crime free. They went great. And all of a sudden, the values went up, and the residents that lived there, the communities that lived there for a hundred years, found that because of rising property values, they were getting pushed out. So there are a lot of considerations in this, and we hope we hope the politicians are smart enough to weigh all of these, things together before, they do it. But, in the meantime, you really have to challenge your property taxes every year because we think that the the the the city's appetite for taxes is growing. You know, one of the things that that we've said to the tax portion and we've said it to the, the Department of Finance team, we've had ten years of of an extraordinary growth in real estate values, and they never say the pandemic rainy day. Then we had the pandemic, and there was a rainy day, and they they had they increased a lot of their their budget and their programs, and there was no real ability for the city to provide tax relief when people were out of work. So, it you know, yet sometimes a responsible budget is important, you know, rather than just, doing it raising real estate taxes. The advantage to the government for raising real estate taxes is, you know, if if you raise income taxes and and you have a job that you could take and you could move to Florida or Texas where there's no income taxes, that's an option. But a building doesn't have an option of uprooting itself and going to another location, so you're really captive over there. So property taxes is very important area to make sure that your taxes don't get away from you, and then you make and, ultimately, you make the property uneconomic. And we've seen this to switching over to office buildings. Office buildings are seeing 30% vacancies, and they can't pay the property taxes, and they're they're going into, you know, foreclosure and some bankruptcies over there. So property taxes do have an effect on the viability of a building. And once it tips, it tips very badly. All of a sudden you find people selling and the prices, go down. And we've seen prices go down particularly in in townhouses and and, you know, you know, single family homes, you know, even in, good areas. So, you know, it's it's an economic factor, and you have to be vigilant in challenging your property taxes. And if we could scroll back to page 10, so I just wanna you know, the the taxes are always going up. In good times, bad times, they just tend to generally be always on an upward trend. So, you know, often our clients will say, gee. The market coop condo sales prices, which are not relevant for assessment purposes, have been flat for such an extended period of time, but that's not the case with the taxes. The taxes you know, the city's appetite for revenue and all the expenses they incur is ever increasing. Also, because of some of the mechanisms that they had, basically, to ensure that there wouldn't be catastrophic increases in taxes. The five year phase in of assessment increases. Well, let me tell you that that was okay in the nineteen eighties when values were going up and they wanted to cushion the increase in taxes. But what happens when you come into times of recession is that okay. So they don't increase the assessment, which would actually, they still do increase the assessment, but they increase it at a lesser rate. Meanwhile, the transition assessment, which is a five year average, continues to go up. So we've seen, you know, after 09/11, we've seen even after 02/2008 when we had the economic crunch. Taxes actually went up even though the assessments didn't go up because of the five year phase and they actually did go up, and they went up about 3%, and at a time when people didn't have their incomes going up 3%. So, you know, it's been be careful what you wish for. This this is a a system that, for the most part, seems to self regulate, But the most important regulation is the budget. You can't you know, every household says this is how much we make. This is how much we could spend. I I don't think that the that the local government that makes that equation you know, this is how much money we can raise, which is reasonable, and then we have to live within those needs. So And and there are some very you know, mine just deserves some, mention. You know, there there are other exemptions for individual unit owners and and, cooperative shareholders. There's a veteran's exemption, senior citizen homeowners exemption. But, you know, that that's on an individual basis and, has its own, you know, income requirements, limitations. Other than that, you know, I'm gonna do the one point I would like to just go back and reemphasize is that, you know, we really are dependent on the coop itself to give us our best information. You know the building the best. We can look at the financial statement you prepared, and we can see that, yes, you've you've allocated certain funds for for, projects or you've done an elevator, you know, upgrade, and we can amortize that expense. But, you know, also finding out, oh, there are new roof. You you're gonna need a new roof in three years. Well, that's that's helpful for us. Did did a homeless shelter set up across the street. We need, you know, we need to that's we're looking for any ammunition we can get, which tends to, you know, put the building in a in a not, you know, less favorable light. Because what's gonna make your building different from the the rest? And, you know, these are the arguments we can raise to say that the rent that they've adopted is just overstated. Yes. So you have for example, you have, two laws that, are, affecting buildings. One is the, of course, the, local law 11, which is the facade law. And so, yes, every building has to go in and have their facade inspected. But, you know, every building doesn't have the same problem with their facade, and some buildings may need to replace the facade, and other buildings just need some corkings and a little bit of maintenance. And so these things are are real differences, and bringing them to the attention of your attorneys, makes a real a big difference. In addition to that, we have, the energy efficiencies of buildings, and, a lot of experts are saying that many buildings are gonna find it extremely expensive to comply or they're gonna face huge, you know, penalties. And there's talk about pushing back the deadlines, for this. Some buildings are going ahead. This is a very real, expense, and we think that kind of expense has to factor into the analysis of, well, market rent, market expenses, but actually special expenses that particularly apply to a building. And you have buildings, you know, many buildings are, subject to, union agreements, and those agreements provide a certain amount of staffing. So sometimes it's difficult to reduce the staff, and you'll find that there is in some buildings an imbalance that their their their payrolls are are not, as low as the payrolls of other buildings. And so this is something that, you know, can definitely, assist us and and any consultant that you want to, you know, hire to reduce the the property taxes. Remember, every building is unique, and if you bring these unique negative features, you know, to the attention of your property tax attorney, we can translate that that into tax relief. Okay. And we're certainly open to, take questions at this time. Hi, everyone. Thanks again for attending. So we have a few questions in the q and a. So the first one is, how do individual apartment alterations affect tax assessments? You know, generally speaking, you know, generally speaking, they don't have a a big effect unless they're extremely major. Bob, do you wanna Yeah. We've we've had, in in isolated instances where the assessor picks up and and this is particularly a cooperative issue where the assessor picks up from the building department building permits for millions of dollars, and the city had a hands off policy for many, many years. But, starting about five or six years ago, we found that individual assessors would start putting physical increases on these, coop buildings. Now the the problem with the physical increase is it doesn't get phased in over a five year period. It goes on dollar for dollar. So while the general rule has been that they don't impact the assessment, there there absolutely have been, you know, isolated cases where we've seen, you know, huge impact from apartment, individual apartment renovations. And then you have the and then you have the allocation issue. So if you are a cooperative, you have one block and lot. So they put the physical on, which means all of the unit owners are bearing that, and and there's a lack of detail because maybe you have six apartments in the building that had a renovation. One of them may have been more significant than the others. A physical assessment is put on, and it's almost impossible to figure out, you know, which which, physical increase was be allocated to a particular apartment. So that tends to be a problem. The other problem, even in condominiums, they spread them, through through the condo, declaration on a pro rata, basis. So, they that's one of the reasons they they did have a hands off policy, but, we've seen in isolated instances where, you know, they, increase the assessment and then it's allocated across the building. So that there's a significant issue, that, is gonna be puzzling. And then then the question is, you know, what what are the rules? Because many cooperatives don't have a rule or if the physical increase, you know, was it was because of one apartment renovation. I don't know that, that the governing rules allow them to, put it against one apartment and not the others. And then the question is, the next year, you know, there's not that physical increase, but the question is, is it still there? Is it still having an effect on taxes? These are very difficult questions. Great. The next question we have here is, based on your experience, what is the largest reason or reasons tax or settlements may occur in favor of a co op or condo? Is it something New York City Tax Commission is overstating? Well, we find that the Tax Commission, in maybe 15% of the, 15 to 20% of the appeals will settle the case and we find that, the the, amount of the reduction is between, you know, 510%, but there can be there are certain instances where the reductions are more significant than that, but not many, in that situation. And and I find that, you know, where there's been a significant uptick in assessment in a particular year, even if we're not entitled to relief, sometimes we can secure some relief. So if the city even appropriately raised an assessment by 25%, there's a good opportunity to to scroll that back and and ameliorate that increase. Great. What is the typical time period it takes for a co op or condo to reach a settlement once it submits a challenge? Generally, every year, there's a review. So in in many instances, we're able to achieve some relief on a particular, property, you know, in one year or in two years, you know, and and and it, you know, repeats itself because we have, you know, good information and the building appears to be overvalued. But there are other situations where it may take, more or more years, and many of those cases actually have to go on the court calendar, and they get settled not at the tax commission. They get settled at the New York City law department, which is the city's lawyers that defend against the assessment. So there's really not a particular, template to to the timing, but ultimate by the way, some buildings, honestly, may be undervalued, in which case they could be filing for years and not achieve a reduction. But the good news is they probably were undervalued. But we find that the overvalued buildings, do, achieve within a, you know, for two to three year period, they do get the release. Great. There's a few questions around clarification of topics you've already discussed. So one is, can you just reexplain the definition of transitional versus actual assessments? Yes. So, when the legislation was enacted in 1981, they were concerned that there would be you know, these might result in sharp increases in real estate taxes. So in order to ameliorate that, they said, well, to the extent that there is an increase in assessment, it will be phased in over a five year period. So, for example, if a property was going from a hundred thousand to a 25,000, a transitional clock of 5,000 a year would be created. So in year one, even though you had an actual assessment of you went from a hundred and 25, your transitional on the number you were paying on was only a hundred and 5. The following year would be a hundred and 10, a 15, a hundred and 20. What makes this enormously complicated is there can be five transitional clocks running at any given time. If suppose in the the following year, the city raises that 01/25 to, January. Well, now I have an additional, 10 being phased into, you know, 2,000 a year. So it'd be it's pretty you know, we we have a computer program that runs all these transitions as to just check that they're correct, but it's, it's not an easy, back of the envelope exercise. The one thing you can do, to the extent there are no physical increases or decreases, the transitional assessment will be the arithmetic average of five years' worth of actual assessed values. Great. There is a follow-up question on class three, utility real estate property tax payments. Can you further explain, the comment you made around Con Edison payments related to that? Yeah. I'm sorry. Go ahead, Sean. Go ahead. Yeah. They've valuing, you know, power plants is, is more complicated than valuing other types of property because the power plants generally don't sell. You don't have a sales price. They're not generally built, so there's not, a lot of quest data that's that's out there. And they're regulated, meaning that the the the state, regulates what they can charge and what their rate of return is. So they are complicated. So, generally, what the city does is they value them based on a a reproduction cost. What would it cost to rebuild it? Less the depreciation of how old and taking into account functional and economic, obsolescence. But because, they are, extremely expensive to build, we find that they load on property taxes. And since the utility is allowed to charge a rate that it that takes into many factors including their cost, which includes real estate taxes, the general utilities don't complain too much because they're gonna earn on the increase in the real estate taxes. But that it's its own strange animal. We have been we have represented some, power plants that have, achieved some reductions, and that's because many older plants have a great degree of, functional and economic obsolescence. And adding on to that question, Joel, we have a question around what impact do you think the Local Law 97, the new energy requirement, will have on assessments? Well, I think that the that the city is gonna have to postpone the implementation of these costs because I think that most buildings are finding that the the cost to comply, is very expensive. And some buildings, because of their nature and age, can never really reduce, you know, and make themselves more, you know, energy efficient. You know, you know, you have, you know, the the the type of windows that you have, that, you know, there's a there's a number of factors, the type of, you know, heating systems that are in the insulation. These are very difficult. I think that ultimately, it was a very nice green idea, but in practice, it's gonna be catastrophic for some buildings to comply with. So, we're expecting that the, when when the the deadlines come up that they will be pushed back. Great. And then our final question here is around the co op and condo abatement. So reiterating when it was implemented and then better understanding the structure, because it feels that it reduces real estate tax expenses for the coop and then gives it to the eligible stakeholders but requires a lot of compliance work for the management companies. So, I'd I'd like so, the co op condo abatement, I mean, it's it's in effect until, it it it typically sunsets. It's sunsetting June thirtieth of twenty seven, so 2627 under current legislation. It's been continuously renewed since 1996. There have been hiatuses where it wasn't in effect and the city then retroactively enacted it. But, I I didn't really what was the the threshold of this question? Is it, The question was around understanding how it's structured. It feels like a lot of compliance work in order to reduce the real estate property tax expense, which then, you know, gives it back to the eligible shareholders. So just better understanding all the legal requirements for submitting it and why that's necessary. Definitely a pain in the neck for the managing agent, you know, to and then and if you've been in a co op or a condominium, you'll get a letter saying, tell us if this is your primary resident. But they have to collect this data and, you know, it's a it's it's extra work for the managing agent that, you know, it's and it's a cost factor, you know, to report, this information. You know, the city of New York can probably do it themselves because they have access to everybody's income tax returns. So they know whether you're a resident or not, and they know whether you're an LLC or not, but they put the burden on the managing agent. I do wanna mention one thing very quickly that that, you know, some unit owners don't wanna be reported as a primary residence because they're not paying inappropriately not paying New York City residency tax. And so the the managing agent walks a fine line here, And we've seen instances where managing agents have inadvertently excluded an apartment from being being entitled to the benefit. Now the unit owner is upset, and he's paying a full freight tax bill versus he shoulda had a discount. And it amounts to a lot of money, and it puts the, managing agent in a very awkward, problematic position. In addition, there's changes in ownership during the year. And so the the managing agent has to keep up with it because maybe they, had the the original owner as entitled to it or not entitled to it, and then the next owner is there. And the question is on what date did they acquire the unit, and then, you know, sometimes they acquire the unit after the the cutoff date. So it's, it's not it's not a fun exercise for the managing agent. Okay. I think we've hit hit the point of, almost at the end here. No worries. Yeah. No more difficult questions, please. Alright. Thank you very much for that presentation. Again, our speakers today were Joel Marcus, Robert Pollock, and Nicole Pollock from the law firm Marcus and Pollock. Great job, guys. If you have any questions on the subject matter that was discussed here today, please reach out to us at PKF using the contact information from the webinar invite. We'll be sure to respond to those remaining questions. Thank you all for attending. Again, Tom Sorrentino, Sam Bott, and myself, Paul Krueger with PKF O'Connor Davies. We're happy to host today's webinar. We hope it was informative and that you found it helpful. Our attention is to host similar webinars throughout the year focused on topics that would help our real estate clients, so please stay tuned. And, again, thank you for everybody for joining us. Alana. And thank you to our speakers and thank you to everyone for attending. If you have not completed it already, we have launched our survey located in the survey tab of your panel. Just a reminder that a copy of the PowerPoint slides and a recording of today's webinar will be made available to all attendees via email twenty four hours post event. CP certificates will be issued within eight to ten days via email. Thank you again, and have a great rest of your day.