Owners of rental properties in New York City have issued an ultimatum to the Bloomberg administration: Lighten up or we’re out. In fact, the Real Estate Board of New York (REBNY) met with the Bloomberg administration earlier in February to complain about rising property taxes and, during that meeting, threatened to stop the development of “large, new rental buildings”. In some buildings, literally a third of all revenue goes straight to taxes.
New York City’s real estate market – including commercial development and new construction – is considered by many to be in full recovery compared to the rest of the country. However, heavy taxes on rentals, particularly those that have 20 percent of their units set aside for low-income families (called 80/20 properties), is quickly rendering this type of development “unfeasible,” according to REBNY. Furthermore, the owners of these buildings are being forced to “convert to condominiums of deregulate their low-income apartments” upon the expiration of tax abatements that come with the 80/20 designation. Steven Spinola, REBNY’s president, emphasized that “they cannot survive at 33 percent of net income.”
New York City has had its share of property tax woes recently. The city’s budget is heavily strained already, and many property owners – regardless of the type of property they own – feel that the administration is simply opting to squeeze more out of real estate via taxes rather than make necessary but potentially painful and unpopular cuts. Governor of New York Andrew Cuomo has proposed a property tax cap that could help the situation, but it will not necessarily help the owners of large rental property buildings and critics claim that his proposal will lead to a budget shortfall.
It is unclear currently whether new developers will actually make good on their threat to stop building 80/20 buildings since this construction comes with two decades of tax abatement before the taxes become untenable. Should the Bloomberg administration change its property tax codes, or should developers and owners simply plan more carefully for coming tax hikes in the future? Would you invest in New York City rentals right now?
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