LI Ask the Experts: Understanding Long Island’s submarkets matters to reduce property taxes - by Brad Cronin & Sean Cronin

 

 

Successfully challenging an assessment is never as simple as pointing to general market trends. The subtleties within Long Island’s submarkets play an enormous role in determining value, and those differences must be analyzed and presented when pursuing a tax reduction.

We were recently reminded of the magnitude of these differences while attending an industry event where panelists discussed the rapid changes occurring within the Long Island industrial market. One of the more striking observations was the degree to which vacancy rates vary depending on the specific location. In some areas, vacancy remains consistent with historical levels, while in others vacancy has increased by more than ten percent. That kind of disparity within a relatively small geographic region demonstrates how misleading broad market averages can be.

From a property tax perspective, this distinction is critical. Relying on generalized industrial market data without accounting for the specific submarket characteristics of a property can result in inflated valuations. It is truly amazing how dramatically market conditions can shift within just a few miles on Long Island. A property located in an area with rising vacancy, older building stock, or weaker tenant demand should not be valued as though it were comparable to newer, high-clearance industrial product.

The office market presents an even more pronounced example of why submarket analysis matters. Top-tier Class A properties often benefit from strong locations, modern amenities, recent construction or significant renovations, and creditworthy tenants.

But move even slightly down the quality spectrum from Class A to just A-minus or B-plus and the market dynamics change dramatically. Rental rates decline, but just as importantly tenants often demand larger concession packages, including tenant improvement allowances and periods of free rent. Buildings in these categories may also require significant capital expenditures to remain competitive, particularly in an environment where tenants increasingly expect modern collaborative spaces, upgraded common areas, and enhanced technology infrastructure.

Yet in some cases, assessments are based on comparisons that fail to properly account for these distinctions. If a property that is realistically competing with B-level buildings is being compared to top-tier Class A properties, the resulting valuation can be materially overstated. In those situations, the tax burden placed on the property owner may be far higher than what the market actually supports.

Properly presenting a tax grievance therefore requires more than simply arguing that rents have softened or vacancies have increased. It requires a careful examination of the specific submarket in which the property operates, the tenant profile it attracts, the level of concessions required to lease space, and the capital investments necessary to remain competitive.

Risk and capitalization rates also play a significant role in this analysis. The subsectors that are located in higher tax areas always have more investment risk. This, in turn, leads to higher vacancy risk, increased tenant turnover, or significant future capital expenditures warrant higher cap rates to properly reflect that risk. Higher cap rates translate into lower values and therefore lower assessments when properly presented.

Property taxes in Nassau and Suffolk Counties remain among the highest in the nation, and property owners continue to feel the pressure. While many factors contribute to the overall tax burden, one often overlooked reality is that numerous municipalities have recently pierced New York’s tax cap. The tax cap, which was designed to limit the annual growth of property tax levies to roughly two percent, can be overridden by a supermajority vote of the governing body. When municipalities take that step, the levy grows faster than anticipated, and the burden ultimately falls on property owners.

For commercial property owners in particular, the impact has been substantial. Rising levies combined with assessments that may not fully reflect changing market conditions can lead to tax bills that are disconnected from the true value of the property. As a result, property tax grievances remain one of the most effective tools available to ensure that a property’s taxes accurately reflect its fair market value.

The property tax grievance process provides property owners with an opportunity to ensure that their assessments reflect the true economic realities of their particular property and market segment. But success depends on an analysis that captures the nuances of Long Island’s diverse submarkets.

In a region where small differences in location, building quality, and tenant demand can dramatically affect value, those nuances matter more than ever. When properly understood and presented, they can make the difference between an inflated tax burden and an assessment that accurately reflects the property’s true market value.

Brad Cronin, Esq., and Sean Cronin, Esq., are partners at Cronin & Cronin Law Firm, PLLC, Mineola, N.Y.