Peter Blond, Brandt,Steinberg, Lewis
& Blond LLP
Only two things seem guaranteed for January of 2017; first is a new President and, second, is new real estate tax assessments for most local jurisdictions. In New York City, it begins on or about January 15th with your annual Notice of Property Value. The notices are normally mailed by the New York City Department of Finance (DOF) in mid to late January and are automatically available on the NYC DOF website. The release of the new assessments launches the real estate tax protest filing period which closes for most properties on March 1st, 2017. These new assessments will affect tax bills as of July 1, 2017.
Despite continuing improvements over the last several years by the City Department of Finance, notices can still be perplexing at best, misleading at worst. For instance, your Notice of Property Value continues to feature market value as a meaningful gauge as to the appropriateness of the assessment for your property. In actuality, the city’s indicated market value is inconsequential. The city’s mulish reliance on a 45% equalization rate has left imputed market values at unrealistically low levels for many years. As a result, an unwitting taxpayer reviews the notice and concludes a protest would be pointless, as the property is worth more than indicated. In the end, if you surmise your property is worth twenty million dollars and the listed market value on the notice is ten million, you may understandably bypass further due diligence as to the fairness of the assessment.
Additionally, the Notice of Property Value usually contains detailed information as to your property’s description (e.g., square footage, year of construction and number of stories). It also divulges the city’s formation of your assessment via the income and expense approach to value. To enhance transparency, the Notice generally itemizes the financial factors considered in arriving at your assessed value. These factors include gross income, expenses, Net Operating Income (NOI), base cap rate and overall cap rate.
Taxpayer frustration and confusion escalates because the income and expense approach to value is commonly more art than science. By concentrating on your property’s cash flow, and those of your “competitors,” the city department of finance estimates the income and expenses attributed to your property. In other words, the city isn’t limited to assessing and taxing what you in fact collected from tenants. This issue continues to confound taxpayers who review their annual notices. Many presume the figures should match their RPIE, or tax return, which were filed as legally required. However, in larger municipalities like NYC, mass appraisal has attenuated resemblance to that conventional of a system.
While a property owner is cognizant of their own bottom line, most have only limited statistics as to comparable properties utilized by the city. Predictably, the city tends to use comparable properties which collect the uppermost rents in the vicinity. This approach overlooks two significant issues; first, not every property can attract an institutional, anchor type tenant; and second, the city’s noticeable inability to spot distinguishing characteristics between properties. Should a mid-block, side-street, 2,500 s/f taxpayer be compared to the building on the corner with 20,000 s/f and Walgreens as the tenant?
Exacerbating this inexact and inequitable system are the errors, by the city, which are regularly made as to a property’s size or use. Careful review of your annual notices is critical, because not identifying a problem before March 1st means no assessment protest. Many property owners first recognize the change in circumstances when the tax bill due July 1st is received in June. For other owners, they discover the big increase when fall escrow statements from their lenders arrive with irreversible consequences, as there is no longer an opportunity to challenge the municipality’s assessment.
Likewise, blindly accepting the Notice of Property Value as to the “estimated” income and expenses can prove damaging. Even though your actual collections and expenses may match the notice identically, it is still feasible that you are over-assessed. For example, there are times the city treats collections as triple net, even though the tenant is not responsible for 100% of the real estate taxes. Such a situation commonly leads to an over-assessment. A more everyday example is a property that was performing very well, but perhaps lost a major tenant towards the end of the fiscal year. In that situation, disputing the assessment and clearly demonstrating a distressed situation - despite past performance - can lead to a reduction, if only temporarily.
I urge you to go online (nycprop.nyc.gov) to view the annual notices, as opposed to waiting for the regular mail hard copy, and scrutinize them for inconsistencies. At that juncture, it’s usually best to seek the advice of a licensed professional to determine whether a protest is prudent.
Peter Blond, Esq. is a partner at Brandt, Steinberg, Lewis & Blond LLP and the chair of the NYC Bar committee on condemnation & tax certiorari, New York, N.Y.
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