Due to a decades-old state law that calculates the value of condominiums and co-ops by using rental buildings rather than apartment sales for comparison, uber-trophy units are often undervalued when it comes to taxes, The New York Times reported.
Take the impossibly posh 15 Central Park West, home of the $88 million penthouse that traded earlier this year. For tax reasons, the city values the residential part of the limestone tower at $332 per square foot — about 4.2 percent of the $7,813 average price per square foot of apartments sold there over the past 18 months.
The problem is that for uber-high-end properties in the $20 million-plus range, there are no truly comparable rental buildings. The Finance Department takes factors such as size, location and age into consideration when finding a rental counterpart to a condo or co-op. The disconnect between the city valuation and the market rate is larger in older buildings, since older rentals are more likely to have a rent-stabilized unit that lowers property taxes.
One of 15 Central Park West’s rental equivalents, according to the city, is 145 West 67th Street, which is a little like saying Raiders of the Lost Ark is the same as Indiana Jones and the Kingdom of the Crystal Skull.
The overall city valuation for co-ops and condos is about a fifth of the amount it would be under comparable sales, according to the Independent Budget Office. That 20 percent gets even smaller in the loftiest end of the market, which means that the city is missing the chance to cash out on trophy condo deals.
Under a 2010 nationwide study by the Tax Foundation, the average Manhattan homeowner paid 0.78 percent of home value in property taxes, the New York Times reported. For the $88 million unit at 15 Central Park West, 0.78 percent would be $686,000. However, the property taxes this year on the apartment were a relatively economical $59,000.
That $59,000 figure was also lowered by the 421-a program, which gives builders tax breaks that can be passed on to condo buyers in return for the developers creating or helping finance low-income housing. According to CNBC, Extell’s One57 might receive a tax abatement under the program, which could save resident billionaires more than $150,000 a year. The $90 million apartment on the 75th and 76th floor of the Christian de Portzamparc-designed building would ordinarily be taxed $230,000 a year, but the abatement would cut the real-estate taxes down to $20,000 a year.
This is divine news for the richie riches, but what about other property owners in Manhattan? Andrew Hayashi, a property tax expert at the Furman Center for Real Estate and Urban Policy at New York University, had this ominous quote in the New York Times: “If a certain kind of property is systematically undervalued, another kind of property has to pick up the slack.”
It’s enough to make us want to climb into a refrigerator, Indiana Jones 4-style.