Given so many Developments of the past Decade sold with 10-15-20-25 year Tax Abatements, is this a TAX BOMB waiting to happen at some point in the future when the abated taxes become due?
In some cases, Taxes are abated to less than 20% of True Tax Amount.
What happens when large numbers of Owners get hit with True Tax Demands at some point down the road?
This likely includes tens of thousands of Units, and not all, if many, will likely be in position to absorb the hit!
Also, is there any way NOW, to determine what the unabated Tax due will be on a Unit under consideration....and, alternately, how to take into account the future unabated Tax amount into the Price, now?

this was discussed yrs ago by NY Times http://www.nytimes.com/2009/02/08/realestate/08COV.html?_r=1&em.

most people have the idea that "it's years away" and don't pay attention. all of those wonderful condos that were built in 2003-2006 have had their nominal taxes increased slightly since then. once you get closer to the abatement expiration, the bite becomes significantly worse. you will have people tell you that they took that into consideration when purchasing their properties and that is the reason why they paid X more for the abatement. the reality is that they were fools who did not bother to look at the unabated taxes that were available to them in the offering plan. the building next door, from the 30s/40s/70s/etc will have their taxes be less than 1/2 of what you are paying. your condo will be worth 1/3 less than theirs.

just look at all of the coops with high maintenance charges. they sell slowly and at significant discount. all of the foreigners who bought these condos with a weak dollar will soon be able to flip them for same money or less and make a killing as the euro takes a nose dive. the local owners are the ones who will feel it in their pockets.

Not this again. ab_11218, we've been over this several times, yet you still feel like sharing so much misinformation. That NYT article is dogsh!t.

LENOXav, for more insight, and how to determine unabated taxes, read up here:
http://streeteasy.com/nyc/talk/discussion/10302-brooklyn-numbers-in-10-down
http://streeteasy.com/nyc/talk/discussion/21705-15-versus-25-year-tax-abatement

ab's misinformation (similar to yours, bottoms) is that unabated taxes in Brooklyn run north of $25k annually. It'd be great if you guys could actually demonstrate that with examples.

yikes/bottoms, that's a rare combination of both bad information and total conjecture. By "amenities offered in these buildings," what exactly are you pointing to? There's a huge variance from building to building.

The Edge is an outlier in terms of how low their unabated taxes are, but look at this:
http://nycprop.nyc.gov/nycproperty/StatementSearch?bbl=3023321458&stmtDate=20120608&stmtType=SOA

That look like $25k to you? You need to brush up on your info before you spout such drivel.

bj, your building, somehow, got you very low taxes once they expire. the other buildings around you are not that lucky. my guess is by the time your abatement runs out, the city will realize that they erred and you'll get yours....

ab, I don't live in that building. I'm not sure what you're suggesting though - that the city somehow missed the Edge? It's only, oh, over a thousand units. Thanks for the ill will though.

I've posted this before, but my unabated taxes will hit ~5.5k annually.

you live in one of those mini studios? 250 sq ft? murphy bed? that's low

bjw, no ill will. if someone from the developers paid an official off just to do the math sideways, does not mean that they idiot buyers should take it for granted that they will actually be paying less then all of the folks around them that have similar units, or worse, that were built more or less at the same time.

JButton, I'd kill for that! I actually live in a hallway in a 2007-vintage LIC condo. The window is great though.

bottoms, right now I have no idea. No resales in my building as of yet.

"if someone from the developers paid an official off just to do the math sideways"

ab_11218, hey, maybe that's true, but as it stands that strikes me as pure conjecture on your part. I don't begrudge Edge owners at all. Frankly, the prices there have always been nutty, even if taxes and maintenance are relatively low.

> all of the foreigners who bought these condos with a weak dollar will soon be able to flip them for same money or less and make a killing as the euro takes a nose dive.

ab, a little confused. at best, the foreigners will break even but not "make a killing" as dollar is stronger now then when they bought the units. therefore, after they sell the unit and convert the $ back to euro (lower now than when they bought it) whatever capital gains, after taxes, would have been diminished by the FX conversion. no ?

depends when they bot. we've been here at 1.2-1.25 E/USD in 2010 and of course back in 08 and 09. if they bot at the peak of euro of 1.45-1.5, yes they made money.

> if they bot at the peak of euro of 1.45-1.5, yes they made money.

they might have won on the FX conversion but lost in the capital appreciation as prices have come down since the bubble peak unless they can still sell it at the peak price today.

"yikes/bottoms, that's a rare combination of both bad information and total conjecture."

hahaha

bottoms, don't be mad someone else finds your posts eminently funny.

Still waiting on those $25k examples.

> > if they bot at the peak of euro of 1.45-1.5, yes they made money.

> they might have won on the FX conversion but lost in the capital appreciation as prices have come down since the bubble peak unless they can still sell it at the peak price today

Eur/usd $1.216 .. so losing on both FX and price appreciation .. double whammy! so much for investing in US real estate from an european perspective.

so . . . ummnn . . . . I wasnt so much thinking about trolls or Eurodollars . . .
I was a bit more interested in the very real situation faced by average folk here in NYC . . .
quite a few of whom have purchased these cooperatives and condominiums in recent years with abatements allowing low monthlies into the future.
BUT, looking again at a certain Offering Plan, I see that now, since its 4 years old, that 16 years from now, the abatement starts to wean the shareholder at a rate of 20%/year, until full Tax comes into play.
Is it problematic that in this case current maintenance expense is roughly TRIPLED when abatement is fully exhausted?

Tax abatements are no time bomb, they allow a developer to sell new construction at a higher price than they otherwise would no be able to, in exchange they help build low income housing. There is no time bomb here since the benefit declines in steps over ten years in Manhattan, more in Brooklyn, and as the benefit amortizes away the value of the real estate declines by the present value of that benefit to some extent. The numbers of people who can't carry the higher monthly costs at any one point of time is not that high, and most purchasers are smart enough to figure out that their real estate bill won't be static month to month. This stuff is very laid out in the offering documents. Basically the risk that the planned step-up of a real estate bill will force an owner to sell pales in context to the effect of a job loss or pay cut. If you want to focus on a risk, focus on incomes.

Developers routinely increase sales prices by more than the present value of the tax subsidy.

Buyers pay. So, actual buyers are NOT calculating the present value of the tax subsidy. Probably, they are assuming that price increases will make up for the subsidy's inevitable expiration. Or possibly, they have faith that the divine right of homeowners is so powerful that a new subsidy will substitute for this one. Alternatively, they are knowingly paying a huge premium to be the first occupant.

First buyers should expect to get hammered as expiration gets close enough that even shortsighted buyers pay attention. Unless the bubble continues, or condo owners are powerful enough to win a new handout.

"the quoted comment, at which our esteemed yorkville investor, marco, laughed, was yours."

True, but at your expense. No need to have a hissy fit about it, bottoms. Or continue your sexist drivel. Still waiting on those $25k examples...

"Developers routinely increase sales prices by more than the present value of the tax subsidy."

They definitely increase pricing - not sure about how much more, but would be interesting to see any data on that.

I have a 25 year tax abatement in Hamilton Heights. When I purchased my monthly tax bill was set to an abated amount about $3/month for the first 20 years. As crazy as that may sound- it was set at that level for good reason. To say the block was rough was an understatement and my building was a great example of why tax abatement can be a great thing for the city. It's now 7 years since I signed the contract and the block has been improving. I still have about 13 years left on the abatement before it starts stepping up to the un-abated amount, but I don't mind as the neighborhood around me improves. It was clear that the developers used the practically non-existant property taxes to hike their pricing, but with little comps out there, it wasn't transparent by how much they added as a premium. Regardless, Buyers bought- and fast. The development sold quickly- 87% of the apartments went into contract within a few weeks of the building being marketed.

Going to be interesting indeed....

I am reminded that a lot of these Developments also have Income Limits--so the new Shareholders have decent, though rather basic incomes...
A 25 Tax Abatement Development has Maintenance Charges that roughly TRIPLE by the expiration of Abatement....
Thats going to make things interesting, at least....

ANd wait to hear what A Chase Banker told me....

My condo did not have any income limits or restrictions, but I am sure you are correct that a lot of developments with longer abatements do have restrictions.

In our case the 25 Year Tax Abatement has tax rates that increase approximately EIGHT times the current amount by the expiration of the abatement. The unabated amount for my apartment would still amount to less than $30/month- but I could easily understand how it could affect people in buildings where the multiple increase would be material. More important is how this impacts the macro environment.

"A 25 Tax Abatement Development has Maintenance Charges that roughly TRIPLE by the expiration of Abatement...."

LENOXav, what are you getting at here? That maintenance charges will increase faster in buildings where there's a tax abatement? Or that maintenance in general will just be significantly higher in 25 years? That would seem to be true in almost any building. Not sure why a building with 421a or J51 would experience an accelerated growth rate there.

What I am getting at is that today, projected Total Monthly expense is 2000$/month for a Unit....
That same Unit's projected Total Monthly expense, at the end of the Tax Abatement period is 3700$/month....

Thats a real issue for the NON-millionaires amongst us....
AND, I'm sorry if its been discussed prior, huntersburg....its very much an issue NOW, for me....

> Is it problematic that in this case current maintenance expense is roughly TRIPLED when abatement is fully exhausted?

not for those that baked in that increase costs as they should have and didn't just buy assuming they will be able to sell for more than what they bought before the abatement expires. basically more than a subsidy is a delay of carrying cost payment. wouldn't surprise me a bit if the non-abated amount is higher than in other buildings that payed for those carrying costs with regularity.

"What I am getting at is that today, projected Total Monthly expense is 2000$/month for a Unit.... That same Unit's projected Total Monthly expense, at the end of the Tax Abatement period is 3700$/month...."

lenox, is this the info about your own unit? which year would the tax abatement expire? if it's too much into the future, consider that there's also inflation to take into account so $3,7k might sound a lot to you know, but when the tax abatement expires it will not inflation-adjusted bases.

on top of that, in 20 years buyers are supposed to have paid a ton of the principal by then. so the principal component of the total monthly expense should be much lower than currently is.

Some of the Uptown Developments that I know of, where this comes into play: Maple Court, Maple Plaza, Madison Court, Madison Plaza, The Renaissance, The Harriet Tubman, Lenox Gardens, Beacon Towers, The Lenox, The Kalahari, Lenox Grande . . . just to name a few.
Together, just the mentioned equals more than 6000 Units in total.
They ALL have Abatements with expirations at different dates in the future.
The Renaissance seems to be the most problematic for now, with its multiple underlying Cooperative Mortgages and Maintainences already at/over 1500/month for a basic 2 bedroom unit. There are several Units on the Market, at prices that are already depressed, and likely to go even lower as they continue to languish on the market.
Lots of the other developments will face the same problem and it will get more acute as the time draws near-er...

NOTADMIN...I don't quite understand how the Principal comes into play...I do get what you express about inflation adjustment might take away some of the sting though....

What's the big deal?

You pay more for apartment A with abated taxes than for apartment B with unabated taxes.

As the years go by, the value of A drops to the value of B, until at the end they're the same.

If a buyer can't figure what "more" should be, this is the least of their problems.

GLAD ITS NO BIG DEAL NWT....

FOR LITERALLY THOUSANDS OF OTHERS: ....not so much...

OH!--and by the way....since its THOUSANDS OF OTHERS--who happen to be your neighbors, if you live in NYC....it will then become something of a collective type social problem....

AND, social disruptions won't be quelled by members of an NYPD, that also are 'set-aside' owners for more than a few of the same units mentioned!

I've read these SE Boards for years now, and commented few times...
We absolutely live in a city stratified by Income and Education levels where one group has no real clues about the other.
Living standards and disposable income included...

Took 'em straight outta 3 separate Offering Plans!
Post and Pre Abatement numbers are roughly tripled!!

I noticed Alanharts been 'different' since he came back....
He used to always be so enlightening--a great resource of INFO!

i love you huntersburg!

> NOTADMIN...I don't quite understand how the Principal comes into play...I do get what you express about inflation adjustment might take away some of the sting though....

Total Monthly expense, or PITI, includes principal. the program in my view was useful to develop the area. those that bought into the system thinking they were getting a much better deal than renting will get disappointed, but the expectation was wrong. the system is not a giveaway in my view, it just postpones costs to the owner. i bet a not small portion of the owners thought about flipping before facing the true costs.

Tax Abatements are not a perfect system, but they do help create low income housing. The alternative of having cities go into the construction business would be a far more inefficient solution.

> OH!--and by the way....since its THOUSANDS OF OTHERS--who happen to be your neighbors, if you live in NYC....it will then become something of a collective type social problem....

??? a social problem that people cannot handle the deal as it was publicly disclosed? if they cannot handle the cost, then they will have to move out and let somebody that can handle them in. they might have to sell for less than they bought, but the increase in cost is not a surprise and they have years to adjust to them.

that said, guess that for those on the sidelines, it's better to avoid these type of property altogether. it's hard to know whether most of the other owners had made the math before buying. so it's risky to buy into a tax-abated building when many might have not and cannot afford the real CCs, better to wait till a couple of years after the abatement expired. wondering whether some of them took "fake equity" out also, that disappears once the abatements expire. if so, those will be underwater.

again, when does your own building's abatement end? sounds like you are freaking out without real need cause many might have done the math after all. i would expect those with tax abatements to try to get the city to extend them without any success, the city needs the revenue and is counting on it. so far, i've read of clueless out-of-town buyers being surprised by them, but involving expensive condos w/ 10-year abatements that expires soon.

i've spoken to many who have purchased units with tax abatements and all of them say the same thing, "who know what will be in 15 yrs, i'll just sell it." they keep forgetting that no one will be willing to pay them the money they will want when the taxes and common charges will almost equal rent of a similar unit.

I'm dealing with one of the more longer terms until abatement expires...
No fearmongering on my part, not freakinout either, some worries=just a basic concern how its all gonna play out...I guess I just have to leave it at ime will tell!
Some of the developments I named, expirations begin in at least one case, in 7 years, and in many others within 10-15 years. Not exactly 'tomorrow' but not exactly ''99 years down the road'' either!
Quite a few of these units on the market, now, are languishing for a while, at suppressed prices, which may in time dive further.
The "I'll just sell it'' mentality meets the wall of the reality market when attempting to sell...
Decent Agents and Attorneys will counsel their clients about details involving near abatement expiration sales.

I cant really see speculators involved in these developments, so many hurdles to have jumped through to become a resident home owner, especially some stringent income limits.
And many of these now resident owner-shareholders are just not clued in to these abatements...Publicly disclosed and detailed in Offering Plans, true....and there may be a vague awareness on the part of some of these buyers, but no real understanding...not everyone is as into Property Matters as this self-selected group here....
And, they are not so easy to avoid, given that SO many developments have them in one form or another, maybe especially so Uptown.
Likely the only way to keep initial costs affordable to many, maybe?

LAST Thing I would want to see is that this in future decades, develops into an issue that could set back alot of the progress uptown has made....

In addition to helping to build low income housing, the J-51 has been particularly successful in helping up and coming neighborhoods in the city from attracting residents and helping create housing jobs. Unlike Manhattan and the prime areas of Park Slope and perhaps Park Slope it's not likely these projects would have lured new home buyers. The local merchants also gain business and old neighborhoods are revitalized.

> i've spoken to many who have purchased units with tax abatements and all of them say the same thing, "who know what will be in 15 yrs, i'll just sell it." they keep forgetting that no one will be willing to pay them the money they will want when the taxes and common charges will almost equal rent of a similar unit.

"who know what will be in 15 yrs, i'll just sell it" that sounds like pre-bankruptcy mentality.

"they keep forgetting" maybe cause it's more convenient not to remember? i wouldn't be surprised one bit dif they play "victims" when those costs come due. who cares? if they cannot pay, they'll be out. just like many that were renting had too during the gentrification.

> No fearmongering on my part, not freakinout either, some worries=just a basic concern how its all gonna play out...I guess I just have to leave it at ime will tell!

uf, again, 3rd time? when does your tax abatement expire? do you know the year?

the optimal thing imho is to consider your home equity as 0 and stop worrying. it's the place you live in, not an investment that generates profits. with that new mentality, there's not so much to worry about. the price will tank but you keep on living there.

Of course if one is smart one can use that 10-15 years to pay down the mortgage and keep housing costs relatively flat...

> And, they are not so easy to avoid, given that SO many developments have them in one form or another, maybe especially so Uptown.

don't agree with this part. given that imho it's still better to rent than to own for a while, it's yet another reason to wait and see. for the next few years it seems that avoiding buying all together is optimal.

let's say many of these owners cannot handle these previously disclosed costs and have to foreclose. would those units become rentals or would go to auction? with the banks avoiding auctioning as much as possible and the plan to sell REO in bulk to rent out... seems these set of units might be tempting for big REITs.

> LAST Thing I would want to see is that this in future decades, develops into an issue that could set back alot of the progress uptown has made....

to the contrary, as the area improves, people with higher incomes that don't need abatements will be more willing to more in, replacing those that could only afford to buy thanks to the abatements. if anything, it'll provide more purchasing power to the area, which is needed to support better retail.

> Of course if one is smart one can use that 10-15 years to pay down the mortgage and keep housing costs relatively flat...

exactly. this is not a big deal for those that are savvier though. if it's a surprise imho it means that person wasn't ready to buy, same thing with those that assumed on a pre-expiration flip. but it doesn't need to imply a mess per se, cause even for those that were caught by surprise the increase could be covered by taking on an extra part-time job on the weekends. or renting a room on airbnb type of income sources. where there's a will, there's a way.

the hit is mostly psychological for people that thought of their purchase as "investments". oh well, time to move onto other asset classes for investing, that's all.

"they keep forgetting that no one will be willing to pay them the money they will want when the taxes and common charges will almost equal rent of a similar unit."

Show your math. More blathering it would seem...

No, it's coming from my alter ego. bjw2+1-0=3.

"i've spoken to many who have purchased units with tax abatements and all of them say the same thing, "who know what will be in 15 yrs, i'll just sell it." they keep forgetting that no one will be willing to pay them the money they will want when the taxes and common charges will almost equal rent of a similar unit."

They might still come out ahead, though -- they paid less in maintenance while they owned the units, and then the price decline that comes with the reinstatement of taxes means that while the selling price will go down, they'll save some money on taxes because they'll have a capital loss. Could these two perks make up for the decline in price?

(I've never attempted to calculate it myself; someone who has owned one of these units during such a period, please chime in.)

ar, well said. There's a fair amount of variance here (not all abatements are created equally), and those trying to generalize or just saying wrong/dumb things have clearly not done their homework. Such is the typical bottoms comment.

But isn't it a terrible investment with tons of unbuilt supply (if they ever get through the tons already out there), subject to no zoning restrictions, $25k+ unabated taxes, and access to a total waste of a ferry?

"It's poised to take off in sentimental value."

This is exactly how I feel about Dyson vacuum cleaners.

"whatever"

bottoms, this seems totally defeatist on your part. No barely-witty repartee? No sexist insults? No blatantly incorrect "factual" assertions? You are a shell of the troll you once were. A bit sad that...

developers use abatements to charge higher prices so you dont save anything by not paying full tax. you paid for it upfront.

AR - it is all about the price, if the price is right people will buy it. tax abatement effectively lowers price paid - but it does not give you a 'deal' but lowers the price to what it should be. you said it yourself that many people would not buy in a given hood w/out it - why? because price is too high, no other reason.

so my view is that tax abatement lowers actual price to what it should be today, while the increases in tax estimate improvement in hood to come.

"the math behind the effect of tax abatement is quite simple, in fact, and should/can be properly factored into the mix of investment considerations when purching NYRE---often it clearly is not, and the monthly expense balloon effect, and attendant ongoing price pressure, is not considered by buyers--all that is considered is current "affordability"--there are many for whom this does/will not work out well--in general i find it is the developers who benefit most from abatements--blind (willfully or not) buyers choose only to look at current costs as they shop for the nicest real estate they can "afford", and developers are more than happy to sell--works in many ways like all the io arm and balloon mtge swords people dived onto--mortgages which, if properly considered, are great instruments--"

Speaking of blathering... so many words, so little actually said. I will agree most people do not seem to understand the math around tax abatements, yourself included. Ultimately, if you know what you're looking at, the tax abatement is not much of an issue (good or bad). Know what your unabated taxes will be and when they kick in. The eventual increase in taxes will put price pressure on the property, but in most cases not nearly as much as some here would have you think. By the time most of these run out, a whole host of other factors will have had a larger impact on property value anyway.

Just because some buyers are uneducated doesn't mean you have to be.

"for most of them their properties are worth less than they paid, and their monthlies have ramped--"

bottoms, another example of your casual "facts" that have no basis in reality as far as I can tell. For those who bought during the bubble, which tax abatements have expired? 421a ranges from 10-25 years, so quite unlikely monthlies have ramped up yet.

"my concern with avg joe is that when a bunch a avg joes do dumb things with RE, the market as a whole can be affected"

How is this "your concern" exactly? And I don't think the existence of a tax abatement changes the outcomes here - dumb people will continue to do dumb things.

"i'd consider living there were it not that i needed to be in other neighborhoods"

May those needs live on.

"but a 25-year abatement is a long time, and a lot can happen during that time. also, many of the buildings with 25-year abatements have very low projected non-abated taxes. those of course can and will go up, but probably not disproportionately to the taxes of other properties."

Exactly. There's a fair amount of sensationalizing about this issue. It's not unimportant, but given bottoms' total silence on this, seems like he's backed off the claims of $25k unabated taxes being in any way normal.

Does tax abatement info need to be filed somehwere like acris? is it available? thx

found it. huge difference btw 10yr and 15yr or 25yr abatements. 10yr benefit declines every 2 years by 20% while longer ones are fully in effect for much longer (15yr for 10 years and then declines, 25yr for 20 years and then declines).

what kind of properties/locations received the 25yr abatement??? are we talking about former crackhouses?

JButton, you can find the unabated taxes on specific properties here:
http://webapps.nyc.gov:8084/CICS/fin1/find001i

Enter the address, click on the most recent quarterly statement, scroll down to the last page. The section labeled "Annual Property Tax Detail" will tell you what unabated taxes are. Places like the Edge and Northside Piers received 25 year abatements. Not former crackhouses since all of this is new construction. Current crackhouses maybe.

My understanding was that 25 yr tax abatements were only applicable to J51's, which require some % of units to be reserved as below market middle-income units. Not crackhouses, per se.