value of a tax abatement

Why are gimmicks necessary if housing is such a good investment to begin with?

jim: not exactly true in the previous environment where everyone assumed that they could refi forever whenever the teaser rate expired.

"jim: not exactly true in the previous environment where everyone assumed that they could refi forever whenever the teaser rate expired."

BINGO.

Example -- unit 11a, the edge, price 655,000$. RET 5$ but 676$ without abatement; CC 593$. 681sf. Anyone care to comment on the abatement aspect of this?

Comebody check my logic: Is this correct? it seems to me that if all the buildings in a neighborhood (like northside Wburg) are built around the same time, they all have the same abatement and it expires the same year. This sounds more like when all the 3-year interest-only loans came due to be refinanced in 2008 than a competitive situation where one building has an abatement and the next one doesn't. So does this make the NEIGHBORHOOD less competitive, rather than individual buildings/units?

Sorry - reposting - this doesn't seem to have been entered.

Somebody check my logic: Is this correct? it seems to me that if all the buildings in a neighborhood (like northside Wburg) are built around the same time, they all have the same abatement and it expires the same year. This sounds more like when all the 3-year interest-only loans came due to be refinanced in 2008 than a competitive situation where one building has an abatement and the next one doesn't. So does this make the NEIGHBORHOOD less competitive, rather than individual buildings/units?

lofty, do they all have the same abatement term? in manhattan they run anywhere from 5-25 years

Edge is 20, nsp is 20..but 125 north 10th was 10 (or maybe 12, don't remember), so...it varies.
apparently.

jim, it would be interesting if people could report what types of abatements they are seeing. in manhattan it will definitely have an impact. in a building like 10 west end avenue, which i believe had a ten-year program, the first adjustment should already have occurred. that's a very different situation, at least in the near term, than a building like the kalahari, which has a 25-year program with the tax phase in occurring during the last five years. not that those two buildings are generally competing for business, but you get my point i'm sure.

in some of the big early developments resales have been nearly impossible, even without the tax situation changing appreciably. i can imagine it will only get worse as time and taxes march on.

I understood all the recent northside wburg abatements were 15 years. 80 Met has 20, I think, but it's not in same northside zone.

They are not all the same. EDGE is 20, as is NSP. 125 n 10th is like 10. Maybe the ones by the water are all twenty, and others closer in less.

30yrs_RE_20_in_REO,

Wouldn't it make more sense to compare two properties that have similar common charges? In your example, it's pretty obvious that if the common charges in a tax abated condo are twice as much as a non-abated condo, the tax abated condo will end up being more costly when the abatement ends.

Here's the down-and-dirty on exemption (NOT ABATEMENT) terms: for Manhattan south of 110th Street, 10 years (but only if the building is 20% affordable or buys negotiable certificates to build affordable housing elsewhere). Manhattan above 110th street, 10 year as-of-right. Outer boroughs, 15 years as of right. If it's in a NPP or REMIC zone (basically, areas that were bad neighborhoods as of the 1980s) then it's 25 years. So yes, parts of northside wiliamsburg are 15 year zones, parts are 25 year zones. The waterfront district is a whole different beast with its own unique rules and affordability requirements.

Thanks for that info. Whats the difference between exemption and abatement?

wellheythere, I think you may not be quite accurate regarding downtown. post 9/11 I believe there were a number of different incentives for not only building but also converting commercial space to residential.

"30yrs_RE_20_in_REO,

Wouldn't it make more sense to compare two properties that have similar common charges? In your example, it's pretty obvious that if the common charges in a tax abated condo are twice as much as a non-abated condo, the tax abated condo will end up being more costly when the abatement ends."

You missed the point: you've got 2 units which are relatively similar and trading at similar numbers. The "question", to some extent, was whether people pay attention to what will happen after abatements expire. The proof that they don't is seeing that two units with CURRENTLY the same TOTAL MONTHLIES trade at similar prices. one of the reasons this is important is the OP, which asked the "value" of a tax abatement. Well, when the drop in value of the unit after the abatement expires is equal to the $ "saved" during the life of the abatement, then the "value" to the purchaser equals zero (assuming an adjustment for time value of money in all calculations).

Secondly, if it's so "obvious", why are people paying the same numbers for both? The only answer I can come up with is that it ISN'T so obvious to those purchasers.

____________________

David Goldsmith
DG Neary Realty

Do you still want to retroactively eliminate the incentives unless they benefit you?

previously posted comment was directed at toilet lady aboutready

30 said: "Secondly, if it's so "obvious", why are people paying the same numbers for both?"

I'm not trying to be argumentative but it may be that the WEST unit is considered better in the market (your assumption is that they are the same, and I don't know enough how likely that is to be true). Also, the higher CC might (not sure) include something of value , such as better amenities, and so might not necessarily result in lower sales price. Also, the price of WEST is, economically, somewhat lower today to the extent of the present value of the abated taxes (that has no net value to the purchaser because they are prepaying for it through a higher price).

The best example would be identical quality buildings in same hood, roughly same age, to see price differential of the abated building (which ought in that case be higher by the value of the abated tax amount).

Anyway, the point that one should be wary of "equal" monthlies is well taken if one has a looming abatement expiring.

My question: are you saying that the market mis-prices abatement buildings and it is dangerous to buy one because when it starts expiring you're going to get hit by a large price decrease?..do you tell people to steer clear of such buildings?..

"My question: are you saying that the market mis-prices abatement buildings and it is dangerous to buy one because when it starts expiring you're going to get hit by a large price decrease?..do you tell people to steer clear of such buildings?.. "

Yes and sort of: I don't "tell" clients what to do, I advise them of the risks and facts about the situation they bring to me. The particular reason I used 130 West 20th in this example is because just this past week I was involved in a discussion regarding what will happen to the values in this building when the taxes reach full payment.

"The best example would be identical quality buildings in same hood, roughly same age, to see price differential of the abated building (which ought in that case be higher by the value of the abated tax amount)."

The problem is that this is generally impossible: if similar new construction buildings are being built in a given neighborhood, generally speaking they have similar tax abatements which expire on the same schedule. So, if they are the same age, you don't have one with a full tax abatement and one with an expired abatement. Remember, the abatements we are talking about here aren't like the one's in the ST/PCV case - which were for MCI's - they are for new construction, so they all start at the inception of the building, and therefore run concurrently with each other.

"I'm not trying to be argumentative but it may be that the WEST unit is considered better in the market (your assumption is that they are the same, and I don't know enough how likely that is to be true). Also, the higher CC might (not sure) include something of value , such as better amenities, and so might not necessarily result in lower sales price."

While I understand what you are saying, the point is the "great equalizer' is sales price: if two units in the same neighborhood sell for the same price, it means that the two units MIX of size/amenities/condition/etc,etc,etc makes them the economic equivalents of each other (that's what sales price/value is sort of defined as, no?). The big point here is what happens when the abatement runs out? Do apartments which are currently selling for the same price drastically change in their relative value. And that's what germnated my query to you above:

"In about 10 years from now, let's say everything (costs)is up 20% and
5 e 22 has a cc of $586 and an RET of 604 totaling $1,190, but
130 west 20th has a cc of $990 and a now un-abated RET of $800 for a total of $1,790.

Does that sound like a reasonable situation to you? If so , what do you think the results will be?"

____________________

David Goldsmith
DG Neary Realty

So, I found this thread and am trying to apply it to a property I'm looking at.

It's in year 4 of a 15 year J51 abatement. Let's call the purchase price 875k. Assessed value is 64k, tax class 2 (13.241%). Final taxes (at current tax rate) would be roughly 8500/yr or $708/mo.

Let's say I expect to hold the property for 10 years. That would put me in year 14 of the abatement, or 80% taxation, which would be $566/mo or $6792/yr.

How do I figure the cost/value of an expiring abatement into the current market value of this place? Furthermore, how do I factor it into any future valuations?

I have read this thread and, although the information is interesting, I find it inconclusive. I am planning to invest in a condo property in Brooklyn and need to spend time with someone to model the various scenarios described here very clearly and critically. Of course I will pay for the effort to model accurately and persuasively. If you have significant experience in real estate investment and can model cashflows and can spend a couple of hours with me on the phone and through email please email me at megabyzus@hotmail.com. I am time bound and need help ASAP. Thanks!

Mo

>I am time bound and need help ASAP.

How are things going?