NYC settles the real estate question. UP

In my old coop, maintenance is up 50%

Many large buildings challenge their tax assessments, however, and reap tax savings as a result. The Time Warner Center's market value was knocked down 12.3%, shaving its preliminary tax bill by $1.8 million.

Read more: http://www.nydailynews.com/ny_local/2011/01/15/2011-01-15_yay_property_values_rise_boo_so_will_your_city_taxes.html#ixzz1BCbdG9Ld

Monthly costs = taxes, management / legal fees, utilities, labor costs, borrowing costs, insurance, + ?...... The only one that can be "controlled" in any way is that of labor. Does anyone see a significant decrease in services provided in coops and condos - doormen, concierge, etc.? Or will sale prices have to come down to match the steep increases just around the corner?

Steve, the 50% is from 2001-2011. It's 6% 2010-2011: http://www.350bleecker.com/newsletters/html/237.html

Price of electricity and Gas has declined. Labor costs are up around 3%. I've seen a few buildings switch from doormen to security during night hours(some rental buildings). In high end buildings reducing services is like cutting one's nose to spite one's face, it just reduces the building value further.

The real problem is the city, they need to do more with regards to controlling costs. They can't keep hitting real estate like it's a piggy bank with no limit.

Right, and services can't be reduced in buildings where the sponsor still owns apartments with RS/RC tenants.

We've cut our overtime down to nothing by using temp guys to help cover vacations, etc. At first people didn't like having strangers in the building, but now they know us and we know them, so no problem.

Since 2002 when Mayor Bloomberg took office, Jayson Levitz has watched taxes on his modest, beige-brick ranch house on Bell Boulevard in Queens more than double to $5,818 a year.

"They are driving out the middle class," said Mr. Levitz, director of operations for a Manhattan consulting firm. "In the suburbs, every town and village votes on the school budget, here they just shove the property tax down our throats."

http://online.wsj.com/article/SB10001424052748703431604575467891690407262.html

Easier to raise taxes on property owners - especially non voting foreign owners - than cut pensions

NWT interesting that the building would so publicly advertise that they have a legal dispute with their tenant. Can't help but think this makes sales more difficult.

And what happens if the Coop loses? Are they telling prospective owners they can expect an even larger maintenance increase in the future?

ALBANY, N.Y. — Taxpayer-funded contributions to the pension systems for New York's public employees could balloon by billions of dollars over the next five years, diverting scarce resources in tough times, a fiscally conservative think tank said in a report Tuesday.

The Empire Center for New York State Policy report predicted how state public pension funds could fare based on the performance of investments and other variables, but even the forecasts based on pensions hitting their investment targets are alarming.

The report said taxpayer contributions to the New York State Teachers' Retirement System could increase from about $900 million this year to about $4.5 billion in five years. State and local employer contributions to the New York State and Local Retirement System could more than double to add almost $4 billion to taxpayer costs, even with a cap that allows governments to defer a portion of higher pension contributions.

The pension report was released at a conference in Albany that featured local officials concerned that high benefit costs could force them to cut services during difficult economic times.

http://online.wsj.com/article/APe42f291f0d3647cb868f8564aa5b3703.html

If I were looking there, that'd be more than offset by the board's practice of being up-front. It's never any good trying to hide things. Everybody in the Village and in RE law knows about the building's ongoing fight with the sponsor, anyway. It's by no means the worst example down there of the cost of litigation. With 350Bleecker a buyer knows exactly where they are, and it ain't that bad.

Now - what does this mean/how does this affect buildings with long term 421a and J-51 abatements in place?

421-a/j-51 only pay a percentage of their assessed taxes. So less pain for a while.

"...So less pain for a while..." A new building I'm looking at has a 25 year abatement. That's not 'a while.' That's half a life time as an owner, assuming you buy the place at 30, live an average lifetime, and never move.

"Since 2002 when Mayor Bloomberg took office, Jayson Levitz has watched taxes on his modest, beige-brick ranch house on Bell Boulevard in Queens more than double to $5,818 a year."

Yes, Bloomberg caused the housing bubble!

Did Mr. Levitz happen to mention how much his house went up from 2002 to 2010? It's understandable to be upset about increase in taxes, but to imply that Bloomberg is the reason for the increase is just stupid.

Bloomberg for President!

No Bloomberg did not caused the housing bubble, but real estate tax on personal residences is a rather insidious tax. The property owner if he's an owner/residence gets no immediate benefit from the increase in property values unless he sells, meanwhile his cost of carry keeps going up.

Owners of single-family houses get an amazing tax break compared to owners of condos/coops (taxed only on 6% of assessed value instead of 45%.) If this guy's taxes doubled in 8 years, he must have had an assessment, which only occurs with massive renovations/improvements/change of COO. Otherwise, the increase is limited to 20% increase over 5 years, so the maximum increase over 8 years, even in bubblicious times, should be no more than 44%.

RS, as an owner I am not happy with the steady increases in my RE tax as well. I was just pointing out that blaming Bloomberg doesn't make sense. Contact your law makers if you want to change the re tax rules.

I believe there are places where the re tax is based on the value at the time of the last sales and never changes until the next it is sold. Wouldn't that be nice.

Sunday,
Before the last city election I was told, by someone familiar with the process, real estate taxes were going to go up, but that city officials were keeping it quiet for fear of changing election results....

Does any one know how the single-family houses being taxed at only 6% of the assessed value came around? There is usually some rationale which gets inflated by political motives.

I would not be surprised if that's true. When it comes to law and government, things don't change until it gets really bad. Someone need to set herself on fire to protest first...

I presume you realize that excessive property taxes are not just a NYC problem?

I wonder how many have thought about buying a place and decided against it after looking at the re tax.

>Someone need to set herself on fire to protest first...

Unnecessary

I was reading the following right before I made that comment.
http://www.cnn.com/2011/WORLD/africa/01/16/tunisia.fruit.seller.bouazizi/index.html

This is the primary reason that I continue to only look at new developments with a 15 to 25 year (421a or J51) tax abatement....

Funny, I was listening to David Einhorn opine that we're in between crises. And while we're not in a bubble now, what's occurred is the government papered over our problems, sweeping them under the rug, essentially doing nothing more than having the Public Sector absorb Private Sector mistakes and liabilities.

I don't see any bubbles right now, just over-valuation. That said, I believe we missed an opportunity to get us on the right path toward future growth and the next few years will be sub-par with the potential for some big problems several years out.

For those interested in purchases other than a primary residence - investors / pied a terres - the potential of significant increases in carrying costs is an important deterrent to buying anywhere - particularly in NYC. Why inherit huge budget deficits, increasing borrowing costs, public service pensions, and aging infrastructure? It might not be a large market sector, but perhaps large enough to play a role in low demand going forward.

Depends on what the objectives are. If we're talking Chinese investor looking to build an American nest egg to hedge against their countries political risk, then the condo purchase makes sense. If we're talking about an all cash investor looking for tax deferred growth with the goal of a next generation the yes again.

If' we're talking about borrowed funds for a second home or investor property, I would most definitely agree with you. I also think that any home purchase that needs a high ltv loan, the rental option is the better one.

If we're talking about an all cash investor looking for tax deferred growth with the goal of a next generation the yes again -
please explain.

i can think of nothing more stupid than a chinese investor buying in NYC now. it doesn't matter if it is a hedge against political risk if it is a monthly loss. and it almost always is. unless they feel the need for a total escape route, and that doesn't say much that is favorable for the world economy, does it?

Riverhumper says 'if you are buying gold to wear, it's an excellent buy. But if you wanna make money on it, you are a Fking financial retard!'

>i can think of nothing more stupid than a chinese investor buying in NYC now

Smart planning is tying income and spending.

i can think of nothing more stupid than a chinese investor buying in NYC now.

-----------
China has currency controls, that limit per year money movements.
China does not have political freedom. You can be rich one day , then broke and in jail the next
--------------------
And as a rich American, with political and economic freedom that's something arguably outside your experience and understanding.

if i were broke and in jail i'd find a manhattan condo with its carrying charges quite comforting.

outside my understanding? condescending toad.

So much for the new civility in America. Happy MLK day.

With laundering money, some get lost in the washer and the dryer. Getting half back is pretty good.

Riddle me this, RS. Say I'm a wealthy Chinese guy looking to hedge political risk. I get my cartload of cash safe and sound to the shores of US freedom. At this point, I can buy NY RE. Or I can sit in cash. Or I can buy bonds. Or I can buy stocks. Or I can buy lotto tickets. Once the money has been moved to the US, does NY RE buy me any additional hedge against political risk? Don't I have the same set of good/bad investment choices as any other guy?

BTW, I would also like to openly declare that I like Chinese condo investors. For example, take this 1100 sq ft 2BR / 2BA on the 19th floor with a 1200 sq ft (!!) terrace overlooking Central Park. Chinese investor bought for $3.5M earlier this year:

http://streeteasy.com/nyc/sale/471095-condo-160-central-park-south-central-park-south-new-york

To cover the $4500 maintenance, he decided to rent it out:

http://streeteasy.com/nyc/rental/673645-condo-160-central-park-south-1200sqft-private-terrace-with-unparalleled-breathtaking-central-park-view-central-park-south-new-york

04/14/2008 Previously Listed by Corcoran at $19,000.
10/09/2009 Previously Listed by Jumeirah Essex House at $20,000.
04/24/2010 Jumeirah Essex House Listing is no longer available. Last priced at $20,000.
07/06/2010 Corcoran Listing is no longer available.
07/22/2010 Listed by A.C. Lawrence at $15,000.
08/09/2010 Price decreased by 13% to $13,000.
08/24/2010 Price decreased by 23% to $10,000.
10/11/2010 Price decreased by 20% to $8,000.
10/25/2010 Listing is no longer available.

In all fairness, it was the prior owner who started at $20K; this guy started at $15K. And the $8K ask actually was there to compensate for the fact that the terrace was closed for a few months, with a $10K ask after it opened up again. So, let's call it $9000 after some negotiations. That's $4500 net, or $54K a year, for putting up $3.5M cash and losing $300K in transaction costs.

Gotta love the Chinese investor.

I'll throw these out at you..
Real Estate as opposed to cash is less likely to leave a paper trail.
Real Estate growth is tax deferred.
Rents tend have an inflation component
Children,family as well as the buyers can utilize the apartments.
Real Estate as opposed to cash would be harder for the Chinese government or debtors to gain possession of
People from Emerging markets still view fiat money as paper. Real estate is deemed a better store of value.

Ino: I know you don't shouldn't quibble when you are only spending 3.5M for those fabulous views. But it looks like you can't enter that CPS apt if the refrigerator door is open. Call me a diva but .........

Btw, when I was looking at rentals, I looked at the Setai downtown. The apt was owned by a Chinese investor and the broker told me he was so pleased with the place, he just bought a second apt in the building and made an offer on a third. I checked for several months afterwards and the apt remained on the rental market. But at least the investor has access to free breakfasts in the private club. Or did they withdraw that perk when they went bankrupt?

> Easier to raise taxes on property owners - especially non voting foreign owners - than cut pensions

well, health care benefits to retirees will have to be cut anyway, but the pension check is more tricky to change for current retirees. overall, it's better to increase tax revenue taxing real estate than by taxing labor more (which is more elastic).

For New York City , The Real Estate tax is one of the few means of raising revenue they don't have to go to Albany for. It's a relatively easy target.

Property taxes are the only thing left to raise if the can't raise anything else. And properties can't move out of state like earners can.
Those condo units on the tail end of abatements are in for a rough ride the next few years.

Nada
For all units Ive kept an eye on in the last year to see final sales price after in contract, the ones leaving me scratching my head the most (overpaying by biggest margin) were chinese names on the purchase.

Wow the Chinese look so japanese.....

"Ino: I know you don't shouldn't quibble when you are only spending 3.5M for those fabulous views. But it looks like you can't enter that CPS apt if the refrigerator door is open. Call me a diva but ........."

Yeah, the place is real tight. The kitchen is a play kitchen, no closet space either. The terrace was the big draw, but you really gotta be an outdoor lover to bite on it. I think the mirrored apt next door put a solarium-ish thing on part of the terrace, much better use of the space IMO.

"Nada
For all units Ive kept an eye on in the last year to see final sales price after in contract, the ones leaving me scratching my head the most (overpaying by biggest margin) were chinese names on the purchase."

When it's going up 20% a year, why quibble? Foreign buyers in midtown do seem to be the biggest over-payers FWIW. That said, I'm not sure $3.5M is all that off the mark for this place. 1100 interior square feet plus 1200 exterior at 50% gets you 1600 sq ft (if there were ever a case for the 50% rule on exterior square footage, this is it). For CPS park view, $2200 a sq ft ain't bad compared to the market.

I thought the assessed tax value of coops was based on a comparable rental building in the area.....so are we saying that these comparable rental buildings assessed values are going up OR is the tax rate going up OR Both?

Adding insult to injury... your apartment is down 20%, but your taxes go up.

Ouch.

Both, and they're changing methodology:

"Fiscal Year 2011/2012 Tax Class 2 Valuation
For the fiscal year 2011/2012 assessment roll, Finance will return to the Net Income capitalization method of valuing all residential properties that contain eleven or more units. This is a departure from the Gross Income Multiplier method, which has been in use since the 2007/2008 assessment year. The Net Income Capitalization method is a more widely accepted method for valuing income-producing real property, taking into account the income and expenses of individual properties, and is also used to value non-residential income-producing properties in the City."

> Real Estate as opposed to cash is less likely to leave a paper trail.
Huh?

> Real Estate growth is tax deferred.
Of course, tax deferral doesn't help a loss.... and income from the rental is not tax deferred. Buy an index fund and you can get most of your growth tax-deferred.

> Rents tend have an inflation component

So do maintenance costs.... even when rents don't have an inflation component.

> Children,family as well as the buyers can utilize the apartments.

Good for them... but then it is not an investment, it is consumption.

> Real Estate as opposed to cash would be harder for the Chinese government or debtors to gain
> possession of

Not quite sure about that. You can always flee with cash in a suitcase.

> People from Emerging markets still view fiat money as paper. Real estate is deemed a better store of
> value.

How does that change after all the steep losses?

There's an emotional component at play, too. People with recent (to them) memories of confiscation set great store on property rights, and might put more value on them than we, who take it for granted, do.

They snicker at loonies here calling taxation theft. "You don't know what theft is."

Then there's something to the stereotype of the Chinese loving to gamble.

Of course, tax deferral doesn't help a loss.... and income from the rental is not tax deferred. Buy an index fund and you can get most of your growth tax-deferred.
An assumption answered with an assumption

Children,family as well as the buyers can utilize the apartments.
Good for them... but then it is not an investment, it is consumption.
Which they value

Real Estate as opposed to cash would be harder for the Chinese government or debtors to gain
possession of
Not quite sure about that. You can always flee with cash in a suitcase.
They are purchasing with cash, and in many cases with more cash than they are legally allowed to have taken out of the country.

And your premise always seems to return toward maximizing return. If they wanted to do that they would keep the money in China. They are intentionally choosing a lower return investment. They see the risk of real estate going to zero as lower than stocks. If the condo under performs cash or the s&p by a few points they are fine with this.

I'm done here. You may wish to continue, but I assume we'll just repeat and not convince the other of much of anything.

Then there's something to the stereotype of the Chinese loving to gamble.

NWT. They think it's good luck to gamble.... it's cultural.

Are you suggesting that the risk of a leveraged, undiversified RE investment going to zero actually is less than the chance of the S&P 500 going to zero, or are you just asserting that Chinese investors are particularly foolish?

"Time Horizon" - People from a society that focus on quarterly plans are judging the decisions of those who plan decades in advance.

Another thing to keep in mind is the percentage of their net worth that is actually invested here in real estate.

I think Chinese who drive the wrong way on one way streets are particularly foolish gamblers. :)

(An occurance Ive witnessed many times in my youth in Flushing)

I'm no expert , but I think it emanates from Feng Shui. Embracing luck brings luck or something like that.
For those that follow Feng Shui, Numbers are powerful(as they are in many cultures). 4 is bad 8 is good., etc

Do people who follow Feng Shui get better deals on real estate than those who don't? Or is it another theory like Mean Reversion?

I think foreign investors tend to make the worst decisions in any market regardless of their method.

what to do if nobody responds to you?

make up some other people to talk to.

only on the internet.

You respond to me, every time. It's your only reason for logging on.

1. no one could possibly keep up with you.

2. i thought you were ignoring me.

"I'm done here. You may wish to continue, but I assume we'll just repeat and not convince the other of much of anything."

You're done after skipping half the arguments. We call that giving up on your argument.

"Are you suggesting that the risk of a leveraged, undiversified RE investment going to zero actually is less than the chance of the S&P 500 going to zero, or are you just asserting that Chinese investors are particularly foolish? "

Or maybe its just the poster. ;-)