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NY Real Estate Commercial
Fiscal Impact of Proposed Tax on Pied-à-Terre Is Unclear
From the Wall Street Journal of Tue, 02 Dec 2014 21:26:06 EST
15 Central Park West in Manhattan, where at least 20 units have sold for $25 million and up
15 Central Park West in Manhattan, where at least 20 units have sold for $25 million and up Andrew Hinderaker for The Wall Street Journal

The idea to charge New York City pied-à-terre owners an annual property-tax surcharge has undeniably raised alarm across the real-estate industry and intrigued progressive policy makers.

Far less certain, however, is how many apartments the proposed tax could hit, how much money it would raise and whether it would hurt or help the local economy.

Figuring all that out has become a sort of quest of city agencies, real-estate executives and the Fiscal Policy Institute, the left-leaning policy group that proposed the tax.

Mayor Bill de Blasio gave traction to the pied-à-terre tax proposal in September when he said he would look into it. But the tax would require approval of state lawmakers, less likely now that Republicans have gained control of the state Senate. City Hall has since floated a less onerous alternative—a one-time transfer tax on expensive mansions, with proceeds funneled to the city’s affordable-housing program.

Still, work on the pied-à-terre tax idea has quietly continued.

As proposed, it would impose an added annual tax of up to 4% on co-ops, condos and houses with market values of more than $5 million that aren’t the primary homes of New York City residents. The first $5 million of a home’s value would be exempt from the surcharge.

The top 4% rate would hit the portion of properties valued above $25 million. The Fiscal Policy Institute projected 445 of these units would produce $551 million in annual revenue under the tax plan—80% of the total.

Yet, actual sales data over the last decade suggests fewer ultraexpensive apartments exist than the institute projects.

Since 2004, 169 sales were recorded for residential co-ops, condos and one-to-three family houses in Manhattan that sold for $25 million and up, according to a Wall Street Journal review of city records.

Because property records rarely contain clear-cut information on a buyer’s place of residence, these transactions include all types of homes, not just pied-à-terre. On the list are sales at new developments including 20 condos at 15 Central Park West, nine at the Plaza and nine so far at One57 on West 57th Street.

James Parrott, deputy director and chief economist at the Fiscal Policy Institute, said he made the best estimate he could based on published city data, but didn’t have access to individual sales data.

He said the tax was important because non-primary owners were unlikely to pay New York City personal-income taxes and paid relatively low property taxes while benefiting from city services and infrastructure.

Assemblywoman Deborah J. Glick, a Manhattan Democrat and the lead sponsor for the pied-à-terre bill in the Assembly, said it addresses the “wealth gap” and the increasing cost of housing.

“The escalation in real-estate values has been accelerated by the high prices paid by people who don’t live here including foreign investors,” she said.

The Real Estate Board of New York, a trade group, opposes the tax.

Leonard Steinberg, a real-estate broker and president of Urban Compass, a real-estate brokerage, said wealthy owners of pied-à-terre spent millions of dollars when they are in the city.

“Taxes aren't supposed to be a punishment, they are supposed to be for paying for city services,” he said. He said wealthy pied-à-terre buyers use “less than half the services” that New Yorkers use.

The task of counting pied-à-terre was aided in 2013 with state legislation to phase out a long-standing co-op and condo abatement for non-primary residences. A city report issued in June found that in the 2014 fiscal year, 25% of apartments receiving the abatement were being phased out, including 29% of those in Manhattan.

The report said that nearly 89,000 apartments citywide were being phased out, including about 56,000 in Manhattan.

George Sweeting, deputy director of the city’s Independent Budget Office, said he was making a priority of identifying and estimating values for these units to project how much money the tax could raise. He cautioned that his analysis left out many new condo developments and other buildings not eligible for co-op and condo abatements because they received other abatements.

The city Finance Department, meanwhile, also is examining the question. It can match addresses on city income-tax filings against overall units. Residents wouldn’t pay the new tax.

Brokers say the number of pied-a-terre varies from neighborhood to neighborhood, and are much more likely in Midtown than in downtown neighborhoods and more likely in new condos than older co-ops.

Estimates of pied-à-terre in newer building range up to 50% or more. At Trump Tower on Fifth Avenue, the Independent Budget Office found that of 214 units that received the co-op and condo abatement in fiscal 2012, 103, or 48.1%, lost it in the current year.

Jonathan Miller, an appraiser and president of Miller Samuel Inc., said he doubted whether the city could develop a computer algorithm to accurately estimate values of very expensive apartments. “How do they know the views, the second floor versus the 30th floor, park views versus brick walls?” he said.

Write to Josh Barbanel at

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