NYC CRE Update: Higher Property Taxes Incoming
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
The post-pandemic era in New York City is a mix of good news and bad news. The good news is that NYC is seeing a steady recovery from the worst of the pandemic. In fact, the mask mandate is ending, the vaccination rate is going up, and it’s beginning to look a lot like business as usual.
However, before commercial real estate fans feel like it’s Q1 2019 all over again, there’s some bad news to share as well: higher property taxes are coming. This applies to New York City commercial real estate the most, as property owners have to face a pinched recovery on top of rising costs.
Why Higher Property Taxes Are Inevitable
In the great words of Robert Heinlein, there’s no such thing as a free lunch. Anything that the local government provides has to be paid for, and it’s the people that pay for it. Since corporations are classified as people, commercial real estate professionals should sit up and take notice of the writing on the wall.
The first reaction is often outrage. After all, aren’t there property tax cap rules? While there are indeed tax levy limits, the truth is that they do not apply to New York City proper, according to the Tax Department report.
Infrastructure and services suffered during the pandemic, and higher vacancy rates meant that less revenue was flowing into the city from a tax standpoint. Those services still have to get paid for, and as the recovery continues, NYC is looking to recoup costs as soon as possible, which means that property taxes are going to increase.
Understanding the Tentative Assessment Roll
Every year, New York’s Department of Finance has to look at the market as well as assessed values for every single property in New York City. The tentative property tax assessment roll is issued every year on January 15th. It’s even available online for perusal if you really want to dig into the data.
Currently, the tentative assessment shows that the total market value across all NYC properties is $1.398 trillion. This is up from the previous fiscal year by 8.2%. According to the Department of Finance Commissioner, office occupancy is still struggling, and hotels haven’t made a full comeback.
Insights into Class 4 - Commercial Properties
It is possible to challenge the assessed values from the city, but before that’s done, it’s a good idea to look at the metrics at the city level. Indeed, according to the tentative assessment roll so far, commercial property values rose by 11.7% to $300.8 billion.
Interestingly enough, Manhattan had the smallest increase in market value. The assessed value increased up to $125.6 billion for commercial properties in total.
Challenging Assessed Value with Evidence
The most important part of correcting the Department of Finance is bringing solid evidence for the claim. This department sends out the Notice of Property Value (NOPV) and gives time for the challenge period.
However, the department may not have the correct information for a proper assessment. If the information provided is not correct, it’s important to submit correct information aligned with an official Request to Update document.
The other step to take is to speak with the New York City Tax Commission before the assessment roll is finalized in May.
The deadline commercial property owners have is March 1st. Since that date has passed since this article’s publication, many property owners are out of luck. However, this information is still important because a new notice will go out in 2023, and the process will open back up again.
Silver Linings: The Federal Infrastructure Bill
While higher property taxes are coming, some relief is already in the works: President Biden signed a massive $1 trillion bipartisan infrastructure bill into law in November of last year. Several key categories will receive an influx of cash, including the following places:
- Roads, bridges, and major projects will receive $110 billion across the board.
- Roughly a billion dollars is earmarked for the revitalization of communities.
- $73 billion is pegged to power infrastructure improvements.
- Public transit is set to receive $39 billion.
Infrastructure initiatives benefit the city at large, and those benefits do impact commercial real estate. It’s all connected, and property owners will gain from improved infrastructure but also have to account for that with higher property taxes.
It isn’t so much about the free lunch, but making sure that the lunch on the table is actually nourishing, so to speak.
Mitigating Rising Costs Through Transparency
Higher property taxes coming into play means that the numbers are shifting, but that doesn’t mean that activity within the city will come to a halt. Property taxes are simply part of the cost of doing business in NYC.
The overall economic activity of the area is still higher than some local markets ever get to see in a lifetime. While that’s not much comfort to property owners combating rising costs directly, it does help to put things into perspective.
Remaining vigilant about revenues is only one part of the picture. Staying on top of tax compliance is also incredibly important. Delinquent taxes will become a greater issue as property tax climbs, and many commercial property owners would do better to get ahead of the issue and try to work out payment arrangements as much as possible, where possible.
The Road Ahead
Once again, property taxes are a part of doing business anywhere; you can’t escape property taxes. However, looking at other parts of the financial picture can help lower the impact higher property taxes have on the business as a whole.
Commercial real estate does require getting creative and working within the community as much as possible.
None of these times are certain, but fortune really does favor the bold. New York City still holds plenty of opportunities, and local incentives do exist for property owners. While things are still up in the air in terms of infrastructure investments and getting new funds to commercial owners, the truth is that help can soon be on the way.
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