Ask Real Estate is a weekly column that answers questions from across the New York region. Submit yours to realestateqa@nytimes.com.
Property Tax Envy
Q. Can you tell me why the property taxes on condominiums excessively exceed those on brownstones even though the latter have much greater square footage? I think the disparity is criminal and heartlessly condoned by the city and state.
Fort Greene, Brooklyn
A. Zillow envy is a dangerous thing. I was just browsing the real estate website and found a listing for a $4.495 million four-bedroom condo in the East 70s. The 2013 tax bill was $45,904. Then I glanced at a stunning five-story townhouse, also in the East 70s. It is on the market for $13.5 million. The house is listed for more than three times as much as the condo and has twice the square footage, but its 2013 property taxes, at $59,407, were not much higher. So what gives?
“You couldn’t come up with a sillier system on a bet,” said Glenn Borin, a manager of the Tax Certiorari Group at Stroock & Stroock & Lavan.
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In short, the city taxes townhouses differently from condos and co-ops. The system dates back to the early 1980s, when most property owners lived in either single-family homes or co-ops. Everyone else, for the most part, was a renter. Single-family homes, like brownstones, and many properties with no more than three units are assessed at 6 percent of their value. Apartments in larger multifamily buildings, however, are assessed at 45 percent, which partly explains the spread.
But before you stage a tax revolt, take comfort in knowing that the tax rate is 49 percent higher for single-family homes, Mr. Borin said, which theoretically helps even the score. And then there is the co-op/condo property tax abatement, a measure that was intended to be a temporary fix for some of this disparity, but was recently renewed. Many townhouses benefit from protections, too, like an assessment cap that limits tax increases. “Over all, the finance department’s methodology is very conservative, with a great deal of disparity from one property to another and not a lot of transparency,” Mr. Borin said.
A 2011 report by the New York University Furman Center for Real Estate and Urban Policy found that the tax system overwhelmingly favors owners of small properties, with the largest tax burden falling on renters living in large, multifamily buildings.
The potential for baffling inequities is huge. In a model comparison Mr. Borin created of three Brooklyn properties, the owner of a 2,500-square-foot prewar townhouse could pay $3,831 a year in taxes, while the owner of a prewar condo virtually the same size could pay $13,650 a year. The owner of a 2,500-square-foot condo in new construction could owe a whopping $21,002. Go figure.
Tax Break on Billionaires’ Row
Q. Could you explain the reasoning behind the policy that grants 20- to 30-year tax abatements for residents in luxury buildings like One57? I cannot understand why someone buying an apartment for upward of $40 million would end up paying substantially less in taxes than the average co-op owner pays. How does this abatement help foster the building of affordable housing in the city?
Midtown East, Manhattan
A. You are not the first person to wonder why someone paying $90 million for a penthouse would need a 94 percent property tax break, as is the case at One57, the Midtown skyscraper that has come to symbolize Manhattan’s new Gilded Age. For that answer, you would need to look to Albany. In 2013, the State Legislature carved out a provision in a housing bill granting One57 and four other luxury developments the tax break — with little explanation. These developments can now benefit from a city tax exemption, 421a, which was created in the 1970s to encourage redevelopment. In its current form, a Midtown development that does not include affordable housing units on-site would not be eligible for the tax benefit. But the Albany bill skirted that detail by allowing One57 and the four other developments to qualify for the tax break anyway. Instead, the developers can pay into a fund to build affordable housing elsewhere in the city, like in the Bronx.
“It’s amazing that they get away with this and people aren’t rising up with pitchforks,” said Michael McKee, a board member of the Metropolitan Council on Housing and co-author of a report critical of the Albany deal.
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How much will the deal actually cost taxpayers? According to the Metropolitan Council’s report, which was co-authored by Jaron Benjamin, its executive director, the two One57 penthouses will cost the city $2.4 million in lost tax revenue over the next decade. And that does not account for the remaining units in the 90-story tower. The future owner of a $38.9 million three-bedroom would pay a mere $509 a month in taxes, according to StreetEasy.com.
If this offers any consolation, the tax breaks are not permanent. “After a decade, the tax could easily be $150,000 to $200,000 per year,” said George Arzt, a spokesman for the Extell Development Company, the developer of One57. That figure, he said, is a “multiple of what co-ops are charged per apartment.”
Forget the Poor Door, Who Pays for Affordable Housing?
Q. In new condominium buildings where a portion of the units are set aside as affordable rentals, who manages the rental units and pays the fees to support maintenance and staffing of the building? With all this discussion about “poor doors” and low-income renters not having access to the same amenities as the market-rate condo-unit owners, I would like to know who subsidizes the costs of operating these rental apartments, covering any ongoing losses associated with running them. Is it the original sponsor, the market-rate condo unit owners, or some other entity?
Midtown East, Manhattan
Mixed-income developments are not designed to lose money. Instead, a developer agrees to build affordable housing in exchange for lucrative incentives like tax breaks, subsidies or the chance to build a larger structure. These incentives help make the entire project — including the affordable units — financially viable.
“The general principle behind the mixed-income projects is the developer is granted something of value,” said Barika Williams, the deputy director of the Association for Neighborhood and Housing Development. “In exchange, the city requires a public good in return, in the way of affordable housing.”
Most mixed-income buildings are entirely rentals. Whoever owns the property charges market-rate tenants whatever the market will bear and charges tenants in the affordable units a rent based on their income. Market-rate tenants do not pay a premium because some neighbors pay a fixed lower rent — they pay as much as their landlord can fetch.
Only a handful of properties have a mix of market-rate condos and affordable rentals. Some of these developments, like 40 Riverside Boulevard on the Upper West Side, have been criticized for separating renters from condo owners by what has become dubbed the “poor door.” But supporters of the controversial design point to your question as one reason for dividing the groups: It makes it easier to separate expenses and management. The condo owners do not cover the cost of operating the rental units (although in some cases they benefit from a substantial property tax break). Instead, the units that are affordable rentals are frequently owned and managed by a company that specializes in operating affordable housing.
“Presumably, the reduced rent by the affordable units would be sufficient to cover operating costs,” said George Arzt, a spokesman for Extell Development Company, the developer of 40 Riverside Boulevard.