Spot the culprit
This is a whodunit. Somebody’s paying more, and it’s somebody else’s fault. Who’s the culprit?
We all live in this co-op, and one of us will be financially murdered
But first, let’s meet the victim(s), since what is a good juicy newspaper story (in this case, from the New York Times) without a victim?
I’m the shareholder, and I’m about to be victimized
Co-ops across the city have raised their maintenance charges by as much as 15% in recent months, and one of the main causes is rising property taxes.
What is … Professor Property Taxes, with the tax bill?
Just cal me … Professor Property Taxes
It’s true that Professor Property Taxes was found in perilous proximity to the precipitous payments:
Board members and building managers say that while maintenance increases averaged only about 5% last year, many co-op buildings are now dealing with double-digit increases.
“Operating costs have gone up, but property taxes have skyrocketed,” said John Janangelo, the president of Bellmarc Property Management, which manages about 50 apartment buildings in Manhattan. He said that taxes for some of his buildings had risen by as much as 35% in 2009.
But I’m a property manager, not a suspect!
But we have to eliminate the property taxes as a suspect, for they are the product of prices that have been … pushed?
Property taxes went up at the start of the year when the city eliminated a 7% homeowner tax cut initiated in 2007, when the city was on better financial footing. But there is another reason for the increase. Buildings whose property values soared in recent years are experiencing even bigger tax increases because the assessed values of their buildings have gone up.
Could it have been … Mrs. Peaking Prices?
Previously pulchritudinous?
As we’ve seen, cities use property assessments as a leveling device, aiming to distribute the real estate tax burden ‘fairly’ among all property owners.
“Assessments have gone up based on last year’s market,” said David Kuperberg, the president of Cooper Square Realty, which manages about 200 co-ops and condominiums. “And that’s like kicking homeowners while they’re down,” he added, noting that assessments often take a while to catch up to the market.
Naturally, it goes the other way too – when people’s condos and co-ops were rising in price and their assessments were lagging, nobody complained then.
Might it be … the co-op treasurer?
Money is my mantra
Marty Hoffman, the board treasurer of a 106-unit co-op on West 89th Street, said that the assessed valuation of the building had gone up every year in the last five years for a total increase of 107%. The property tax bill has gone up 55%, from $369,000 in 2004 to $574,000 in 2009. Taxes this year alone went up by $83,000, or roughly $783 more annually for each tenant shareholder.
Now, if the assessments are all rising, then the city should be able to lower the tax rate, because otherwise the city’s operating budget would be expanding dramatically, and that wouldn’t be right, would it?
We’re in danger of running red with scarlet ink
Because each year’s higher assessment is phased in over a five-year period, Mr. Hoffman’s building faces at least four more years of hefty assessment increases as the increases that were issued when the market was booming continue to kick in.
Mr. Hoffman said cheaper fuel was the only reason his building had been able to limit its annual maintenance fee increase to 7.2%. “If oil prices hadn’t dropped, we would have been faced with a 15% increase.”
What’s driving up the taxes? Might it be the City of New York?
I’m from the City and all we do is raise your taxes
[In] Robert Berliner’s 277-unit building on Sutton Place, property taxes were just under $3 million last year and represented the single largest expense in the building’s $7 million budget.
Mr. Berliner, who is the co-op’s board treasurer, said that the city raised the building’s assessment by 25% in 2008, but the building challenged the increase and got it reduced to 10%.
Except that the city’s raising of assessments is no recent phenomenon, but a multi-year trend:
Mr. Hoffman said that even though the tentative assessment increase for 2009-10 was only 1%, the building may have another tax increase of about $83,000 next year because of the phase-in of previous assessment increases. “Aside from the run-up in oil prices,” he said, “nothing has gone up as fast as real estate taxes.”
Is the culprit the previous price appreciation that occurred several years ago?
Some operating costs have risen, however. Richard Montanye, a partner with the accounting firm of Marin & Montanye in Port Washington on Long Island, which works with hundreds of buildings in the city, said that water and sewerage charges went up 14.5% last year. “Housing costs in the city in the past four to five years have far outpaced inflation,” he said.
That’s the period in which prices were rising.
At the same time, some revenue sources have been drying up for many buildings. Those with commercial tenants, especially retail outlets, have been hit hard by the recession, with many tenants asking for rent reductions because their sales volume has dropped off significantly.
Might the real culprit be … the recession?
Are retailers are being bled … White?
We forget that in densely settled urban environments, the ground floor space is not only the least desirable housing accommodations – would you want every passer-by peeking in your windows? – but also the most desirable retail space. Many a building took advantage of this dynamic to lower their own occupancy burdens by profiting from the rents they charged their retail tenants.
Which works for a while …
“Retail tenants are all hurting,” said Richard Siegler, a lawyer who represents about 150 co-ops, “and they’re all coming to boards and asking for relief. If the economy improves, then a lot of this will go by the by, but if not, then boards will have to contemplate losing tenants, even though they’d rather not have a vacancy.”
Um … the boards will have to contemplate lowering the rents.
Lower the retail rents?!?
Buildings that in a stronger market relied on income from flip taxes — a sort of transfer fee for each sales transaction — may also struggle now that sales volume throughout the city has been reduced to a trickle.
‘Flip taxes’ are yet another bit of fine-print extraction from co-op shareholders. As the Times explained it back in the halcyon days of 2003:
When the costs of operating and maintaining a co-op building increase, there are two basic ways of generating additional cash. One is to increase monthly maintenance fees; the other to impose a building-wide assessment.
Since neither solution is likely to endear a co-op board to its shareholders, other strategies for raising money are often sought. One such strategy is the imposition of what is known as a ”flip tax,” whereby shareholders who are selling their apartments are required to pay a sum of money for the privilege of doing so. Flip taxes can range from as little as a couple of thousand dollars to as much as tens of thousands of dollars depending on the way the tax is calculated and the amount of the sale.
And while flip taxes are only slightly less unpopular than maintenance increases and assessments, co-op lawyers say that an increasing number of co-op boards are now considering proposing flip taxes for their buildings.
Thus ‘flip taxes’ – which are really an intra-shareholder transfer fee – are simply a means whereby the incumbent group of shareholders take a bite out of anyone who actually sells his or her shares.
This for all who fail to pay their flip taxes!
Private living clubs like co-ops are the only form of ownership that can readily whack their members this way, and the flip taxes thus represent yet another factor why co-ops sell for less than comparable condos.
You want to live in the same building we do? Pay up!
Robert Berliner’s 277-unit building on Sutton Place has a 2% flip tax for outside buyers, which he said “was a pretty significant source of revenue in 2006 and 2007.”
In other words, as prices were spiraling upwards, the members who didn’t sell were able to subsidize their own occupancy costs by taxing those who sold. Wonder how many of them realized what they were doing?
And the beauty of it, Colonel Mustard, is that Mr. Green pays for you!
The building had used that income to meet operating costs, but because there are now so few apartments changing hands in the building, the board has shifted its flip tax revenue into its reserve fund. “We’re trying to be more realistic and more conservative in dealing with our budget,” he said.
Is that conservative and realistic?
Mr. Berliner said that because real estate taxes are so high for the building, the board may consider raising the flip tax to 3%.
Yes, that’s a good strategy — when the real estate market is weakening, let’s increase the barriers to resale!
You dare to raise the flip taxes?
Who’s the culprit here?
I’m the shareholder, and I’m dead
Maybe it’s not so much Clue as Murder on the Orient Express?
Who dunned it? Or who didn’t dun it?
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