The Stoler Report with Michael Stoler: Joel Marcus

0:00 Speaker 1 Good morning, this is Mike Stoller for the Stoller Real Estate Report. Taxes. It’s always taxes. There are more taxes. Each and every day there are more taxes being implemented. So today the latest tax is considered a PATT. I have a specialist in PATT. I have a specialist in real estate taxation, a specialist who understands all of the

0:25 nuances of the real estate world, In the taxation, I have Joel Marcus, the senior partner of the firm of Marcus & Pollack. Thank you for being here.

0:36 Speaker 2 Thank you, Michael. It’s a pleasure to be here with you.

0:38 Speaker 1 So what is PATT, the Petiteur Tax?

0:41 Speaker 2 Yes, I guess it says one foot in or whatever in French. I have to be corrected on that. But basically, if you have a second home in New York City and you are not a New York City resident that pays taxes here, you are subject to this tax. As a matter of fact, it isn’t necessarily even a second home.

1:04 It’s a tax on a home.

1:06 Speaker 1 Anything over a million dollars.

1:08 Speaker 2 Anything over a million dollars of value for cooperatives and condominiums based on the city’s assessment that was published in January of this year.

1:21 Speaker 1 But later on, it was May. What happened in May?

1:24 Speaker 2 The law imposing this pied-à-terre tax was passed on May 28th. And it goes, it says the status of the property, who you are, who you rent to, how you own the property, LLC, trust, et cetera, is determined as of January 5th. So no one knew on January 5th that the law was going to come to be. And so

1:51 they couldn’t change their status. They couldn’t transfer the property to somebody who would be exempt from the tax, they couldn’t rent it to somebody who would be exempt from the tax.

2:03 Speaker 1 So what’s happening for retail sales of residential properties? What’s happening?

2:11 Speaker 2 That’s a good question because many people believe that a large number of properties may be put back on the market because the tax, in most instances, is equivalent to doubling of the tax they pay beforehand. And so maybe that’s just too much and they will sell this second home.

2:34 And that might depress property values because of all of the sales that are taking place. However, the law that imposes the tax is as of January before the law came into effect. And so the valuation doesn’t take into account that the law itself depresses market values.

2:54 Speaker 1 So who’s going to get hurt more?

2:56 Speaker 2 Believe it or not, it’s very painful with a very high end. The tax is quite severe. But a huge swath of middle-income people are going to face this tax. I mean, if you think about a million-dollar threshold for an apartment, it’s not a very high threshold for almost any apartment in New York City. So.

3:24 Speaker 1 What happens with the example of a building that’s been converted to cooperative apartments a number of years ago? The people are living in the property. They’re not getting too many benefits, and now they’re getting hit with an additional tax.

3:44 How can they afford to pay this tax?

3:48 Speaker 2 It’s a departure from policy. Taxation in residential properties was meant to be an affordability issue. You knew the demographics of who was living in the apartments and what their level of income was. And all of a sudden, this upsets the apple cart because their income didn’t go up if they’re on a pension or they’re of limited means.

4:15 Their salaries didn’t go up if they’re working. But the tax doubles for some of these people. So it’s a shock. And for many people, it will force them to sell.

4:29 Speaker 1 What effect is it going to have on the sales of condominiums and sales of new luxury apartments? Each one a separate category.

4:40 Speaker 2 I think that the sales of condominiums and cooperatives in the middle income ranges will depress.

4:49 Speaker 1 What do you consider middle income ranges?

4:52 Speaker 2 I would say the value would be from $ 1 million to $ 3 million in the current form of the tax, and that the income level would be $ 150, 000 to, let’s say, $ 300, 000 of income would be affected by this. Anything over $ 300, 000, $ 350, 000 of income, definitely affected, and they’ll pay a huge tax amount.

5:22 they may choose that it’s easier for them to live outside of the city, in Long Island, Westchester, or New Jersey, and then commute in. As for the upper end of it, I’ve talked to some developers, and now they’re thinking, or rethinking, why are we building luxury condominiums for sale? Maybe we’ll just make them rental apartments. And that also changes, you know,

5:53 This is going to cause a big demographic change, and I don’t know that there’s ever been a study to see what kind of a sea change this is going to bring about.

6:03 Speaker 1 What’s the position of the governors of this state, especially with an election coming up on the tax?

6:12 Speaker 2 I’m not a politician, but I will say this. I was surprised that the governor went along with this tax, which defies all logic in property tax, which always had the mantra that the tax was blind to the identity of the owner. And this changes everything. And the governor, by backing this tax, I don’t know what the motivation,

6:38 maybe she was seeking the support of Mayor Mondami for her re-election, but she’s really upset and angered a lot of people in this city.

6:50 Speaker 1 What did the young people... that you talk to feel about this tax?

6:57 Speaker 2 A lot of young people are only renters, and so they don’t think the tax affects them, and they like the slogan, tax the rich. But we really don’t see that this is taxing the rich and the middle income, not just the rich.

7:19 Speaker 1 So where do you see this Do you believe it’s going to be overtaken?

7:25 Speaker 2 I personally think that this tax is illegal and unconstitutional. But other people with deeper pockets are going to litigate this, and I think that there are avenues. So, for example, our state constitution says that all property should be taxed at the same level of value. And this is a real violation. The statute itself, imposing the pay to tear tax,

7:55 says never mind what the Constitution says, this is the tax. I don’t know that they can disregard the state constitution. That’s an interesting question.

8:05 Speaker 1 Next interesting question relates to the conversions from office buildings to residential. What effect is this going to have due to the taxes?

8:16 Speaker 2 That’s a very good question. The conversion... most of them, 467M, provides that the building pays no real estate taxes for 35 years. And so they’re not expecting to pay real estate taxes, but the pied-à-terre tax is independent of that.

8:37 So they may find, if they’re not a New York City resident paying New York City income tax, that they may be subject to a pied-à-terre tax, which would be equivalent to what the tax would have been if it was an ordinarily real estate taxable building.

8:52 Speaker 1 Okay, what’s the subject about the portal?

8:57 Speaker 2 You know, I don’t know who their IT person is, but the portal, they sent out 11,000, in one instance, 14,000 letters saying people might be subject to this, which means you’re guilty before you’re proven innocent. So now you have to go to the city portal and put in your answer that I am not subject to the tax, here’s

9:18 my tax return, here’s my lease, Here’s the other information. But the problem with the portal is you need a PIN number. So you have to call 3-1-1. And we have found that there are people trying for weeks and not getting a PIN number. And so they can’t get the PIN number, they can’t go into the portal, and

9:38 they can’t put their information in that says that they’re not subject to the tax.

9:42 Speaker 1 What do you recommend to a board of a cooperative to do with regard to the taxes?

9:49 Speaker 2 The boards are now looking at changing their bylaws. One of the biggest problems with a cooperative is that the tax, the pied-à-terre tax, is sent. to the block and lot, meaning the building. The whole cooperative has one block and lot.

10:06 So if one or two or 20 of the residents are subject to the tax, the bill doesn’t go to them. It goes to the cooperative. And if the cooperative doesn’t pay It’s a lien subject to interest and subject to New York City foreclosure. But most cooperatives do not have the mechanisms in place to directly collect the tax from

10:29 the unit owner. That’s a perplexing question.

10:33 Speaker 1 In conclusion, I think the entire tax is a big question. People don’t really have an answer to it. And I hope that we’ll have you back on later in the year update us on the tax. Thanks very much for being here.

10:49 Speaker 2 Thank you, Michael. It’s a pleasure.