WHERE ARE CO-OP CONDO TAXES GOING

Stage 1: Laws Adopted to Reduce Co-op Taxes

In the past 30 years, thanks to the advocacy of several groups like the Council of New York Cooperatives & Condominiums, the Federation of Housing Cooperatives and Habitat, laws in New York were adopted that provided significant benefits for co-op owners.

Some co-ops will likely continue

to pay significantly more taxes

than similarly valued homes.

In 1992, owners of homes built on cooperatively owned land in three bungalow communities successfully advocated to be treated as Class 1 properties. As a result, the assessments for these specific properties were lowered from 45 percent to what was then the same as Class 1's 8 percent assessment ratio. In addition, future assessment increases were capped at no more than 6 percent per year and 20 percent over five years. Then in 1994, owners of co-ops with fewer than 11 units, such as brownstone, successfully persuaded elected officials to adopt a law that provided them with treatment similar to non-cooperatives such as single-family homes and townhouses. For this group of owners, assessment increases are capped at no more than 8 percent per year and 30 percent over 5 years. In addition, if these owners renovate their brownstones, the increase in assessed value that may result from the renovations is capped at 15, rather than 45, percent.

Finally, in 1996, co-op owners won perhaps the most revolutionary victory of all. A law was adopted that provides an abatement that reduces co-op owners' taxes by 25 or 17.5 percent, depending on the co-op building's per-apartment assessment. The program cost New York City $443.8 million this fiscal year and is scheduled to expire June 30, 2012.

Stage 2: Co-op Prices Soared and Crashed, Soared and Crashed

Let's use my co-op apartment as a starting place for understanding what has happened to co-ops in the last three decades. It is true that all politics are personal; so, too, are all property tax issues — even more so. I purchased my less-than-1,000-square-foot apartment for $90,000 in 1984. Today, the apartment is probably worth a little less than $600,000, more than six-and-a-half times what I paid for it, discounting inflation. (While there are not a significant number of sales in the 17-unit building, the last sale recorded was a third-floor unit with 145 shares that sold for $820,000, or $5,600 per share. I own 105 shares in the building, so my value is arguably just shy of $594,000.) Even with the relative ups and downs in the New York City real estate market, my co-op investment would have made my mom proud.

Remember this, however: Co-op and condo market values for property-tax purposes bear no relationship to sales prices. Using numbers from that recent sale in my co-op building, one can estimate the market value of all units in the building if they sold for the same price per square foot as that apartment. Based on that calculation, all units in the building would be worth about $12 million. However, in the current fiscal year, New York City estimated the market value for my building as a little more than $1.8 million, only 15 percent of the market value derived from the sales price of my neighbor's unit.

This anomaly arises because state law mandates that New York City use a complicated and non-transparent approach when valuing co-ops. The city must value my building based on a comparable rental building. For the current fiscal year, the city chose a 20-unit rental building in nearby Prospect Heights, estimating rent of $21 and expenses of $7.35 per square foot and dividing the net income by a capitalization rate of 13.628 percent. To illustrate the point, the city estimates that I would rent my apartment for about $1,800, far less than the likely $3,000 per month market rent for an apartment like mine in Park Slope.

Next page: The Coming End of Abatement >>