How to Reduce a Tax Assessment: A Case Study

The property is a six-story Noho Artist in Residence (AIR) loft co-op, built in 1910. (See doorway, above.) Department of Finance records list the 13-story building as 43,020 square feet, of which 35,850 is residential; there are two ground-floor retail units. The average apartment size is 2,758 square feet.

It was assessed at $1,278,000 for 2005/2006, $1,350,000 for 2006/2007 … and a big-jump $2,821,500 for 2007/2008 and $3,685,500 for 2008/2009. That last comes to $85.67 per square foot. With the assessment having almost tripled from three years ago, the cooperators were greatly concerned about being able to pay their tax bills, which including an abatement would each be slightly over $50,000 per quarter.

I met with three well-prepared shareholders met. They had reviewed the DOF's website and examined the two comparables the city had posted for their building — one of them a building in Chelsea, the other in the Flatiron District. The shareholders felt these weren't good choices, and I agreed.

More importantly, they'd brought a memorandum they'd prepared that summarized their building's condition and made it obvious that this property wasn't the kind of renovated, upscale place inhabited by celebrities that sometimes comes to mind when talking about Soho and Noho lofts:

1. There had never been a gut renovation.
2. There had never been an upgrade of the building mechanicals, meaning the electrical, plumbing and waste stacks were the originals from 1910.
3. There is but one plumbing stack, which means there could be but one bathroom in each large loft. Further, the waste line doesn't allow for kitchen garbage disposals.
4. There's no doorman and no super, and the co-op is self-managed.
5. Much of the space in each unit consists of studio and storage areas. These lofts aren't purely living spaces, but ones with essentially industrial uses.
6. Finally, recent development by others cut off views to the north, east and west.

The shareholders brought photographs that made it clear these lofts were not in the best condition, and that the residents were involved in artistic endeavors. These facts were important in relaying the uniqueness of their building — meaning it would be difficult to compare it to, or use income from, buildings that clearly had greater amenities.

While retail space in Noho is generally quite valuable, and while this building is close to the shopping district along Broadway, we didn't have to look for comparable retail income since the retail space was leased to others by the co-op itself, and not by the sponsor. Furthermore, both retail leases were fairly recent, so I could rely on the current income from those leases for the retail-income component of my analysis.

Building a Building Model

I estimated that if each 2,758 square-foot residential unit were to be rented, the average rent would be approximately $3,750 each per month. Multiplied by 13 apartments, that's $585,000. Add the $360,000 actual monthly rent from the retail leases, and total monthly income would be $945,000, or $21.97 per square foot.

The co-op's income-and-expense statements list monthly expenses at $127,284, or just $2.96 per square foot. That's extremely low, reflecting the lack of amenities. To equalize the expenses that would normally occur in a residential rental building, I added an additional $10,000 for building-management fees and office expense, bringing that portion of the income-and-expenses statement to a traditional six percent of the $945,000 total income. And because the repair-and-maintenance portion was also low, I similary added $22,000 to bring that item up to $1 per square foot.

The adjusted total estimate for the expenses then came to $159,284, or $3.70 a square foot. This expense factor is again extremely low compared to a rental building, but would be a more than a reasonable number for an AIR loft building.

Finally, while there were virtually no rent-producing residential loft buildings to compare to the economic model I created, there were some nearby co-ops with lower assessments per square foot.

I prepared my economic analysis and a list of comparables, along with an affidavit from the building's treasurer for submission of the photographs, the two commercial leases and the memorandum describing how the building's features set it apart from more typical loft co-ops. The hearing took place in late October 2008.

Although the assessed values of three and four years ago did not seem excessive, I told the hearing officer, a former assessor, that this was a case with very compelling facts. I asked him to examine carefully the analysis and supporting documents. He recognized the very large increased values and told me that he would take a good, hard look at the case.

In mid-November, our office received the commission's ruling: an offer to reduce the 2007/2008 value from $2,821,500 to $2,685,000. For 2008/2009, the reduction offered was from $3,685,500 to $2,825,000. The tax savings for the cooperative would include a refund for 2007/2008 and first half 2008/2009 tax years and further reductions would be reflected in future tax assessments.

Eric Weiss is a partner at Tuchman, Korngold, Weiss, Lippman & Gelles

Adapted from Habitat January 2009. For the complete article and more, join our Archive >>