Fuzzy Math: Property Taxes Haven’t Officially Risen in More Than a Decade. So Why Have Collections Doubled?

Allan Schwartz, a real estate tax attorney, says the steady or rising building assessments of recent years is due to the fact that real estate income is typically locked in through long-term leases that are not impacted by rocky economic times.

“It’s a common-sense question: how is it possible from 2007 to now, a few years after we have suffered a recession, for building values not to have gone down?” Mr. Schwartz said. “It’s because buildings’ incomes haven’t necessary suffered. And the city is using that income to calculate the values.”

But Mr. Schwartz also said that tax gains have begun to consume an unprecedented portion of the income landlords generate from rents, a sign that tax growth has outpaced inflation and other reasonable measures of growth.

“The taxes are approaching 24, 25, 27 percent of the rents commercial landlords collect,” Mr. Schwartz said.

Numerous sources familiar with taxes in other major cities in the U.S. say that New York City’s tax burden is far higher than in other markets.

The situation doesn’t just put a strain on owners but also on tenants, affecting the economic fabric of the entire city, landlords say. That’s because most leases in the city are structured to pass tax increases on to the tenants in a building during their occupancy. The costs make it more difficult for companies to afford to operate in a city that is already expensive, landlords say.

“It would definitely incentivize more and more companies to want to be in the city if taxes went down or stopped rising,” Mr. Minskoff said. “It would be very positive because, by lowering taxes, the city could actually increase its tax base, because more tenants would want to be here.”

Mr. Minskoff, who is in the process of building a 400,000-square-foot office property at 51 Astor Place, said taxes have been an especially big hurdle for new development in the city, construction that is widely seen as necessary to keep Manhattan’s office stock competitive with other global cities. Landlords already have to charge premium rents to justify the cost of these developments, Mr. Minskoff explained, and the tax payments that get layered on top of the base rents make committing to such projects an even more expensive proposition for tenants.

The Real Estate Board of New York, the city’s largest and most powerful real estate industry and lobbying group, has stepped up efforts to intervene on the issue in the hope of staving off further increases. Mary Ann Tighe, chairwoman of the trade association, told The Commercial Observer that taxes would be a leading issue for the incoming REBNY chairman, Robert Speyer, a top executive at the investment company Tishman

Speyer, when he succeeds her in January of next year.

“[It’s a] huge issue,” she wrote in an email.

Surprisingly, some real estate executives interviewed were either resigned to or even supportive of the city’s collection efforts toward the industry.

“No one complains when they’re buying or selling properties at $1,000 or $1,500 a foot that in 2005 and 2006 they were paying $700 or $800 [for],” said Norman Sturner, chief executive of the real estate investment firm Murray Hill Properties. “No one complains that the city has 4 million vistors a month, which is making the retail, hotels and everything else do incredibly well. [And] no one complains that since 9/11 we have been safe.”

“All of these things cost money, and where does it come from?” he added. “I will not complain about a rise in taxes that are being spent properly, and it seems that they have.”