by James Dunne – The CREative Department
I shall never use profanity except in discussing house rent and taxes.Â ~Mark Twain
January 5th, this is the day when NYC property owners get to find out what their tax bill will be, this is because itâ€™s the day the NYC Dept. of Finance issues its tentative property assessments (assessment roll), which is an updated market value, of all real property in NYC.Â However, the assessorâ€™s â€śmarket valueâ€ť is often only a small fraction of the actual price a property would sell for in the open market.
To value property, the Dept. of Finance uses a sales approach, a cost approach, or in the case of multi-family properties, which Iâ€™ve been covering in my Multi-family Building Blog series, they use an income-based approach.Â Property owners can submit their buildingâ€™s income to the NYC Dept. of Finance (an RPIE filing) to calculate their buildingâ€™s taxes; however, the Finance Department usually just uses an estimate. Once the Department of Finance decides a propertyâ€™s value, they issue a Notice of Property Value (NOPV) to the owner, and then a tax rate is applied. Most multi-family properties are designated as Class 2 properties, which are currently taxed at a rate of 13.241%.
The real issue of course is how the Dept. of Finance calculates their â€śmarket valueâ€ť based on a buildingâ€™s income.Â For a clue to this, I looked at a list of multi-family buildings data that Dept. of Finance publishes each year that it uses as comparables for co-op and condominium taxation (the Dept. of Finance treats co-op and condo buildings as Class 2 buildings also for taxation purposes).Â I looked at two indicators: the GRM (the gross rent multiple), and the gross rent per square foot. I analyzed the averages (mean) for over 1000 multi-family properties.Â For the GRM, the Dept. of Finance has an average multiple of 4.28, with a high of 5.04 and a low of 2.82, with a standard deviation of 0.54, meaning they value most of the properties (68%) based on a GRM of between 3.74 & 4.82, a fairly tight range.Â The gross rent per square foot was less reliable with a low of $7.64/SF to $46.40/SF, with $26.42 as the average, and a wide standard deviation of $9.52.
So in terms of estimating market value, the numbers might suggest that the Department of Finance bases their market value, and ultimately the tax a building owner pays, on the GRM of a building. Itâ€™s important to keep in mind, that the buildingâ€™s gross rentsâ€™ themselves are often estimates by the Dept. of Finance.Â However, if a building owner feels they are being over-taxed, they can always file for a tax appeal.