by James Dunne – The CREative Department
I shall never use profanity except in discussing house rent and taxes. ~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 it’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. However, the assessor’s “market value” 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 I’ve been covering in my Multi-family Building Blog series, they use an income-based approach. Property owners can submit their building’s income to the NYC Dept. of Finance (an RPIE filing) to calculate their building’s taxes; however, the Finance Department usually just uses an estimate. Once the Department of Finance decides a property’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 “market value” based on a building’s income. 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). 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. 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. 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. It’s important to keep in mind, that the building’s gross rents’ themselves are often estimates by the Dept. of Finance. However, if a building owner feels they are being over-taxed, they can always file for a tax appeal.
