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Wednesday, 18 March 2020

Manhattan Office Buildings Faced Big Tax Hikes Since 2016

The 10 Manhattan office buildings with the greatest property tax liability face a total tax bill of $526.7 million this year, according to Metro Manhattan Office Space Inc.That's a weighted average increase of 17.9 percent from 2016, when those same 10 buildings paid $448.5 million in property taxes.

Commercial Real Estate Direct Staff Report

The 10 Manhattan office buildings with the greatest property tax liability face a total tax bill of $526.7 million this year, according to Metro Manhattan Office Space Inc.

That's a weighted average increase of 17.9 percent from 2016, when those same 10 buildings paid $448.5 million in property taxes.

The New York company, which represents tenants in offices leases, found that the 50 top taxpayers among Manhattan's office buildings face a whopping $1.58 billion of property taxes this year. To put that into context, the entire New York City budget totals $94.4 billion, up $1.6 billion from 2019 and nearly 21 percent greater than in 2016.

Manhattan has 3,830 office buildings totaling 568 million square feet. The 50 largest taxpayers have 70.1 million sf. New York City projected generating nearly $30 billion from property taxes this year, making it the largest revenue item in its budget. But that includes taxes levied on residential properties.

The Citizens Budget Commission, a nonprofit focused on analyzing the city's finances, found that commercial properties, including apartment, retail and industrial buildings, account for 42 percent of the city's property tax revenue. Yet, they represent only 20 percent of the market value of all of the city's properties.

It found that in 2017, the average office building paid $7.45/sf in property taxes, more than double the $3.69/sf it paid in 2001. And there's the rub.

"The thing with real estate taxes is that they increase inconsistently," explained Alan Rosinski, principal broker of Metro Manhattan. "There's almost no rhyme or reason."

Indeed, there appears to be no correlation between a building's size, its tax liability and the rate of increase.

Biggest Property Taxpayers in Manhattan

Address

Year built

2020 Taxes ($000)

2016 Taxes ($000)

Chg %

767 Fifth Ave.

1968

83,071.87

71,681.67

15.89

200 Park Ave.

1963

58,137.66

50,285.41

15.62

1345 6th Ave.

1969

51,487.18

46,006.41

11.91

1270 Ave. of the Americas

1932

50,695.77

45,353.57

11.78

9 West 57th St.

1974

50,395.30

37,426.69

34.65

1221 Ave. of the Americas

1969

49,360.80

45,752.92

7.89

245 Park Ave.

1967

48,785.26

43,079.03

13.25

111 Eighth Ave.

1932

45,410.50

37,613.00

20.73

1633 Broadway

1970

44,825.90

36,440.88

23.01

345 Park Ave.

1969

44,557.82

34,898.75

27.68

Source: Metro Manhattan Office Space Inc.

The Solow Building, with 1.67 million sf at 9 West 57th St., faces a $50.4 million tax liability this year, a nearly 35 percent increase from 2016, when its tax bill was $37.4 million. That compares with the 2.2 million-sf 1221 Avenue of the Americas building, which faces a tax bill of $49.36 million, a less than 8 percent increase from the $45.8 million it paid in 2016.

The inconsistency, Rosinski said, could be problematic for tenants, whose rents typically include their share of a building's property tax. And that's on top of any escalation clause tied to some inflation gauge. "Your tax escalation could be different from year to year," he said.

Not only are tenants typically at risk, so too are mortgage lenders. They rely on existing and projected rental revenue and expenses to determine a loan's size. If expenses, including property taxes, climb more than projected, it could put a loan at risk. Luckily, Manhattan rents have climbed steadily in recent years, so that hasn't been a concern. But that could change if rents flatten or decline and occupancy levels fall off.

Revenue at the Solow Building, for instance, hasn't kept pace with the tax increases it's faced. Last year, revenue was $188 million, which was up only 7 percent from 2016. As a result of the outsized tax increase it has seen over the intervening years, cash flow has actually fallen, to $100.4 million from $102.4 million in 2016, according to servicer data compiled by Trepp LLC.

The building is encumbered by a $1.2 billion mortgage that's securitized through six CMBS transactions, including JPMorgan Chase Commercial Mortgage Securities Corp., 2016-NINE. That loan was underwritten with the assumption that revenue would be $166.7 million and cash flow would be $107.1 million. Had its property taxes increased by less than they did, it easily would have matched those numbers.

But its loan was underwritten conservatively, as it represented only 35 percent of the building's $3.4 billion value in 2016. The cash flow it generates amounts to nearly three times the amount needed to fully service the interest-only loan, which pays a rate of 2.86 percent.

The city's biggest property taxpayer is the 2 million-sf GM Building at 767 Fifth Ave. It faces an $83.1 million liability, up 15.9 percent from 2016.

Last September, the building was 94 percent occupied and on track to generate $236 million of net cash flow last year. That was up nearly 56 percent from the $151.4 million of cash flow it generated in 2016, so it has been able to easily absorb the tax hike it's faced.

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.





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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

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