I first started writing about the inanity of The New York Times’ piece on condominium buyers when it came out in February.
Fast forward six-months, and this conversation continues, along with other proposals trying to capture every penny of city/state income tax possible.
There is an idea that because buyers put properties in LLC’s, rather in their own names, something nefarious is going on.
The current mayoral administration has taken this
step further, suggesting that the LLC’s are meant to shield
owners from paying New York City income tax – that is, if we don’t know who owns the properties, then the city won’t know if someone is living in the apartment more than 182 days a year.
Further, The Times has put out the idea that the ability to shield identity behind an LLC, in their words a “Shell Company,” makes buying in New York City more attractive than it otherwise would be.
Working with lots of investors, and foreign investors, I am witnessing conversations about nothing nefarious at all – but only
how to make the purchases actually happen in condominiums.
Because buyers need to have tax identification in all
sales contract documents, every buyer who is not a US Citizen must end up creating an entity, usually an LLC of some kind.
Never mind that these investors are consulting with a cadre of advisors to ensure
they are structuring the purchases properly, to the letter of the law.
Other considerations are to structure purchases so that massive estate taxes aren’t triggered when they die, requiring heirs
essentially to give these assets to the US/NY/NYC governments.
I am quite sure that there already are
plenty of US citizens who try to pretend that they live outside of New York City more than half
the year, to avoid paying city taxes.
We hear of IRS cases to that effect, often.
Why are disclosure requirements on LLC’s in real estate transactions really going to
Beyond the invasion of privacy, it would seem that there are so many other enforcements that could yield far more money.
Generally, these are investors and owners who paid huge taxes on purchases, pay regular real estate taxes, and if they are part-time residents, don’t use city services.
Never mind that if they are foreigners, they couldn’t cheat on residing here too much, or they could also run afoul of Immigration rules.
Last week there was an article that 20% of all East Village apartments were on AirBnB, while 60% of short-term
rentals in New York City were for
entire apartments, rather than single rooms, which is illegal.
I would think that enforcement of taxes for apartments operating as hotels would yield far more tax income, or fines at any rate!
But odds are the politics won’t line up that way.
Either way, the concept of a normal corporate structure, the S-Corp or LLC, being thought of as a “Shell Company” is so ludicrous.
Many sole proprietors run their businesses as LLC’s, as do lots of small businesses.
Just because foreign buyers have to use these entities, or buyers who spend $5mm or more wish to shield their identities, doesn’t mean anything evil is going on.
I think what’s annoying is that if a buyer wants to purchase a cooperative in the city,
his or her
information is public record.
Anyone with time can look up the record on ACRIS for free, or for $10 you can use the property search engines here to do it, as well.
Certainly people are allowed to have some privacy in their affairs!
Here’s a link to the latest article about the discussion, which makes some good points.
What hasn’t been addressed, though, is this idea that buyers are purchasing here only because their identities can be shielded!
What a ludicrous concept.
Investors buy in New York City because it’s a terrific and safe place with a vibrant rental market, an amazing quality of life, and a very stable and efficient housing market, compared to almost anywhere else in the world.
Silly ad hoc legislation may make investors feel a less comfortable business environment.
Investors come here to avoid the insanity of other countries’ confiscatory asset policies.
I would suggest that the administration focus on keeping the streets as lovely as they’ve been, keeping the bike paths clear, and letting the NYC department of finance
do a better job collecting what it’s due now, without new regulatory headaches to contend with.
They aren’t doing the best job as it is.
Renting vs. Buying and Are Too Many Condos
50,000 building permits were granted in New York City over the last year.
Many articles like this one tout this time as part of an historic building boom, perhaps the biggest since the 60’s, or other times of massive expansion in New York.
This is quite a time to live in New York City – so many interesting architecture, design, city planning ideas being implemented.
But, with so many building permits, eclipsing what was built in 2007-2008, does this mean we’re about to have a glut of condominiums?
It’s a question of what percentage of apartments are being built as condominium, and how many
even are being built in Manhattan or Brooklyn.
The answer, in short?
A massive number
of these permits are for rentals, given the huge demand for rentals, and there likely will continue to be a shortage of condominium in the short-term, despite all of the construction.
The demand for good condominium product will continue to outstrip supply for a long time.
Let’s talk about the demand for rentals, affordable and otherwise.
In the category of “otherwise,” The Observer talks about how successful Millenials are renting instead of buying.
First, to live in neighborhoods they want to be in, it’s cheaper to rent than to
The price for flexibility to move for jobs, opportunities, businesses, etc., also demands they stay in rentals.
Further, there may be the fact that it’s just too expensive to buy at all.
We can take huge bites out of these housing permits with just a few developments.
The Domino Sugar factory will be 1000-2000 units, mostly rentals.
Developments in Queens add up quickly to 5000 rentals.
Another 1000+ rentals on West 57th Street, rentals all over Brooklyn as well.
The vast, vast majority of what’s being built is rentals.
And thankfully, a bright spot for DiBlasio, many of these units will be “Affordable Housing,” though the demand for those apartments often is so strong that they see 50 applications per unit, or worse.
Harder to get into one than getting into Harvard.
Don’t forget what’s being added in the way of commercial units in Hudson Yards, along with a pittance of rentals units there.
Hardly a condominium in sight!
Across the country, perhaps too many units are being built – or just units for those opting to rent across the US.
We quickly forget that while home ownership is a large part of the American Dream, renting was a much more common part of life prior to World War II.
Looking at what is being built for condominium, we can take a look at my firm’s current reports.
We see higher prices, fewer closings, and incredibly strong New Development Sales in Manhattan
during the 2nd quarter.
Brooklyn’s 2nd Quarter report shows jumps of 12-17% year over year.
Our latest absorption reports show a decline in inventory, and tightening neighborhoods.
Add to that a concern about rising rates to fuel demand.
Without the inventory being added on the sales side, one easily could
expect this strong seller’s market to continue for some time.
Thanks to Elaine Lawrence for her editing eye as well.