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HABITAT

LEGAL/FINANCIAL

HOW LEGAL/FINANCIAL PROBLEMS ARE SOLVED BY NYC CO-OPS AND CONDOS

Finance Dept. Admits Computer "Glitch" in Huge Co-op/Condo Tax Overvaluation

Frank Lovece in Legal/Financial

"There was a [computer] glitch," department spokesperson Owen Stone told the New York Post in an April 9 article. Elaborating to Habitat today (April 14), he said, "Our system spit out some comparables that said 'apartment'  and when we looked at it again it was something that had some sort of commercial element to it."

Yet despite this admission — which has already resulted in a City Council hearing scheduled for May 2 and a Freedom of Information Law request by a state senator seeking what she calls "full disclosure" — the wildly improper valuations still appear set to be implemented on May 25, the protesters claim.

I’m asking [Finance Commissioner

David Frankel] to step down and

for a full investigation of the process.

"They haven't agreed to go back and reevaluate all the co-ops," says Bob Friedrich, president of both the Glen Oaks Village co-op complex and the Presidents Co-op Council group of co-op/condo-board presidents. "Basically, the Finance commissioner is playing games with people's lives."

"We’ve been reviewing these properties and their values since January," Stone says, "so that there will be changes as a result of that review. And we’ll continue to review properties for when the assessment roll is finalized in late May.  We’re in the process," he added, "of sending out revised notices of value for all properties that we made changes to, as we do every year."

Background

New York State's Real Property Tax Law Section 581 requires cooperatives or condominiums to be valued as if they were rentals. This means their values aren't based upon market value but on a comparison to similar rental buildings, or "comparables."

The tax revolt began in early February when Commissioner David M. Frankel approved property-value assessments of up to 146 percent in northeastern Queens. However, assessed values citywide went up 6.56 percent across all property classes, this year, and for Class 2 properties, which includes co-op and most condo apartments, they went up 7.98 percent.

"Speaking as an accountant, when you see numbers like a 146 percent increase" — as at the Whitestone, Queens, condo complex Cryder Point —  "and the rest of the city [averages] eight percent, that's a red flag, " Friedrich argues. "Commissioner Frankel should have seen that red flag.”

Frankel, however, stood firm with the anomalous figures, arguing that northeastern Queens had been undervalued for two decades — a claim that was met with wide skepticism. Following protests and raucous community meetings, Frankel, in early March, did institute a 50 percent cap on this year's valuations.

Numbers Revealed

The protesters, who had called repeatedly for transparency in what comparables were used to reach the high figures, got their wish in late March when the Finance Dept. posted them on the city’s website. At that point, Eric Weiss, a partner at Tuchman Korngold Weiss Lippman and the attorney for Glen Oaks Village, spotted the problem.

"We saw what kind of properties they were using for the comps," he says. "For Glen Oaks, they were using mixed-use buildings, classified as K class, which is a retail classification." Commercial rents are many times higher than residential rents. "I think there were K-4 [buildings], which is stores with apartments above them, and K-2, which is two-story retail.  One comparable was classified as a C-5, which is a converted rooming or boarding house." None, he says, were the same as the garden apartments — a classification unto themselves — of which Glen Oaks is comprised.

"We found that these four K-class buildings represented a total of eight residential units," Weiss says. "They were buildings with two residential units or three residential units, and I've heard the commissioner says on more than one occasion that the comparables are supposed to be rent-regulated units. But buildings with, I think, fewer than six residential units are not subject to rent regulation, so there was a second flaw to the comparables.”

Stone says it is not true that rent-regulated apartments are required, and notes that free-market apartments can be used.

Commercial properties cannot, however, so Weiss brought his findings to Glen Oaks board president Friedrich, who disseminated them to the Presidents Co-op Council and to the New York Post reporter, City Hall Bureau Chief David Seifman. ("I love Habitat and I know you've been covering this story from the start," Friedrich says, "but I felt it was important that this come out first in a mass-media newspaper.")

Seifman wrote that the Finance Department had made a $339 million "accounting error" that resulted in overvaluations for 139 properties, mostly in Queens, and that the department " is scrambling to reduce the values and correct [its] books before taxes are due."

"There are 139 that we’ve lowered," says Stone, "not necessarily as a result of these commercial properties on our comparables list but as a result of the overall review that we did."

In the meantime, City Councilman Mark Weprin (D-District 23) has scheduled a hearing on May 2, and State Senator Toby Anne Stavisky (D-16th Senate District) has since filed a Freedom of Information Law request with the Finance Department, to help ascertain if this was simple human or computer error or something more.

Friedrich, however, remains fuming. “The tax commissioner steadfastly refused to acknowledge that there could be any problem with the [comparables] selection process until he was caught redheaded As president of one of the largest co-ops in New York, I’m asking him to step down and for a full investigation of the process.”

Note: This article was updated April 14 to add comments from Finance Department spokesperson Owen Stone, who had been contacted the day previous.

 

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