Pied-a-terre tax scare? Au contraire! For now at least.\u00a0<\/p>\n
On May 26, the New York State Legislature enacted a tax targeting the wealthiest homeowners in New York City, a group that Mayor Zohran Mamdani and Gov. Kathy Hochul feel haven\u2019t been paying their fair share.\u00a0<\/p>\n
SEE ALSO: Rezoning Champ Brad Lander Victorious in Tuesday\u2019s NYC Congressional Primary<\/a><\/p>\n In an effort to get wealthier Gothamites pony up so the city can fund things like free child care and cleaner streets, an amendment to Article 30-C of the New York State Tax Law was added to tax city homes not listed in tax filings as primary residences. There are two phases to this tax law, which sunsets on June 30, 2031, and applies to owners of one- to three-family residential properties, stockholders in co-operative buildings, and condominium unit owners.\u00a0<\/p>\n Phase one, which runs July 1, 2026, to June 30, 2028, levies rates between 4 percent and 6.5 percent on properties with an assessed value of $1 million or more. Phase two, which runs from July 1, 2028, to June 30, 2031, means a yearly fee on a second (or third, or fourth, etc.) home worth over $5 million based on the price.\u00a0<\/p>\n The tax, after adjusting for the disconnect between assessed and market values for co-ops and condos, is expected to raise $500 million<\/a> for the city, according to an analysis by New York City Comptroller Mark Levine.\u00a0<\/p>\n And while the city may \u2014 or may not, depending on whom you ask \u2014 benefit from the pied-a-terre tax, the overall consensus among the real estate industry and adjacent fields is that targeting the city\u2019s big spenders isn\u2019t a good plan, and has the potential to drive them away. It \u201cmay ultimately prove to be one of the most disruptive pieces of real estate legislation New York state has passed in years,\u201d Bob Knakal, chairman and CEO of investment sales firm BK Real Estate Advisors, wrote in Commercial Observer in early June.<\/p>\n \u201cWe can have a debate on whether or not this will deter purchases in New York \u2014 every state has separate tax structures for residents versus nonresidents,\u201d said Alexander Goldfarb, managing director and senior research analyst at investment and securities firm Piper Sandler<\/a>. \u201cThe bigger issue is just the attack on the rich. These people are willing to spend a lot to buy an apartment in New York, and they tend to be big spenders. They\u2019re going to be doing everything that pumps a lot of money into the economy. So do you really need to hit those people up and single them out?\u201d\u00a0<\/p>\n When the tax was first proposed in the spring, there was an initial knee-jerk reaction that the law would result in luxury developers and buyers avoiding New York City like the plague, not wanting to be unfairly targeted and taxed, especially given the way Mamdani announced the planned tax.\u00a0<\/p>\n In an online video<\/a>, Mamdani stood outside Citadel<\/a> founder Ken Griffin\u2019s apartment at 220 Central Park South, calling out the billionaire, and saying it was time for those with the most to contribute more to the city.\u00a0<\/p>\n \u201cThis is an annual fee on luxury properties, worth more than $5 million, whose owners do not live full-time in the city,\u201d Mamdani said in the video, before turning and looking up at the residential tower where Griffin owns a unit. \u201cLike this penthouse, which hedge fund CEO Ken Griffin bought for $238 million. This pied-a-terre tax is specifically designed for the richest of the rich, those who store their wealth in New York City real estate, but who don\u2019t actually live here.\u201d\u00a0\u00a0<\/p>\n The video resulted in a public feud between the mayor and Griffin, with the latter\u2019s company\u00a0 casting doubt<\/a> on whether it will continue with its planned 1.9 million-square-foot office tower at 350 Park Avenue, which Citadel is building in partnership with Rudin and Vornado Realty Trust.\u00a0<\/p>\n The feud highlights a key point of Mamdani\u2019s campaign, but the irony is \u2014 and industry legends agree \u2014 that had the mayor not shouted the tax from the rooftops, it likely would have gone unnoticed. (But, then, how would Hizzoner\u2019s constituents find out?)\u00a0\u00a0<\/p>\n \u201cIf the mayor had kept this quiet, and didn\u2019t point out to the people where Griffin lives, and made a big deal out of it, it probably would have gone under the radar,\u201d said Stuart Saft, a partner with law firm Holland & Knight<\/a>. \u201cSomebody that wealthy isn\u2019t really following things that closely, but then he blasted out about taxing the rich, when in reality anybody who has a high income in New York is paying 50 percent of their income in city, state and federal taxes, and so he\u2019s not really taxing the rich, he\u2019s taxing the highly paid. \u2026 They\u2019re taxing you based upon the value of your home.\u201d\u00a0<\/p>\n Nicholas Rochedieu, a partner with PKF O’Connor Davies<\/a>, is of a similar mindset.\u00a0<\/p>\n \u201cIt got the right people\u2019s attention,\u201d Rochedieu said. \u201cI think had it been quiet and people realized this is just an incremental add, it wouldn\u2019t have made headlines. The right people would have figured it out, and it would have still caused a problem, but it wouldn\u2019t have had that 15 minutes in front of the news cameras.\u201d\u00a0<\/p>\n When you clear away all the headline smoke, and close your ears to the sounds of politicians and billionaires snipping at one another, the pied-a-terre tax, while unpopular \u2014 and downright hated by some (Saft called it an \u201cugly\u201d thing) \u2014 hasn\u2019t yet put a stop to luxury second and third home sales in New York City.\u00a0<\/p>\n