Developers Chase Dream of Property Tax Exemptions

Luxe Builders Chase Dreams of Property Tax Exemptions

Michael Powell

The New York Times

June 24, 2013

Credit our plutocrats and the real estate developers who adore them with this: No financial advantage is too small for them to pursue.

The latest evidence that our developers scour sidewalks for pennies might be found at the 90-story ziggurat known as One57, with his-and-her bathrooms, super deep freeze, titanium-reinforced views that reach to the Arctic, or at least Putnam County. The Extell Development Company recently sold a 14,000-square-foot penthouse (but does it have enough closets?) to a hedge-fund billionaire for $90 million. Bargain flats are still to be found at $18 million.

Gary Barnett of Extell paid $1.3 billion or so to put up this obelisk on 57th Street and will emerge holding great sacks of profits. Yet none of this gave him pause in his pursuit of a 10-year property tax exemption — known as the 421-a program — for this same project.

Seven years ago, the New York State Legislature ruled out tax breaks for Midtown Manhattan developments unless they included affordable units; reformers noted reasonably that there was no shortage of construction cranes and fortunes to be had in that neighborhood. In all, 150,000 units in New York City receive the 421-a property tax abatements, for $1.1 billion in lost revenue for the city.

Whatever. A subsidy is like catnip for a developer; the more difficult the pursuit, the more glorious the catch.

Mr. Barnett and four princeling developers joined the Real Estate Board of New York last year, spreading a thick green carpet of cash for politicians, at least $1.5 million. (To peruse their donation lists is to glory in nonpartisan giving: the governor, the attorney general, the state party organizations that have proved so corrupt of late, and any politician, Republican or Democrat, who possessed the simple wit to create a “Friends of … ” committee — all are awash in the developers’ cash.)

This is known as fertilizing a field. Spread manure and, voilà!

The impossible proves porously possible. In January, State Senator Martin J. Golden, Republican of Brooklyn, and Assemblyman Keith Wright, Democrat of Manhattan, attached a gilded little 421-a “carve-out” to the underside of a much-needed housing bill for New York City. The vast majority of legislators voted for it. Just like that, Mr. Barnett’s development earned a property tax exemption worth at least $50 million, maybe much more, over the next 10 years.

Mr. Barnett’s fellow developers, including Larry Silverstein and Joseph Sitt (who tried hard to ruin Coney Island before selling his holdings and walking away with a golden pile) stand to make tens of millions of dollars in subsidies for their developments. The Metropolitan Council on Housing detailed this in its report “Tax Breaks for Billionaires”; Common Cause New York also investigated the political giving; and The Daily News contributed fine reporting last week.

Cumulatively, the exempted property taxes could pay to keep the city’s libraries open for a sixth day.

State Senator Liz Krueger watches such unneeded tax subsidies — for energy, insurance, tobacco and luxury development — slip like barges down a darkened canal. She notes that the housing bill “was held hostage so a few well-connected developers could rob taxpayers to the tune of millions.”

Perhaps we should admire the gumption of our developers. They often argue that without tax breaks, the city would be a desert.

But in this case, the property tax exemption arrives as the Extell tower, a dull sheath of blue glass that spirals above the skyline like an exercise in ego architecture, is near completion. Mr. Barnett has been blessed with a retroactive tax break. “A tax incentive given retroactively is the stupidest thing in the world,” notes Senator Krueger, with a tone suggesting that she’s becoming expert in the stupidest things.

Assemblyman Wright, who represents Harlem, did not return a phone call. Several of his fellow legislators occupied themselves last week trying to pass another such tax break.

Assemblyman Joseph R. Lentol, Democrat of Brooklyn, sponsored a bill to retroactively extend tax breaks to developers who had converted old factories into luxury lofts. That bill passed the State Senate. Alas, it foundered in the Assembly. And that, he noted, broke the hearts of a few developers.

“Was this proposed tax break for these properties a good thing or not? I can’t say,” Mr. Lentol said. “I don’t have enough knowledge to say it’s a good thing or bad thing.”

And if legislators don’t ask, why should anyone else?


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