Four major retail landlords are suing the city to lower their property taxes, which they say are unfairly based on their pre-pandemic rents.
According to the suit first reported by the Real Deal, owners of prime retail condos on Fifth Avenue and East 59th Street claim their property taxes are “grossly overassessed” because they’re based on income and expenses in 2022, which reflected leases signed prior to the pandemic.
Stores such as Harry Winston, Versace and Ikea subsequently moved out or negotiated smaller new leases.
Harry Winston, for example, relinquished three upper floors at 697 Fifth Ave., reducing the rent to landlord Vornado from $22 million to $6 million.
At 205 E. 59th St., landlord Zucker Organization lost Ikea’s $2 million in annual rent after its lease expired in November.
Prominent real estate dealmakers agreed with the landlords’ predicament – and said the city was unfairly attempting to squeeze more money from them.
“The city historically does not look at these assessments the way an investor does. They’re not basing it on current market rents and that’s an issue,” Daniel Kaplan, a senior vice-president at CBRE’s Investment Properties Group, told The Post.
“The problem is, you’re projecting rent revenue based on current rents but the tax is based on old, higher rents.”
The over-assessments not only put retail condo owners in a pickle, they also “impact a sale price if they’re trying to sell,” he added.
One property named in the lawsuit, the former Ikea space at 205 E. 59th St., is up for sale rather than for lease.
”The decline in rents should in turn result in lower taxes due to lower imputed or realized income for these properties,” said a retail broker at a different firm, who didn’t want to be named:
Cushman & Wakefield leasing legend Joanne Podell noted, “Taxes are ultimately a burden for landlords and occupiers” — because “retailers look at the present per-square-foot rent and future costs which include taxes over a base year.”
The retail scene was staggered after rents peaked in 2015-16 and crashed due to Covid 19 — on top of the blow from online shopping.
The Post reported this week that Kim Kardashian’s shapewear brand Skims leased 20,000 square feet at Oxford Properties and Crown Acquisitions 647 Fifth Ave. for 75% less than the $770 per square foot that previous tenant Versace paid.
The lawsuit says the Skims deal will bring the landlords a mere $5.5 million a year, although the city based its assessment on estimated gross income of $18 million.
Fitch recently downgraded the mortgage on 647 Fifth Ave. due to “reduced rental revenue expectations.”
A Department of Finance rep said the suit was under review.
[Notigroup Newsroom in collaboration with other media outlets, with information from the following sources]
