Luxury High-Rise Sold For $160M

Does his company plan on raising rents?

“Our rents are going to stay where they are,” Friedman said. ​“As the market moves, we’ll adjust to the market. New Haven, like the rest of the country, [has seen] a real run-up in rates” in recent years. But ​“we’re going with that expectation that rents” will stay where they are now because of a general cooling in rents.

Keep drinking the Kool-Aid

I bet here will use this.

Texas-based RealPage’s YieldStar software helps landlords set prices for apartments across the U.S. With rents soaring, critics are concerned that the company’s proprietary algorithm is hurting competition.

https://www.newhavenindependent.org/article/360_state_sale

To continue my rant, which Tom has picked up, the price of recently sold large commercial properties has consistently exceeded their 2021 appraised values. To be fair, it is hard to assess properties such as this when there are no comparable sales. And property values have increased over the past 12 months. But not by 39% (the difference between the appraised value and the sales price).

Under state law, properties such as this must be appraised based on their "fair market value" (CGS Sec. 12-63), i.e., what a willing buyer would pay a willing seller. This includes the premium a buyer is willing to spend for a property's development/future earnings potential.

The city cannot re-do revaluation. But I think the Board of Alders should revise its tax policies in light of the under-valuations. I don't think market rate developments warrant tax breaks (affordable housing developments are a separate issue). Such tax breaks may have been warranted ten years ago. But the market has developed sufficient momentum that they really aren't needed now.

There is no business reason for the new owner to sell the vacant lot to an apartment developer. But it would be a good thing if this property could be developed as condos or co-ops (separate markets).

There will be a nice windfall from the transfer tax for New Haven and Connecticut ... The city should get $800,000, with the state getting around $3,750,000!

The appraisals may not be as far off as some fear. Prices rose a lot between 2020 and 2022. For example, my niece bought a condo in Niantic for $124,500 in July 2020 and sold it September 2022 for $181,500, an increase or 46%. Other properties saw similar price increases.

What about all the 3 families in East Rock that in the last revaluation were assessed at 600-700K but are actually worth close and some sell for and even over 1M. Isn't that also 40% under appraisal? The 3 family in East Rock also takes way more valuable land per unit then does a rental.

It is so much easier to squeeze money out of residential homeowners with taxes than big real estate companies who squeeze the cities for breaks, gifts, and zoning alterations. We are the low hanging fruit. And now that high taxing dems have been returned to office, we can be sure that this will continue without mercy

Forty mills, (.040), coupled with a seventy percent assessment yields an annual ad valorem tax of 2.8%.

Take a $300,000 unit, value it for tax purposes according to sales or construction costs, and it yields an $8400 tax bill! In other words, $700/month/unit in property taxes.

Why isn’t the City using purchase price, sales comps, and construction costs in valuing apartment buildings for tax purposes? What happens if the City follows the NHI’s advice and becomes more aggressive in valuations?

Two real fallouts would ensue:

1) by raising the monthly tax bill from $450 or $500 per unit up to $700/unit, you would severely affect the bottom line of these investment properties. This would lower returns and ultimately sales prices, - meaning the units would no longer be worth $300,000. “Poof!” No more $700/month/unit.

2) Coupled with the affordable housing restrictions, the construction of new apartment buildings would likely come to an abrupt halt.

Therefore my request from the NHI isn’t article after article claiming that these commercial buildings are undervalued. Instead I’d like to see an article interviewing the Tax Assessor and Econ Development about this issue. And maybe a comparative analysis article about how other cities handle this conundrum.

1644, the assessment valuation was as of October 2021, not July 2020. There clearly has been an increase in property values since 2021. But the ratio of recent sales prices for smaller properties to their 2021 appraisals is substantially smaller than the ratio for larger properties.

Part of this is a data problem. It is relatively easy to value three-flats. They are largely homogeneous and are routinely sold in neighborhoods across the city. In contrast, 360 State is unique, And the valuation of the adjacent lot is inherently speculative. But the fact remains that the larger properties have been consistently under-valued, even after accounting for the general rise in values after revaluation.

Again, revaluation is a done deal. But the Board of Alders should keep its results in mind in setting tax policy.

Nelson, by law, assessments are set at 70% of fair market value (excluding properties in the 490 program such as farmland). So a three-flat worth $1 million should be assessed at $700,000. Recent sales prices for three-flats have generally been in line with their appraised values.

AT the city does use all of those methods, which are specifically allowed by law. But assessors (generally, not just in New Haven) focus on different methods for different types of properties. For example, the valuation of single family homes and condos primarily rely on comparable sales. Valuation of multifamily and other commercial buildings primarily rely on the net income they produce. Depreciated construction costs are used for utility company property, which is almost never sold and does not, in itself, generate income.

For three-flats and other small commercial properties, there are enough sales that an assessor can readily calibrate the income they produce with their actual market values. The bulk of New Haven's apartments are in this category, and the building owners are paying about their fair share of property taxes (some more, some less).

This is not true for large commercial properties which are more heterogeneous and have fewer sales. The NH assessor has valued these properties very conservatively and as a result their owners are generally paying less than their fair share of taxes.

I had feared that the inclusionary zoning ordinance would severely curtail development, So far, this has not been the case, although rising interest rates may have this effect.

I fully agree with your idea of inviting the assessor and E.D. director in for an interview.

ThreeFifths, the rents will go up eventually. But at present, rents are coming down (slowly) at the national level. https://www.nytimes.com/2022/11/03/realestate/rent-decreases-us-cities.html?te=1&nl=the-upshot&emc=edit_up_20221110. This decline is part of the reason inflation has slowed somewhat, as seen in today’s CPI number.

New Haven’s housing market is segmented by income and race. The number of affluent renters (those who can afford the rents at this building) has increased with the growth in the biotech and health services industries. But it is still a small part of the market. And the number of up-market apartments has increased dramatically since 360 State opened.

Kevin, thank you for your comment. I am very familiar with the difference between FVM and the net assessment. As I personally handled many tax cases for myself and others. And what is missing from
your very thorough analysis is facts absent which it looks like commercial landlords are getting away
with murder. Not so. First, while it is true that many working class neighborhoods were adjusted to
real prices, in previous years, they were the largest beneficiaries of under appraisal. With some home
owners paying as little as 1,000 to 1,500. Notwithstanding the current adjustment, this aggregate under valuation amounts to millions in lost tax revenue. Secondly, many homes in East Rock are VALUED at $600,000 to $700,000 but I have direct knowledge of a few of them being in contract for $1,000,000 and up. No one writes about these or complain that they are under taxed. Thirdly, Vision adjusted almost every single commercial building that sold prior to the revaluation for its sale price. Fourth, there is a massive wave of out of state money that come here to not just invest, but also park excess money. For instance, hundreds of NYC funds and owners are sitting on excess cash from refinancing and 1031 exchanges, and I am intimately familiar with around 50M in capital desperate to be deployed for no other benefit but to avoid taxes. These non-economical buyers, skew the valuations and it would be unfair to penalize the rest of the owners for the same. Such money doesn't exist in residential. I admire your knowledge, and your courtesy, but I find that on this point you have consistently omitted facts that do not favor your point of view. Thank you

Nelson, we actually agree to a degree. In another NHI thread, I suggest that part of the recent run-up in commercial real estate prices is due to tax avoidance. And I have noted, here and elsewhere, that the recent sales prices of small commercial properties such as three-flats has generally been in line with their appraised values. Their owners are not getting away with murder, and I did not suggest that they are.

What I said is that large commercial properties such as apartment complexes have consistently been selling for well over their appraised values. I have been consistently tracking such sales in the data that Tom has been presenting. It is common for such properties to have sold for 25% or more above their appraised values.

Ironically, the first East Rock property to sell for more than $1 million was on my street (although not on my block, which has much more modest homes). Since then there have been multiple sales over this amount. The recent sales prices of such homes have been well over their appraised values. Valuing such homes is again complicated by the sparsity of data. Less expensive homes (like mine) sell all the time and it is fairly straightforward to come up with comparable sales. That is much harder to do for a home on Everett Street, much less St. Ronan.