Whose Boom Is It? City Cut Top Investors $166M Break In 2022

Respectfully, despite its length and comprehensive date, this article omits some key factors. Not that investors just overpay, but that syndicators are motivated by fees and not values, and also, that value has to be leveled overtime. These are backward looking numbers for transactions contemplated before interest rates started to rise and values decline. I PERSONALLY reviewed some of these properties, and to say that they were underpaying their taxes is a huge leap. One of the properties here, has a tax of $5,000 per units and was for sale because the owner could not cash flow the property, mostly due to the high tax burden, and that someone came and paid even more than it was appraised has to do more with personal motivations then with real values. It's possible that the person made a mistake or doesn't know how to value a property. But it doesn't represent anything close to what investors normally pay. The second thing the Independent continually misses, is that if the assessment is higher, and the tax as well, then the net income is lower and so is the value, and as sales close lower than the appraisal the city has to start lowering assessment in courts. The method commonly used values properties without taxes (loaded cap rate) which combines the capitalization rate with the tax burden (which is .028725 in NH) to arrive at what a value would be based on sales. There is no problem here and there is no one getting shorted.

So under- assessments, coupled with multi-year tax breaks for new developments AND an increase in property taxes (excluding our super wealthy non-profits) coupled with a reduction in services (see Parks and Rec) = a boon to out of town investors and NO benefit to residents.
The same thing happened in Stamford when Dan Malloy was Mayor.
We haven't yet seen the use of Eminent Domain or claims of blight to wrest ownership of valuable land, but that option is lurking in the 43 year contract with Tweed.
Until the government works for the benefit of the residents, I will vote NO to a 4 year term for Mayor or any other officer.
We have NO effective process or power to recall officials, plus the Democracy Fund has been shown to be effective for a candidate to use and win office.
The People of New Haven deserve a reduction in taxes and an improvement in services.
If we're not going to get that, then let the politicians at least work harder to raise campaign funds.

Ironically, I think that the inclusionary zoning ordinance contributes to under-valuations. The ordinance encourages denser developments. It does so by allowing developers to build smaller apartments and increase the ratio between the building’s floor area and the lot size. It provides tax breaks for developments built under its provisions.

Most recent developments have been new construction. But the ordinance also applies to the substantial rehabilitation of existing buildings, including apartment buildings. While the owner of a recent development would be unlikely to take advantage of these provisions, they will likely be attractive to owners of older buildings. For example, a developer could add four units to an existing eight-unit building by reconfiguring existing apartments and/or expanding the building. Only one of the apartments would have to be affordable to moderate incomes households, the rest could be market rate. The rehabilitated building would likely be worth substantially more than the current one. But added value is inherently speculative. In the absence of recent comparable sales, the assessor would be hard-pressed to come up with a defensible estimate.

Assessor Pullen is correct that it is common practice to rely primarily on the income method to appraise commercial properties. But it was clear, based on Tom’s reporting, that apartment buildings and vacant lots here were selling for well over their appraised values in the months before revaluation, after accounting for inflation.

With regard to Mr. Losty’s comments, the law is clear that the appraisal must estimate the property’s value at the time of the revaluation. The market in October 2021 may have been a bubble, although subsequent sales of large commercial properties suggests that was not the case for this class of properties. Whether or not it was is irrelevant.

Nelson, some of what you say is correct, some not so much. As you say, some rental properties are economically unviable for their owners at current costs (including taxes) and rents.There are thousands of small property owners in town. Some don’t know what market rents are. Others are decent human beings who choose not to bring their rents up to market. (I know a few landlords in the latter group.)

Syndicators certainly are motivated by fees. But we have no idea how many of the deals Tom discusses involved them.

Most of the deals discussed in the article occurred after the Fed had raised rates multiple times. According to the data Tom has reported in the past few months, prices for this class of properties has continued to rise. Some buyers do overpay. But there has been a consistent trend of recent sales going well above appraised values, notwithstanding higher interest rates and the new assessments.

The next revaluation may reflect the value indicated in the most recent sales prices described in the story. The increased taxes would then reduce net income. But that is more than four years away. In the meantime, the owners of the properties will pay taxes based on the current appraised value, not the sales price.

Nelson, you mistake my point. I am a New Haven homeowner. I'm not arguing that the mill rate is reasonable. But CT law requires that properties be assessed according to their fair market value at the time of revaluation. These properties were not What someone pays for an individual property is not dispositive of its fair market value. But when a class of properties regularly sells for substantially more than its appraised value, there is a problem with the appraisal system.

As I have said, under-valuations are largely confined to large commercial properties. Post reval sales prices of smaller properties, including small multifamily buildings, have generally tracked their appraised values. As you would expect, sometimes the sales price was above the appraised value, sometimes below.

Given your comments, I take it you own one or more small multifamily buildings. I believe that such buildings were generally appraised at something near their market values in 2021. The fact that large commercial buildings often were not means that the mill rate, and thus the taxes of small building owners, are higher than they should be.

Article is long on conclusions from a layman who obviously has limited experience with understanding how taxes work, and motivations/rationale of investors. There are multiple factors that go into determining values for assessors, owners, and buyers, and there can be 3 accurate values at the same point in time. Pricing also changes very quickly relative to interest rates. Prices can be locked in months in advance of when the properties actually trade resulting in prices that seem too high, but given cash flows are very reasonable, but wouldn’t trade for that price again.

I just selected 10 random zillow sales from the past 6 months. 9 out of 10 of them sold for more then the appraised value. Maybe you could write an article about how residential properties were significantly under appraised and should have their taxes increased.

People who claim to be concerned with apartment affordability should encourage more development, and champion lower taxes.

Kevin, I always disclosed that I own properties, of any kind, as I said as well, I am intimately familiar with some of the transactions here. And some of these prices paid have no relationship to valuations. Some buyers have cash they have to disposed of, some simply don't understand the economics, there are a lot of out of town buyers from Israel and New York, they don't always understand the operational challenges, the high cost of labor, the many things that require a higher rate of return in NH and CT in general compare to other locations they are used to invest in.

Manofthepeople, I agree with you 100%, I am an avid reader and admirer to Mr. Breen and the independent, but I strongly disagree with their articles on valuations which completely disregard the discrepancies on smaller properties. In their last article on the subject, one of the closed transaction was a single family with fair market value of 300,000 which closed at 500,000 and there was not a word on it in the article or an explanation why that's not a problem as well. It is ironic that the same people who want to over tax big landlords are the same people who champion affordability.

The bottom line is that something is worth exactly what the market is willing to pay for it. And if small property buyers are taxed on that basis, it’s only fair to do the same with large property buyers (with appropriate due diligence on any property that games the system to create the appearance of lower taxable value…something I believe that state statute already give assessors discretion to question.)

Manofthepeople, you’re right that different parties can value a property differently. Buyers sometimes overpay, sellers sometimes don’t realize the true value of their property. But you would expect that these differences even out over multiple sales. That has not been the case with this class of property.

You are also correct that changes in interest rates affect sales prices. But for this class of property, sales prices have substantially and consistently exceeded appraised values for over a year. During this time, interest rates have gone up dramatically. If you buy a house or three-flat, the mortgage interest rate you pay will be strongly effected by changes made by the Fed and this will affect the price you are willing to pay. The financing of the deals described above is often substantially more complicated.

Finally, you are correct that recent residential sales prices have generally exceeded appraised values. I would expect that in most cases the difference has been 5-10%, in line with the Case Schiller index. In other words, home prices here have been keeping up with inflation. In contrast, the difference has been far greater for large commercial properties. Sales prices for this class of properties have often 50-100% above their appraised values.

I repeat “for this class of properties” intentionally. Tom has not suggested, in this or previous articles, that most properties have been undervalued. There were comparable sales for most classes of smaller properties. I suspect their appraisals were in line with fair market value. But the law requires that all properties, other than those in the 490 program, be assessed based on their fair market value. There is good evidence that this was not the case for large commercial properties.

Nelson, thanks. I have no argument with your most recent comment. But you would expect that over time, cases where people overpay for properties would be balanced by cases where buyers get real deals. There have been many large commercial properties that sold for 50% or more above their appraised values. I have seen no case where a large property sold for 25% below its appraised value.

You’re right that some expensive single family homes have also sold for well over their appraised values. You can question Tom’s editorial judgment in not discussing these sales. But the aggregate amount of money involved with these sales is an order of magnitude less than the sales of commercial/multifamily sales he discusses. Let’s say that there were 50 single family sales over the past similar to the one you describe. That would equate to $10 million in untaxed value. The large commercial/multifamily sales described above account for more than ten times this amount.

Finally, you raise an important point regarding the connection between valuations and affordability. If the valuations of the large multifamily buildings had been higher, their owners certainly would passed the resulting tax increases on to their tenants. But the mill rate would have been somewhat lower, as would the tax increases borne by owners of smaller properties.

The bigger issue is that New Haven’s mill rate is way too high, look at how much higher it is than its neighbor towns. Part of that is the Yale tax deductible property, but it’s larger than that—all of Connecticut’s legacy postindustrial cities suffer from old and new debts and less tax base than the surrounding wealthier suburbs. Funding has increased in recent years but not nearly enough to begin equalizing mill rates while meeting the city’s unique social services needs. We need more big apartment buildings and if tax breaks are needed for that, so be it.

This might be the longest article NHI has ever published.

Does all this come down to about $4.5 million of taxes that the city would theoretically collect if no one appealed their assessments?

166M x .70 x mil raté?

Who cares? (Obviously people have opinions but we’re not talking about some significant part of our municipal tax collection not being paid; these properties pay an enormous amount in taxes that typically represents the equivalent of 2 months rent per unit or more.)

These are trophy properties that out of state investors pay a premium for. Sale price does not represent FMV. Some may be using 1031 exchange money that has to be spent. Some may want to take advantage of opportunity zones. Some may see a federal income tax benefit in a building that losses money. So they overpay.

The way NHI covers this is interesting, but this isn’t some giant new issue that buries owner occupants in unbearable property tax burdens and represents a give away to this class of property. That’s our mill rate and totally fucked up, out of control budget, debt service, fixed costs, legacy costs, retirement benefits, healthcare, and decades of kicking the can down the road. But let’s blame the investors pouring money into NH because that’s easy!!

I’m sure there are some more “shocking” articles yet to come before the end of the year and I can’t wait to read them. This one’s a red herring.


Merry X-mas.

@ NHI - the title of this article is misleading. These big landlords did not receive a $160 Million tax break. If the properties were taxed at recent sales prices, the City would generate $160 Million x 2.8% in additional takes, or $4.5 Million.

The question of whether New Haven is taxing big investment properties is a fair one. But it shouldn’t be asked without including these three corrollary questions:

1) how much have taxpayers gained by the new construction boom and Grand List growth?

2) what would happen to that boom if new luxury apartments were taxed at $300,000/unit, or $8400/year, meaning $700/month/unit in taxes. (Right now the taxes are about $5,000/unit, or $400-$425/unit/month.)

3) what happens to valuation and sales if the City aggressively valued and taxed these properties at $300,000/unit. (Hint: they would no longer be worth $300,000/unit.)

Personally I’m in favor of further developments and Grand List growth. To change from the status quo, (valuing building by rent roll), would be asinine at this point in time, when rising interest rates are already impacting future projects economic viability. But again, it is a fair debate, I only wish the NHI were conducting it with all the surrounding factors on the table, instead of a simplified analysis.

Some of the biggest tax breaks are not to big properties but to 1-4 families in East Rock. Because while they are taxed by recent sales values, they really cash flow like medium size buildings because of the rents they collect from Yale student (who pay for a room what you pay for a one bedroom elsewhere) So you can have a small house grossing $160,000 a year which if it was a building the tax would be $32,000 but being that they are taxed as houses they really pay closer to $15,000 to $18,000. A massive break. So while some here claim that large properties benefit from the income approach this is a case where the opposite is true. Houses in East Rock used as rentals benefit from the sales approach. Honestly. I don’t see the point of this article.

Ben, you’re right that a sales price is not necessarily fair market value. There are transactions that are not at arm’s length and sometimes buyers pay unreasonably high prices. But a recent sales price is generally the best indicator of what a property is worth. You are also right that the city has real structural problems that $4.5 million per year would not solve. But it would help.

AT, you’re correct on your first point, the headline is misleading. But the city needs to follow state law and tax all non-490 properties based on their fair market value. (I suspect there are few New Haven properties in the 490 program.)

Nelson, you’re right that there have been some single family homes in East Rock that have sold for well over appraised values. But generally, 2-4 unit buildings there and elsewhere have sold for prices approximating their appraised values. For example, 834 State (in East Rock) sold for 13% above its appraised value one year after reval. 52 Canner sold for 28% above appraised value -hardly chump change, but nothing like some of the discrepancies described above.

Unlike large commercial properties and high-end single family homes, there are comparable sales for small multifamily buildings. This makes the assessor’s life easier.

Great comments from NelsonBenson and Ben Trachten. Thank you both for bringing some nuance to this story. Assessing value is very difficult, and claiming that a single sale price is the correct valuation is wrong. The best we can hope for is a reasonable valuation from the assessor, which appears to have been done. Let’s hope property values continue to rise in a reasonable way, thus providing healthy returns to reward sound investment while avoiding a bubble.

LoveHVN, this is not a matter of a single valuation. As Nelson, Ben, and others note, buyers do sometimes overpay. But in the months preceding and following revaluation, large commercial properties consistently sold for well over their 2021 appraised values. This indicates a systematic problem in valuing these properties.

The fair market value of any commercial property reflects, in part, what the buyer thinks they can do with it. For the average three-flat this is not much. The buyer could renovate the building and charge somewhat higher rents. It is unlikely they could substantially expand the building and add units. The fair market value of a small commercial building is largely determined by the net income it produces.

The situation is different with parking lots, underused commercial buildings, and older residential buildings with larger apartments. The buyers of these properties can substantially increase their value by changing their use or increasing their residential density. The IZ ordinance provides zoning and tax incentives to do so.

The added value associated with this development potential is hard to estimate. Assessors are prudent in being cautious. But it is part of the fair market value of such properties, reflected in sales of comparable properties.

I have publicly testified in favor of new developments, in my neighborhood and elsewhere. But all properties, including large commercial properties, should be taxed based on their fair market value.

Kevin, while the law may have been written one way or another, case laws, that is how the law really is interpreted in practice, actually disallows in almost every case the use of potential in valuations.
Potential variations are even strictly prohibited in municipal appraisals. Courts have consistently struck down such valuations in favor of taxpayers calling them "purely speculative". And let me tell you how you, Kevin, is personally protected and shielded by that law.

As you know, two people can exact very different values from the same property. In your East Rock neighborhood, you may use your house for what it is, your house plus some extra income. The guy next door, may use what I call the "Yale Loophole" and chop it down to rooms and put luxury kitchens and bath and generate twice as much value as you do from the very same property. Yet, your house, will always be assessed as a house and not a highly profitable commercial property. And, so will she. But the law protects you from your neighbor's extreme utilization. It does not take into account the "potential" and doesn't tax you for it (we are not even talking about the fact that in addition to the huge profit these houses generate, they benefit from lower utility rates and free municipal garbage pick up)

In short, the big commercial landlords, are not the only "winners" (a term I disagree with as there is no real tax break) but so are a lot of property owners, small and big. We should stop this constant repetition of sales versus appraisal that has no root in reality and is really, just an OPINION by our beloved Independent.

Peace, Joy, and Happy Holidays to all.

These big new buildings are the only thing preventing rents in New Haven from going up to $10,000 per month. As such, they should be getting even larger tax breaks.

We need developers to be constructing 10 more buildings the size of 360 State Street every year, or rents will keep going up by 10%+++ every year.

Regarding Winchester Lofts, the land is leased, and the lease on the land was assigned from the seller to the buyer. Presuming the building was transferred, and given that CGS 12-494 requires that tax be paid on sale of not just freehold land, but tenements and other realty, a conveyance tax should have been paid. A lease is an interest in real estate, and a tax should be paid when it is transferred for value. (Long-term land leases are common in NYC and the UK, but not CT.)

Nelson, thank you for your concern :-). Actually, my house does not have development potential. It can't be expanded or divided or its use changed without getting a variance. There are no grounds for granting me one and I am not interested in getting one.

We agree that assessors can not increase valuations solely because a property does have development potential. But in the months before revaluation, multiple large commercial properties sold for prices dramatically above their then appraised values. For example, 168 and 170 York (mixed use) sold shortly before reval for a combined $2.85 million. Their appraised value at the time was about $800,000. In June 2021, 76 Sherman (12 apartments) sold for $3.3 million. Its appraised value at the time was less than $1.6 million. In April, the Fairbanks Building (a multifamily tower in Fair Haven) sold for $11.1 million. It appraised value was $5.7 million. For comparison's sake, the taxable 2022 grand list increased by 32% from the prior revaluation. including new developments. The first two developments sold for over 100% above their appraised value at the time, the third 94% above. Other large commercial properties sold at smaller, although still substantial, premiums. These are real numbers, not speculations. The assessor should have taken this price trend into account in 2021 when valuing comparable properties. It appears he did not.

Would it be possible to see who the top 3-5 landlords are in this city? Or are there too many shell LLCs to comb through..? How much do they earn per year?

168 & 170 York were sold to Yale. They were worth more to Yale than an another buyer because Yale needed them to complete ownership the historic bloc, which it intends to raze.
https://yaledailynews.com/blog/2020/09/10/yale-buys-historic-townhouses-on-york-street/
https://yaledailynews.com/blog/2022/10/25/yale-announces-plans-for-new-dramatic-arts-building/

1644, you're tight, Yale was a particularly eager buyer. Although neither article suggests that Yale wants to tear down the buildings, it is reasonable to assume that it wants control of the site in connection with the relocated Drama School.

My point is that these were part of a series of sales prior to revaluation that were well over appraised values. The assessor should have taken these sales as evidence that historic capitalization ratios were no longer accurate.

It's the end of capitalism and the capitalists are playing their usual tricks...while the local's comments in this article reflect that they are trying to "figure it all out" and out to out bla, bla, bla the capitalists comments! Hysterical!

So many words to describe nothing except that capitalism is at the end. And, the White guy with the most marbles ($$$) wins the battle, but not the war.

As usual, as capitalism ends, the people at the bottom bare the most pain.

Not to worry. Change is certain and that's all there really is.

Political systems come and go after they've achieved their usefulness.

A message to the capitalists...please keep going because you provide exactly the level of anger this country needs to wake up and throw you out.

@manofthepeople1: Try again.

“Assessors, on the other hand, are bound by Connecticut State Statutes which require us to use the three generally accepted appraisal methods (cost, sales and income) in order to arrive at a fair market value.”

Everyone just be PATIENT !!

Trickle-down economics will be proven correct by the year 2649. Believe me.

Is it raining? I think I just felt a drop.

The problem is that the city officials who should be keeping an eye on the store are out to lunch. Elicker is here as a stepping stone. There is no controller. And the budget director and tax assessor aren't impacted by tax increases because they don't live in New Haven. And if Elicker has his way, more people making decisions for New Haven will not be living in New Haven.

Whose Boom Is It?

It is New Haven's boom because private investment is now flowing into the city - it ONLY took 40 years, the state's contractual commitment to paying down debt, AND a global pandemic for that to happen!!!!

City Cut Top Investors $166M Break In 2022.

This is plainly misleading. Developers \ Investors can overpay for properties - that is the risk they take (they are bidding against each other). For many funds, those investments could prove to be fatal if the private sector shrinks, and many economists say it will. I am hopeful we are more insulated than other areas because our growth is still very modest compared to many other places.

Also many appraisals are lower than the purchase price if the entire region is undervalued and has very high taxes; New Haven county has been undervalued with high taxes for decades. Growing our tax base helps New Haven (just ask Bridgeport) and if you want lots more affordable housing, then incentivize developers to build far taller buildings.

New Haven Urbanism, thank you for your thoughtful comments. But the article describes large-scale, primarily residential, developments rather than pizza places. I very much doubt 360 State or any comparable developments could have been built with local funding. Yale could finance large-scale non-student housing, but I don’t think that is what you are calling for.

Unfortunately, there is no 21st century version of building three-flats. That is, there is no small-scale multifamily housing that local private developers can build economically. Similarly, there is no modern equivalent to houses like mine, i.e., small single-family homes that were initially affordable to working class families.

There alternative housing models, such as community housing trusts and co-operatives. They should be encouraged. But at this time, they have very little potential for meeting the city’s housing needs.

JH,

Thanks for the response. We may share some common ground.

If government is going to provide preferential tax treatment, incentives, infrastructure subsidies, and other public policy benefits for development, I would prefer that those initiatives go towards cultivating the next Spring Glen Hardware or Sally's Apizza rather attracting a Home Depot or Domino's Pizza. At the same time, I am not in favor of putting up artificial roadblocks to discourage the Domino's Pizzas and Home Depots of the world from opening where there is demand for and opportunities to provide those goods and services to people who want them. The question for me is if preferential treatment is to be given (and perhaps it shouldn't be) the preference ought to be for local rather than out-of-town investment.

For the most part, I do not see the building boom of the past decade as New Haven's boom. Certainly it has grown the City's grandlist, increased tax revenue, helped accommodate a larger population, supported retail and restaurants, etc. But at the end of the day, out-of-town investors are investing in the rental apartment business. The vast majority of the revenue generated from these complexes goes out of the city to pay off bank loans from national banks, investor returns from international investment funds, property management fees from national firms, etc. Even the local property tax revenue goes to the municipal government, which spends it on their employees - the vast majority of whom live outside New Haven. To me, a New Haven boom would look different from this.

KM,

I agree my comments are a little off topic, but local tax policy is one public policy that influences development - whether of the large-scale national chain or the local community development variety. While New Haveners probably couldn't have financed a 500-unit building like 360 State, hundreds of New Haveners may have been able to create one or town housing units each through conversions in owner-occupied houses.