Four major retail landlords are suing the city to reduce their property taxes, saying they are unfairly based on pre-pandemic rents.
According to the lawsuit, The Real Deal reportedthe owners of a prime commercial condominium on Fifth Avenue and East 59th Street, say their property taxes are “grossly overstated” because they are based on 2022 revenues and expenses that reflect leases signed before the pandemic. It is being evaluated.”
Stores such as Harry Winston, Versace and Ikea have since moved or negotiated new, smaller leases.
For example, Harry Winston gave up the three upper floors of 697 Fifth Avenue and reduced the rent to landlord Vornado from $22 million to $6 million.
The Zucker Organization, the landlord of 205 East 59th Street, lost $2 million in annual rent to Ikea after its lease expired in November.
Prominent real estate traders agree with the landlords’ plight and say the city is unfairly trying to extract more money from them.
“Cities have historically not focused on valuations in the way that investors do. They’re not based on current market rents, so that’s a problem,” said Daniel, senior vice president of CBRE’s investment real estate group. Kaplan told the Post.
“The problem is that we are projecting rental income based on current rents, but the taxes are based on older, higher rents.”
Overvaluation not only puts retail condominium owners in trouble, he added, but “it also affects the selling price if you’re trying to sell.”
One of the properties named in the lawsuit, the former IKEA space at 205 E. 59th St., is for sale, not for lease.
“The fall in rents should lead to lower taxes due to lower imputed and realized income on these properties,” said a retail broker at another firm who requested anonymity.
“Taxes end up being a burden on landlords and occupiers,” said Cushman & Wakefield rental legend Joanne Podell, adding that “retailers are paying current rent per square foot; “This is to take into account future costs, including taxes, over the base year.”
In addition to the blow from online shopping, the retail industry was thrown into turmoil after rents peaked in 2015-2016 and collapsed due to the coronavirus pandemic.
The newspaper reported this week that Kim Kardashian’s shapewear brand Skims has bought 20,000 square feet at Oxford Properties and Crown Acquisitions at 647 Fifth Avenue, after previous tenant Versace paid for it. The company reportedly leased the property for 75% less than $770 per square foot.
According to the complaint, the landlord’s contract with Skims generates only $5.5 million a year in revenue, but the city is basing its assessment on estimated gross revenue of $18 million.
Fitch recently downgraded the mortgage at 647 Fifth Avenue, citing “decreased rental income expectations.”
A Treasury Department official said the lawsuit is under consideration.
