DOF Publishes FY 2022 Tentative Property Tax Assessment Roll
On Jan. 15, the NYC Department of Finance (DOF) announced the publication of the tentative property tax assessment roll for Fiscal Year 2022 (FY22). The tax assessment roll set the tentative values for all New York City properties. The FY22 tentative assessment roll shows the total market value of all New York City properties is $1.298 trillion, a 5.2 percent decrease from Fiscal Year 2021. The tentative roll is available online at https://www1.nyc.gov/site/finance/taxes/property-assessments.page.
Property values for FY22 reflect real estate activity between Jan. 1, 2020, to Jan. 5, 2021, the taxable status date, and reflect the impact of COVID-19 on property values across the city. Citywide taxable billable assessed value, the portion of market value to which tax rates are applied, fell by 3.9 percent to $260.3 billion for FY22. The overall decline in market values reflects pandemic effects on the market, which were incorporated in the valuation approaches used by the DOF to value properties.
Values for Class 2 Properties
The total market value for Class 2 properties, which include rental apartment buildings, fell to $320 billion in FY22, decreasing by $27.6 billion, or 8 percent. Market forces caused a decline of $32.2 billion, but the decline was partially offset by increases attributable to new construction and physical improvement.
Class 2 rentals saw a market value decline of 9.8 percent. The total assessed value decreased by 2 percent for Class 2 rental apartments. Brooklyn had the least market value decrease, at 5.6 percent, and largest taxable billable assessed value increase, at 2.3 percent, for rental apartments.
Values for Class 4 Properties
The total market value for Class 4 commercial properties decreased by 15.7 percent citywide to $274.6 billion. The decline is mainly attributed to market forces, which accounted for a decrease of $58 billion. Staten Island had the least percent decline in market value, at 8.7 percent.
Total assessed values fell by 9.6 percent, to $116.8 billion. Commercial properties in the Bronx saw the least decline in assessed value, at 0.2 percent. Office buildings experienced a decline of 15.6 percent in market values. Retail buildings and hotels registered a market value decline of 21.1 percent and 22.4 percent, respectively.
Total assessed value for office buildings fell by 9.8 percent. Citywide retail buildings saw a 13.2 percent decline in taxable billable assessed value. The Bronx had the least decline in assessed value, at 9.6 percent for retail buildings. Citywide assessed value for hotel buildings fell by 19.2 percent.
Permitted Valuation Approach
Most NYC commercial property is comprised of Class 2 properties and Class 4 properties. Class 2 consists of buildings with more than three residential units, and Class 4 properties include nonresidential commercial property other than utility buildings. For tax assessment purposes, the market value of each commercial property is determined using the income capitalization approach.
For income-producing commercial properties, the actual income and expenses reported by the owner are used to determine the property’s net operating income. For mixed-use property, each category of income must be separately stated—for example, gross residential income must be separated from gross office income. All income derived from the property must be disclosed.
Similarly, in determining net revenue, expenses directly related to the operation of the property that are to be deducted from the gross revenue must be separately stated. Non-operational expenses, such as mortgage interest, depreciation, and corporate income tax, are not considered. Although the entire cost of a capital improvement can’t be deducted in the year of expenditure, a reasonable reserve may be treated as a deduction for one or more years.
After determining net operating income, a capitalization rate (often called the cap rate) is applied. In simple terms, the cap rate is the annual rate of return expected by an investor in the property. The cap rate varies based on the use, condition, and location of a particular commercial property. Arithmetically, the cap rate is the net operating income divided by the market value of a property expressed as a percentage. In many cases, the success of an appeal hinges on the cap rate applicable to the property.
Challenging Assessed Values
The DOF sends a Notice of Property Value (NOPV) to property owners including information about market and assessed value and other pertinent information. The NOPV and assessment roll give property owners the opportunity to review their tentative assessments and file a challenge to their property’s assessment with the New York City Tax Commission, an independent city agency, before the assessment roll is finalized in May.
All properties are valued by law according to the property’s condition on the taxable status date of Jan. 5. The deadline to challenge property values for Class 2, 3, and 4 properties is March 1. Forms and information are available on the Tax Commission’s website at https://www1.nyc.gov/site/taxcommission/about/challenging-notice-of-property-value.page.
Owners who believe that the DOF has incorrect property information, such as the wrong number of units or square footage, may file a Request to Update with the DOF at https://www1.nyc.gov/site/finance/taxes/property-forms/property-forms-assessments-and-valuations.page. Filing a Request to Update with DOF is not a substitute for challenging the assessed value with the Tax Commission. The final assessment roll will include any changes based on the decisions made by the Tax Commission, as well as new information the DOF gathers about abatements, exemptions, and other adjustments. In June, the DOF will use the final roll to generate property tax bills for FY22.