[HN Gopher] 23-Floor Manhattan Office Building Just Sold at a 97...
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23-Floor Manhattan Office Building Just Sold at a 97.5% Discount
Author : paulpauper
Score : 35 points
Date : 2024-08-09 20:58 UTC (2 hours ago)
(HTM) web link (www.nytimes.com)
(TXT) w3m dump (www.nytimes.com)
| dredmorbius wrote:
| Archive / paywall: <https://archive.is/NpdIo>
| 19h wrote:
| Or maybe, just maybe, this is tax evasion?
| pcai wrote:
| I never understood the argument that "locking in your losses is
| actually a form of tax evasion" - or am I misunderstanding what
| you are trying to say?
| recursive wrote:
| I don't really know how taxes work, but I'd imagine it's
| because somehow it lowers your tax bill for that year.
| airstrike wrote:
| which is offset by the fact that you just lost a ton of
| money, so it doesn't really add up
| Dalewyn wrote:
| 19h's comment that started this sub-thread is a perfect
| example of the horrible state of civics education.
|
| I'm not an accountant and I definitely don't know taxes
| properly either, but I do know enough about taxes to know
| that businesses pay taxes on their net profit (gross income
| - losses = net profit). Those losses can be payroll costs,
| costs of goods, shipping and handling costs, rent, loan
| payments, travel and lodging expenditures, and so on.
|
| Assuming that the losses are legitimate and can be audited
| if necessary, this is not tax evasion and to baselessly
| accuse anyone of it is literally defamation.
| 19h wrote:
| Selling a NYC skyscraper for 97.5% under market value? Yeah,
| that's tax evasion 101.
|
| Reasons:
|
| - Property taxes? Tanked.
|
| - Capital gains? What capital gains?
|
| - Money laundering? Check.
|
| - Gift tax dodge? Probably.
|
| - Transfer tax? Lol.
|
| - Asset value shenanigans? You bet.
|
| IRS gonna love this one. Good luck explaining that "market
| rate" to the auditors.
| jjmarr wrote:
| Brilliant. I own some Bed Bath and Beyond stock. I was
| going to sell it for a ton of money, but now that the
| company is bankrupt, I can sell it for practically nothing
| and avoid taxes!
| recursive wrote:
| You probably can. You wouldn't have bought them
| strategically for that purpose of course.
|
| Most people probably pick a mix of winners and losers.
| After you find out which ones were the losers, then I
| guess you can cash them in to lower your taxes
| strategically. I think that's the idea.
| gruez wrote:
| >- Property taxes? Tanked.
|
| ...depends on the jurisdiction. In many property taxes
| aren't based on the last transaction price, they're based
| on what the city assesses the prices as. Selling the
| property for $1 won't affect the value of the property,
| unless all the other buildings in the same area do the same
| thing.
|
| >- Money laundering? Check.
|
| Except property transfers are public information so it's
| obvious what's going on.
| katzinsky wrote:
| I'm renting a cube (of sorts) in a building in Alexandria VA
| that sold for something like 30% of what the owners paid for it
| originally just the other month.
|
| We're definitely witnessing a crash in US office space prices.
| fitzroy wrote:
| It sold for $8.5 million... ..."The auction was for the building
| itself, not the land. That is owned by a publicly traded real
| estate firm, which collects a monthly lease. But the rent from
| the building's current tenants is not enough to cover those
| monthly payments, which are set to increase every five years and
| do not expire until 2123."
| kylehotchkiss wrote:
| Ick! That is a gross ownership model. Seems almost feudal to
| me.
| chrisco255 wrote:
| Kinda? I mean the name "landlord" directly traces back to the
| feudal era. The land owner could have a mortgage too in some
| cases and depends on that income to pay as well as taxes and
| insurance. The building owner is usually subleasing or
| selling subunits within the building so it's really just a
| tiered chain of ownership and leasing with various trade-offs
| in capital efficiency, risk, etc.
| dboreham wrote:
| And literally called "Feu duty" in Scotland and only
| abolished in recent times (24 years ago).
| 0xB31B1B wrote:
| Its not a gross ownership model. These things are set up this
| way because different groups of people will pay different
| amounts of money for different bundles of things that are
| taxed at different rates/advantages depending on their use.
| The land lease has scheduled payments for the next ~100
| years, long beyond the time horizon of DCFAs that anyone is
| doing for investors. Many buildings in NYC and elsewhere have
| this ownership model. Why should a land owner be into
| construction and and why should a land owner be exposed to
| the volatility of commercial real estate rents if they don't
| need to be.
| hi-v-rocknroll wrote:
| Correct. This is what was lost. Louis Rossmann I think made a
| somewhat knee jerk video about it.[0]
|
| The company who owns the land is called "Safehold".[1] Rent
| seeking upon rent seeking. I'm surprised UBS also didn't sell
| the mineral rights to a fracking concern before they sold the
| land.
|
| 0. https://youtu.be/vpV1FS-gRZw
|
| 1. https://www.safeholdinc.com
| sakopov wrote:
| Interesting. So, it's like buying a house on leased land, which
| I see quite a bit of in Southern California as real estate
| values shot to the moon. Why would anyone buy an office
| building like this? Is the expectation that people will go back
| to office in the near future and the owners will be back in the
| profit on rent?
| hleszek wrote:
| Who would buy a building like this without the land? How does it
| make sense?
| not2b wrote:
| This sounds like the leasehold concept in the UK.
| chrisco255 wrote:
| Lots of people do. McDonald's franchise owners do the same, as
| do CVS pharmacies, iirc. It's for capital efficiency, and it
| especially makes sense in markets where the land is very
| expensive like Manhattan, or for a business that is trying to
| expand rapidly. Instead of borrowing (for illustration sake) $2
| million to buy a lot and building, you can have another party
| buy the land for $1 million and then you only have to borrow $1
| million to build the building. Your total debt is now $1M
| instead of $2M. You now have another $1M in lending power to go
| open a second location.
| katzinsky wrote:
| Property taxes in NYC are high enough that owning the land
| doesn't really save you much the way it does in most places.
| dredmorbius wrote:
| What's notable here is that the discount is from a 2006 sale.
|
| I've seen previous ~90% valuation declines but based on sales far
| more recent.
|
| Chicago, 90% decline 2013 -- 2024:
| <https://www.chicagobusiness.com/commercial-real-estate/offic...>
|
| San Francisco, 90% decline 2016 -- 2024:
| <https://sfist.com/2024/04/23/empty-office-building-at-sixth-...>
|
| The impact of a 90% devaluation of the CMB (commercial mortgage-
| backed) securities market will have an immense impact on bank and
| investor balance sheets, which brings to mind the 2007-8
| residential real estate crash and financial crisis.
|
| Total present commercial mortgage valuation is about $3.6
| trillion if I'm reading things correctly:
|
| <https://fred.stlouisfed.org/graph/?g=1rCDW>
| paxys wrote:
| 2006 was very close to the peak of the pre-2008 real estate
| bubble, so the inflated price makes sense. It would IMO have
| been more noteworthy had the purchase date been 2009-2014,
| because that's when the values were more "real".
| unpythonic wrote:
| Here's a better article covering this situation:
| https://wolfstreet.com/2024/08/01/values-of-old-office-tower...
|
| Unsurprising that a building's value goes down over time while
| the land on which it resides appreciates. The 97% discount is a
| comparison of the building price versus the building + land
| price, so the 97% isn't very relevant.
| chrisco255 wrote:
| Still pretty surprising. Buildings often go up in value over
| time and it's often the building that gets more appreciation
| than vacant lots. NYC is a special case, however, because land
| is so scarce in Manhattan. It's also frequently the case in NYC
| that different parties own the land than the building.
| tootie wrote:
| The building underwent a a $76M renovation in 2021. So, this is
| absolutely a huge loss in value.
| hankchinaski wrote:
| Insane that building gets depreciated in the balance sheet
| 0xB31B1B wrote:
| nah, its super normal in RE and the source of a lot of tax
| advantage
| epgui wrote:
| What is insane about that? Nothing lasts forever.
| shmerl wrote:
| If offices are shrinking, they can turn it into a residential
| building.
| grendelt wrote:
| Right.
|
| My first thought: find an all-but-vacant office building, build
| myself a sweet pad on my favorite floor, then go about slowly
| converting the rest into apartments/condos while reserving some
| floors for business - esp the ground floor.
| sapphicsnail wrote:
| Good luck convincing the city to rezone it
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