Letter to the Editor: Summit Greenfield tax revenue projections misleading; age restriction dubious

July 10, 2009
by Mark S. Tulis

Dear Supervisor Gerrard and Members of the Town Board:

I am writing again with respect to the proposed Reader’s Digest project (the “Project”) and the DEIS. As you are all well aware I have previously commented on this Project. I must state up front that I have no ax to grind on this matter. I do not live near the Project and I do not represent anyone adverse to or supportive of the Project. My statements contained herein are based solely upon my concern for the Town’s future.

I am writing specifically with respect to matters that I think have been muddied by the sales operation of the applicant and involve issues for which I have particular expertise. First, the applicant’s projection of tax revenues for the Town, which is at best misleading. Second, the issue of enforceability of the 55 and over aspect of the Project in light of recent bankruptcy cases, and lastly, the failure of various 55 and over projects throughout the United States.

I am sure the Board is aware that I am a former Town Supervisor of the Town of New Castle and a Westchester County Legislator. However, with respect to the issues which I intend to address, I should note that for more than thirty years I have practiced real estate tax law on behalf of various utilities, large property owners and various municipalities. In addition, I was Special Counsel to the Westchester Municipal Officials Association in connection with the attempt in the late 90’s to pass the re-valuation bill in Albany. This bill, which did pass, although vetoed by the governor, was worked on as well by your distinguished Planning Board. For a number of years I was also Chair of the Town of New Castle Board of Assessment Review. I also frequently write and speak on real estate tax matters.

In addition, since 1993, I have served as a United States Bankruptcy Trustee for the Southern District of New York for the region covering Westchester and Rockland Counties. As such, I have watched with some interest the failure of various real estate projects, all of which started with the same promise and dreams of the applicant herein and which resulted in empty buildings and foreclosures.

The projections of taxes is at best misleading

Real estate taxes on condominium or co-op projects as well as for commercial properties are based on the income approach to value. Recent tax opinions which I have written with respect to condominium and co-op projects project a value of less than one-half of true value for the project relative to other homes.

What I mean by that is that a house selling for $1,000,000.00 is assessed based on a full value of $1,000,000.00; a condominium also worth $1,000,000.00 is being assessed at a full value of $400,000.00. That is because sales price has nothing to do with the valuation of condominiums or co-ops.

Rather, the valuation is based on hypothetical rentals, hypothetical expenses and capitalization rates reflecting current market conditions based on the myth mandated by state law that the entire project, regardless of ownership, is to be deemed a “rental project.” [See footnote 1, below.]

As such, a failure to insist by the Board that the Reader’s Digest Project be a “fee simple” project will result in huge reductions in assessments in the future. I would strongly suggest that the Board review the taxable nature of this Project with the New Castle Assessor as well as assessors in Towns such as Greenburgh, Yorktown and the City of White Plains to view the true impact of non-fee simple projects.

Further, even if the current developers of the Project do not protest the Project’s assessments, I can assure you that the future owners of the individual units will do so. The tax certiorari bar certainly can’t wait to seek reductions of millions of dollars from the Town and School District. I suggest you look at the reductions in assessments obtained by Reader’s Digest, Old Farm Lake, Chappaqua Commons, and other projects both within the Town and outside the Town, to see what has happened in the past. Since future tax assessments will be based on economic factors, any projection by the developer as to future taxes is both misleading and non-verifiable.

Therefore, in addressing the issue of taxes on the Project I would urge the Board to require fee simple ownership. With that being said, and in analyzing the alternatives for the Project, you must also analyze the potential negative impact of millions of dollars of refunds in taxes for this Project within five to ten years, which is the usual time frame for these types of reductions.

The 55 and over restriction is not marketable

The 55 and over restriction is not marketable and may be altered by the federal bankruptcy court. Much to do has been made of the fact that the Project is to be limited in part to residents 55 years of age and over. I should note that when I was 55, I had a child in the schools. With that being said, I would like to focus on the economic viability of the Project and the power of the bankruptcy court to alter any of the restrictions put on the Project by the Town.

First, the Board is certainly aware by now that the Cappelli 55 and over project in Yorktown is a dismal failure. In fact, representatives of the developer have sought to eliminate the 55 and over limitation for that project. The argument is simple by the developer: we don’t want to have an empty building and it is economically unfair to limit our project to 55 and over because we are unable to sell units with that restriction.

Needless to say, whatever legal limits are put on the Reader’s Digest Project by the Town, I can assure you that if the Project does not succeed economically, a question certainly to be resolved by economics and not by developer’s promises, a revisit to the 55 and over limitation is certainly inevitable.

More importantly, I have seen developers in bankruptcy court attempt to circumvent various restrictions on their projects imposed by towns and by the developers themselves. In fact, the bankruptcy court, as one can see from GM and Chrysler, are pro-debtors and will do anything necessary to assure the success of a debtor’s reorganization. Therefore, if the Project is not successful and a bankruptcy petition is filed, I would be very concerned that the Court would alter the 55 and over limitation irrespective of any promises the developer may have made.

In sum, I believe that the analysis of the Project must be based on no 55 and over limitation being attached to the property.

As a former Town Supervisor it is somewhat awkward for me to get involved in a Project review such as the Reader’s Digest proposal. Notwithstanding, my concerns for the future economics of the Town as well as our lifestyle forces me to put in this response.

If there is anything further I can add to this discussion, please do not hesitate to let me know.

Best personal regards,

Mark S. Tulis

Mark S. Tulis is a member of the law firm Oxman Tulis Kirkpatrick Whyatt & Geiger LLP in White Plains, N.Y.

Footnote 1: The Assembly bill changing assessment procedures for Westchester County will not be approved by the Senate, even if it does finally meet.
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Public comment on the DEIS and on Summit Greenfield’s proposal for rezoning continues on Tuesday, July 28, 7:00 p.m. at town hall. The town board has mounted the DEIS and related documents on a dedicated website:

http://chappaquacrossingreview.mynewcastle.org/

and has set up an email address to receive comments from the community at .(JavaScript must be enabled to view this email address).

For a complete listing of NewCastleNOW.org’s previous articles and letters to the editor on Reader’s Digest, click here.

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