The New York Times’ series on the hidden ownership of the city’s condos is simply amazing. Great old fashioned journalism.
We need more public shaming of corrupt foreign investors in America. We also need laws that prevents people from hiding their real estate purchases in shell companies.
Apt. 11d 
Here they keep trying (and failing) to close the loophole that lets you sell the shell corporation instead of the building to avoid real estate transfer taxes. That the local government is unable to get the state legislature to close the loophole goes back to Warren’s point about the danger of too much concentration of political power.
LikeLike
I’m not sure where “here” is for you, but here in New York this loophole definitely does not exist.
LikeLike
As a lifelong Manhattan-ite, have you noticed any change in neighbourhoods with the increase in non-resident ownership/unoccupied properties?
Vancouver has become a “land bank” for Asians/Europeans with many empty homes and apartments. Imagine a block of detached homes, 20% that are unoccupied for months and years on end. Same with certain neighbourhoods with apartment towers only partially occupied.
There are the tax implications depending upon jurisdiction but it has had a huge impact on local small businesses that depend upon foot traffic. It changes neighbourhoods too when the people living there aren’t invested more than financially. The tide turns and the properties will be unloaded.
There are blocks that are like ghost towns.
LikeLike
My boyfriend was born in Venice. His family’s hometown is a picturesque town about an hour north that has been a summer place for wealthy Venetians since the 1500s and is still a draw for wealthy tourists. The butcher, the green grocer, and the baker have all left in the past 15 years. In the town square, there are a few cafes, some upscale restaurants, many expensive hotels, and a few boutiques selling silk blouses for over 100 euros. The post office is open about 5 hours a week. There is a small grocery store selling a few essentials. The town has a permanent population of about 400 people, most over 70. If you really want to live in the town, you need a car to drive out to the suburbs where everyone under 70 lives and all the actual shops exist.
LikeLike
I think we need more than public shaming. It’s clear to me that some significant portion of the super high end real estate market and art markets are pure money laundering, hiding the assets derived from illegal activities, from government corruption to drug dealing. I suspect that the daylight being shined on some of Swiss banking has something to do with the asset shifts, too.
We need laws. And, yeah, we aren’t going to get them.
LikeLike
I agree with bj on all points. Shaming is a joke. There is no shame to be had among that class of people.
I’d like to see laws preventing ownership by shell companies. While they are at it, they can increase the property taxes for apartments that aren’t inhabited or rented, which drives up the cost of real estate for the rest of the city. I don’t expect to see any either.
LikeLike
Are these owners paying New York income taxes? As a US citizen, I would not purchase real estate in New York for a second residence, because it would vastly complicate taxes. See: http://www.theatlantic.com/business/archive/2011/02/own-a-second-home-in-new-york-prepare-for-a-higher-tax-bill/71144/.
Reading this page makes me wonder about the implications: http://manhattanmiami.com/resources/tax-legal-issues-foreigners-buying-real-estate/.
Foreigners have to pay New York death tax if they own property in New York when they die. Any tangible or personal property located in the U.S. and valued over approximately $60,000, requires the filing of a New York estate tax return when the foreign person dies. Currently, New York estate tax has a rate of 16%.
Foreign persons are also subject to Federal estate tax on property owned in the U.S. when they die. Currently the estate tax rate can be as high as 35%. U.S. citizens are given an individual exemption from the tax up to 5 million dollars. Married couples are currently exempt up to 10 million dollars. However, non U.S. citizens are not granted the exemption, unless a treaty exists with their country. See the discussion on treaties below. As a result, property valued above $60,000 is subject to estate tax. Discussed below are suggestions of vehicles that can be created to avoid Federal Estate tax including an irrevocable trust and a foreign holding company.
So the city is hollowed out for the benefit of the real estate industry. People subject to US taxes won’t be bidding on the properties. Only people who can thumb their noses at such taxes will own them. Has any foreign oligarch ever paid Federal estate tax and New York death tax, for a property they might visit occasionally?
It looks very much like this was an exemption to normal onerous requirements thought up for the benefit of foreign billionaires. I’m naive to be shocked, right?
LikeLike
BTW, I’m not convinced that foreigners buying lavish pieds-a-terre drives up the cost of real estate for UMC NYC residents like me. As the Times notes, UMC New Yorkers normally live in co-ops, which do not permit ownership by absentee owners or people with questionable backgrounds, and certainly not by shell corporations. It’s a very segmented market. In fact, there was another recent article in the WSJ noting how decoupled the prices of luxury condos have become from co-ops. So while the high-rise condos are an architectural blight on the City, they don’t really affect our daily existence, and they do supply jobs for a large number of construction workers when they are built, and for a smaller number of service workers thereafter. It’s certainly better for New York that Russian oligarchs buy apartments here than in Zurich, or wherever.
LikeLike
The land which is used for FLPATs could have been used for housing for people who live or work in the local economy. Just by removing square footage from the local market, it increases the cost of real estate. The sale of such apartments would affect the comparables for other apartments, would they not?
These ghost apartments are still drawing power from the local grid, even if uninhabited. Or are they dark at night? Streets which don’t support a local population tend to become more dangerous.
It would be interesting to compare New York’s absentee landlords to the problems San Francisco seems to be facing, with resident ultra-wealthy, or Nantucket/Martha’s Vineyard.
I don’t think that loopholes in existing laws is a good practice. Period. It drives complexity, and with complexity comes opportunities for corruption. Freeing a significant portion of the city’s property tax budget from the control of voters is not a good thing, either.
LikeLike
Interesting point. We don’t have co-ops here nor any restrictions for non-resident ownership/leaving properties unoccupied. As a result, it has had a huge impact on affordability with the most expensive real estate market in North America.
I wish we had some segmentation! Luckily we never left the market even while we were in Toronto for ten years.
I’m still curious about the impact of vacant apartments on your neighbourhoods (maybe it isn’t noticeable yet or the condos are concentrated in certain ‘hoods).
LikeLike
I’m not a life long New Yorker, so long term I can’t say about the neighborhoods over time, but I can tell you they are all very busy right now. The Time-Warner Center, Trump International and 15 Central Park west are all right next door to each other at the South-West corner of Central Park. This area is pretty busy almost all the time with tourists, locals going to the park, lots of offices, retail and restaurants. The Plaza is a few blocks over on Central Park South. Most of these buildings have a hotel, office space or retail as well.
If you’re worried about empty neighborhoods, the buildings that are the subject of this article are not really the ones to worry about. They are high profile, but not really that much space. If all the foreigners want to buy apartments, at least by stacking them vertically it doesn’t disrupt the rest of us so much. I think the really high proportion of renters in New York makes a big difference too. 10 seconds on google didn’t find the number, but I think it’s something like 75-80%. I’m not sure how foreign buying filters down to lower priced homes.
I am not so sure about the older buildings (meaning all except One57 in the article, they’re not really old), but it sure seems like most of the new ones are aimed in part at the money laundering market. How many people, in the entire world, can afford and want a $50,000,000 apartment in New York and do not have one? If you answered several hundred between about 2013-2018, you might be a real estate developer. Basically every billionaire in the world wants a very expensive new home in NYC? That seems… implausible.
LikeLike
Responding to cranberry and Sandra, with my two cents.
The effect of market segmentation is that ultraluxury condo prices aren’t really comps for other properties. We live less than two miles from the Time Warner Center and the Trump International, and on the same street, but no one thinks our apartment is worth $4000 a foot. Those ultraluxury condos are mostly built in either formerly marginal, now trendy, neighborhoods (like the High Line), or on the edge of downtown (like the West 50s). In either case, they don’t disrupt formerly residential neighborhoods. In terms of street life, they usually have retail or restaurants on the first floor, so they don’t deaden the neighborhood. The absentee ownership doesn’t support a lot of local retail, but most of those neighborhoods didn’t have much anyway. As I understand, the handful who live in those buildings year-round find the mostly vacant building a little spooky, but it doesn’t affect life at street level. And whatever power the buildings draw from the grid, they pay for.
What would change things would be if absentee owners started buying brownstones (what the rest of the country calls townhouses). Then you might start getting vacant neighborhoods, instead of vacant towers. Unlike co-ops, there is no legal obstacle that would prevent such purchases. I should check with some of my brownstone-owning friends, but I haven’t heard of such a thing. There would be some security issues with owning a brownstone that sat vacant most of the year, so maybe that is why it hasn’t happened.
LikeLike
Thanks Y81. Sounds like NYC has escaped so far the fate of London too. I wonder if there are other reasons in addition to possible security issues that make brownstones less attractive. Thinking aloud here, where in London the townhouses/terraces in Chelsea, Kensington, etc have been bought up by non-residents and driven out locals. Or Venice which has a high number of vacation homes & elderly homeowners but proportionately fewer young families since it’s so expensive.
I obviously knew about co-ops and how they can restrict purchasers but didn’t put two & two together to realize that they have in essence saved NYC so far from some of the impact of absentee owners. Co-ops can go condo, right? I wonder if as the co-op residents age, maybe they will be more likely to cash out by turning them into condos.
The parallel here is that the older homeowners are against any restrictions/changes in regs that could in any way reduce their paper property gains. They imagine that they’ll cash out and make a mint.
Back to the London example – they’ve also been digging deep below the townhouses as there are minimal restrictions limiting such expansion. Putting in pools and various floors to expand the square footage. I wonder if you can’t do that with a brownstone so again it makes it less attractive.
LikeLike