No Sign of Distress in NYC's Annual Tax Assessments

NYC’s Department of Finance (DOF) has issued its annual tentative property tax assessment roll indicating that NYC-determined commercial property values have increased.

DOF’s tentative assessed values of office buildings rises 2.5% from FY 2024 to FY 2025, which is July through June, with taxable assessed values recording increases of 3.4% for trophy offices, 3% for Class A offices and 2.6% for Class B office space.

DOF Commissioner Preston Niblack said in a release that the tax roll is indicative of the recovery that the city’s real estate market has experienced over the past year.

The growth in the value of Class B office space in the DOF’s tax assessment is a reflection of the city’s method of calculating CRE values.

Unlike single-family homes, NYC doesn’t determine the value of commercial property based on recent sales. The city sets the value based on lagging operating income and expense reports building owners submit about their properties.

According to a report in Bloomberg, city officials have said that the net operating income information used in the city’s assessment for the fiscal year that started July 1 could be more than a year old.

Several cities use assessment methods that can limit the decline in tax collections from declining property values, according to the Tax Policy Center, an urban think tank backed by the Urban Institute and Brookings Institution.

New York uses net operating income submitted by owners of commercial buildings, rather than recent transaction prices, to determine assessed value, and phases in those changes over five years.

This is why NYC Comptroller Brad Landers’ high-profile argument against a “doom loop” in NYC last year found that even a decline of 40% of the market value of office properties over the next six years would result in only $1.1B less in property taxes by 2027, a 3% drop in the overall tax levy.

Because of the gradual nature of office valuations based on net operating income, the comptroller assumes that office market values would decrease 6% annually from fiscal 2025 through fiscal 2027.

Real estate taxes provide 30% of the tax revenue that supports NYC’s $109 billion budget. Offices account for an estimated 20% of the city’s property tax revenue.