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Real Estate Board of New York Testimony before the New York City Planning Commission Theater Subdistrict Fund Text Amendment
September 7, 2016
The Real Estate Board of New York (REBNY) is a trade association with over 17,000 members comprised of owners, brokers, managers, lenders and other real estate professionals active in New York City.
REBNY strongly supports the purpose of the Special Theater Subdistrict. The relief provided to theater owners in the form of larger area to transfer their development rights is necessary to ease the burden of very restrictive land use controls placed on them by the City. While we are supportive of the proposal to streamline the administrative process for the transfer of development rights, we have very serious concerns about the proposed increase in the contribution price detailed in the Theater Subdistrict Text Amendment.
Over the past ten years, the City Planning Commission has adjusted the dollar per square foot contribution rate twice: going from $10 to $14.91 in 2006 and raising it again in 2011 to the current rate of $17.60. The Text Amendment recommends that the contribution amount be established at the higher of: twenty percent of the transferred development rights sales price or twenty percent of the psf of a “floor price”— established by a market study valuation equal to $347 psf and adjusted every three to five years.
Based on the most recent transaction from 2016, a twenty percent contribution to the Fund equals nearly $100 per square foot. Needless to say, we believe an increase from $17 to nearly $100 per square foot is onerous, excessive and unfair.
As we’ve witnessed with prior price adjustments, it appears that transactions decrease following modest levy increases. However, such a dramatic increase as is being proposed here will undoubtedly chill, perhaps even freeze, the market—resulting in few or any transactions. Further, the introduction of a floor price has the potential to drive up the effective contribution from a sale to more than twenty percent, especially during downturns in the market. This proposed model will ultimately harm the beneficiaries most in need of relief and undermine the purpose of the special district.
Although we recognize an increase in the contribution price should be adjusted every several years, REBNY firmly opposes both the “floor price” and the drastic increase in the proposed Text Amendment.
The City maintains that establishing a base price of twenty percent of the sales price reflects the underlying intent of the original fixed dollar amount. Based on previous increases in the contribution amount, we do not believe this to be the case. By establishing a fixed amount, it would appear that the City decided that a fairer and more practical approach was necessary to encourage transactions and would not unduly harm those properties burdened by the requirement to preserve these theaters as well as to continue to support the theater use.
REBNY examined 2,349 parcels in the Subdistrict to see how much the values of the parcels have increased from 2011, the last time the contribution fund was adjusted, and 2016. According to Department of Finance records, the total market value of the parcels in 2016 is $25,396,950,423; this is a 47 percent increase from 2011, when the total value of all the properties was $17,244,463,433. We recommend the current contribution fund amount of $17.60 be adjusted by 47 percent, the same amount the market values of all the properties in the Subdistrict have increased since 2011, which would be $25.87 psf.
Additionally, the proposed appraisal study that would facilitate a price adjustment to the floor price is impractical and does not offer a meaningful measure of relief to theater owners. The process will likely delay any transaction by more than a year and may not accurately reflect declining values following an economic downturn.
We respectfully ask that the Department consider this more reasonable increase to the contribution fee that is based on a fixed amount. An immediate 400% increase to the contribution amount, without any phase-in period, is drastic and unfair. We believe a 47% increase of the fixed dollar psf amount to be fair and consistent with the intent to provide relief for these properties whose uses are extremely restricted. The City should allow for a grace period for contracts entered into before the effective date of the change and closed within one year of the effective date, with any substantial increase in the rate phased in over an appropriate period of time.