Facing growing criticism over the lack of transparency and the growing use of limited liability companies — LLC's — in the city's luxury real estate market, the de Blasio administration implemented new disclosure requirements on shell companies buying or selling property here, the New York Times reported Monday.
More than half of New York condos above $5 million were sold to LLCs last year, noted the Times, which produced a series on how the high end condo market's "veil of secrecy" allowed foreigners to park money here that was obtained through criminal activities.
Under the new rules, implemented in May, the names of all members of shell companies, along with their taxpayer identification numbers, must be provided to the city's Finance Department, though not to the public.
The goal is to help the city find the owners who might be avoiding city income taxes by claiming this is not their primary residency, city officials noted. An estimated 89,000 condo and co-ops — valued at $20 billion based on city tax assessment data — are owned by people who claim to live in the city fewer than 183 days a year and can therefore avoid city income taxes, the Times said.
"There are a number of people who don't want to pay the extra taxes," said Lee Williams, a real estate broker with Rutenberg, noting that residency audits can be an additional and time intensive expense.
He believes that many foreign buyers and their lawyers will still figure out ways around the new rules.
"These are people who can afford the attorneys' fees and want their privacy," said Williams, who like many New York City brokers works with a "fair" number of foreign buyers.
Even though his clients are not necessarily high-end buyers since they tend to target the $500,000 to $4 million range, several of them have called him to find out how the new rules might "trickle down" and effect them.
"People got used to the mansion tax years ago, and they'll get used to this," Williams said.
But Marc Israel, president and chief counsel at MiT National Land Services, which works with underwriters, thought the new regulations might give some wealthy buyers pause.
"Do I think that hundreds of millions of dollars will leave New York and go to Indianapolis? No. But it will make people uneasy and think twice," he said. "Unfortunately, I think it puts a chill on the market."
Israel said there may be legitimate reasons for foreign investors "may not want the world to know what they own" or celebrities "may not want the world to know where they live," even if their names are only disclosed to city government.
He believes the rules are an "overreaction" to a few small actors.
"It seems to be swatting a fly with a sledgehammer," he said.