Sites

How a $238 million NY penthouse may make a longshot tax on the rich a reality

Luxury
220-Central-Park-South-NY-Times
220 Central Park South, where an unfinished four-story, 24,000-square-foot penthouse recently sold for $238 million, in Manhattan. That single deal seemingly set the stage for New York’s sudden embrace of a so-called pied-à-terre tax. Jeenah Moon/The New York Times

NEW YORK — The road to the nation’s first tax on superluxury second homes may well have begun at 220 Central Park South, where a four-story 24,000-square-foot penthouse, unfinished and unfurnished, recently sold for $238 million.

That deal — the most expensive residential sale in US history — seemingly set the stage for New York’s sudden embrace of a so-called pied-à-terre tax, a potential windfall for the city’s subway system and a small, subtle victory for those who believe Manhattan has become an unfettered playground for the rich.

If the measure is passed and signed into law, New York will join cosmopolitan hubs like Paris, Singapore. and Vancouver, which already charge fees on secondary or part-time homes. It would also be a prime example of how headlines and hard times can sometimes intersect with a political moment, giving an outré idea a chance to become policy.

“When over 6 million New Yorkers are dealing with a crumbling and dysfunctional subway and the crisis in public housing, to see this opulence in the sky by someone who doesn’t even live here, struck a chord,” the City Council speaker, Corey Johnson, said.

The tax seems to be riding on a unique crest and confluence of several factors, including shaky tax revenue, uncertainty over the prospects for legal marijuana, and a general anti-rich, anti-corporate mood exemplified by the recent collapse of the Amazon deal in Queens.

The outlook for the tax is good: Both houses of the state Legislature and Governor Andrew M. Cuomo support the proposal. Under the plan, owners of second homes worth more than $5 million would be subject to a sliding tax surcharge and fees; homes that are valued more will incur higher fees and taxes.

The financial impact could be significant. New York City has about 75,000 pieds-à-terre, according to a city estimate in 2017. Of those, about 5,400 residences were sold for $5 million or more, the threshold where the proposed pied-à-terre tax would begin to kick in.

Cuomo estimated on Monday that the state could raise $9 billion in bonds off that revenue that would help fund repairs for the city’s troubled subway system. But the philosophical and psychological impact might be even more profound, offering a concrete, almost classist, rebuke to ultra-wealthy apartment buyers who sojourn in the city, enjoying its services and amenities, but often pay few taxes.

“There’s a growing realization with Billionaires’ Row, and the super-talls, that a lot of these homes are vacant and viewed as sky-high security deposit boxes for very wealthy foreigners,” said state Senator Brad Hoylman, the Manhattan Democrat who has sponsored the tax legislation for several years. And, he said, “because of our system of laws, because of our fire and police, because we are a secure financial investment, they should be charged for that.”

The speed with which the pied-à-terre tax has become politically popular is also remarkable: The idea was floated by a liberal think tank and lawmakers in New York in 2014, but had repeatedly been shunted to death in committee by Republicans leading Albany’s upper chamber, and quietly ignored by Democrats leading the Assembly.

The blue wave of November, however, changed the balance of power in Albany, with Democrats taking both houses of the Legislature, and unleashing a phalanx of progressives on the capital, part of a left-wing movement bent on correcting income inequality and pushing for higher taxes on the rich.

Liberal supporters of the tax had long pointed to a range of problems associated with pieds-à-terre, including encouraging real estate speculation, inflating property values and associated taxes and speeding up gentrification in once-affordable neighborhoods.

Assemblywoman Deborah Glick, a Manhattan Democrat who carries the bill in that chamber, said longtime residents “are finding it hard to stay.”

“They made districts and parts of New York very livable and very attractive,” she said. “And they are driven out by people that don’t even want to live here.”

The bill’s sudden political momentum blindsided real estate executives, who fear the tax could irreparably damage the city’s high-end market, which is already experiencing a downturn.

Jonathan J. Miller, chief executive of the real estate appraisal firm Miller Samuel, said the market for high-end co-op and condo purchases has steadily declined since 2016, according to data provided by his firm. In 2016, 1,087 units sold for more than $5 million but less than $25 million. In 2017, the number dropped slightly to 1,075 units and decreased further to 849 units in 2018.

John H. Banks, president of the Real Estate Board of New York, the powerful trade group, said that “nobody has done any analytics as to the impact on the broader economy” as well as the local real estate market.

Others, including Cuomo, disagree that the tax would scare away potential homeowners.

“If they have money to buy a $5 million apartment, which is not their prime residence, and it’s their little Manhattan getaway, they can afford the tax,” Cuomo said in a radio interview Tuesday. “We need to fund the MTA.”

Indeed, with the state facing a shortfall in income-tax receipts, the pied-à-terre tax has become an attractive option, especially as other possibilities — marijuana legalization and congestion pricing — may stall.

The real issue is that New York City needs to fix its property tax system, said Martha E. Stark, a professor at New York University’s Robert F. Wagner Graduate School of Public Service, and the city’s former finance commissioner.

Under the city’s antiquated property tax system, co-ops and condos are not taxed at their true market value, but on the income generated by similar rental buildings.

The $238 million apartment, purchased by the Chicago-based hedge fund billionaire Kenneth C. Griffin, is currently valued at $9.4 million, according to the Department of Finance. That comes out to less than 4 percent of the sales price. A property valued at that amount would pay approximately $516,000 in taxes per year, Stark said.

If the property were taxed at the same rate as some single-family homes in Queens or Staten Island, the penthouse would produce around $2.4 million in property taxes.

Subscribe to the Globe’s free real estate newsletter — our weekly digest on buying, selling, and design — at pages.email.bostonglobe.com/AddressSignUp. Follow us on Facebook and Twitter @globehomes.