Friday, February 29, 2008

Getting a Divorce? Don't Buy A Co-Op!

Urban Digs
by Christine Toes
February 29, 2008 at 12.21 PM
http://www.urbandigs.com/2008/02/getting_a_divorce_dont_buy_a_c.html

I seem to be living in co-op HELL these days. See my post on the nightmare of the proprietary lease renewal here.

My latest adventure was working with a customer who was going through a divorce. I didn't think it was a big deal that he didn't list alimony or child support payments on his financial statement because none had been determined yet. Word to the wise: Going through a divorce? Don't buy a co-op.

Co-ops are generally looking for:

- 20 - 25% down payment (sometimes more, rarely less)
- 18 months at a minimum and most likely 2 years of mortgage and maintenance payments left over in reserve in liquid assets (401Ks and IRAs do not count!) after the down payment (Sutton Place and Park/5th Ave buildings frequently look for much higher reserves - this at least gives you a ballpark requirement for most co-op buildings)
- A 25 - 28% debt to income ratio (if your payments are $3,000/month, you need to gross about $12,000/month)

So if you are going through a divorce where you may be required to pay alimony or child support in the future, a board is going to be very concerned about your future debt to income ratio, even if your current numbers are great.

In this case, my customer had 2 years of payments in reserve, he was putting more than 20% down on the apartment, he had a great job history, a credit score of 770 and had a 26% debt to income ratio.

After submitting the board package, the board's managing agent asked for my customers divorce settlement paperwork. I explained that the divorce wasn't final and no paperwork had been drawn up yet. We ended up having to get a letter from the wife stating that her husband wasn't going to have to pay alimony or child support. I felt terrible for my customer and can not imagine how awkward it must have been for him to ask his wife to do this for him.

But even the letter from the wife wasn't enough for this building. The board then asked my buyer to put a year's worth of maintenance payments ($11,000) into an escrow account for an indefinite period of time. Although the broker rumor mill is that other people in the building have asked for and received their escrow $ back after one year, there is really no absolute guarantee that the building will give it back until my buyer sells his apartment. Different buildings work their escrow agreements differently.

Toes says:

If you are going through a divorce, buy a condo!

If you can't buy a condo, be prepared to furnish any paperwork that has been drawn up, or be prepared to have an attorney or your soon to be ex draft a letter to the board about estimated (or better yet, maximum) alimony or child support payments.

If you are going through a divorce be prepared to offer a year or two of maintenance to be kept in an escrow account to make a co-op board feel comfortable with your future debt to income ratio and reserves.

If you buy a co-op when you are going through a divorce, you'd better be be overly qualified to buy the apartment! Don't submit joint bank statements because naturally the board will assume that only half of the funds in that account will end up being yours. As my mother always said, "a woman should always have her OWN MONEY!"

When buying a co-op, plan to bear your heart and soul to the co-op board. Nothing is sacred! NOTHING.




Toes,
My wife and I bought a co-op a year ago. We had great credit scores, solid job history, put 20% down, debt ratio under 25%, good amount of liquid left over and we had to put 2 years of maintenance into an escrow account. It is more common now with most buildings we looked at that were co-op.

Posted by Craig | February 29, 2008 2:08 PM

Christine,

Are you saying the co-op boards are enforcing income and reserve requirements more than they had in the past year or two? Are they reacting to the credit situation by being more diligent in enforcing their existing rules or is this how they have always treated divorcing people?

Posted by Pez | March 1, 2008 10:22 AM

Hi guys! It seems more and more common that boards are asking for one or two years of maintenance to be put in an escrow account. All you need is one person in the building who stops paying their maintenance for a board to become more strict with a buyer's financials.

I do feel that with the current credit environment and layoffs on wall street, those working in finance, especially those who make a lot of their income in bonus, are at a higher risk of a board turn down than they would have been before the credit crisis.

The issue of putting funds into escrow isn't that big of a deal if the board will give you a straight answer on how you get the funds BACK. Some boards will give the funds back to you in a year if you have successfully paid your maintenance on time and can show that your financial situation is better than it was when you purchased the apartment. Some boards make no promises that you will get the funds back until you move out! So you have to be careful about the wording of the actual escrow agreement. You should definitely have your real estate attorney review it.

Additionally, when I sell my co-op, I will add a clause to the contract that the buyer must be willing to put one year of maintenance into an escrow account should the board require it. There is nothing worse than a board approving someone conditional on them putting maintenance in escrow and having the buyer say "nope!" Then the buyer can back out of the deal and the seller is stuck starting all over again.

Posted by toes | March 2, 2008 7:42 PM

Sunday, February 24, 2008

Countering Above-Average Fees

The New York Times
February 24, 2008
By TERI KARUSH ROGERS
http://www.nytimes.com/2008/02/24/realestate/24cside.html

AS higher maintenance and common charges become the norm these days, higher-than-average monthly fees have lost some of their tendency to curdle the blood of buyers. But pricing these apartments can be more art than science.

Many brokers recommend discounting the sales price so that the total monthly outlays (mortgage plus maintenance) equal that of a comparable apartment with average maintenance.

Douglas Heddings, a senior vice president at Prudential Douglas Elliman, recently sold a three-bedroom duplex with a terrace in a full-service building on West 86th Street. A high underlying mortgage on the building pushed maintenance on the apartment to $3,700 a month, $1,200 to $1,700 higher than average, Mr. Heddings estimated.

“If we had a maintenance that was more in line, it would sell for well over $2 million,” he said.

After initially listing the apartment at just under $2 million, Mr. Heddings lowered the price to $1.795 million, He came up with that figure by subtracting the amount of financing that could be bought for $1,200 a month at 6 percent interest. “If your maintenance is $1,200 more than average, that’s worth $200,000 of buying power,” he said.

The apartment sold for $1.775 million after four months on the market.

Some agents recommend even deeper concessions. Richard Grossman, the executive director of downtown sales at Halstead Property, suggested tacking an extra 25 percent on to the discount to overcome the psychological hurdle he believes buyers must leap.

“People feel like they can control the amount of mortgage they have and how much they’re going to pay for it,” he explained. “They can pay off or refinance their mortgage, but they can’t control maintenance. They think it’s just going to get higher.”

Yet he and other brokers said that all other elements being equal, an apartment with somewhat-high maintenance doesn’t necessarily need to be offered as a fire sale.

An oversize maintenance is a flaw like any other, said Deanna Kory, a senior vice president at the Corcoran Group. And a single flaw — with the exception of a bad location — does not typically affect price.

If an apartment “is gorgeous and renovated and beautiful,” she said, “other considerations fly out the window almost completely.”

Maintenance Fees: Up, Up, Up

The New York Times
February 24, 2008
By TERI KARUSH ROGERS
http://www.nytimes.com/2008/02/24/realestate/24cov.html

NEW YORK CITY apartment owners can hardly be blamed for feeling nostalgic, and a little depressed, as they receive their increases in condominium common charges and co-op maintenance fees this year, for many, the fifth or sixth in a row.

In the old days, the fees rarely rose, and then usually by very little. Owners and prospective buyers, rationally or not, expected common charges and maintenance to remain about as constant as their mortgage payments. But six years ago, rising operating costs and property taxes put an end to that.

Average co-op maintenance fees in Manhattan last year were 30 percent higher than in 2002, compared with a 9 percent difference in the previous five-year interval, according to an analysis of residential sales data by Miller Samuel Inc., the Manhattan appraisal company. (Data for other boroughs was not available.) Condos had a 38 percent increase in combined common charges and real estate taxes in the most recent five-year comparison, versus 27 percent in the previous five-year period.

The old yardstick of $1 in maintenance for each square foot in the apartment has gone the way of the nickel candy bar. Doorman buildings in Manhattan now average $1.37 per square foot in maintenance fees or in the case of condos, real estate taxes and common charges, according to Miller Samuel. Buildings without a doorman average $1.22 per square foot.

Many brokers selling in Manhattan’s prime residential areas put the range higher — at $1.40 to $1.60 for a doorman building to more than $3 a square foot for ultraluxury buildings.

Surprisingly, the increases have not been met with the loud and bitter complaining that one would expect. “New York is just so strange right now — anytime you go out to dinner or to the dry cleaner, everything costs so much money that nobody flinches anymore,” said Dennis Mangone, a senior vice president at the Corcoran Group.

Mr. Mangone recently sold a $13 million co-op at 15 Gramercy Park North with maintenance charges of $13,000 a month. Even he struggled to comprehend the monthly sum: “I’m a simple guy from the Bronx, and nothing makes sense. But if they want to have room service at 2 in the morning, they can have it.”

This year, according to several large property managers, many ordinary buildings ended up with another round of 5 to 7 percent increases. As usual, the reasons were largely outside the control of the buildings or their managers.

“Co-ops control a very small percentage of their actual costs,” said John R. Janangelo, the president of Bellmarc Property Management. “About 85 percent you really have very little or no control over. Real estate taxes, insurance, payroll, fuel, water and sewer costs make up the vast majority of the budget. The leftover 10 or 15 percent you have some control over, like repair and maintenance costs, your service contracts, your building supplies, the administrative costs.”

Unfortunately, prices for nearly every item in the 85 percent category have surged in recent years.

Shortly after Sept. 11, property insurance rates shot up, even tripling in certain high-profile buildings. (Rates have begun drifting downward again, but not to previous levels.)

More significantly for many, an 18.5 percent increase in property tax rates in 2002 dealt an enormous blow to co-op budgets. Soaring property tax assessments, the byproduct of a roaring real estate market, magnified the impact.

“We saw increases of 25, 50, 75 percent in assessed values,” said Gary Ziprin, chief financial officer at Midboro Management. “Sometimes they even doubled.”

A modest reprieve arrived in the form of a 7 percent reduction in tax rates in 2007, but it was good for only one year. Assessed values continue to rise, albeit at a slower pace this year.

(It could be worse. Although assessments are way up, they still trail property values. To help shield owners from unaffordable tax increases in a rising market, the law requires that co-op and condo buildings be assessed as if they were rental buildings, resulting in far lower tax bills.)

As water and sewer costs have ratcheted upward, fuel costs have spiked. “The price is three and a half times higher than it was six years ago,” Mr. Ziprin said. Recent upticks have been especially brutal.

“Fuel has been a big, big issue,” said Lynn Whiting, the director of management for the Argo Corporation, a property manager based in Manhattan.

Consider the impact on a 35-unit Manhattan co-op managed by Argo. This year the building budgeted $2.50 for a gallon of fuel oil, compared with $1.50 for 2007.

“In this particular building, fuel expenses make up about 10 percent of their budget,” said Richard Apell, Argo’s controller. “That means about a 43 percent increase in fuel cost and a 4 percent increase in maintenance. I would say that’s pretty typical.”

Building boards can offset rising costs with money-raising measures. Flip taxes, often a small percentage of the sales price, paid by apartment owners when they sell, are an example.

“Maintenance has not mirrored operating costs in many well-run buildings,” said David Kuperberg, president of Cooper Square Realty, a property management company. “Flip taxes have been able to add income because of the large volume of sales over the past few years, and co-ops that have refinanced their mortgages have been able to, in many cases, offset operating costs with lower debt-service costs.”

In addition, many buildings have scrappily pursued other revenue-generating avenues, from transforming unused stairwells into storage spaces to charging buyers application fees of $1,000 to $2,500, said Michael Wolfe, president of Midboro Management.

Many co-op buildings with commercial space are benefiting from a recent change in the “80-20 rule,” the federal tax regulation that required them to earn at lease 80 percent of their gross income from tenant-shareholders and no more than 20 percent from commercial tenants. “A lot of buildings had to give sweetheart deals or rebates to their commercial tenants because they were limited to how much rent they could charge, “ said Mr. Ziprin, Midboro’s chief financial officer.

Now they may be able to stop giving rebates or to renegotiate the rent for their commercial space, raising it to market value. A building managed by Midboro canceled a $30,000 rebate payment in late December, just after the change in the law.

That maintenance and common charges may not fully reflect the spike in operating costs is small consolation to some owners who are handing over ever-larger sums each year.

Robert Alper, the vice president of Advanced Management Services in Brooklyn Heights, which manages buildings with some 7,000 apartments throughout Brooklyn, has observed a range of reactions.

“The more working-class buildings tend to have a renter mentality where prices only go up when the lease is renewed,” he said. “You really find people thinking there is a conspiracy — that if the building were well-managed, it couldn’t possibly need a 6 percent increase. But the better-educated the residents of the building, the more understanding they are of it.”

For anyone, though, it can be a rude shock. “People buy into an apartment, and they figure out how they will pay the monthly charges, and then all of a sudden the rules change, and they feel a degree of betrayal because the maintenance goes up more than they would expect,” said Anthony vanEyck Miller, a vice president at Bellmarc Realty. “I have known cases where people feel positively bitter.”

For many owners, rising property values have acted as a balm, for now.

“It would be one thing if costs were increasing and values of apartments were decreasing, but so far that hasn’t been the case,” said Mr. Janangelo of Bellmarc Property Management. “The one chart everybody looks at in the annual meeting is how many apartments sold last year and how much per share or square foot did they sell for.”

Deborah Colitti, 53, a real estate investor and property design consultant, barely flinched when her maintenance increased by 22 percent during the five years she owned her apartment. She paid $639,000 for her one-bedroom co-op on Greenwich Street in the West Village and recently sold it for $950,000 with the help of Tamir Shemesh, a managing director at Prudential Douglas Elliman.

“My maintenance was around $900 a month when I bought it in 2002, and it popped up to $1,100,” Ms. Colitti said. “That was like, ‘Oh!’ But I made almost 50 percent in five years.”

Real estate agents say that buyers, by and large, seem to have become as inured as many owners to the steady increases of the last few years

“ ‘I don’t want a high maintenance’ used to be a kind of mantra years ago,” said Elaine Clayman, a senior vice president at Brown Harris Stevens. “I just don’t find you hear people talk about maintenance the way they used to. I think income is so high right now — 25 percent of sales are to financial people and they’re making a huge amount of money even this year — that prices are dwarfing the prospect of higher maintenance. Once you’ve swallowed the pill about price per square foot, maintenance per square foot becomes secondary.”

Similarly, even higher-than-average maintenance fees aren’t necessarily the deal slayers they once were.

“You might get comments, but they’re still selling,” said Deanna Kory, a senior vice president at Corcoran. “It’s different from previous markets.”

Richard Grossman, the executive director for downtown sales at Halstead Property, offered an illustration: “Ten years ago, to buy a two-bedroom apartment that cost $1 million, you put down 25 percent and financed $750,000. Your payment at 6.5 percent interest for 30 years was $4,740 per month, and your maintenance was $1,500.

“Flash forward 10 years. The maintenance is maybe up to $2,200, but the price is $2 million. If you finance 75 percent at 6.5 percent, your mortgage payment is going to be $9,500 a month. The proportion of maintenance is so much less.”

Of course, whether a buyer will overlook a higher-than-average maintenance depends on why it’s high: financial mismanagement, land leases and pending lawsuits signal further outsized increases ahead. If maintenance is a little high — say, $1,500 for a Junior 4 (a large one-bedroom with a dining area) in a doorman building, or about $300 above average — “it’s not going to be the death knell it was 15 years ago,” Mr. Grossman said.

“Twenty percent above market is acceptable,” he added. “But a maintenance 50 percent above market would not be acceptable. People will start looking at that property with a different set of eyes.”

Last July, Tristan Louis and his wife, Amy Shertzer, bought a large two-bedroom co-op in a full-service doorman building on East 28th Street at Lexington Avenue. The 1,600-square-foot apartment came with a maintenance that was nearly twice as high as the neighborhood average.

After knocking 10 percent off the purchase price and scrutinizing the building’s finances, Mr. Louis concluded that “the finances were very solid” and that the maintenance had more to do with heating oil and labor costs for a fairly large staff. “I’m very happy, actually,” he said. “It’s one of those things where living in Manhattan has a premium, and living in a really nice building in Manhattan has a higher premium.”

Going forward, Mr. Louis, an Internet consultant, is hopeful that his maintenance will climb no faster than fees at other buildings.

And climb it almost certainly will.

“I think further increases in energy, water and labor are inevitable,” said Mr. Kuperberg of Cooper Square Realty. “The biggest are energy and taxes.”

Indeed, real estate taxes are set to continue their ascent, if at a slower pace than earlier this decade. The city’s finance commissioner, Martha E. Stark, recently projected that co-op and condo tax bills would increase by an average of 6.8 percent this year because of higher assessments.

Even if property values stagnate or drop (potentially softening assessments), real estate taxes could continue to rise if the city decides to replenish its beleaguered coffers by declining to extend last year’s 7 percent rate cut.

At the same time, property-tax appeals aren’t going as well as they used to. Mr. Wolfe of Midboro Management said that co-ops managed by his company used to get reductions of 20 to 25 percent. Of late, they have been offered just 5 to 10 percent.

Meanwhile, buildings that have so far avoided passing on all of the increase in operating costs may find themselves running short of options. Flip-tax revenue, for example, is expected to diminish in a slowing real estate market.

But just as falling interest rates may trigger a refinancing boom among homeowners, even co-ops that refinanced a few years ago may soon return to the well.

“One thing they have to be very careful about,” Mr. Wolfe said, “is putting a lot more debt on the building. If you’re paying the prepayment penalty and pulling out money for capital improvements, what happens when the end of the rainbow comes, and you have to refinance again when rates are up dramatically?”


Photographs by Tina Fineberg for The New York Times

SUM OF ITS PARTS At apartment buildings like the Park Royal, a co-op at 23 West 73rd Street, maintenance covers everything from security and wages for the staff to the elevators and the trash compactor.




Tina Fineberg for The New York Times

Deborah Colitti said the maintenance rose 22 percent on her West Village apartment, but she made almost 50 percent when she sold it.


Tina Fineberg for The New York Times

KEEPING TRACK At Midboro Management, Gary Ziprin and Michael Wolfe monitor costs. With them is Shana Altstaetter, Mr. Wolfe's assistant.

Monday, February 18, 2008

RENTAL RECRIMINATIONS

New York Post
By LOIS WEISS
February 18, 2008
http://www.nypost.com/seven/02182008/business/rental_recriminations_98136.htm

The Department of Finance is being forced back to the drawing board after the city's Law Department ordered the agency to recalculate the math it used in determining the value of rental apartments, co-ops and condos.

As a result of the order, the assessment notices sent out last month to residential owners are moot, and hundreds of thousands of "changes by notice" are expected to be mailed over the next few days.

It is expected that rental apartment assessments will go up, while co-ops and condos will get a break.

Sources tell The Post the snafu is the result of Finance Commissioner Martha Stark using two different calculations - called "gross rent multipliers" - to come up with January's tentative assessments for all apartments.

Long-established state law required that co-ops and condominiums be valued as if they were rental buildings.

However, this time around the Finance Dept. used one methodology to calculate the assessments of rental apartments and another to tabulate the value of condos and co-ops.

"We were using two and are now using one," Finance spokesman Owen Stone confirmed.

Industry groups protested the use of the GRM, which is a number multiplied by the total rent roll to come up with a "down and dirty" valuation figure.

Jack Freund from the Rent Stabilization Association said using the new calculation hurts low-income buildings with high operating expenses and low margins because the expenses don't get factored into the final number.

"They will get socked with a value that is higher than the income capitalization approach, and it is destructive of the city's affordable housing stock," Freund said.

As a result of the change, condo owners and residential multi-family property owners will be mailed a new assessment notice that will affect the taxes the owner pays. July 1 is the deadline for paying property taxes.


YEAR OF CHANGE: Condo owners in places like The Apthorp — which is converting from rentals — are expected to benefit from an assessment change.

Sunday, February 3, 2008

Who Pays the Most Taxes?

The New York Times
February 3, 2008
By JOSH BARBANEL
http://www.nytimes.com/2008/02/03/realestate/03cov.html

A TAX collector’s tour of Manhattan might rightfully begin in front of the neo-Georgian town house on East 63rd Street with stately stone pillars and a bowed brick front, a large flagpole protruding from a fourth-floor terrace. Once a private club and later a Catholic school, it is now the home of Ronald O. Perelman, the billionaire who made his fortune buying up troubled companies.

Mr. Perelman’s 40-foot-wide house, bought for about $5 million in 1983 (a few years before he famously took over Revlon), holds the distinction of being the highest-taxed single-family home in New York City. It is valued by the city’s tax assessors at $37.5 million, under new assessments released a few weeks ago, up 15 percent from the year before. The property taxes on it are likely to be more than $213,000 when the new tax bills arrive in July, based on current taxes rates.

While the taxes paid by wealthy town-house owners may seem high to ordinary mortals, they can be phased in over many years and usually do not reflect the current market values. The owners would pay even more if they were not protected by the same provisions of tax laws created to shield middle-class homeowners in the Bronx or co-op residents on Queens Boulevard from onerous tax increases. Without this circuit breaker, Mr. Perelman’s taxes could have been as high as $347,000.

Or a tax tour might reasonably begin instead at Rupert Murdoch’s opulent penthouse apartment, 20 rooms spread over three floors and 8,000 square feet (plus 4,000 square feet of terraces), at 834 Fifth Avenue (64th Street), one of grandest and most expensive co-op apartments in one of the most pedigreed buildings in the country.

One might think it would be one of the highest taxed as well. Mr. Murdoch paid $44 million for it three years ago, a record price at the time, and it is probably worth more today. However, Mr. Murdoch’s share of the co-op’s tax bill works out to only about $55,000, the equivalent of a ridiculously low $625 tax bill on a $500,000 home on any suburban street.

Assessors pay no attention to the sales prices of co-ops and treat prewar co-ops like Mr. Murdoch’s building as if they were aging rental buildings, driving down taxes far below those paid by the owners of condos and town houses.

The real tax losers among the rich are those who live in many of the newer buildings in town. The highest-taxed apartments are in the residential towers of the Time Warner Center, where owners on the upper floors can look out on the lower-taxed luxury co-ops lining the east and west sides of Central Park.

At Time Warner, and at other new condos, city records show that assessments are far higher than in prewar co-ops. Unlike other new buildings, the huge Time Warner project, built on public land, the former site of the New York Coliseum, did not qualify for a construction tax exemption to soften the blow.

David Martinez, a Mexican-born financier and art collector who assembled the largest apartment at the Time Warner Center by combining two penthouses on the 76th and 77th floors of the south tower, pays the most of any residential taxpayer in the city: $442,000.

Mr. Martinez paid $54.3 million for the 16,300 square feet of space in two apartments he combined, and resale prices in the building have been rising in the building ever since. But assessors are required to value the apartment as if it were in a rental building, and in each of the last three years the city’s Finance Department actually lowered Mr. Martinez’s assessment significantly. Mr. Martinez’s taxes for this coming year will fall 6 percent below the $468,858 he was billed this year.

Next is Stephen M. Ross, the chairman of Related Properties, which built the Time Warner Center. His full-floor 9,290-square-foot apartment atop the south tower, a few floors above Mr. Martinez’s duplex, is listed with taxes of nearly $241,000, with a 6 percent reduction from the year before.

But the situation is different across the way at 15 Central Park West, the new and much-celebrated project designed by Robert A. M. Stern, where the developers were able to obtain a 421-a tax exemption. The top-floor penthouse on the Central Park side of the building sold last summer for $42.4 million to Sanford I. Weill, the former chairman of Citicorp.

City records show that the tax bill for the apartment was about $76,000 in 2007, less than it might have been because the building’s developers, Arthur and William Lie Zeckendorf, got tax breaks.

To obtain these breaks, the Zeckendorfs bought housing certificates that went to help build low-income housing in other parts of the city.

Soon tax breaks like that will end because most of the abatement program is being phased out over the next few months in Manhattan. People who buy apartments in new buildings in the future may face sharply higher taxes.

Some interesting histories pop up on the top 10 list of highest property taxes paid.

After Mr. Perelman’s, the town house with the highest taxes is a 59-foot-wide house on East 81st Street, built to house a private art collection. Just down the street from the Metropolitan Museum, it was later used as a residence by the Catholic Church. Tax records list a corporate owner, but neighbors say that a Kuwait-born billionaire has maintained a home there for many years. The house is valued by the taxing authorities at $32.8 million, 13 percent below Mr. Perelman’s house, but its property tax bill is almost as high, at $211,000.

The list includes the house on East 92nd Street sold by Woody Allen for $24.5 million in 2004 ($153,000), as well as the Guccione mansion on East 67th Street, which sold for $45.4 million in 2006 ($151,000). Renamed the Milbank mansion, it is back on the market at an asking price of $59 million.

No. 4 is the house on East 71st Street owned by Jeffrey Epstein, a billionaire financier who frequently describes it as the largest private home in Manhattan. Mr. Epstein is said to have bought the house from Leslie Wexner, the chief executive of Limited Brands, about 10 years ago, though the transaction does not appear in online city property records. Its taxes are $177,000.

But No. 7 on the list is a house valued by the city at only $18.4 million on East 65th Street. The former home of the American Federation of Arts, the house was bought in June 2006 by Jane Holzer, the former Andy Warhol star known as Baby Jane. She now lists her occupation on campaign finance filings (for Senator Hillary Rodham Clinton in 2006 and for Senator Barak Obama in 2007) as being self-employed in real estate.

Because Ms. Holzer converted the 28-foot-wide house from offices to a one-family home, she was unable to phase in property tax increases the way most other homeowners do. Instead, she ended up paying taxes based on the house’s full market value last year. This year the taxes are likely to rise to $157,000.

Many experts on the tax system agree that it is flawed and often inequitable, but they have been unable to develop alternatives with broad-based support. That is because the current system was created by the State Legislature to protect various interest groups, from middle-class homeowners outside Manhattan to real estate developers.

Homeowners, even billionaires like Mr. Perelman, can phase in assessment increases over many years (at no more than 6 percent a year or 25 percent over five years). With market values rising rapidly, Mr. Perelman now pays only about 61 percent of what he would pay if the full market value were used.

This works out to about 57 cents for every $100 of market value, compared with about $2 in Hempstead, $1.60 in Scarsdale, or $1 in Great Neck, N.Y., according to a regional tax analysis by The New York Times in 2006.

And because of laws that tie the value of older co-ops to that of older rental buildings, Mr. Murdoch and his neighbors at 834 Fifth Avenue pay far less than they would if they lived in a newly constructed condominium.

The market value for tax purposes of the entire building at 834 Fifth, designed by Rosario Candela, is only $30 million, according to assessment records, even though the building has 24 apartments, many of them sprawling duplexes worth many millions. This is less than Mr. Murdoch paid for his single apartment. (It is even less than the second-highest sale in the building, $33.4 million last November for a duplex owned by Loida N. Lewis.)

Mr. Murdoch’s $55,000 share of the building’s taxes, based upon his apartment’s square footage, works out to about 12 cents for every $100 he spent on his $44 million purchase.

This includes the savings from a special abatement provided by the Legislature for co-op and condo owners a decade ago, because of complaints that their taxes were too high.

“It is an unequal and incomprehensible system,” said Paul Korngold, a property tax lawyer.

But do these taxes really matter to buyers of real estate in this price range?

Robert A. Haberman, a senior vice president at Prudential Douglas Elliman who specializes in town houses, said the wealthiest buyers never flinch at New York taxes.

“When people start buying a town house in the $30 million range and up, they couldn’t care less about taxes,” he said. “You tell them, you give them the information, but I never had a complaint about taxes.”


Photographs by Tina Fineberg and Kate Glicksberg for The New York Times

A CRAZY QUILT OF TAX LAWS The same provisions created to shield middle-class homeowners in the Bronx or co-op residents on Queens Boulevard from onerous tax increases also protect the billionaire owners of opulent town houses and sprawling triplexes.