Welcome to Pullman & Comley's Real Estate Newsletter, Groundbreaking News. Written by our team of attorneys, you'll find articles that highlight hot topics and developments spanning the fields of real estate, land use and property valuation.
In this Fall 2018 Issue:
- Coming Soon: The Port of Naugatuck
- Don't Bury Malls Too Quickly
- We are Pleased to Welcome Joshua S. Cole to Our Firm
- Demystifying the New York Mortgage Recording Tax
- Multifamily Development is a Hot Topic in Central Connecticut
- Dealing with a Pending Tax Appeal
- Watch out for Connecticut's Controlling Interest Transfer Tax
No, the title is not a mistake. The Borough of Naugatuck, under the leadership of Mayor Pete Hess, is moving forward with a transformational project which will turn the vacant and contaminated former Uniroyal Chemical site into Connecticut’s first inland port. An inland port is a rail or a barge terminal that is linked to a maritime terminal with regular inland transport services. An inland port has a level of integration with the maritime terminal and supports a more efficient access to the inland market both for inbound and outbound traffic. It generally includes related logistical activities linked with the terminal, such as distribution centers, depots for containers, warehouses and logistical service providers. Inland ports have begun to take hold in this country because of the increase in international trade, the increasing congestion and resulting inefficiencies surrounding our older maritime ports, and a need to move cargo more quickly to and from inland markets.
The BSNF Intermodal and Logistics Park in Kansas City, Kansas is an example of an inland port that has opened in the United States. It is already processing 500,000 cargo containers per year and is projected to increase its annual container capacity to 1.5 million upon full build out. As significant, these activities serve as an enormous economic development catalyst. The Kansas City Inland Port is expected to attract 100 million square feet of new industrial development to that area.
The Uniroyal site is ideal because it is located at the southern end of the Pan-Am Railway network, which runs throughout New England to Canada. Products from New England and Canadian manufacturers, as well as cargo from New England and Canadian maritime ports, can be transported by rail to the Naugatuck intermodal facility for distribution to the Tri-State region, resulting in an enormous savings compared to truck transportation.
Current plans for the site include a new railroad spur for loading and unloading cargo, a customs building to be operated in conjunction with the Connecticut Port Authority, a state-of-the-art terminal and distribution warehouses.
Pullman & Comley lawyers are assisting the Borough in all legal issues related to the project, including complex environmental, real estate and land use matters. Currently, we are structuring a comprehensive Purchase and Sales Agreement and a Remediation Agreement with Lanxess, the owner of the 83-acre site, and negotiating a viable remediation plan and Stewardship Permit with the State of Connecticut Department of Energy and Environmental Protection. Firm lawyers are also drafting long-term leases with warehouse distributors and operators of the terminal.
The Port of Naugatuck will be one of the most significant Brownfield redevelopment projects in the history of the State and an enormous economic development catalyst for the Naugatuck Valley and beyond.
With what is expected to be a record amount of retail square footage being relinquished or subleased by retail tenants this year, Lauren Thomas of JLL reports that all owners are thinking very creatively. “The sky is the limit of what you can do. You don’t have to fill retail with retail anymore,” said Ms. Thomas.
What will replace retail space? Multifamily and hospitality uses were talked about extensively at the annual International Council of Shopping Centers ReCon meeting in Las Vegas at the end of May. For example, Simon Properties plans to develop at least five Marriott hotels at its malls. Another mall owner, PRIET, is thinking about 7,000 residential and 3,000 hotel units down the road. It’s a brave new retail world out there as the traditional shopping center model drops away and the market place seeks to create centers “where people can live, work, shop and dine;” offers the PRIET CEO, Joseph Coradino.
These developments implicate a number of significant real estate issues such as land use approvals and lender consents. Given the more stringent requirements of building and life safety codes applicable to residential and hospitality uses, modification of mall structures may also require investigation.
From a property tax perspective, declining retail values over the years may actually result in pressures on assessments if these new uses are installed and click.
Pullman & Comley’s Real Estate and Land Use Department attorneys can offer insights on issues raised in this article. Pullman & Comley Property Tax Valuation Department members can assist with valuation issues associated with the repositioning of malls.
Josh has joined the firm as Counsel in the Real Estate and Commercial Finance practices. He has more than 15 years of experience handling all types of real estate matters, both commercial and residential, including acquisitions, dispositions, leasing and commercial finance transactions. Josh represents borrowers and lenders in secured and unsecured financing transactions including mortgage loans, term loans, lines of credit, asset based revolving credit facilities, mezzanine loans, bond financings, loan purchases and loan sales.
He is a member of the Connecticut Bar Association, the New York State Bar Association’s Real Property Law Section, the Fairfield County Commercial Brokers Network, the Westchester County Bar Association, the Westchester County Bankers Association and the Real Estate Finance Association of Connecticut. Josh is actively involved in his community and currently serves as a member of the Board of Selectmen, Town of Wilton and was previously the chairman of the Zoning Board of Appeals. He is admitted to the state and federal courts of Connecticut and New York; the U.S. District Court for the Southern District of New York, and the U.S. District Court for the Eastern District of New York. He received his undergraduate degree, magna cum laude, from Sacred Heart University and a J.D. from Syracuse University College of Law.
To reach Josh call 203.330.2217 or email firstname.lastname@example.org.
For those who are not regularly involved with mortgage financing on properties in New York, the New York mortgage recording tax can be a foreign and sometimes confusing topic for consideration in a New York mortgage loan transaction.
In Connecticut and many other states, there is no mortgage recording tax imposed when offering a mortgage for recording. New York State, however, imposes an excise tax for the privilege of recording a mortgage. The New York mortgage recording tax is comprised of several distinct and separate taxes with rates ranging from $0.25 to $1.75 for each $100 of indebtedness secured by the mortgage being offered for recording. The total mortgage recording tax payable for any particular mortgage offered for recording depends upon which county the property is located in.
Of the several taxes that can collectively constitute the mortgage recording tax due for any particular mortgage, there are generally three separate taxes that will apply to each mortgage being offered for recording: (i) a basic tax of $0.50 for each $100 of indebtedness, pursuant to Section 253(1) of the New York Tax Law; (ii) a special additional tax of $0.25 for each $100 of indebtedness, pursuant to Section 253(1-a)(a) of the New York Tax Law; and (iii) an additional tax of $0.25 (or $0.30 if the property securing the mortgage is located within the “Metropolitan Commuter Transportation District”) for each $100 of indebtedness, imposed by Section 253(2)(a) of the New York Tax Law. The “Metropolitan Commuter Transportation District” includes New York City and the counties of Nassau, Suffolk, Westchester, Putnam, Dutchess, Rockland and Orange.
In addition to the three taxes discussed above, there can also be other additional taxes imposed by local governments, specific to the county, town or city in which the mortgaged property is located. As an example, Westchester County imposes an additional tax of $0.25 for each $100 of indebtedness, pursuant to Section 253-g of the New York Tax Law. Accordingly, total mortgage recording tax in Westchester County is $1.30 for each $100 of indebtedness, or 1.30%, with the exception of property located in the City of Yonkers (for which there is also an additional $0.50 for each $100 of indebtedness, resulting in total mortgage recording tax for property located in the City of Yonkers of 1.80%.)
When refinancing a mortgage loan on property in New York, it is important to carefully structure the transaction to minimize the amount of mortgage tax due. In New York, when a mortgage loan is refinanced with a new lender it is typical (if the existing lender agrees to do so) for the existing lender to assign the existing mortgage to the new lender, in order to save mortgage recording tax. In that situation, the borrower can get “credit” for the mortgage tax previously paid which is attributable to the current outstanding principal balance of the mortgage being assigned, and will then only have to pay mortgage tax on the amount of “new money”.
For example, assume a borrower has a mortgage with Bank A with an existing principal balance of $1,000,000. Borrower has already paid mortgage tax on the $1,000,000 when the Bank A mortgage was recorded. That borrower now decides to refinance their mortgage loan with Bank B and Bank B agrees to give the borrower an additional $500,000 to cash out equity in the property. The borrower can ask Bank A to assign their mortgage to Bank B, and the borrower would then only have to pay mortgage recording tax on $500,000 (the difference between the amount of the new mortgage from Bank B and the outstanding principal balance of the Bank A mortgage assigned to Bank B.
Pullman & Comley real estate attorney Joshua S. Cole has practiced in both Connecticut and New York for over fifteen years, and can offer insight and solutions when structuring New York mortgage loan transactions in order to minimize the amount of New York mortgage recording tax payable on a particular transaction.
Joshua S. Cole at 203.330.2217 or email@example.com will reply to inquiries about this matter.
If Rip Van Winkle went to sleep in 2008 only to be aroused from his slumber within the last year or so, he would be quite amazed at the boom in multifamily housing is taking place in Hartford’s central business district ("CBD") and its surrounding suburbs.
Hartford CBD projects seem to appeal to singles and empty nesters interested in access to the downtown’s art, cultural and restaurant resources – not to mention the new Yard Goats baseball stadium.
Suburban apartments, according to Gregory Seay’s article in the April 23, 2018 Hartford Business Journal, lend themselves to these groups as well as to the young millennials “who covet the financial and personal flexibility (of) renting rather than owning.”
Mr. Seay’s article also discusses apartments planned or under construction in Suffield, Glastonbury, Bloomfield, Windsor Locks, Windsor and West Hartford. Among the job drivers attracting occupants to these new units are the MGM Resorts Casino which opened in Springfield in September, the Serta Simmons mattress plant moving from Agawam to Windsor Locks and existing finance, insurance and real estate employers. The new Springfield to New Haven railroad line is yet another amenity which is bringing residents to these Connecticut communities, many of which cluster along or have easy access to I-91.
Members of Pullman & Comley's Property Tax and Valuation Department are occasionally advised by clients for whom they have filed tax appeals that the subject property is subject to a purchase and sale agreement (PSA). When we inquire as to how the pending tax appeal is addressed in the PSA, we receive a number of answers, many of which are disconcerting. For example, it is not unusual to learn that the tax appeal is not mentioned at all.
Sometimes we are told that the case is referred to in the “pending litigation section” of the PSA as a disclosure to the potential buyer - without anything more.
In only a minority of situations does the client retain the right to improve the sale price if the tax appeal is resolved prior to the closing of title. Similarly, too few clients protect their rights to tax refunds which may be due for tax years in which they paid taxes following the resolution of the case.
A take-away from these experiences is that it may very well be worthwhile to consult with the member(s) of our department with whom you are working on your tax appeal before the PSA is signed to maximize your financial benefit from this litigation.
Feel free to call any member of the Pullman & Comley Property Tax Valuation Department to discuss this question further.
If you buy or sell real property in Connecticut, you're familiar with Connecticut's Real Estate Conveyance Tax. The deed can't be recorded unless conveyance tax is paid, so you can't overlook the tax.
The lesser-known Controlling Interest Transfer Tax (CITT) may apply to transfer of a "controlling interest" in an entity that "directly or indirectly" owns real property valued at $2,000 or more. Transfer documents don't have to be recorded; because no recording officer demands payment, the CITT is easily disregarded. If you're selling an entity with multiple tiers of subsidiaries, lower-tier subsidiaries may be "out of view," but if they own real property, CITT will be payable on the sale.
Controlling interest in property-owning entity: Corporation F owns Parcel X. Shareholder S transfers 50.1% of F's shares to Buyer B. For CITT purposes, "controlling interest" in a corporation means more than 50% of the "combined voting power of all classes of stock."
The CITT is 1.11% of the "actual true and present value" of Parcel X. If F had owned a half-interest in Parcel X, CITT would have been imposed on the value of the half-interest, but if any controlling interest in the property-owning entity is transferred, CITT is imposed on the total value of the property.
If F wanted to sell only a fractional interest in Parcel X, F could deed the fractional interest to its wholly-owned subsidiary. That transfer is exempt from conveyance tax, and ordinarily has no income tax consequences. When the subsidiary sells its fractional interest, CITT would be imposed on the value of the fractional interest.
Controlling interest in entity that indirectly owns property: Company J owns 40% of Company K, and K owns Parcel X. Member M sells a 60% (controlling) interest in J. Because control of the direct owner of the property (K) was not transferred, CITT is imposed on the "applicable ownership percentage" in Parcel X indirectly owned by J. Here, the percentage is 40% (J's stake in K), so CITT is imposed on 40% of the value of Parcel X.
For CITT purposes, "controlling interest" in an LLC or other, non-corporate entity means more than 50% of the "capital, profits or beneficial interest." An interest holder's percentages for these interests may not be identical, or may change over time.
The rate differential: Conveyance tax consists of a "State" portion, which is either 0.75% or 1.25% depending on the type of property, and a "local" portion, which ranges from 0.25% to 0.5% depending on location. The aggregate rate applicable to a sale of improved, non-residential property in most larger cities is 1.75%. The difference between this aggregate rate and the 1.11% CITT rate is important.