Southampton Town assessors have valued the Bulova Watchcase property at $38.5 million, and it’s expected to drop. Photo by Michael Heller.
By Stephen J. Kotz
As the Watchcase condominiums continue to take shape, transforming the once derelict Bulova building on Division Street in Sag Harbor into luxury housing, one might think the village’s tax base will be getting a huge boost soon.
And why not, with its 63 units being offered at prices ranging from $1 million for a small apartment to more than $10 million for one of its fourth-floor penthouses. So, when the last dab of touch-up paint is applied to the last piece of trim, will the development add $100 million, $150 million, or maybe even $200 million to the village’s $2.01 billion tax base?
Try $46 million—the amount the construction site was valued at the end of 2014—and dropping.
The preliminary assessment for 2015 has already reduced the property’s value to $38.5 million, and Southampton Assessor Lisa Goree expects the value to drop even more, to something closer to $31 million or $32 million, once all the units are sold.
“Because they are condos, they are not valued the same as residential property,” she said. “I know these units are selling for millions of dollars. However, real property law says we have to assess them as income property—what they would rent for.”
Assuming the village’s tax rate remains unchanged at about $2.79 per $1,000 of assessed valuation, the Watchcase property will add only about $107,000 to the village’s coffers this year. Similarly, at last year’s tax rate of $5.22, the development would pay about $201,000 in school taxes. Those amounts could be tripled, or even quadrupled, if the units were assessed the same way a single-family home across the street is.
“A lot of people thought it was going to be a cash cow for us—and the school district,” said Sag Harbor Village Trustee Ed Deyermond. “But it’s not.”
And Mr. Deyermond should know. He served as an assessor in East Hampton Town for years before moving to Southampton Town, where he oversaw a townwide reassessment, and served as assessor for 16 years in two separate stints.
The fly in the ointment is Chapter 581 of the New York State Real Property Law, he said.
“If you have a one-to-three-family home, it is valued using the market approach,” Mr. Deyermond said. “So if it sells for $1 million, at full assessment, you should be assessed at or near $1 million.”
But the state law requires that assessors apply a different rule of thumb to condominiums, cooperatives, townhouses, and other similar property. “The income approach mandates—and courts have consistently upheld this—that you have to consider what those units would rent for, for the month, the year, in season and out of season,” he said.
The formula allows a condo owner to further reduce his assessment by deducting expenses for insurance, maintenance and repairs. Furthermore, it factors in the cost to the owner of tying up his money in the investment, which would typically reduce the value even more.
The same formula is applied to other condos in the village, including the Harbor Close condos on Long Island Avenue and the Villas and new Harbor’s Edge condos on West Water Street.
Don’t expect things to change soon, said State Assemblyman Fred W. Thiele Jr. “There have been efforts to change the law, but they have never gotten off the ground,” he said. “Historically, the real estate lobby has lobbied really hard to keep it this way.”
Mr. Deyermond said he realizes the town’s hands were tied in how it ultimately assessed the property, but he questioned whether it could have phased in the change, from when the property was valued as a single commercial development owned by Cape Advisors to when it was divvied up into condo units last year.
“We argued that it could have been done over two to four years—until all the units are sold,” Mr. Deyermond said.
Not so, said Ms. Goree. “Once developer submits its condo plan to the state attorney general’s office and a percentage of them sell, we have to make the switch,” she said.
The $38.5 million valuation she came up with was a third higher than the amount the developer’s appraiser submitted, about $26 million, she said.
Cee Scott Brown, a broker with Corcoran Real Estate, who represents Watchcase, said this week that 72 percent of the units have been sold and he expects the rest to go fairly quickly, as the weather improves and construction nears an end.
“It has been a huge financial headache,” Mr. Deyermond said of the development, saying that construction work has left Washington, Church, and Sage Streets in serious disrepair.
But David Kronman, a partner in Cape Advisors, said the developers would repair any damage construction work caused to neighboring streets, and he pointed out that the developers had nothing to say about how the property was valued.
“I don’t think the project was approved because it would bring a windfall of tax revenue to the village,” he said. “The project was approved because it was reasonable and sensitive. We’re saving a historic building that was falling apart for years.”