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Expecting a Tax Windfall? Guess Again.

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Heller_Watchcase Holiday House White Party 6-28-14_2000_LR

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.”


Corcoran Records Second Quarter Sales Increase

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The Corcoran Group has reported sales increases for the second quarter of 2014 and noted a persistent interest in the East End from buyers of both full-year residences and vacation homes.

On the South Fork, Corcoran reported a total sales increase of 24 percent over the same period a year ago, with 603 properties being sold as opposed to the 487 sold last year. Total sales volume increased 19 percent to $1.046 billion despite a 4-percent decrease in the average sale price and a 3-percent dip in the median price. Individually, East Quogue and Sag Harbor were the strongest performers, with respective sales increases of 56 percent and 44 percent.

The North Fork reported greater increases with closed sales rising by 50 percent, with 120 properties exchanging hands as compared to 80 in the second quarter of 2013. Sales volume boomed, increasing by 102 percent, while the average sale price rose by 35 percent, and median sale prices increased by 1 percent. Southold was the most prolific area on the North Fork, seeing a 100 percent increase in sales from last year.

Elsewhere, inventory saw a decline of 15 percent, to 6,862 units, the lowest level in five years. This continues a troubling trend, as demand continues to outpace supply throughout the East End.

Sagaponack Leads Pack of Nation’s Most Expensive Small Towns

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By Georgia Suter

Despite declining home sale values throughout most of the country, the East End’s small village of Sagaponack has weathered the recession remarkably well. Last week’s Business Week magazine identified the historic, ocean-side area as being the most expensive in the country, with median home sale prices in 2009 hitting $4,421,458, compared to $174,000 throughout the rest of the nation.

Evan Kulman, Senior Vice President of Corcoran Real Estate Group, commented on the area’s enduring real estate and land value, noting that his company is recently seeing a lot of activity in the sleepy village — numerous homes are expected to hit the market in the next few months. Currently, Corcoran Real Estate Group has a pre-construction property on Gibson Lane in Sagaponack that speaks to the area’s pricey nature. At 7,500 square feet with ocean views, the property hasn’t yet broken ground, but it’s currently listed at $8,450,000. Kulman anticipates that as soon as construction begins on the project, demand for the parcel may increase and the value may likely rise.

Business Week is quick to narrow in on profiling the type of residents that are drawn to the small village– chairman of the Renco Group Ira Rennert being one wealthy buyer that built a mansion in Sagaponack, on 63 acres, in 2004. That year, the New York Times estimated the worth of his 29-bedroom home, called “Fair Field,” to be more than $170 million. Many of the area’s home buyers hail from Manhattan, and the recent Wall Street bonus season has been seen to have trickled favorably down to the East End, bringing new clients and instigating a bit of a buying surge. Kulman notes that the majority of their market comes from the New York City buyers, and that most of their clients are Manhattan residents.

When asked about the steady attraction that Sagaponack holds, compared to other surrounding areas of the East End , Kulman comments on the small size of the village, which, in turn, means fewer homes that are more exclusive. “Many homes don’t trade often,” he states of the property in the area, and the property is continually sought after “because of the beauty of Sagaponack and because of it being understated.” The small village, up until the 1970s, abounded with potato fields and has been described as having had a laid-back community of farmers and writers such as Kurt Vonnegut.

Beate Moore, the Senior Vice President of Sotheby’s Realty, shares similar observations on Sagaponack’s strong real estate market, stating that she’s recently seen closings that reflect the village’s pricey rank. Moore noted that Sotheby’s recently closed a property on Gibson Lane for $19 million. Another listing closed on Hedges Lane in Sagaponack for $14 million in the past couple months.

“There’s been a huge pick up in activity,” she stated. Of the area’s rebound, Moore added “There were eight sales in December, and December is usually one of our slowest months, so it was a nice surprise.”  Additionally, Sotheby’s recently sold a piece of land shy of one acre, with nothing built on it, for $3 million. “Sagaponack is highly thought upon,” Moore said.

Business Week’s real estate summary points out that the small village of Sagaponack isn’t the only thriving housing market on the East End. Long Island’s Nassau and Suffolk County accounted for more than half of the fifty most expensive small towns in America, with Water Mill coming in at number six– its median home sale price being $2,238,676, and Bridgehampton coming in at number eight with its median at $2,081,717. Also representing the East End in Business Week’s survey of the 50 Most Expensive Towns of the United States were Wainscott, which ranked at 13th place, Quogue at 30th place, East Hampton North at 42nd place and North Haven at 48th place.

Advertising in Real Estate

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With spring now in full swing, and summer fast approaching, the real estate market seems to be picking up according to local brokers. But the way real estate agents are spending their advertising dollars may have changed along with the recent shift in the economy.
Although the sale of homes are not nearly reaching the numbers they were just a year ago, that isn’t necessarily a sign for the future. With creative advertising and a combination of mediums, brokers believe summer may prove a profitable season, once again, for real estate.
Whether it’s reading the paper over a cup of Joe at a local café or relaxing at home with a laptop, real estate industry professionals are looking for the best way to spend their money — and using an array of advertising techniques seems to be the way to go.
Mala Sander, Senior Vice President and Associate Broker of Corcoran Real Estate in Sag Harbor, said she finds a lot of leads are coming from the Internet.
“Search optimization has increased and buyers are able to look at all the photography online,” said Sander who added that Internet is instant, and buyers are able to call agents after looking online at different properties.
“But I also advertise in print,” she said, “Some people just want to be able to look at the paper over a cup of coffee.”
Sander said with weekly newspapers and especially agency printed catalogues, which have longer lead times, it can be hard keep information about properties up to date. Sander said the success of a medium also depends on the circumstance and the buyer. She added that some people, for example, prefer seeing ads in print.
“You can only Blackberry so much.”
According to Sander, “the ante is up,” and real estate agents need to get more competitive in the way they are advertising.
When putting a home on the market, Sander said the number one thing to consider is that the home is priced correctly and the listing agent is using all the elements of a good marketing plan.
At Strough Real Estate Associates in Sag Harbor, managing broker Kathleen Zappola agrees that the Internet is a more popular selling tool for her these days.
“We are still doing print advertising, although not as much as we used to,” Zappola said.
When asked what she sees for the future of real estate advertising, Zappola said she believes all types of advertising “will certainly always be around. I don’t think people are going to stop doing it.”
“But everyone is computer friendly right now,” she said, adding that, for the time being anyway, it seems to be the most popular way to advertise.
Jane Holden is a licensed associate real estate broker for Town and Country Real Estate in Bridgehampton and she has found that putting signs in front of the home is still a good tool for her.
“I find signs are useful, and we only have to pay for the cost of the sign company,” she said. “But you do the print because it gets your name out there. I’ve cut back on print ads because of the cost, but it depends where you are spending it and how much.”
“But print is still important.”
Overall, Holden said sales are quiet, “Anyone who tells you it is not, is lying to you,” said Holden who added, however, that there seems to be a lift in showings and people are starting to look at houses again.
Robert Evjen, of Prudential Douglas Elliman in Sag Harbor, said “the most successful tool for advertising is a combination one-two punch of Internet advertising combined with print advertising.”
“Prudential has implemented an online program called ‘Super Open House Weekend’ which targets online search results for customers looking for properties in New York, Long Island and the Hampton,” explained Evjen who also said that banner ads — those appearing at the top of a webpage —play an important part in gaining clicks to drive traffic to a site.
“Also, print advertising compliments and re-enforces the message seen online,” he said.
“What is gaining results for some of the agents is ‘thinking outside the box,’” continued Evjen. “For example, we just ran the first ever online ‘auction’ for Hamptons properties which had successful results. That in turn started a buzz that the market is alive out here and now people are calling about buying homes.”
“My advice to other agents would be to work the hardest you can, think outside the box to make deals happen and of course, go the extra mile and service your clientele like never before! This is a great opportunity to stand out.”