NYC Property Tax

The Valuation of Foregone Property Taxes of the NYCFC Stadium at Willets Point

The Valuation of Foregone Property Taxes of the NYCFC Stadium at Willets Point

Published 12/6/2024 at 8:07 PM

By: Benjamin Williams

The redevelopment of Willets Point in Queens is a significant urban development project in New York City, featuring the construction of a new soccer stadium for the New York City Football Club (NYCFC), to be called Etihad Park. A key aspect of this project involves property tax exemptions and abatements granted to the stadium and other components of the development. This article explores the valuation of the stadium, the foregone property taxes due to these exemptions, the role and duration of the Industrial and Commercial Abatement Program (ICAP), the lease terms, and the assumptions used by the Independent Budget Office (IBO) in their calculations.

Property Tax Exemption and Foregone Revenues

Payments In Lieu of Taxes (PILOTs):

  • Definition: PILOTs are payments that private entities make to a government instead of traditional property taxes when using publicly owned land.
  • Application at Willets Point: For the NYCFC stadium, the developers have been granted a full waiver of PILOTs for the duration of the lease.
  • Comparison: Other components of the Willets Point redevelopment, such as the hotel, housing, and retail spaces, are required to make PILOT payments.

Estimating the Foregone Property Taxes:

The IBO estimated the foregone property tax revenue by calculating what the stadium would have paid if it were built on private land and fully taxable:

  • Total Foregone Property Taxes (without abatements): Approximately $538 million over the lease period (adjusted to 2024 dollars).
  • Basis for Calculation: This estimate considers the stadium’s construction cost, land value, depreciation, and standard property tax rates.

Lease Terms and Extension Options

Lease Commencement and Duration:

  • Lease Start Date: The 49-year lease for the NYCFC stadium is scheduled to commence in 2025, aligning with the expected completion of the stadium construction.
  • Lease End Date: The initial lease term concludes in 2074.

Extension or Renewal Options:

  • 25-Year Extension Option: After the initial 49-year lease term, there is an option for an additional 25-year lease extension, potentially extending the lease until 2099.
  • Property Tax Status During Extension: The stadium would continue to be fully exempt from property taxes during the extension period, maintaining the same tax status as during the initial lease term.
  • Rent Terms for Extension: Specific rent terms for the extension period have not yet been negotiated and are expected to be established closer to the end of the initial lease term.

Rent Payment Schedule:

  • Initial Rent Payments: NYCFC will begin paying rent to the city starting at $500,000 in 2025.
  • Escalating Rent Over Time: The rent will incrementally increase, reaching up to $4 million by the end of the 49-year lease term in nominal dollars.
  • Total Rent Over Lease Term: The estimated total rent payments amount to $27 million in 2024 dollars over the initial lease period.

Industrial and Commercial Abatement Program (ICAP)

Overview of ICAP:

  • Purpose: ICAP provides property tax abatements for eligible commercial and industrial properties that are newly built, modernized, or expanded.
  • Eligibility: The subject is located in a “special commercial area” eligible for partial inflation protection benefits. In years 2-13 of the abatement period, an increase in tax liability over the prior year that exceeds 5%, such excess shall be added to the abatement base. However, in any year 2-13, where the taxable AV is increased for a physical change resulting in an increase in taxes of more than 5%, then none of the increase is added to the abatement base.

Duration of ICAP Benefits for the Stadium:

  • Total ICAP Benefit Period: 25 years.
    • First 11 Years: Full property tax abatement on the increased value due to new construction.
    • Next 14 Years: Gradual phase-out of the abatement, with the benefit decreasing annually until it ends.

Impact on the Stadium’s Tax Liability:

  • First 11 Years (Full Abatement): The stadium would not pay property taxes on the value added by the new construction.
  • Years 12 to 25 (Phase-Out): The property tax savings decrease each year as the abatement phases out.
  • Years 26 to 49: The stadium would pay full property taxes based on its assessed value, assuming no other abatements apply.

Total Property Taxes Under ICAP:

  • The IBO estimated that over the 49-year lease term, the stadium would pay approximately $74 million in property taxes if it qualified for ICAP benefits.

Calculation Methodology

To estimate the foregone property taxes, the IBO employed a detailed calculation methodology that considers the stadium’s projected construction cost, depreciation, inflation rates, and property tax rates. Here are the key components of their methodology:

1. Estimating Annual Replacement Cost Less Depreciation

The stadium’s construction cost is projected to be $842.5 million. This initial cost serves as the basis for calculating the property’s value over time. The IBO assumes a construction cost inflation rate of 1.8% per year. To account for depreciation, the IBO applies straight-line depreciation over 39 years.

For each year of the lease term, the adjusted replacement cost is calculated by:

  • Inflating the initial construction cost by 1.8% per year to reflect rising costs.
  • Subtracting accumulated depreciation, which is the annual depreciation expense multiplied by the number of years since construction.

2. Calculating Annual Land Value

The land value is a crucial component of the property’s total value. The IBO determined the initial land value based on the Department of Finance (DOF) property tax rolls for fiscal year 2024. They assumed a land inflation rate of 1.5% per year. Each year, the land value increases by 1.5%, compounding over the lease term.

3. Determining Total Property Value

The total property value for each year is the sum of:

  • The adjusted replacement cost of the stadium (after accounting for inflation and depreciation).
  • The adjusted land value (after accounting for land inflation).

This total represents the estimated market value of the property each year.

4. Calculating Taxable Assessed Value

In New York City, commercial properties are assessed at 45% of their market value. Therefore, the taxable assessed value each year is calculated by applying this assessment ratio to the total property value:

  • Taxable Assessed Value = 45% × Total Property Value

5. Computing Annual Property Tax Liability

The IBO applied the Class 4 property tax rate of 10.646% (based on fiscal year 2024 rates) to the taxable assessed value to determine the annual property tax liability:

  • Annual Property Tax = Taxable Assessed Value × 10.646%

This calculation provides the gross property tax owed each year before considering any abatements or exemptions.

6. Applying ICAP Benefits

Under the ICAP program, property tax liability is reduced during the initial 25 years:

  • Years 1–11 (Full Abatement): The property tax attributable to the new construction is fully abated. The stadium pays property taxes only on the land value, not on the improvements.
  • Years 12–25 (Phase-Out Period): The abatement decreases annually over 14 years, resulting in a gradual increase in the property taxes owed on the improvements.
  • Years 26–49: No abatement applies, and the stadium pays full property taxes based on the total assessed value.

7. Calculating Net Present Value of Property Taxes

To account for the time value of money, the IBO discounted future property tax payments back to present value using a discount rate of 6%. This provides a current value estimate of the total property taxes over the 49-year lease term.

By employing this methodology, the IBO estimated:

  • Without ICAP Benefits: If the stadium were fully taxable without any abatements, it would generate approximately $538 million in property tax revenue over the lease period (in 2024 dollars).
  • With ICAP Benefits Applied: Considering the ICAP abatements, the stadium would pay approximately $74 million in property taxes over the same period.

Summary of Findings

Using the above formulas and assumptions, the IBO arrived at the following estimates:

  • Total Foregone Property Taxes Without ICAP: Approximately $538 million over 49 years (NPV adjusted to 2024 dollars).
  • Total Property Taxes Under ICAP: Approximately $74 million over 49 years.
  • Value of the PILOT Waiver: The city is foregoing between $74 million and $538 million in potential property tax revenue, depending on whether ICAP benefits are considered.

Additional City Investments

Beyond the PILOT waiver for the stadium, the city is investing in the Willets Point redevelopment through:

  • Infrastructure Improvements and Environmental Remediation:
    • Total Investment: Approximately $647 million for land preparation, infrastructure upgrades, and environmental cleanup.
  • Affordable Housing Financing:
    • Housing Units: 2,500 units of affordable housing are planned.
    • Estimated City Subsidy: Around $550 million, based on average per-unit subsidies for similar projects.
  • Sales Tax Exemptions:
    • Applicability: Exemptions on construction materials for the stadium, hotel, and housing.
    • Estimated Foregone Revenue: Approximately $60 million for the city.
  • Mortgage Recording Tax Exemptions:
    • Applicability: For financing related to the stadium and hotel.
    • Estimated Foregone City Revenue: About $26 million.

Implications and Context

Comparison with Other Stadiums:

  • Consistent Practices: Other major sports facilities in New York City, such as Yankee Stadium, Citi Field, and Barclays Center, have also received property tax exemptions or abatements.
  • Financing Differences: The NYCFC stadium is being privately financed, whereas previous stadiums utilized tax-exempt bonds arranged by the city—a practice no longer permitted under federal rules.

Economic Development Considerations:

  • Project Goals: The redevelopment aims to revitalize Willets Point, create jobs, and provide affordable housing.
  • Economic Impact Estimates: Projections suggest significant economic activity generated over the next three decades, though specific methodologies for these estimates were not detailed.

Conclusion

The valuation and foregone property taxes associated with the NYCFC stadium at Willets Point highlight important aspects of urban development and public-private partnerships. Understanding the financial mechanisms, such as the PILOT waiver, ICAP benefits (including their duration and phase-out structure), and lease terms, provides insight into the city’s role in facilitating large-scale projects. The assumptions used by the IBO in their calculations offer a transparent view of how potential property tax revenues were estimated over the lease period.

Read the IBO’s report at: Keeping Score An Examination of City Investments for The Redevelopment Of Willets Point.