What Hotel Owners Need to Know About Appealing Their Property Taxes in NY

The hotel industry has been through a tough few years since the start of the pandemic. After 2020 broke records as the worst year ever for the hotel industry according to STR, 2021 brought gains, but they were varied. The recovery pace in spring and summer of 2021 was strong, but demand fell in the fall and winter with the emergence of new variants. Luxury travel primarily drove demand in 2021, while business and convention travel only showed modest gains. Extended-stay hotels saw increases, but major urban and suburban corporate area hotels lagged.

Many hotels were operating on severely decreased profit, and sometimes no profit, during those years. However, the stagnant tax rolls in various municipalities have not been updated to reflect these changing realities.

2022 brought a hospitality market rebound, with the overall US industry exceeding pre-pandemic 2019 levels by 6.4%, according to STR. This recovery data is focused on room rates, so although occupancy through Q3 in 2022 was 3.8 points below 2019, Average Daily Rate was up 12.8%, which accounts for the overall increase.

Given these intense fluctuations, hotel owners may be paying property taxes on assessments that are not at all aligned with their current market value or income. In some municipalities, assessments for tax purposes on commercial properties are completed annually, but others may not re-assess for years, if ever.

In 2020, property taxes on hotels in NYC had skyrocketed to 30% of revenue, according to a report from the Hotel Association of New York City, a massive increase from 9.4% in 2019. Even though NYC hotels were struggling with historic hits to their business, NYC significantly raised assessments for the 2020-2021 tax year. These valuations were not based on the effects of the pandemic, because NYC’s taxable status date is Jan 5 each year and on Jan 5, 2020, the pandemic had not impacted the city yet.

For the 2021-2022 tax year, the city did reduce some hotel assessments by up to 20%, but it was sporadic, and for many hotels it was not enough to staunch the losses. NYC’s fiscal 2022-23 property tax assessment roll actually includes an 8% increase in tax assessments. The hotel industry has not had nearly enough time to recover to justify this level of increase.

How Can Hotel Owners Lower Their Property Taxes?

Property valuations for hotels and other commercial properties in New York are based on the income approach. The income approach is a method of estimating the value of a property by taking into account the income generated by the property, as well as the expenses associated with the property, such as taxes, insurance and maintenance. The value of the property is then calculated by dividing the net operating income (NOI) by the capitalization rate (CAP rate). In municipalities where hotels may not have recently been reassessed, it’s clear that these stagnant valuations, given the fluctuations in these variables over the last several years, can result in property assessments that are not accurate or fair.

Hotel owners must appeal their property tax assessments annually. This is always a best practice recommendation, but it is more crucial now than ever. Working with a professional commercial property tax grievance company like Realty Tax Challenge (RTC) provides you with the best opportunity to make the case for a lowered assessment.

RTC can assist hotel owners to appeal their property assessments by working with them to collect documentation needed to show property value losses. This can include lower occupancy rates, increase in costs incurred due to the pandemic and any unique measures the hotel had to take, closure dates, and other loss-related data.

The hotel and hospitality market has been one of the hardest-hit over the last few years. Although there are signs of recovery, hotel owners and operators need every bit of revenue to help get back to pre-pandemic levels. If hotels are spending 30% of their operating revenue just paying property taxes, that’s a huge chunk of their budget spent at the worst possible time, which may not even be justified.

RTC are the experts at understanding real property values for hotels in NY. We have over 25 years of experience with commercial real estate in New York State. Contact us today and we can evaluate whether your hotel is over-assessed, and if so, assist you in the tax grievance process. If you do not file by the grievance deadline each year, you will lose your chance to appeal, so don’t wait to start working with us on your appeal today. 

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