The Impact of Declining Property Values and Unpaid Taxes on NY Commercial Property Valuations

The commercial real estate market in New York is facing a significant downturn, with properties selling at unprecedented discounts. This devaluation has a domino effect on property tax assessments, particularly for office buildings, leading to substantial budget shortfalls for municipalities. Compounding this issue is a record $880 million in unpaid property taxes in New York, which has created additional financial strain on the city’s budget.

The Downtrend in Commercial Real Estate

Across major U.S. cities, commercial properties are being sold at steep discounts. A 20-story office tower in San Francisco, previously sold for $146 million, was listed for just $80 million in December. In Chicago, a 200,000-square-foot office building that once sold for nearly $90 million was recently purchased for $20 million, a staggering 78 percent markdown. Similarly, in Washington, a 12-story building near the White House, previously valued at $100 million, sold for only $36 million. These dramatic devaluations are largely driven by the persistence of remote and hybrid work models, which have significantly reduced the demand for office space.

Impact on Municipal Budgets

The repercussions of these discounts extend beyond real estate investors to municipal budgets, which heavily rely on property taxes from commercial properties. For instance, San Francisco faces a potential $1 billion budget shortfall over the next few years due to decreased commercial real estate tax revenue. Similarly, Washington’s office vacancy rate has exceeded 20 percent, contributing to significant budget deficits. New York City is forecasting an unprecedented surge in overdue property taxes, exacerbating the fiscal crisis. The city’s budget anticipates collecting $32.7 billion in property taxes, accounting for nearly 45% of total tax revenue. However, with a record number of unpaid taxes, these projections are at risk.

The “Urban Doom Loop”

The combination of lower property values and higher vacancies has led to what Arpit Gupta, a professor at New York University Stern School of Business, describes as an “urban doom loop.” This phenomenon occurs when declining property values lead to lower tax revenues, forcing cities to either cut services or raise other taxes. Both actions can prompt businesses and residents to leave, further eroding the tax base and perpetuating the cycle of decline. Gupta’s research indicates that the national office market lost $664.1 billion in value from 2019 to 2022, underscoring the severity of the issue.

Consequences of Unpaid Property Taxes

New York City officials are grappling with an unprecedented $880 million in unpaid property taxes. This situation has arisen partly due to the expiration of a tax-lien sales program that penalized delinquent taxpayers. Without this enforcement mechanism, property owners have little incentive to pay their taxes. The city’s Department of Finance is working on legislation to reintroduce tax-lien sales, which would allow the city to bundle and sell delinquent property taxes to investors. This approach, however, has been criticized for potentially turning small tax debts into overwhelming financial burdens for property owners.

Legal Challenges and Assessment Issues

Recently, prominent NY real estate entities such as Vornado Realty Trust, Oxford Properties, Crown Acquisitions, and the Zucker Organization have sued the city for allegedly basing tax assessments on outdated estimates and older, more lucrative leases rather than current, less profitable agreements. They argue that Department of Finance assessors and automated systems often disregard the income and expense reports that commercial properties are mandated to file.

Potential Solutions and Questions

As municipalities navigate this fiscal crisis, several questions arise:

  1. How will cities manage budget shortfalls? With property values plummeting and tax revenues declining, cities must decide whether to cut public services, raise tax rates, or find alternative revenue sources.
  2. Will municipalities refund overpaid taxes? Property owners who successfully appeal their tax assessments are entitled to refunds, but with shrinking budgets, cities may struggle to pay these refunds.
  3. How will cities balance political and financial pressures? Raising taxes on commercial properties can be politically challenging, especially when such properties are already underperforming. However, cutting services could lead to public dissatisfaction and further decline in property values.


The downtrend in commercial real estate values, coupled with a surge in unpaid property taxes, presents a significant challenge for municipalities in New York and across the country. This issue will affect not only commercial property taxes but also the overall valuation and service levels across the board. As municipalities have been over-reliant on commercial property taxes, especially in downtown areas, the impact on services, values, and tax rates will be significant.

For commercial real estate property owners, it is crucial to understand how these trends will affect their property valuations. Working with a consultancy with unparalleled valuation expertise, who understands the impact these complex trends will have on your property, is more important than ever. At Realty Tax Challenge, we specialize in presenting compelling cases for reduced assessments. Don’t let outdated and potentially inaccurate data impact your property’s value. Let us help you to navigate these challenging times with expertise and confidence.

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