By Will Parker and James Fanelli
A 1,400-foot luxury condo tower on Manhattan's Billionaires' Row looks to be one of the most lucrative targets for a new tax on high-end second homes in New York City.
Past buyers at the building, known as 432 Park Avenue, included Jennifer Lopez and former Yankees slugger Alex Rodriguez. The Saudi property magnate Fawaz Al Hokair still owns there, though he once listed his penthouse for $169 million in 2021. (It didn't sell).
Under the new law, New York City will tax second homes worth more than $5 million. The law passed the state legislature in May and went into effect July 1.
More than a third of 92 high-value apartments at 432 Park Avenue probably meet that criteria, according to a Wall Street Journal review of property and tax records, making the property one of the biggest piggy banks for the city's pied-à-terre revenue.
Condo owners at the building will be on the hook for at least $3 million annually, based on records indicating that at least 36 units are used as second homes. The tax bill would be on top of the $3.6 million in property taxes these owners already pay.
At the extreme end, an owner's tax bill might double. A penthouse on a high floor that already owes $189,000 a year in property tax would pay twice that in property taxes under the pied-à-terre provision.
But the actual tax bill from the property could be considerably higher, if more owners are leaving their units vacant than the available public records indicate.
Determining what qualifies as a luxury second home could get messy and cause problems for city officials. Ultrawealthy owners, with near-infinite resources for accountants and attorneys, are likely to contest the city's valuation of their homes, as well as their residency status, real-estate professionals said.
"If you come up with something that's too complicated, you don't get revenue right away, you just get litigation," said Donna Olshan, president of Olshan Realty.
Democratic Gov. Kathy Hochul and Mayor Zohran Mamdani proposed to tax second homes, or "pieds-à-terre," to address the city's budget deficit. Mamdani, a Democratic socialist, campaigned on raising taxes on the wealthy and creating new social programs such as universal child care.
Skyscraper residences in Manhattan such as 432 Park are the most likely properties to pay large shares of the tax because they contain so many high-price second homes.
A few blocks from 432 Park is 220 Central Park South, where Mamdani recorded a video promoting the policy, gesturing up from the sidewalk to billionaire Ken Griffin's $238 million spread on the 50th floor. (Griffin could end up owing $1 million a year, on top of the $837,000 in property tax he pays now.)
The proposed tax also applies to townhomes, which can sell for more than $10 million in several parts of Manhattan.
All together, Hochul's office says there are 10,000 homes in New York City that would pay the tax, totaling $500 million in new revenue a year.
Here is where things start to get complicated.
For condominium buildings such as 432 Park, the city's Department of Finance doesn't acknowledge the real market value for tax purposes. It has for decades instead been required by law to assess condos as if they were rental properties, which in New York include many lower-cost units subject to rent regulations. The practice means that condos and co-op values are greatly depressed for tax purposes.
The city plans to develop a new system to assess condos and co-ops in a way that reflects their true market value.
For now, officials think that a city-calculated "market value" of $1 million equates to a real market value of at least $5 million. A "market value" of $1 million is the proposed taxable threshold for condos, and at 432 Park, 92 units have at least that value.
The tax would be levied on total value on a three-tier scale. Lower-valued properties would owe a 4% annual surcharge on value, middle-tier properties would owe 5.25% and the highest-valued tier would owe 6.5%.
Thirty of the potentially taxable homes have a second-home rider included in a mortgage, public mortgage records show, making their pied-à-terre status most likely. Just those 30 homes would yield $2.4 million in new tax, though there could still be exceptions. An additional six homes are likely to be pieds-à-terre because their owners are either registered to vote or receive a homestead exemption out of state. Many more units are owned by LLCs, and the owners' residency status is unclear.
For buildings such as 432 Park, officials could use city income tax records to help make residency determinations, said Benjamin Williams, an attorney at the real estate-focused Rosenberg & Estis law firm.
That approach could still produce a few sticky situations. Some second-home owners, such as those who live mostly in the Hamptons on Long Island outside the city but own a condo in the city, pay city income tax because they work full time in Manhattan. But because they don't sleep at the condo most of the time, they would now owe pied-à-terre tax on it, Williams said.
Some homes that are rented out might end up exempt from the tax. Other units could be exempt if the owners' family members are living there.
For now, the looming tax doesn't appear to have deterred the business of buying and selling luxury real estate.
During the week of June 22 alone, 27 sales contracts for homes of $4 million or more were signed in Manhattan, according to Olshan Realty. The condos sold in the category had an average asking price of $6.9 million. The number of sales in June was on par with the same month last year.
Some people who live in 432 Park are busy contending with more expensive problems.
The building's resident board is suing the property's developers and construction team, alleging shoddy construction resulting in noise, vibrations, flooding and lower values for condo units.
The plaintiffs claim more $271 million in damages, or more than half the projected pied-à-terre tax collection for all of New York City in year one.
Write to Will Parker at will.parker@wsj.com and James Fanelli at james.fanelli@wsj.com