As the city continues to mull SL Green’s request to erect One Vanderbilt, a new supertall office tower next to Grand Central Terminal, the focus has been on what the developer will deliver to New York in terms of transit improvements.
Manhattan’s largest office landlord is offering to spend $210 million on improving the various subway and commuter rail stations that make up the broader Grand Central complex. Questioned by community board members and a litigious air rights owner about the exact breakdown of the spending (a fine-tuned investigation that the board never bothered with for East Side Access, a project whose price tag has exploded to around 50 times the cost of SL Green’s improvements), the builder has released a detailed breakdown of the costs.
But all this discussion of what special goodies the city can wring from SL Green – which will set a precedent for what the city can ask of other developers seeking to build in the broader Midtown East area likely to be rezoned – misses the bigger issue: property taxes.
Value capture may be the buzzword of the day, but vanilla property taxes are still the city’s primary means of funding essential municipal services – like, for example, transit improvements that will be enjoyed by many more people than the occupants of the new skyscrapers. And on that score, SL Green’s regular tax payments will be far more important to the city’s fiscal health than a one-time transit upgrade.
The ballpark estimate for One Vanderbilt’s annual property tax bill, a spokesperson for SL Green told YIMBY, is $50 million. That would be a massive jump over the current levy for the prewar buildings on the block bounded by 42nd Street, Madison Avenue, 43rd and Vanderbilt, which currently pay around $8 million a year.
While the total built square footage of the block would nearly triple, increasing the strain on municipal services, the extra revenue would far surpass the costs to the city. Office buildings don’t send children to public schools and tend not to make many 911 calls. And on a per gross square foot basis, One Vanderbilt’s bill – nearly $28, according to our back-of-the-envelope calculation, on par with trophy towers like the General Motors and Solow buildings – would be much higher than the $10 to $12 that the current prewar structures pay.
The fact that One Vanderbilt would pay its full property tax bill in the first place is somewhat of an anomaly for glittering new office towers in New York City. On the West Side and downtown, tax abatements are handed out like candy. The government agencies that dole out the tax breaks for office towers are frustratingly opaque about what the spires actually pay, but pretty much all major towers rising outside of Midtown East get some sort of break – from the Bank of America Tower and the New York Times building to the forest of office towers planned for Hudson Yards and the World Trade Center.
And while plenty of other office towers have made payments to the city for improvements outside of regular property taxes – from One Court Square, finished a generation ago, to the towers at Atlantic and Hudson Yards, currently under construction – we’re not aware of any that have made such a large contribution and pay their full property tax bills. (Vornado’s proposal for 15 Penn Plaza – the tower near Penn Station that was planned to be slightly larger than One Vanderbilt – would have paid its full bill, but its transit payments would have totaled only $100 million, half what SL Green’s offering.)
The only building that seems to come close to paying what One Vanderbilt will is the General Motors Building, the country’s most valuable office tower. The annual tax bill for the GM Building is $32 per gross square foot, or about $5 more than what One Vanderbilt will pay, given its Central Park views and superior Plaza District location. But when you add in the $210 million that One Vanderbilt will pay upfront, the towers will likely come out about even.
There are of course other considerations aside from fiscal impact for the city to take into account when considering rezoning applications. But in terms of taxes and tax-like payments, there should be no doubt about it: One Vanderbilt will be extremely lucrative.