A dispute over home conversions in suburban Rockland County threatens to upend Manhattan’s luxury condominium market.
Lawmakers in the county drew up state legislation to prevent the anonymous purchase of homes through the creation of limited-liability companies. Some residents suspected their new neighbors of making illegal home conversions or subdivisions, and getting local authorities to enforce the rules is more difficult if a property is owned through an LLC.
Now the legislation—which took effect last month—is having unintended consequences for the legions of billionaires, celebrities and other privacy-seeking condo owners: Every buyer’s name will be publicly available under the state’s Freedom of Information Law.
Many wealthy owners prefer to purchase through LLCs, also known as shell companies. Some want privacy, and others want to protect assets from lawsuits.
In most new Manhattan luxury-condo buildings, buying through an LLC has become commonplace. At the midtown residential tower known as 220 Central Park South, more than 85% of all purchasers so far bought through entities ending with “LLC,” according to property records.
That includes the most expensive home in the country: a $240 million unit bought by billionaire investor Ken Griffin, who bought it under the name “NYCP LLC,” property records show.
There are about 61,000 1-to-four family properties owned by limited-liability companies in New York City, a Wall Street Journal analysis of city tax records found, including 12% of all condos and 5% of houses. About 30% of all condos built since 2008 are owned by LLCs. Co-ops aren’t covered under the new law.
Federal officials say some buyers use LLCs to launder money or hide ill-gotten gains.
New York City brokers said the state law was another blow to a weak luxury market that has come under pressure from too much new supply, a retreat among foreign buyers and because of government actions.
Donna Olshan, a broker who collects data on the luxury market in Manhattan, pointed to a new federal tax law that reduced the deductibility of state and local taxes, a change that raised the cost of owning real estate. She also cited new state taxes on the sale of mansions, and the stricter LLC reporting requirements.
“At the end of the day they are strangling New York real estate,” Ms. Olshan said.
New York City asks for information on members of LLCs, but the information is kept confidential and isn’t available to the public.
The state law applies to sellers as well as buyers, and will require the disclosure of all the individuals behind complex layers of ownership of new condominium developments, said Stuart A. Saft, a condominium lawyer at Holland & Knight.
“It will effectively kill real estate finance,” Mr. Saft said. He said it would require disclosure of individual investors down to someone in Ohio who makes small investments from his or her retirement funds into an entity that invests in turn in a condo project.
Real-estate lawyers, brokers and title companies were surprised by the new law, which took effect Sept 13 when it was signed by Democratic Gov. Andrew Cuomo.
It attracted little attention because the bill memorandum from the sponsors said that the new law was designed merely to implement a successful city LLC-disclosure program across the rest of the state. “This bill seeks to codify the practices in New York City and apply it on a statewide level.”
But the language caught off guard officials in the city’s Department of Finance, which oversees real-estate transactions.
Jacqueline Gold, a finance spokeswoman, said the department was working closely with state tax officials and would be issuing interim guidelines this week “to ensure that the public is clear about the new reporting requirements.”
“This new law will rip the mask off of these anonymous LLCs that continue to purchase massive amounts of real estate in the Hudson Valley,” said Democratic state Sen. James Skoufis, the main senate sponsor in a press release. “Neighbors have a fundamental right to know who owns the home next-door to them.”
Assemblyman Kenneth Zebrowsky, a Rockland County Democrat and the lead sponsor in the Assembly, said in an interview that the measure wasn’t targeted at any community, but was designed to ensure compliance with building codes, especially in rental properties and properties with non-conforming uses such as illegal basement apartments.
As for its impact on Manhattan real estate, he added: “As much disclosure as possible is a public policy good.”
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