In a dramatic change of course, condo buyers in New York City who make their purchases using limited liability companies will no longer be required to publicly disclose the members of the entities.
The reversal, reported Thursday by the Wall Street Journal, came Monday as part of a revised set of guidelines issued by the state tax department. Previously, a new state law passed in September had required LLCs to disclose the names and addresses of all individuals with ownership interests in sales of one-to-four family homes—and condos. But this week, the state dropped the mention of condos on its website.
James Gazzale, a state tax-department spokesman, said in an emailed statement that the law, which originated with concerns over purchases of residences upstate, was intended to only apply to one-to-four family homes, not condos.
"The Department’s initial understanding of the new law was generated based on the agency’s preliminary reading of the bill language and how it interacted with other relevant sections of the law," he said. "Since that time, the bill sponsors have clarified their intent. The Department has now issued formal guidance that better reflects the sponsors’ intent, while still staying within the confines of what was passed."
The recent legislation was drafted by state Senator James Skoufis, in response to concerns in Rockland County over slumlords and illegal home conversions.
“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,” he said at the time. “Neighbors have a fundamental right to know who owns the home next-door to them.”
State Senator Liz Krueger, one of the seven co-sponsors in addition to Skoufis, told The Real Deal last month that she was surprised that the law applied to condos in New York City.
Nonetheless she said, “I think it’s a good idea. Why should an LLC be able to hide?”
The change created an uproar in New York City's real estate industry, with brokers and lawyers arguing that the practice was so common that it would hurt an already struggling luxury market. Wealthy condo buyers have for decades controversially used LLCs to hide their identities, out of privacy concerns, but in some cases, as part of an attempt to launder money or hide valuable assets.
Almost immediately, real estate lawyers scrutinized the language of the bill and reached out to lawmakers to argue that condos should not be included. The WSJ reported that the Real Estate Board of New York (REBNY), the industry's lobbying arm, had "pressed the governor’s office to act" and said that Stewart Saft, a real estate lawyer specializing in condominium development, had drafted a memo outlining why the tax department’s initial interpretation was wrong. Saft said the new law would “effectively kill real-estate finance."
Saft did not immediately respond to a request for comment. Jamie McShane, a spokesperson for REBNY, suggested the omission of condos did not amount to a change in the law. "The law and its parameters are unchanged," he said.
In an email, Richard Azzopardi, a spokesperson for Governor Andrew Cuomo, said the contention that the change was in response to pressure from the real estate industry was "wrong and silly."
"[It] came down to legislative intent, which the tax department clarified with them," he wrote.
According to an analysis of city tax records by the WSJ, there are about 61,000 one-to-four family properties owned by LLCs in New York City. Of that number 12 percent are condos and 5 percent are houses.
Currently in New York City, under a rule created by the de Blasio administration, all members of shell companies that buy or sell real estate must be provided to the city. However, the information is not made available to the public.
The city's disclosure regulation was prompted by a 2015 New York Times story, which traced the origins of 200 LLCs at the Time Warner Center and found a growing contingent of foreigners, with suspicious or complicated financial histories. One of the buyers included the now notorious Jho Low, a Malaysian investor who is believed to have absconded with more than $2.7 billion from a Malaysian state investment fund called 1Malaysia Development Berhad, or 1MDB.