Following new legislation signed by Governor Andrew Cuomo last month, limited liability companies will now have to disclose its members in a required state tax form.
The rule threatens to upend a decades-long practice by wealthy buyers of New York City real estate seeking to cloak their purchases in anonymity, sometimes for the sake of privacy, and other times to hide valuable assets.
In 2015, the New York Times traced the origins of 200 LLCs at the Time Warner Center and found a growing contingent of foreigners, some of whom were suspected of shady dealings. They included 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.
Following the Times story, the de Blasio administration imposed a rule requiring that the names of all members of shell companies that buy or sell property be provided to the city.
However, the information was not a matter of public record.
The latest law, which only applies to residential properties containing one-to four-family dwelling units, does make the disclosures available to the public. According to a Wall Street Journal story, there are roughly 61,000 1-to-four family properties owned by limited-liability companies in New York City. LLCs account for about 30% of all condos built since 2008. The new law does not apply to co-ops.
In an example of the prevalence of shell companies in luxury real estate, at 220 Central Park South, more than 85% of all buyers made their purchases through entities ending in "LLC," according to the WSJ.
However, there may be one wrinkle. The 2015 NYT story notes that the name of the beneficial owner of an LLC might not be among the company's members.
A spokesperson for the New York City Department of Finance, which oversees property transactions, said the department was finalizing guidance on the new rules, which would appear on its website later this week. The rules do not apply retroactively.
In an ironic twist, despite the focus on hidden buyers of luxury real estate in New York City, the recent legislation was prompted by upstate concerns 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,” said Senator James Skoufis, who sponsored the bill in a press release. “Neighbors have a fundamental right to know who owns the home next-door to them.”
Amid a struggling luxury market, the real estate industry appears to be reeling from the new transparency requirement. “At the end of the day they are strangling New York real estate,” Donna Olshan, a broker, told the WSJ.
UPDATE: The story has been updated to include requested information from the city's Department of Finance.
