April 27, 2011
At a time when Pittsburgh is struggling for money to pave roads and buy public safety equipment, and Pittsburgh Public Schools is facing huge cuts in state funding, a $10 million tax windfall from the sale of the U.S. Steel Tower would be welcome.
That’s how much is at stake for the city, the school district and the state if the new owners find a way around paying a transfer tax by not recording a deed on the 64-story building, the city’s tallest skyscraper.
“Based on what we know, we don’t accept the fact that (the April 15 sale) is exempt from the real estate transfer tax,” school district Solicitor Ira Weiss said on Tuesday. “We’re going to closely examine this, because this is significant money to all of the taxing bodies, and there’s no reason they shouldn’t pay what they’re supposed to pay.”
Weiss said officials haven’t heard from the new owners as to what their position is on paying the transfer tax.
Mark Karasick, lead investor of a New York real estate investment partnership that said it bought the building for $250 million, could not be reached for comment.
“The city could certainly use that money right now,” said Councilman Bill Peduto, chair of council’s finance committee. He wants to consult with the city’s law department on the legal issues surrounding the transfer tax before commenting further.
Joanna Doven, spokeswoman for Mayor Luke Ravenstahl, said the city law department is reviewing the matter.
What has been recorded locally is a consignment of leases and rents by the lender in the deal, UBS Real Estate Securities Inc., but that does not require transfer taxes.
UBS also recorded a mortgage document for a $220 million loan UBS provided for the acquisition to Manhattan-based Karasick and his partners. And that requires no transfer taxes be paid.
Karasick told the Tribune-Review that his partnership acquired 600 Grant Street Associates LP, the building’s owner, from a group led by Area Property Partners.
“We are hoping the announced new owner of the tower will file a deed that identifies the owner of the property,” said Jim Uziel, deputy director in the Allegheny County Department of Real Estate.
Based on the $250 million purchase price, the city of Pittsburgh would receive $5 million, and the Pittsburgh Public Schools and the state would each receive $2.5 million in transfer taxes, Uziel said.
Allegheny County would receive some payment, because it collects 2 percent of the city-school total and 1 percent from the state.
Since the transfer of ownership has occurred, the county has sent all the documents filed to the state Department of Revenue to determine if any taxes are required.
“We have asked the state to take a close look at the documents filed to determine if any transfer taxes should be paid,” said city Controller Michael Lamb.
“If it rules they should be, the matter will probably end up in court,” Uziel said.
Weiss said that shortly after the sale was disclosed, Lamb suggested school and city officials meet to discuss the transfer tax issue. That meeting, with school district and city finance and law department representatives, took place yesterday.
Weiss said local officials would work closely with the state revenue department “to ensure all appropriate avenues are explored.”
What could happen is that no transfer taxes will be paid. That’s what occurred when previous owner 600 GS Prop LP acquired the building at a sheriff’s sale on June 30, 2005. A title obtained in a sheriff’s sale does not require payment of transfer taxes, Uziel said.
“If the new owner fails to make a mortgage payment, the lender could foreclose on the property and again avoid payment of taxes,” he said. In that way, a deed could be filed with the new owner’s name.
The official owner of the building, based on a recorded deed, remains 600 GS Prop LP, Uziel said.
However, UBS owns everything inside the building, but not the building or the land, he said.
The building at 600 Grant St. is 92 percent occupied. The largest tenant is the University of Pittsburgh Medical Center, which leases 13 floors and has its logo atop the building.
UPMC leases about 513,000 square feet and signed a long-term lease last month for an additional 270,000 square feet or seven more floors. The building has about 2.3 million square feet.
The second-largest tenant is the building’s namesake, U.S. Steel Corp., whose headquarters occupies 450,000 square feet. The third major tenant is PNC Bank, which leases 430,000 square feet.