Pittsburgh Business Times
April 27, 2011
As new ownership takes over Downtown Pittsburghâ€™s biggest building, the U.S. Steel Tower, government authorities are tracking what could be the areaâ€™s biggest real estate tax bill.
So far, the successful bid by a New York investment group lead by Mark Karasick to pay a reported $250 million for the 2.3-million-square-foot U.S. Steel Tower does not involve a deed transfer, which would trigger the cityâ€™s 4 percent deed transfer tax, according to Jim Uziel, deputy director of the Allegheny County Department of Real Estate, which records all property transactions within the county.
Instead, Uziel said the new ownership, a registered entity called 600 GS Prop LP, submitted documentation of all the U.S. Steel Towerâ€™s leases along with a $220 million mortgage to the Allegheny County Department of Real Estate.
â€śIt appears as though the owner of record is selling all the leases, which is in effect selling the property but not selling the physical property,â€ť he said. â€śWeâ€™ve put this document on record and thatâ€™s it. The ownership does not change.â€ť
Last week, various reports noted that Karasick and his investor group completed a transaction to take control of the building from New York AREA Property Partners and Winthrop Realty Partners. According to county records, the building has an assessed value of $167 million.
Uziel said he planned to submit the documentation to the state Department of Revenue for consideration, noting that the sale of major properties in the city often come with efforts to avoid the transfer tax.
Michael Lamb, controller for the City of Pittsburgh, who also could play a role in investigating the propertyâ€™s sales tax implications, didnâ€™t take long to lay out the stakes over a $250 million real estate transaction for the city, which would reap 2 percent, Pittsburgh Public Schools, which would get 1 percent, or the state of Pennsylvania, slated to get 1 percent.
â€śYouâ€™re looking at $10 million bucks,â€ť Lamb said, of the total projected tax revenue. â€śItâ€™s a huge number for Pittsburgh,â€ť he added, of the $5 million which would go to city coffers.
By comparison, Lamb said the city typically collects between $11 million and $15 million in deed transfer taxes in a year.
Expecting the buyer of such a large property to avoid the transfer tax, Lamb said there are loopholes that have worked in the past. The U.S. Steel Towerâ€™s seller bought the building through a sheriffâ€™s sale in 2006, which allowed it to avoid the transfer tax. Other buildings to skirt the tax include the Frick Buildingâ€™s sale in 2006, which was done through a sale of the mortgage, and the property went back to its lender. The 2005 sale of BNY Mellon Center, Downtownâ€™s second-biggest office building, also sidestepped the transfer tax when seller Phillip Morris Capital used then Mellon Bankâ€™s long-term lease in the building to transfer the property to Metlife through a bondable lease strategy rather than an outright sale.
â€śIf it is a purchase of a partnership, the state has ruled that as an exemption from the transfer tax because technically itâ€™s not the real estate thatâ€™s transferring but the partnership thatâ€™s transferring,â€ť Lamb said. â€śThe question is, is it a true partnership buyout or is it a vehicle to avoid paying transfer taxes?â€ť
A representative for Karasick and a lawyer for 600 GS Prop LP were not immediately available by phone.
Eric Montarti, a senior policy analyst for the Allegheny Institute, a research and education nonprofit that tracks government tax policies and advocates for free market practices, said such transfer taxes are common in the state, which first implemented one in 1951. Seeing them as broadly comparable to a sales tax, Montarti said, â€śItâ€™s an important tax in terms of what it brings in to their general fund.â€ť
While higher than elsewhere, he didnâ€™t see Pittsburghâ€™s transfer tax as more burdensome than other taxes that he said made the city less competitive, such as the 3 percent wage tax and the parking tax.