Rudiak calls for investigation of sale price of Cork Factory Lofts
Pittsburgh City Councilmember Natalia Rudiak has asked Mayor William Peduto to investigate the recent undisclosed sale price of the Cork Factory Lofts in the Strip District.
Rather than a traditional deed transfer, some buyers avoid paying transfer taxes when purchasing commercial and multi-unit residential properties by an acquisition of their holding companies. In doing so, they are not disclosing the full purchase price, thereby avoiding transfer taxes and a property tax assessment that reflects the full market value.
The three buildings called the Cork Factory Lofts in the Strip District were recently acquired in this way, for a sum far less than their estimated market value. GMH Capital Partners purchased the two companies that owned the Cork Factory-- Big River Development LP and Cork Factory II Apartments LLC for $20.5 Million, according to the Pittsburgh Business Times. The new owners will be required to pay a four percent deed transfer tax on this sum, but it’s likely that as much as five times that amount exchanged hands for the buildings. Combined, they include 393 of the highest rent apartments in the region, 427 parking spaces, and retail/commercial space. A local real estate professional was quoted in the Business Times that he would be “surprised if that went for less than $100 million.”
There are several concerns with the transfer.
When anyone sells or buys a home, the negotiation of the sale price is often based on “comps” or comparable sales in their neighborhood. If the house next door has the same number of bedrooms and features, and it sold for $100,000, it’s likely a homeowner can get a similar price for theirs. The same is true for large commercial and multi-unit residential buildings. When the true sales price is not disclosed, similar buildings in the neighborhood are likely undervalued.
Accurate market-rate assessments are important not only during the sales process, but they are also important for when property owners want to access lines of credit to do important maintenance or upgrades to buildings over time. If the true sales prices of similar buildings are undisclosed, other buildings will be undervalued, and banks will see them as having less equity, and therefore property owners will have less borrowing power. Over time, this can add up to the deterioration of important buildings that anchor business districts and neighborhoods.
In the event of a natural disaster, insurance companies rely on assessments and sales prices to determine the value of losses, and therefore, how much property owners receive to make repairs or rebuild. If the full sales price is not disclosed, properties may be undervalued, and owners will not receive the full amount of funds they need to rebuild.
Sales prices also help Allegheny County determine the assessed value of the property, or how much the property owner is required to pay in property taxes each year. When the true sales price of a building is not disclosed, the building may be undervalued, and the owners are therefore not contributing their fair share of property taxes to the city, county and school district. This leaves the bulk of property tax burden on neighborhood homeowners.
Councilwoman Rudiak expressed she is looking forward to an ongoing dialog with the mayor’s administration about the Cork Factory sale and others like it.