In another twist, a change in the law means the uber-wealthy cannot keep their Manhattan condo purchases a secret. Instead, information about a buyer's identity will now be accessible through a freedom of information request, which anyone can make. The move came, interestingly enough, from upstate lawmakers wanting more transparency about who lives in a neighborhood.
Editors note: NYC condo buyers who purchase through a limited liability company will no longer be required to publicly disclose who they are. Recently issued guidelines from the state tax department have dropped any reference to condos in relation to the law.
Anonymous buying through a limited liability company has been a popular move for the uber-wealthy or those wanting additional privacy because they are prominent in some way or looking to avoid notoriety. An LLC also gives some protection to individuals, allowing them to reduce their risks and avoid personal liability for debts run up by their companies.
Often a sponsor selling in a condo building will have multiple layers of LLCs says, Jerome Strelov, a real estate attorney with Frankfurt Kurnit Klein & Selz. “You might have an LLC, which has a partner with three more LLCs and they could have more LLC members and [those] could have three more,” he says.
This Russian doll-like structure provides benefits to sponsors by protecting individuals from risk, but now they will have to disclose who the named beneficiaries are in their companies.
Impact on the market
Strelov says his firm has represented celebrities buying under LLCs for privacy reasons or as investments to keep money away from potential creditors, and their strategies may change as a result of this law.
“It’s one more reason why people might not want to buy in New York. It is certainly not going to make the market more valuable,” he says.
It may not affect the decision of individuals to buy or sell, says Donna Oshan, president and owner of Oshan Realty but it will affect “the foreign capital flowing into equity financing that does not want to be transparent.”
Strelov says it’s too early to tell whether the law will “put a chill on financing” when individuals realize they are going to be disclosed by sponsors. He’s certain the law will create “complications” for sponsors and have the city’s real estate investors looking for alternatives.
The search for workarounds
Efforts are being made to exempt New York City from the new law but Strelov says he’d be surprised if they were successful. Instead, he sees privacy-hungry buyers creating named trusts in order to buy. Trusts are an alternative way of managing your assets.
While condos are covered by the law, co-ops are not, so buying in a co-op may be an alternate strategy.
A big surprise
There was some confusion—and shock—over how broad the law actually is. The bill says it applies to deeds for “residential real property containing one- to four-family dwelling units.” However, guidance issued after the bill was signed into law interprets the law as applying to all condos, according to The Real Deal, an unexpected surprise for even the lawmakers involved in creating the bill.