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After more than 18 months in bankruptcy, a reorganization plan for the CitySpire real estate development was finally approved last Sept. 24.
But for months, the 73-story tower at 156 W. 56th St. languished in bankruptcy as European American Bank battled a trustee in the case over the New York state real property transfer gains tax owed. Although the development was a financial disaster, $342,000 in "gains" tax had to be paid by someone.
"Because of the preposterous nature of the tax, people spent many hours and huge amounts of legal fees trying to figure out who had the liability," says Ian Bruce Eichner, CitySpire's developer.
Horror stories like this one have long been common occurrences in real estate bankruptcies, foreclosures and restructurings. Tax considerations often have been the moving force behind disputes delays and conflicting strategies.
OFFICIALS ARE MODIFYING LAWS
Now, aware of the magnitude of the real estate crisis, both state and federal officials are modifying tax and other laws to simplify and reduce the cost of restructuring failed real estate ventures.
In April, the Cuomo administration and state Legislature approved major revisions to the much-reviled capital gains tax. The revised tax makes it much easier and financially less painful for borrowers to return property to lenders.
Meanwhile in Washington, a bankruptcy reform bill pending in the Senate would greatly accelerate real estate bankruptcies. Also, a provision of the tax bill approved by the House last month would reduce the tax consequences to property owners whose debt is restructured.
These changes will help restore distressed property to health. "They will put the property in the hands of a more viable entity," says Michael Slattery, senior vice president of the Real Estate Board of New York. "There will be restructurings that encourage new investment in real estate that just isn't...