We're ESDC, developing the Gateway Center retail project in Brooklyn's Fresh Creek Renewal Area. The developer will sell portions of the site to retail tenants, everyone will lease back to us during construction, and outside lenders will finance the buildout secured by mortgages naming us as mortgagee before we assign our interest to the real lenders. Is that financing -- and its later modifications -- exempt from mortgage recording tax?

Plain-English summary

Empire State Development Corp. (ESDC) adopted a General Project Plan for the Gateway Center Land Use Improvement Project, on a site bounded by Gateway Drive, Erskine Street, and Fountain Street in Brooklyn -- part of the Fresh Creek Renewal Area first designated by the NYC Department of Housing Preservation and Development in 1967. The site suffered from vacant/unfenced/unsanitary lots, inadequate infrastructure, poorly designed street patterns, flooding-prone topography, and missing sewer connections. The Project called for Gateway Center Properties, LLC to acquire the site from the state Office of General Services and the City of New York to build a 640,000-square-foot retail shopping center, creating jobs and expanding the tax base.

Under the contemplated structure, Gateway Center will acquire title and sell two portions of the site to separate retail tenants; Gateway Center and those tenants will then lease the site to ESDC for the construction period, and ESDC will sublease it right back to them on coterminous terms -- with sublease payments and payments-in-lieu-of-real-estate-taxes benefiting ESDC. The developer will borrow from outside lenders to fund construction, secured by mortgages against its fee AND leasehold interest, with ESDC initially named mortgagee and recording the mortgages, even though all economic rights inure to the lenders (to whom ESDC assigns its interest afterward). As with the parallel Harlem Center project, the mortgages may later be assigned, supplemented, modified, or converted to permanent financing.

Article 11 of the Tax Law (§ 253) taxes mortgage recording, and § 252 doesn't provide ESDC a specific exemption on its own terms -- but the UDC Act fills that gap the same way it does for ESDC's other projects: § 6254(1) makes UDC/ESDC a state instrumentality (triggering common-law agency immunity under Hotel Waldorf-Astoria Corp. v. State Tax Commission), § 6262(2) extends that immunity to subsidiaries, and § 6272 declares UDC and its subsidiaries free from taxation of every kind -- a later, more specific 1968 enactment overriding the general 1909 mortgage recording tax statute (Williamsburgh Power Plant Corp. v. City of New York), reinforced by the Act's controlling-statute clause (§ 6283), liberal-construction mandate (§ 6284), and courts' tolerance of even "straw man" UDC ownership (Wein v. Beame). So mortgage recording tax is not due on any Project mortgage where ESDC is named mortgagee and presents it for recording, and later assignments/supplements/modifications remain exempt as long as the secured debt doesn't increase (either as not creating a new taxable mortgage under § 253, or as a "supplemental mortgage" under § 255); if debt does increase, tax applies only to the increase.

What this means for you

ESDC and its subsidiaries financing urban renewal retail/commercial redevelopment through private developers

This is the Department's repeatedly-applied treatment for ESDC projects -- issued the SAME DAY as its companion opinion for the Harlem Center project (TSB-A-01(1)R) with nearly identical reasoning, confirming this is a routine, well-established financing pattern rather than a one-off ruling.

Private developers, retail tenants, and lenders on Fresh Creek / urban renewal area redevelopments

Structuring financing with ESDC as pass-through mortgagee, combined with sale-leaseback arrangements to retail tenants, can meaningfully reduce project costs through both the mortgage recording tax exemption and payments-in-lieu-of-real-estate-tax arrangements.

Common questions

Q: Does the exemption cover mortgages against the developer's FEE interest, not just its leasehold?
A: Yes -- unlike some other ESDC/UDC opinions limited to leasehold-only financing, this one expressly covers mortgages against both the developer's fee AND leasehold interest.

Q: Is this the same reasoning as ESDC's Harlem Center opinion?
A: Yes -- issued the same day, citing the identical UDC Act provisions and case law, just applied to a different project site and financing structure.

Q: Can other ESDC projects rely on this specific opinion?
A: No. It binds the Department only as to this petitioner and these facts, though the reasoning is the Department's established, consistent treatment of ESDC/UDC projects.

Citations and references

Statutes and regulations:

• Tax Law § 253 (mortgage recording tax on real property mortgages)
• Tax Law § 250 (increases in secured indebtedness taxable as to the increase)
• Tax Law § 252 (no exemption by reason of any other statute, absent later specific enactment)
• Tax Law § 255 (supplemental mortgage exemption where no new/further indebtedness)
• Unconsolidated Laws § 6254(1) (UDC as a corporate governmental agency, political subdivision, public benefit corporation)
• Unconsolidated Laws § 6262(2) (UDC subsidiaries inherit UDC's privileges, immunities, and tax exemptions)
• Unconsolidated Laws § 6272 (UDC and subsidiaries free from taxation of every kind by state/local government)
• Unconsolidated Laws § 6283 (UDC Act controls over inconsistent other laws); § 6284 (liberal construction mandate)

Case law and prior opinions cited:

• Matter of Hamilton, 148 N.Y. 310 (state/municipal property for public purposes not subject to taxation)
• Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 A.D.2d 330 (common-law state-agency immunity doctrine)
• Wein v. Beame, 43 N.Y.2d 326 (liberal interpretation of UDC's tax exemption; "straw man" ownership arguments rejected)
• Williamsburgh Power Plant Corp. v. City of New York, 255 App. Div. 214, aff'd 280 N.Y. 551 (later specific enactment governs earlier general enactment)
• Franklin Society for Home Building and Savings v. Bennett, 282 N.Y. 79; Matter of Silberblatt, Inc. v. Tax Comm., 5 N.Y.2d 635 (MRT taxes the recording privilege, not the instrument)
• City of New York v. State Tax Commission, 130 A.D.2d 890 (supplemental mortgage treatment under § 255)
• New York State Urban Development Corp., TSB-A-93(4)R (March 10, 1993) (UDC common-law and statutory immunity)

Related opinion (same day, same statutory framework, different project):

• TSB-A-01(1)R (April 12, 2001) (ESDC's companion Harlem Center Land Use Improvement Project, Manhattan)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_2001.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a01_2r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-01(2)R
Mortgage Recording Tax
April 12, 2001

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M010316A

On March 12, 2001, a Petition for Advisory Opinion was received from New York State
Urban Development Corporation d/b/a Empire State Development Corp., 633 Third Avenue,
New York, New York 10017.
The issues raised by Petitioner, the New York State Urban Development Corporation d/b/a
Empire State Development Corp. ("ESDC"), are whether:
(1) The taxes imposed by Article 11 of the New York State Tax Law and Chapter 26 of the
New York City Administrative Code (collectively, the "mortgage recording tax") are due
upon the recording of any mortgage of property that is part of ESDC’s Gateway Center Land
Use Improvement Project (the "Project") where (a) ESDC is named mortgagee (whether as
trustee, agent, nominee or otherwise); (b) ESDC records the mortgage; (c) the loan funds
secured by the mortgage are provided by one or more persons or entities other than ESDC;
and (d) the proceeds of the mortgage loan are used for Project development costs.
(2) The mortgage recording taxes are due if a mortgage referred to in issue (1) is assigned,
supplemented, modified or amended, or if the mortgage so assigned, supplemented, modified
or amended is thereafter from time to time assigned, supplemented, modified or amended
(upon recording of the applicable instrument or otherwise) to the extent that the then
outstanding principal indebtedness secured by the mortgage is not increased.
For the purposes of this opinion, the phrase "development costs" includes, without limitation,
all "hard" and "soft" costs with respect to acquisition and construction, all carrying costs, loan fees,
acquisition and construction period interest, start-up expenses, and all related costs and fees. The
terms "supplemented" and "supplement" include, without limitation, any spreader, consolidation,
substitution, severance, restatement and/or extension.
The Project Site is located in the Borough of Brooklyn, City of New York. It is generally
bounded by Gateway Drive on the south and west, by Erskine Street on the east, and by Fountain
Street on the north. The Project Site is currently divided into portions having two different owners:
the New York State Office of General Services (“OGS”) and the City of New York. The Project Site
is a portion of the Fresh Creek Renewal Area, which was originally designated by the New York City
Department of Housing Preservation and Development in 1967. The Project contemplates the
acquisition of the entire project site by Gateway Center Properties, LLC (the “Gateway Center”)
from the City of New York and OGS to cause the development of a 640,000-square foot retail

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shopping center. Among other approvals, the project will require the adoption and affirmation of
a General Project Plan by ESDC. Implementation of the Project would achieve a host of public
policy objectives including:
(1) The creation of sustainable jobs, thereby increasing business activity within the region;
the creation of new sustainable physical development; and stimulation of related economic
growth in the surrounding community.
(2) The expansion of the City’s and State’s tax base by opening hitherto underdeveloped
areas, generating new employment and business opportunities, and increasing potential
revenue generation.
(3) The removal of the substandard and unsanitary conditions that currently impede effective
and economic use of the Project Site and to replace these conditions with a viable
commercial development. As noted in The Fresh Creek Urban Renewal Plan (Second
Amendment, January 1996), the Project Site possesses the following unsanitary and
substandard conditions adversely affecting the quality of life within the Urban Renewal Area
and its immediate vicinity: (a) vacant, unfenced, and unsanitary lots; (b) inadequate
infrastructure to serve existing development; (c) abandoned or underutilized properties; (d)
poorly or improperly designed street patterns and intersections; (e) blocks and lots of
irregular form or shape; (f) unsuitable topography, subsoil, or other physical conditions
including susceptibility to flooding and unstable soil conditions; and (g) lack of storm water
and sanitary sewer connections to serve existing development.
Under the contemplated arrangements, Gateway Center will acquire title to the Project Site
from OGS and the City of New York and sell two portions of the Project Site to two separate retail
tenants. Gateway Center and the two retail tenants will then lease the Project Site to ESDC, for the
construction period of the development, which in turn will sublease the site to Gateway Center and
the two retail tenants which subleases will be coterminous with the leases to ESDC. The developer
with his designees will construct the commercial buildings on the site in accordance with the General
Project Plan and design guidelines. Payments under the sublease will inure to the benefit of ESDC.
The payments in lieu of real estate taxes will inure generally to the benefit of ESDC.
The contemplated financing arrangements for the Project are as follows. The developer will
borrow funds from sources (“Lenders”) other than ESDC, which funds will be used for Project
development costs. This borrowing will be secured by one or more mortgages against the
developer’s fee and leasehold interest. ESDC will initially be a named mortgagee and will record
the mortgages. Although ESDC will be named as a mortgagee, all of the rights under the mortgages
will inure to the benefit of the Lenders who will for all purposes be the beneficial owners of the
mortgages. Upon recording the mortgages, ESDC will assign to the Lenders all of ESDC’s right,

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title and interest in and to the mortgages. After assigning its interest to the Lenders, ESDC will
continue to hold leasehold title, and will have enforcement rights under the lease.
After ESDC initially records the mortgages and assigns its interest to the Lenders, the
mortgages may from time to time be further assigned, supplemented, modified, or amended and, in
any such event, appropriate instruments reflecting such assignment, supplement, modification or
amendment will be recorded. For example, in accordance with customary mortgage financing
practices, mortgages securing construction financing may be assigned, supplemented, modified and
converted to permanent financing upon completion of construction or the expiration of the term of
the initial loans. Permanent loans may be refinanced or assigned by one lender to another. The
identity of the mortgagor may also change either by reason of the assignment of the
lessee/mortgagor’s interest to an affiliate or to an unrelated person.
Applicable Law
Article 11 of the Tax Law imposes taxes on the recording of mortgages of real property
measured by the principal debt or obligation secured or which under any contingency may be secured
by the mortgage. Section 252 of Article 11 of the Tax Law, which sets forth the preponderance of
the exemptions from the mortgage recording tax, provides, with certain exceptions not relevant here,
that "[n]o mortgage of real property situated within this state shall be exempt, and no person or
corporation owning any debt or obligation secured by mortgage of real property situated within this
state shall be exempt, from the taxes imposed by this article by reason of anything contained in any
other statute."
Even though section 252 of the Tax Law does not provide a specific exemption for the
operations of UDC, it is well established that State agencies enjoy an immunity from taxation
independent of the statutory exemptions listed in section 252 of the Tax Law for property utilized
in the public interest. (New York State Urban Development Corp., Adv Op Comm T&F, March
10, 1993, TSB-A-93(4)-R.)
Subdivision (1) of section 6254 of the New York State Urban Development Act (the UDC
act) states in pertinent part as follows:
[t]here is hereby created the New York State urban development corporation.
The corporation shall be a corporate governmental agency of the state, constituting
a political subdivision and public benefit corporation. . . .
In addition, subdivision (2) of section 6262 of the UDC Act states:

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[t]he corporation may transfer to any subsidiary corporation any moneys, real
or personal or mixed property or any project in order to carry out the purposes of this
act. Each such subsidiary corporation shall have all the privileges, immunities, tax
exemptions and other exemptions of the corporation to the extent the same are not
inconsistent with the statute or statutes pursuant to which such subsidiary was
incorporated. . . .
In a March 29, 1913, opinion, the Attorney General opined that no mortgage recording tax
was due when New York State acted as mortgagor and quoted the following passage from Matter
of Hamilton, 148 NY 310, 313-314:
The property held by the state, or by any of its municipal divisions, for public
purposes, is not, and never has been, subject to taxation . . . The end and object of all
taxation is to raise revenue for the purpose of defraying the expenses of government,
and since no revenue could be raised by imposing taxes on property owned by the
state itself, or by any of its political divisions, such property is in no just or practical
sense the subject of taxation. . . .
This principle has been applied in exempting from the mortgage recording tax the recording
of mortgages on property the legal title of which is held by an industrial development agency and
the beneficial ownership of which is held by a non-exempt private party. (See 1982 0pns St Comp
No. 82-188, p 240; One Park Place Associates, Adv Op St Tx Comm, June 18, 1982,
TSB-A-82(1)(M) and New York State Urban Development Corp., supra.)
In Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 AD2d 330, 334, in
acknowledging that a $45 million mortgage secured by the Waldorf-Astoria hotel was exempt from
the mortgage recording tax because the mortgagee (the New York State Employees' Retirement
System) was a New York State agency, the court stated: "as a State agency, the Retirement System
enjoys an immunity from taxation independent of the statutory exemptions listed in Section 252 of
the Tax Law. . . ."
Furthermore, Section 6272 of the UDC Act provides, in pertinent part, that:
[t]he exercise of the powers granted by this act will be in all respects for the
benefit of the people of this state . . . and will constitute the performance of an
essential function . . . [UDC] and its subsidiaries shall not be required to pay any
taxes, other than assessments for local improvements, upon or in respect of a project
or of any property or moneys of [UDC] or any of its subsidiaries, levied by any
municipality or political subdivision of the state, nor shall [UDC] or its subsidiaries
be required to pay state taxes of any kind, and [UDC], its subsidiaries, projects,

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property and moneys . . . shall at all times be free from taxation of every kind by the
state and by the municipalities and all other political subdivisions of the state. . . .
Section 6283 of the UDC Act states: "[i]nsofar as the provisions of this act are inconsistent
with the provisions of any other law, general, special or local, the provisions of this act shall be
controlling."
Also, Section 6284 of the UDC Act provides: "[t]his act, being necessary for the welfare of
the state and its inhabitants, shall be liberally construed so as to effectuate its purposes."
Consistent with the legislative mandate of the UDC Act, courts have given liberal
interpretation to its tax exemption provisions. For example, in Wein v. Beame, 43 N.Y.2d 326, the
New York Court of Appeals upheld an exemption from real property taxes as applied to the
Commodore Hotel property in Manhattan. The hotel had been sold to ESDC for one dollar, then
leased back to the seller for 99 years. Arguments that ESDC had no real interest in the property, and
was a "straw man" brought into the project solely to provide a tax exemption, were rejected. The
court stated:
It is not for us to speculate as to the motive for UDC'S participation, nor to
delineate the amount of active participation which is necessary to denominate a
particular project a UDC project. Here, UDC will be the owner of the building, and
it is enough that UDC has to combat otherwise inevitable urban blight, and which is
thus clearly in accordance with the benign purposes of the Legislature in creating
UDC. . . . (emphasis added)
An apparent inconsistency exists between the Tax Law and the UDC Act. Where a conflict
exists between two enactments relating to the same subject matter, the latter specific enactment
governs the earlier general enactment. (Williamsburgh Power Plant Corp. v. City of New York, 255
App Div 214, affd 280 NY 551 and New York State Urban Development Corp., supra.)
As the pertinent provisions of section 252 of the Tax Law as cited previously in this opinion
were enacted in 1909, they must yield to the exemption provisions contained in the law creating
UDC which were enacted in 1968.
Furthermore, the UDC Act gives Petitioner the power to make mortgage loans, secured by
first mortgage liens. Having this power implies that Petitioner may also perform the activity of
recording mortgages. Section 253 of the Tax Law imposes the mortgage recording tax on the
exercise of the privilege of recording a mortgage not on the mortgage itself, as property. (Franklin
Society for Home Building and Savings v. Bennett, 282 NY 79; Matter of Silberblatt, Inc. v. Tax

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Comm, 5 NY2d 635; and One Park Place Associates, and New York State Urban Development
Corp., supra.)
Also, in an informal opinion of the Attorney General, dated March 7, 1956, it was stated that:
[i]t should be noted that section 257 of Article 11 of the New York State Tax
Law is silent as to which party to the mortgage shall pay the tax. Under its terms the
taxes shall be payable on the recording of each loan subject to tax so that the party
who records is the one upon whom the tax is imposed . . . . (1956 Atty Gen [Inf
Opns] 27, at 28.)
Furthermore, Section 6272 of the UDC Act, specifically provides that Petitioner or its
subsidiaries shall not be "required to pay taxes of any kind" and Petitioner, its subsidiaries, projects,
and moneys "shall at all times be free from taxation of every kind by the state and by the
municipalities and all other political subdivisions of the state."
Also, Section 255 of the Tax Law provides, in pertinent part, as follows:
[i]f subsequent to the recording of a mortgage on which all taxes, if any,
accrued under this article have been paid, a supplemental instrument or mortgage is
recorded for the purpose of correcting or perfecting any recorded mortgage, or
pursuant to some provision or covenant therein, or an additional mortgage is recorded
imposing the lien thereof upon property not originally covered by or not described
in such recorded primary mortgage for the purpose of securing the principal
indebtedness which is or under any contingency may be secured by such recorded
primary mortgage, such additional instrument or mortgage shall not be subject to
taxation under this article, unless it creates or secures a new or further indebtedness
or obligation other than the principal indebtedness or obligation secured by or which
under any contingency may be secured by the recorded primary mortgage. . . .
Also, Section 250 of the Tax Law provides that "[a] contract or agreement by which the
indebtedness secured by any mortgage is increased or added to, shall be deemed a mortgage of real
property for the purpose of this article, and shall be taxable as such upon the amount of such increase
or addition."
In addition, once a mortgage has been given and recorded, the recorded primary mortgage
may be changed by a supplemental mortgage and, under the provisions noted above, no additional
recording tax will be due as long as the amount secured remains the same. (City of New York v.
State Tax Commission, 130 AD2d 890, 891 and New York State Urban Development Corp., supra.)

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Conclusions
Based on the foregoing, it is concluded that the mortgage recording tax is not due upon the
recording of any mortgage recorded in connection with the Project, if ESDC is named mortgagee
(whether as trustee, agent, nominee or otherwise) and ESDC presents the mortgage for recording.
Also, to the extent that the mortgage continues to secure the same principal debt or
obligation, the recording of any assignment, supplement, modification or amendment of a mortgage
described in the preceding paragraph is exempt from the mortgage recording tax, either because such
instrument does not create a new mortgage subject to tax under section 253 of the Tax Law, or
because such instrument constitutes a "supplemental mortgage" under Section 255 of the Tax Law.
(New York State Urban Development Corp., supra.) To the extent that a new or further indebtedness
were secured in conjunction with the recording of any assignment, supplement, modification or
amendment of such mortgage, mortgage recording tax would be imposed only with respect to any
new or further indebtedness, and then only if mortgage recording tax would otherwise have been
required to be paid on such new or further indebtedness.

DATED: April 12, 2001

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.