(Credit: The Related Companies)

The Tax Strategy Behind America’s (Second) Most Famous Developer

There are few nationally recognized celebrities in commercial real estate, former talk show hosts turned presidents aside. The one person that comes close is the owner of The Related Companies, Steven Ross. Although to be fair, he is likely known more for his ownership in the American Football franchise The Miami Dolphins than for his work as a developer and owner of commercial buildings. Others might have heard about him from his controversial donations to the Republican party, including a fundraiser for the aforementioned former president which caused a boycott of the luxury gyms SoulCycle and Equinox that he owns that lasted about as long as a spin class. Those of us in real estate know him for his work developing some of the biggest developments in recent history, including Hudson Yards. 

Related is the largest residential owner in NYC, with more than 8,000 units. The company is known for its luxury assets and has become one of the only widely known brands in the multifamily industry but they started out on the other end of the economic spectrum. Ross founded the company to invest in and develop affordable housing. As an accountant, he was able to navigate the complicated world of Low Income Housing Tax Credits. This was the time that the Community Reinvestment Act was passed which is designed to “encourage” banks and lending institutions to invest in the communities they serve. Since then all of the major banks are some of the largest funders of affordable housing, using it as a way to build clout with regulators to open new locations. Ross went on to found a company called CharterMac that became one of the biggest trading houses for low-income tax credits. Even now Related Companies, despite its luxury branding, is one of the largest affordable housing owners in the country. 

Ross’s success is proof that one of the biggest advantages to real estate investing is tax-related. Not only did low-income credits help make his fortune, his seminal development, Hudson Yards, was partially funded using the controversial EB-5 visa program that allows foreigners to obtain U.S. residency via direct capital investments. Ross’s love for tax planning schemas goes beyond his real estate investments as well. As the owner of over 90 percent of the Miami Dolphins, he is able to take advantage of a well-known tax strategy for high earners that allows them to write off the costs of the purchase against his future income. I am speculating here but I would guess that his sale of bits of the franchise to celebrities like Gloria Estefan, Marc Anthony, and the Williams sisters (all of which have to pay astronomical taxes since their pay is classified as earned income) has something to do with this. 

If you Google Stephen Ross you will also find a lot about his philanthropy. He is passionate about climate change, he founded Ross Center for Sustainable Cities, and higher education, the School of Business at Michigan State is named after him. Even in his philanthropy, there seems to be a tax strategy. In 2017 a $30 million donation to Michigan State was ruled to be overstated by the Federal Tax Court. He fought the ruling but two years later the U.S. Court of Appeals upheld it. In the end, no amount of financial engineering was able to make a judge or jury believe that the property he donated was worth its appraised value of $33 million since he had bought it for under $3 million just one year earlier. 

Mr. Ross is said to be an optimist, one that is not daunted by even the most complicated deals. This might be due to his time cutting his teeth in the bureaucratic world of government incentives. He is proof that sometimes the hardest deals can be the most lucrative. His success is evidence that a good real estate strategy usually goes hand in hand with intelligent (and aggressive) tax planning. While I would not yet consider Stephen Ross a household name, he has become one of the most famous and influential people in commercial real estate, all thanks to an early focus on the unsexy world of low-income housing tax credits.

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