Here's how Robert C. Morgan responded when asked about real estate buys that are recorded as $1 transactions between limited liabilities companies:
Morgan: "I know where you are going with that. I'll tell you what that is all about. We usually try to book it at, like that – you know we do the drop and swap on the LLC – just to avoid, just to avoid showing full price so the assessor doesn’t, you know, bang us for the full value of the property because that would drive the taxes up, way up, and that would also drive the rent way up.
We ended up running into a problem when we bought Idylwood [Idylwood Resort Apartments in Cheektowaga] years ago. And that was booked at full price and we have been in litigation since the day we bought Idylwood. We've been in court [unintelligible], we've been involved in a trial [unintelligible] on Idylwood because they booked it at full assessment...
"We do allocations on these properties. Sometimes you buy something for $10 million, which is perfectly legal, depending on the attorney that you talk to, just allocating money towards good will, noncompete, you know, areas that, the seller is fine with that, appreciating it for tax reasons and so forth. Is that where you are coming from?"
Buffalo News reporter Jonathan Epstein: "Yeah. [We are] essentially just trying to understand these kinds of transactions, like, essentially why people do them, what the benefit is. So you are saying that sometimes you'll buy something for a certain value but only record a certain amount?"
Morgan: "Yeah, exactly. You know, you have a closing statement that says the full amount and all that on both sides – again it's perfectly legal. You know what, you should ask an attorney that if you want to, just to verify what I just said. But it's just for one reason only. So you don't get killed on your real estate taxes. Like if you buy something for $10 million and record it at $7 or $8 [million], and the property is assessed for $8 million, at least your taxes aren't going to go from $8 million to $10 [million] right away. And then you have to raise the rent, you know, that's a problem right there. So it's just basically for assessment purposes, so you don't get killed on your real estate assessment, so your taxes don't go through the roof, because that would change the value of the property you are buying it for."