"Proving market value in a declining market can be difficult, especially when that market is beset by contraction of the economy..."

By John E. Garippa , Esq. as published by Real Estate New Jersey, September 2008

Property owners in New Jersey face a very challenging year in 2008. Rental rates have eroded across all classes of property, and vacancy rates continue to rise. Having anticipated these erosions in value, many prudent property owners have filed tax appeals on their properties to reduce taxes. However, proving market value in a declining market can be a most difficult task, especially when that market is beset by an overall contraction of the economy, as well as a significant malaise in the capital markets.

By law, all property in New Jersey must be valued by taxing jurisdictions as of October 1 of the prior tax year. This means that for assessments established in 2008, the appropriate valuation date is October 1, 2007. The problem facing taxpayers this year is how to prove market value when that value has been eroding every quarter since last year.

The following examples illustrate the issues. Assume a 10 year old class A office building that as of 1/1/2006 enjoys tenancies averaging $30 per square foot and a vacancy rate of 5%. For the next 18 months, these lease rates begin to diminish. During 2007, the average rental in the first quarter falls to $28 per square foot, and in each succeeding quarter continues to decline by a dollar a square foot until the fourth quarter ending December 31, 2007, when it reaches $25 per square foot.

Under this scenario, a taxpayer should contend that the proper valuation of this property can be no more than $26 per square foot, which is reflected as of the October 1, 2007 quarterly analysis. Moreover, even though the $25 per square foot rentals for the 4th quarter of 2007 come later than the October 1, 2007 valuation date, this data corroborates the fact that shrinking rentals are affecting the property. Thus, the value of the tenancies should be no greater than the $26 per square foot valuation for the 3rd quarter. Averaging the rentals for the entire year does not properly value the property as of the valuation date.

A similar fact pattern can be outlined with vacancy rates. Assume the property begins to demonstrate a weakening demand, suggesting that the vacancy rate of 5%, which was appropriate for 2006, erodes each quarter and continues to do so throughout 2007. Toward the latter part of 2007, the vacancy rate at the property reaches 10%. In this case, a taxpayer should contend that the proper vacancy at the property, based on current market evidence, is approaching 10%. Although the average vacancy for the 2007 tax year might be only 7%, the continual increase in the vacancy rate throughout the entire year provides substantiating evidence of higher vacancies. This scenario clearly points to a reduced market value.

A second problem: While the evidence discussed above demonstrates that the property suffers from reduced demand, under New Jersey law, the taxpayer must show that this deterioration exists in other similar property. Thus, the taxpayer must produce data supporting the fact that all office property in the competitive area has endured reduced demand for rentals and increased vacancies.

This opens an opportunity for a carefully crafted forensic appraisal, one that effectively portrays the story behind declining value and demand. A competent appraiser should review all of the market data that documents an overall reduced demand for similar property. Also, there should be an exhaustive review of vacancy factors proving that the reduced demand at the taxpayer's property is not due to mismanagement, but rather to reduced demand in the market area.

A comprehensive review of economic data becomes singularly important to demonstrate that the entire area surrounding the taxpayer's property is experiencing a slow down in demand. Some of the factors to include in this review are: unemployment statistics, bankruptcy filings, business closings, population growth/decline, housing data, availability of office space as well as the general population trends in the state. All of these statistics form the basis for explaining reduced demand and increased vacancy.

As taxing jurisdictions face the growing reality of reduced resources due to the slowing economy, obtaining tax reductions will become even more difficult for taxpayers. In order for owners to prevail in a tax appeal, a compelling story must be developed concerning the taxpayer's property and market in which that property competes. Critical to this story is solid evidence that the market has sustained declines, continues to decline, and the property is part and parcel of that same competitive market.

John E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. Mr. Garippa is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at john@taxappeal.com.

"Assessors are in a tough position, because they're looking at what has happened and trying to apply it to their next assessment. Events change quickly, and it's hard for them to keep up," said Maher. "You have to illustrate that there's been a market shift that is either affecting this property individually or other like property types. You try to negotiate and reach settled solutions. That's sometimes more of a process now."

APTC member, Mark Maher of Smith Gendler Shiell Sheff Ford & Maher was quoted in the article by Dan Hellman, as published by Minnesota Lawyer, July 2008.

Tax Court has seen a big influx of filings this year. In some pockets of Minnesota, the real estate market is finally starting to stabilize. But that doesn't erase the fact that the last two years have seen ever-increasing foreclosure rates - and plunging property values - throughout the state. County assessors have struggled to keep up with the declining market, but in many cases have fallen behind. Predictably, the number of property owners unhappy with their assessments has skyrocketed - and that's meant increased work for real estate attorneys, assessment appeals boards and the place where many such disputes end up: Minnesota's Tax Court. "We're feeling a little bit stretched," said Tax Court Chief Judge George W. Perez. "There's more trials, more motions, more hearings -just generally more work." "We're filing a relatively high number of cases," said Mark Maher, an attorney with Smith Gendler Shiell Sheff Ford and Maher in Minneapolis. "The whole economic slowdown is having an effect on properties' ability to maintain occupancy, and that leads to lower assessments."

Perez said this is the first time in his 11 years with the Tax Court that he's anticipated such a rise in property-related appeals.

At this point, we're coping -we're built to handle these fluctuations," he said. "But we'll see more of an increase before we see a decrease." The last resort The assessment appeals process is designed to funnel only the most disputed cases to the Tax Court, which devotes about one-third its caseload to property-related appeals. Most assessment appeals are dealt with at the municipal or county level, going to a local board of appeal, or heard at an "open-book" meeting for taxpayers, usually held at city council meetings. Those meetings are designed to give the property owner enough information about what went into the assessment so that, ideally, he or she leaves satisfied with the valuation.

If that doesn't happen, the property owner can request that the county do an on-site reappraisal of the property. The next step is to file an appeal, via the county, either to the small-claims division of the Tax Court (reserved for farms, single-dwelling residential properties and other properties valued at less than $300,000), or to the Tax Court proper. From there, a small handful of cases - no more than a few per year, according to Perez - go to the Minnesota Supreme Court.

Even with that system in place, the Tax Court will have its work cut out for it as appeals start coming in. Perez said that from Hennepin County alone, in the coming year the Tax Court will see 1,240 assessment appeals, up from 992 in 2007.

Hennepin is the only Minnesota county that has provided the Tax Court with final figures reflecting how many appeals will be coming their way, but Perez said he and fellow Tax Court judges Sheryl A. Ramstad and Kathleen H. Sanberg expect that the uptick will be about the same - about 25 percent - from Minnesota's other 86 counties.

"Usually there's a little bit of a lag between what happens in the marketplace and what we see in the court system," Perez said. "We're just seeing the beginnings of it. The numbers are starting to increase. When the economic news is poor, our caseload increases."

Residential spike is on the way Most assessment appeals filings that are pushed to the Tax Court are from the industrial-commercial sector, said Tom May, director of assessment for Hennepin County. And while this year's level of Tax Court appeals is unusual, it's hardly unprecedented. "We've been up that high before," May said. "In 2003 we had 1,253, and in 1992 there were more than 3,100. It goes up and down with the commercial-industrial market." May said he expects figures from the commercial-industrial market to hold steady, but that the Tax Court could see more filings in the future from owners of large rental and other residential properties. "Most of the impact that you're seeing in the residential market now will be reflected in 2009 assessments," he said. "At the county level, we will probably have a few more calls and a few more appeals next spring."

Bruce Malkerson, an attorney with Malkerson Gilliland Martin in Minneapolis, said a significant amount of assessment appeals and further litigation is likely to come from owners of both standalone vacant lots and multiple vacant lots that were bought with an eye toward development that never took place. "Generally, those properties have gone down in value, and there is an increase in tax appeal cases in all of those categories," he said. "If assessors don't keep up with the market, more people will appeal their assessed valuations out of necessity. In most locations, I think values will stay flat or go down further." Malkerson commented that an increase in assessment appeals could start to emerge from valuations going back as far as 2006. "The market for single-family residential land was already showing itself to have problems at that point," he said.

A balancing act for assessors Maher said that in many cases, appeals come from funds or institutional investors who two or three years ago acquired clusters of properties whose assessed value hasn't kept pace with what it has cost to keep and maintain the properties.

Part of the job of property owners - and their attorneys - is to avoid Tax Court by working with assessors to understand the context in which the value of certain properties might rise and fall. "Assessors are in a tough position, because they're looking at what has happened and trying to apply it to their next assessment. Events change quickly, and it's hard for them to keep up," said Maher. "You have to illustrate that there's been a market shift that is either affecting this property individually or other like property types. You try to negotiate and reach settled solutions. That's sometimes more of a process now."

Part of what leads to assessment disputes is that assessors have to be part historian and part soothsayer, said May. They have to be aware of past market cycles, and try to predict when they'll come back around. How successful they are at making those educated guesses will have an impact on how many assessment appeals make their way to the Tax Court in 2009. But Perez is expecting another spike. "What's really going to be interesting will be next year," he said. "My guess is that with the way the housing market is going, the number of filings is going to increase again."

"...if the property is considered owner occupied, a taxpayer no longer has to respond in order to have valid appeal rights."

By John E. Garippa, Esq., as published by Globest.com Commercial Real Estate News and Property Resource, July 31, 2008

A recent decision of the Appellate Division in the State of New Jersey established a defense for some taxpayers who have failed to respond to assessor requests for income and expense information. Before this decision, if a taxpayer failed to respond to a tax assessor's request for income and expense information made during any given tax year, any tax appeal filed for that subsequent tax year was subject to dismissal, regardless of the merits of the appeal. In addition, even if a property were owner occupied, if the owner failed to respond to the assessor's request by informing him that the property was "owner occupied," that appeal could be dismissed as well.

As a result of the Appellate Division's recent decision, if the property is considered owner occupied, a taxpayer no longer has to respond in order to have valid appeal rights. However, the court warned taxpayers that if there were even small elements of rental income earned on the property, and the owner fails to report that income when requested by the assessor, the potential would still exist for dismissal of an appeal.

John E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. He is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at john@taxappeal.com.

"In most jurisdictions, the taxing authorities include in industrial property tax assessments the value of the real estate and the value of the intangibles, despite the fact that in many states intangibles are not taxable assets..."

By Cris O'Neall, Esq., as published by National Real Estate Investor, June 2008

For over a decade, tax authorities in many jurisdictions have recognized that intangible assets and rights must be removed when assessing certain types of properties for tax purposes. This recognition of non-taxable intangibles has typically been limited to hospitality and retail properties, where intangible assets are easier to pinpoint.

Assessors often believe industrial properties consist of solely taxable real estate and personal property, and don't remove the intangible assets for valuation purposes. That could change, however, in the next few years, due to changes in financial reporting standards made earlier this decade, including the advent of FASB 141 and 142, which address the reporting treatment of intangibles acquired by publicly traded companies.

INDUSTRIAL INTANGIBLES PROVE DIVERSE
New reporting requirements enable industrial property owners to call attention to intangible assets so they can be deducted from property valuations.

Gaining traction

As auditors have learned to apply FASB 141 and 142, the number and types of intangibles reported to regulatory authorities has increased. The above chart provides a few examples of the kinds of data industrial companies have begun to report to the Securities and Exchange Commission following large industrial plant acquisitions.

In each example, a portion of the purchase price paid was allocated to specific intangible assets and rights. For instance, Harvest Energy Trust allocated over $118 million of the price it paid for a refinery in Newfoundland, Canada in 2006 to engineering drawings, marketing contracts and customer lists. In the past, intangibles were usually reported along with property, plant and equipment and not delineated. Thus, assessors could not see the intangible assets much less understand their value. FASB 141 and 142 have changed that. The identification of specific intangible assets by industrial companies in financial reporting of acquisitions represents a big step forward. It gives legitimacy to specific intangibles, both for the company reporting them and for other companies in the same industry. Intangibles are exempted from taxation in a number of states. For example, in California, statutes, regulations and appellate court decisions exempt most industrial plant intangibles.

Property taxpayers who can identify and place a value on intangible assets and rights are entitled to exclude the value of those intangibles in determining their property's assessed value. Similar tax exemptions can be found in other states, such as Texas and Washington.

Doing the math

Once intangibles are identified, the amount of intangible value to be deducted from the property's total value must be determined. This is established by a review of comparable sales or a cash flow analysis. An appraiser should be retained to develop the valuation using the appropriate ad valorem tax standard.

For example, every industrial property has employees and a market expense to recruit and train can be estimated. This figure is an "avoided cost" to a buyer and represents the fair market value of that workforce for ad valorem tax purposes.The same technique can be used to value drawings, manuals and software.

Normally, property owners do not determine the value of intangibles by using the local property tax value standard. By valuing intangibles that way, the taxpayer derives a quantitative value for the tangible real and personal property that should be subject to property tax.

In most jurisdictions, the taxing authorities include in industrial property tax assessments the value of the real estate and the value of the intangibles, despite the fact that in many states intangibles are not taxable assets. Therefore, owners and operators of industrial properties need to follow these key steps:

• Determine how the taxing authorities appraise your properties for ad valorem tax value. If they include real estate and intangibles in their assessment, take stock of the intangible assets and rights used in connection with your properties.

• Order appraisals for all the properties' intangibles, basing those appraisals on local ad valorem value standards.
• Present the facts to the taxing authorities and request that the value of the intangibles be excluded from the taxable value of your properties.

If you and the authorities cannot agree, file a tax appeal.

Cris K. O'Neall is a partner in the Los Angeles law firm of Cahill, Davis & O'Neall LLP, the California member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. O'Neall can be reached at cko@cahilldavis.com.

"Current market conditions such as eroding rental values and escalating vacancy rates impact the current market value and will not typically be taken into consideration by the assessor."

By John E. Garippa, Esq., as published by Globest.com Commercial Real Estate News and Property Resource, May 28th, 2008

New Jersey property owners need to begin reviewing their property tax assessments that were not appealed, now that the April 1st deadline for filing a tax appeal on 2008 taxes has passed. This is an important exercise because of the rapidly changing market conditions faced by New Jersey property owners.

A proper review calls for a current market analysis on the value of the taxpayer's property. The value discovered from the market analysis should be compared to the current assessed fair market value used by the assessor. Don't forget to include the latest Chapter 123 ratio because the assessor's valuation includes this ratio.

Assessments in New Jersey do not change year-to-year. Typically, once a revaluation cycle has been completed, those assessments remain in place for a number of years. Current market conditions such as eroding rental values and escalating vacancy rates impact the current market value and will not typically be taken into consideration by the assessor. This causes a significant disparity between the current assessment and what that assessment should be if it properly reflected the current market conditions.

By performing this exercise on every property in a portfolio, the taxpayer will be in a position to meet with the assessor months before a new appeal cycle starts.

The views expressed here are those of the author and not of Real Estate Media or its publications.

John E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. He is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at john@taxappeal.com.

"While sophisticated owners and mangers understand these facts, they often ignore the effect when they see a fully leased building. This remains the classic mistake made by owners when dealing with property taxes."

By John E. Garippa , Esq., as published by Real Estate New Jersey, April 2008

The office market in New Jersey has softened considerably according to statistics cited in a recent Wall Street Journal article. While sales of large commercial buildings have declined nationally, the drop in Northern and Central New Jersey has been significant. The area's office vacancy factor remains at 17.8% for the 4 th Q4 of 2007. Then, too, according to Real Capital Analytics, Inc., a New York real estate research firm, the area is tied with Kansas City, Missouri and Sacramento California for the largest percentage decline in sales volume in the 50 major U.S. markets.

These facts bring into focus a key question: What will this slump do to property tax assessments? The answer depends on the level of due diligence performed by the tax mangers and owners responsible for these properties.

Historical precedent tells us that even with a long term upward trending real estate market, there will always be periods of repose, and in some instances contractions. We are currently in such a contracting period. This means owners will put considerable effort into reducing operating expenses as portfolios are devalued. And, the single biggest expense, after debt repayment, for all types of properties is property taxes.

Many owners and managers fail to realize that property taxes must be examined annually to ensure equitable treatment across time for their properties. A property may be fairly valued and assessed for years and then, suddenly, become over-assessed.

This is precisely what the current confluence of events has precipitated this year in New Jersey. First, office market vacancy rates continue to remain at high levels with no indication of reduction. Second, the meltdown in the subprime mortgage market has seriously eroded the capital markets. Banks and financial institutions are requiring significantly more capital infusion from prospective buyers. This, coupled with lender fears, has forced capitalization rates to rise. Third, the employment climate in the state continues to weaken as fears of an economic recession rise.

While sophisticated owners and mangers understand these facts, they often ignore the effect when they see a fully leased building. This remains the classic mistake made by owners when dealing with property taxes.

For property tax assessment purposes, property must be valued each year as if a snapshot of the market is taken on October 1 st of the prior year. For 2008 property tax assessments, owners must ask themselves: What would the current economic market rent, vacancy, and capitalization rate be for each property as of October 1, 2007? Because of the events previously described, any reasonable level of analysis would conclude that most commercial property must be valued below the prior year. Therefore, even if the assessment remains static year to year, the property becomes over assessed because of macroeconomic forces.

Assume the following example: A 100,000 square foot office building leases for an average rental of $25 per square foot based on leases that are several years old. The average vacancy in the building is 5%. If current economic rates indicate that as of October 1, 2007 the appropriate market rent for that building, were it exposed to the market, would be $20 per sf with a 15% vacancy rate, using this example, the building's gross income would drop by more than 29%. This alone results in a significant change in value for this property.

However, the building's market value falls even more when a change in the capitalization rate is appropriate. Based on the macro economic changes described above, an increase in the capitalization rate would be appropriate. In this example, if the capitalization rate changed from 9% to 10%, the value of the property would decrease more than 35% from its original valuation. While a buyer examining the rent roll and net income, as indicated in the example, sees no change based on contract rent, enormous changes have taken place based on economic rent and current market conditions.

Holding a commercial property for long term capital appreciation represents a sound investment policy. Operating under such a policy puts enormous pressure on owners not to ignore cyclical downturns. Even in the short term, those down drafts can dramatically affect a property's valuation for property tax purposes, costing owners untold thousands of dollars in tax expense.

John E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. Mr. Garippa is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at john@taxappeal.com.

"...whenever the assessor seeks income information, the property owner should ensure that only income attributable to the real estate is provided."

By Robert L. Gordon, Esq., as published by Midwest Real Estate News, April 2008

Throughout the United States, assessors constantly search for new ways to squeeze value from commercial property. Assessing the business value of the property rather than just its real estate value has become one of the most common stratagems assessors employ. They do this by purporting to value the property on a traditional income approach, but then use the income generated from a business conducted on the property to derive the property's value. This violates the fundamental rule of ad valorem taxation, which states that only value generated by the real estate itself can be taxed.

This generally causes no problem for leased property. To take a simple example, a commercial office building clearly can be assessed based on the rental income it generates to the owner. Unquestionably, such income represents pure real estate income, generated by the real estate itself. No assessor would seriously seek to assess an office building by including income generated by the law firms, accounting firms and other commercial tenants who rent the office space.

The problem arises for owner-occupied property, where no rental income stream exists that the owner can identify as income generated by the real estate itself. In such cases, it becomes easier for the assessor to take the income generated by the business the owner operates at that location and try to portray that business income as income generated by the property.

In some cases, it should be obvious that the assessor cannot do so. For example, a successful retailer may generate several hundred dollars of retail income per square foot by selling high-end consumer electronics at its owner-occupied location. It would be difficult in that case for the assessor to claim that the income was attributable to the real estate and not the retailer's business skills. On the other hand, as we will see, where a business operated by the owner is less clearly separable from the real estate, the assessor will have an easier time trying to ascribe the income to the real estate.

Court weighs in on business value

Three Wisconsin appellate court decisions on this issue prove instructive and provide a fairly universal guide to steps property owners in any jurisdiction can take to ensure that assessors capture only the value of their real estate, and not the value of a business conducted on that real estate.

Wisconsin courts require that the real estate itself must have the "inherent capacity" to produce income before that income can be considered in assessing the property. In the first Wisconsin case on this issue, the Court of Appeals rejected a regional mall owner's argument that the mall should be assessed at less than its purchase price on the theory that the purchase price included a business value independent of the real estate. The court held that since regional malls exist for the purpose of leasing space to tenants, all the income generated by leasing this space is "inextricably intertwined" with the real estate and, thus, assessable.

In a second case, the Wisconsin Supreme Court found that income generated by a state-licensed, owner-operated landfill could be included in the property's assessment. The court stated that since the license was "specific to the site" and could not be transferred to any other property, the land itself had " an inherent capacity to accept waste that would not be present" in sites without licenses. The court noted, however, that neither side had been able to find evidence of leases in the local market, that is, instances where landfill operators paid the property owner market rent to lease a landfill site. The court indicated that had such market information been available, it likely would not have permitted the landfill income to be used in formulating the assessment.

Actions Owners Should Take

Property owners in any jurisdiction can glean several lessons from these decisions. First and foremost, whenever the assessor seeks income information, the property owner should ensure that only income attributable to the real estate is provided. For example, this will be relatively easy in the case of a retail sales location, since retail sales income is not properly attributable to real estate.

In more difficult cases, some income may be attributable to the real estate and some may not. In such instances, owners need to carefully structure their operating statements so that income sources not directly pertaining to the real estate are reported and categorized separately, and not intermingled with the real estate income. The more the owner blurs the real estate and other income together in a single operating statement, the easier it will be for the assessor to cite that statement as proof that the income in question is "inextricably intertwined" with the real estate income.

Finally, as the Wisconsin landfill decision makes clear, the best defense against an assessor seeking to include business income in a property assessment is actual evidence of local market rental rates for similar properties. Property owners need to exhaust all possibilities for finding like businesses that lease their space, since such market evidence makes it next to impossible for the assessor to claim that business income which exceeds those market rental rates is attributable to the real estate.

In sum, property owners who carefully review and understand the basis for their property tax assessments, and who regularly focus their attention on how their business income is reported to the assessor, stand the best chance of avoiding unlawful property taxation of their business income.

Robert L. Gordon is a partner with Michael Best & Friedrich LLP in Milwaukee, where he specializes in federal, state and local tax litigation. Michael Best & Friedrich is the Wisconsin member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at rlgordon@michaelbest.com.

"The key question for owners is: are these new assessments as accurate as they were before the new GIM technique was employed?

By Joel R. Marcus, Esq., as published by Real Estate New York, April 2008

The Tentative Assessment Roll for 2008/2009 demonstrates a significant shift in assessments for class 2 properties (rented apartment buildings, cooperatives and condominiums). This is due to the New York City Department of Finance abandoning the time-honored approach of net income capitalization in favor of the gross income multiplier (GIM) approach, which for the very first time ignores age, condition, location and expense factors. The key question for owners is: are these new assessments as accurate as they were before the new GIM technique was employed?

Different Methods, Different Results

First, what are the differences in the past and present methodologies and where are the pitfalls in adopting one formula over another? Net income capitalization has been used by assessors and endorsed by New York State courts for more than a century. In 1962, the New York Appellate Division ruled that value arrived at by capitalization provides the surest ground for sound appraisal. In an earlier case, the New York Court of Appeals determined that: "the net income of a property is more persuasive evidence of what a property is worth than using a sales price derived from a similar property. What an investor will pay for a property is measured in large part by the amount and certainty of the income that can be obtained."

The Finance Department provided two reasons for renouncing the capitalization approach: 1) expenses for some buildings were higher than others leading to lower assessments, while in some cases the expenses may have been overstated by the owner. 2) using the GIM eliminated the need to study expenses or expense ratios and offered a simpler, more predictable one-step method.

While GIM offers more predictability, it fails to provide more accuracy. GIM is not seriously employed by any major developer, investor, lender or appraiser today, nor has any New York court embraced it.

In the most recent edition of its handbook, the Appraisal Institute warned appraisers to be careful when using this GIM method. The handbook cautions that all properties used as a basis for this approach must be comparable to the subject property and to one another in terms of physical, location and investment characteristics. If properties have different operating expense ratios this method may not be comparable for GIM valuation purposes.

The GIM approach presents one overriding problem. It is applied to all residential property regardless of location, age physical conditions or the level of services. Also, using GIM throws retail rents, antenna, signage or health club income into the mix, thus, offering the distinct possibility of grossly inaccurate and unfair assessments for many types of properties.

In addition, many substantial valuation disparities occur due to factors such as rent controls, rent stabilization and complexes composed of a large group of buildings. There may be substantially different expense ratios for an aging multi-building housing complex and a 100-unit, mid-block, non doorman apartment house in the West Village. These differences generate unfair tax assessments.

Legal Flaws in GIM

Initially, the Finance Department used different GIMs depending on income level and whether the property is rental, co-op or condominium. This directly violates state law, which mandates that these properties must be assessed uniformly. Therefore, the New York City Law Department ordered Finance Department to make changes; co-ops and condominiums had their assessments lowered and rentals saw their assessments increase.

The fact remains that for all rent-producing properties, the city possesses detailed real property income and expense information from legally mandated filings, and requires detailed statements by CPAs in all but the smallest assessment challenges. This surely provides a database for accurate net income capitalization and takes into account location, condition and other significant factors which ordinarily would render GIM suspect.

As the Finance Department begins to use the GIM to derive property tax assessments, owners need to be on guard against property tax increases. When these increases appear, an owner's only defense is filing a property tax appeal. Income capitalization may be down, but it is not out.

Joel R. Marcus is a partner in the New York City law firm Marcus & Pollack, LLP, the New York City member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. He can be reached at: jmarcus@marcuspollack.com.

"Many assessors routinely send Chapter 91 requests to taxpayers seeking information about income producing property."

By John E. Garippa, Esq., as published by Globest.com Commercial Real Estate News and Property Resource, February 22nd, 2008.

New Jersey taxpayers need to know about two critical issues as they consider possibilities for property tax relief.

The first issue is the filing deadline. All property tax appeals in New Jersey must be filed no later than April 1, 2008. This date requires that the appeal be received by the Tax Court on that date. Merely mailing the appeal with a postmark of April 1st will result in a dismissal. As a precaution, taxpayers would be well advised to file their appeal anytime after January 1, 2008. When the appeal is filed, all property taxes due and owing must be paid in order for the appeal to be considered by the court.

The second issue revolves around the need to timely respond to Chapter 91 requests that have been made by the assessor. Many assessors routinely send Chapter 91 requests to taxpayers seeking information about income producing property. These requests, which must be answered within 45 days of receipt, are sometimes ignored by taxpayers. That is a fatal error. If the assessor sends out such a request, it must be answered in order for the taxpayer to have the right to file a tax appeal the following year. Many valid tax appeals have been dismissed for this failure.

John E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. He is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at john@taxappeal.com.

"Over the past 18 months, the residential market has faced significant erosion and downward pricing pressure with the subprime mortgage meltdown reducing the value of most residential property. The increasing inventory of unsold housing units causes additional downward pressure."

By John E. Garippa , Esq. as published by Real Estate New Jersey, February 2008

At the start of a new year, it is vitally important for New Jersey taxpayers to understand the challenges they should expect regarding property tax assessments. For 2008, many taxing jurisdictions have completed municipal-wide revaluations. Under New Jersey law, in a revaluation all tax parcels are valued at 100% of fair market value. The revaluation set for the 2008 tax year values all property as of October 1, 2007.

The difficulty in properly completing this assignment arises because it generally takes 18 months to properly complete an accurate revaluation. Most often, in the process of their work, revaluation firms consider comparable sales data and comparable income data derived during a 12-month period prior to the October 1 st date. They place greater reliance on that data which is closest to the October 1 st date.

Problems occur with revaluations when the data relied upon does not accurately measure the true value of property at October 1, 2007. In some markets, where a significant value change takes place, accuracy is almost impossible. This year that market will almost certainly be residential revaluations.

Over the past 18 months, the residential market has faced significant erosion and downward pricing pressure with the subprime mortgage meltdown reducing the value of most residential property. The increasing inventory of unsold housing units causes additional downward pressure. Revaluations commencing in 2008 are relying upon sales dating back to 2006, still a period of strength for the residential market. Taxpayers should carefully review their tax notices to determine if these revaluation notices accurately reflect the value of their property as of October 1, 2007.

In Commercial, a continuing challenge will be the fact that now most assessors routinely send Chapter 91 requests to taxpayers every year. These requests are designed to assist the assessor in determining current information about all income-producing property within a taxing jurisdiction. A taxpayer has 45 days to respond to this inquiry.

A failure to respond results in the automatic dismissal of any tax appeal filed thereafter for that tax year. Every year, hundreds of tax appeals are dismissed by the Tax Court because taxpayers failed to properly respond to these requests. While all taxpayers should be diligent in answering Chapter 91 requests, owners with larger portfolios need to stay particularly vigilant regarding these requests.

Taxpayers owning income-producing property also face challenges. High vacancies continue to be seen in many office markets, and the prospect of a slowdown in the economy puts pressure on many commercial values as well. Likewise, with the subprime mortgage market affecting other sectors, retail properties will face price pressure.

All of this makes valuing these properties difficult during 2008. Many of these properties will be worth less in the months after October 1, 2007, than they were prior to October 1. While that fact may not assist in reducing an assessment for 2008, it can be useful in negotiating assessments for 2009.

Key Points You Need to Know: Remember, it is not unusual during the tax appeal process for a tax assessor to request a dismissal for a prior year in order to reduce the following year's tax assessment. This allows the assessor to reduce an assessment for a subsequent year prior to collecting any taxes. The ploy puts the taxing jurisdiction in a position where they will not have to pay any property tax refunds.

The law in New Jersey presumes that assessments are correct. The burden falls on the taxpayer to demonstrate through probative evidence that the value placed by the assessor isn't correct. This makes it especially difficult for taxpayers when market value changes month to month and value must be proven as of October 1, 2007.

Once the tax rolls are closed and certified, a procedure that takes place by the end of the prior tax year, only by filing a valid tax appeal can an assessment be lawfully changed. The tax appeal process can be difficult and expensive, requiring significant proofs. Each taxpayer needs to be aware of the significant difficulties involved, and the fact that these problems are even more pressing when significant economic issues come into play.

Valuing real property in normal static times is difficult enough, valuing them during times of significant change can be almost impossible. Taxpayers face significant obstacles throughout all of 2008 as they try to obtain equitable tax assessments. Bringing together the combined knowledge and expertise of your entire tax team will benefit taxpayers in this tough environment.

John E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. Mr. Garippa is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at john@taxappeal.com.