With the number of public-private partnerships for constructing public facilities on the rise, communities across the country wrestle with the question of how to treat such arrangements for ad valorem property tax purposes. In most instances, private developers and taxing entities take opposing positions on the issue.

Public-private joint ventures have become a popular strategy to achieve community objectives through collaboration with private developers. To construct a particular facility, a municipality or other government will typically provide subsidies or other financial incentives to encourage participation in the project by a private-industry partner or partners.

These subsidies, which may come in the form of grants or tax credits, often lead to property tax contention. Some taxing authorities include the subsidies or tax benefits granted to the private developer in the taxable assessed value of the real property.

In contrast, private developers view such subsidies or benefits as tax-exempt intangible property that should not be included in assessed values.

Here are a few common incentives and their property tax implications:

Low-Income Housing Subsidies

The treatment of federal subsidies for operation and construction of low-income housing became an early battleground in the ongoing conflict over property tax and subsidies. Michigan, Kansas, Idaho and some other states account for subsidies in assessing low-income housing for property tax purposes. Taxing authorities in these states argue that subsidies are tax credits that artificially depress values and prevent assessment of such properties at market value.

However, Arizona and some other states disregard subsidies in assessing such properties. Those states assert that subsidies are transferable, meaning the incentives are not intertwined with the real property, and that subsidies enhance the value of low-income housing in the marketplace.

Renewable Energy Subsidies

States have taken a somewhat different view of government subsidies and tax incentives used to finance construction of renewable energy facilities. Particularly in states that promote alternative or green energy, taxing authorities exclude subsidies from the taxable property, choosing instead to classify such incentives as tax-exempt, intangible property.

For example, California's State Board of Equalization in 2017 issued guidelines excluding the federal cash grants and income-tax credits from inclusion in the valuation and assessment of windfarm properties. In 2014, the Arizona Legislature approved a similar subsidies exclusion in the assessments of solar power properties.

More recently, the Oklahoma Supreme Court in Kingfisher Wind LLC vs. Wehmuller held that production tax credits are intangible personal property and are not subject to ad valorem taxation. Production tax credits are federally issued subsidies to help finance construction of windfarms.

The reasons for not including subsidies in the assessed values of renewable energy properties vary. Some taxing authorities assert that subsidies are not bargained for between buyers and sellers of such properties, and that the statutes governing incentives often impose sunset dates.

Notably, some taxing authorities identify subsidies as a needed financial incentive for construction of high-cost properties that would otherwise be economically infeasible to build.

'If You Build It, They Will Come'

Local governments have found that, in many cases, the only way to construct public facilities that will attract a sports franchise or similar occupants to host concerts, sporting events and other large, public events is to subsidize a portion of the construction cost. The development cost for football stadiums, basketball and hockey arenas, indoor theaters, convention hotels and similarly sized public venues often do not pencil out for a private developer without government subsidies. Joint ventures with private developers allow governments to gain the facilities they need by making projects feasible for developers.

Subsidies or grants, perhaps funded by municipal bonds, are one avenue governments use to promote construction of public facilities. But tax credits and similar incentives can be — and are — used to encourage public venue development.

In a similar vein, governments can increase a developer's available funding to construct a desired project by allowing developers to pursue additional revenues at the public venue. An example would be to allow construction of additional outdoor advertising assets associated with the facility that are not assessable for property taxation.

California Decision Pending

California's Supreme Court is currently addressing the property tax treatment of government subsidies. In Olympic and Georgia Partners LLC vs. County of Los Angeles, the court is considering whether the assessed value of a convention center hotel should include a subsidy the City of Los Angeles provided to the developer and owner for its construction.

The city based the subsidy on an amount of transient occupancy tax the hotel was expected to generate for a period of years after it opened. City leaders reasoned that the hotel would not be economical to build without the subsidy.

The court is wrestling with this question: Is the subsidy the city provided an intangible benefit that is not subject to taxation, or is it a part of the real property and assessable for property tax purposes? The court's decision is expected later this year.

Taxable Property or Exempt Intangible?

Like the California Supreme Court, communities across the country continue to grapple with the fundamental question of whether government development incentives contribute taxable property value to a completed project. The answer to this question has significant implications.

If assessors subsume subsidies into the assessed values of real property, it may significantly limit local governments' ability to induce private developers to construct public venues needed to revitalize city centers and rejuvenate local economies. If government subsidies are to be tax-exempt and excluded from the assessed value of real property, however, tax authorities must address a few key points in determining the treatment of individual properties.

First, is the subsidy being used to further the goal of local government, particularly when the subsidy is essential to make the project's construction feasible? Second, will the subsidy's benefit continue throughout the life of the completed property?

When the subsidy funds a project that is not economical to build otherwise, and when the incentive is a one-time construction subsidy that will not be transferred to a subsequent owner, there is good reason for excluding the subsidy from the project's assessed value for property tax purposes.

Rate increases to offset a shrinking property tax base will further erode commercial real estate values.

Across the country, local governments are struggling to maintain revenue amid widespread property value declines, as a result they are resorting to tax rate increases. This funding challenge increases the burden on owners of commercial properties that are already suffering and ultimately degrades property values and the overall tax base. Let's examine how this unfortunate and predictable scenario plays out, and the negative impact it inflicts on commercial real estate values.

Rate-to-value dynamics

A commercial property's taxes depend on its assessed value, which represents the property's market value determined by a local government assessor. The assessed value multiplied by the tax rate determines the property tax owed.

Taxing entities calculate the tax rate by dividing the budget, or dollar amount levied for an area, by the total assessed value of all properties within the jurisdiction. Taxpayers can multiply the resulting tax rate, also known as a mill rate, by the assessed value of their individual property to determine the tax owed.

How can decreasing assessed property values lead to an increase in tax rates? When property values decline, the overall property tax base shrinks. The local government's fiscal needs remain stable, however, or might increase due to inflation and the growth of public services. If the government does not reduce either its budget or levy requirements, tax rates will rise as the tax base declines.

Tax levying methods vary from state to state and can differ across real estate classes, so there are few convenient, apples-to apples-comparisons available. However, a chart of year-over-year changes in the property tax rates of Boston, Minneapolis and Denver captures the beginning of an upward trend. The percentages in the chart represent an increase or decrease from the year before.

Sources: City of Boston published commercial tax rates; Hennepin County published tax rate cards; City of Denver published abstract of assessment and summary of levies.

Property taxes trail the market because assessed values reflect market data from before the assessment year. For example, taxes payable in 2025 may be based on values set in 2024 and based on data from 2023. As a result, with values continuing to decline, tax rates are likely to continue rising.

This scenario creates a challenging environment for commercial property owners, who face increased tax rates as property values decline, affecting investment decisions and lowering market stability.

Impact on real estate value

Increasing tax rates affect commercial properties in two significant ways: One is to reduce net operating income (NOI) for gross-leased properties, in which the landlord pays expenses; the second way is to increase occupancy costs for tenants in net-leased properties, which pass expenses through to tenants.

In gross-leased properties such as apartments, the landlord pays all expenses including real estate taxes. Higher tax rates consume more of the landlord's income, and that NOI reduction decreases the property's market value. For example, if the effective tax rate increases from 2.0% to 2.15% on a $10 million building, the taxes would increase by $15,000.

The additional $15,000 in taxes will come straight off the building's net income, which translates directly into a value loss.

Tenants with triple-net leases pay a base rent plus all expenses. In reference to commercial property taxes, it is not uncommon to hear, "the tenant pays it anyways, so it doesn't matter to the landlord." However, just as landlords are sensitive to cost increases in gross-leased buildings, tenants are sensitive to increases in total occupancy cost (rent plus expenses).

For example, a tenant with $25 per-square-foot net rent and $15 per square foot in operating expenses has a total occupancy cost of $40 per square foot. If the taxes increase by $1 per square foot, then their total occupancy cost will increase to $41 per square foot.

For tenants, a rise in occupancy cost is akin to a rent increase. If expenses become too high, they may demand a rent reduction or relocate to a more affordable building. Thus, the increased tax rate impacts building value through reduced rent or lower occupancy.

Clearly, increasing property tax rates have a significant impact on commercial real estate values. As assessed values decline and local governments let tax rates rise to meet their fiscal needs, the environment for commercial property owners grows more challenging. This leads to reduced income for landlords and increased occupancy costs for tenants, ultimately diminishing asset values, impeding investment decisions and eroding market stability.

A tax case in Allegheny County also spurs a judge to limit government's ability to initiate reassessments of individual properties.

Pennsylvania taxpayers recently scored an important victory when the Allegheny County Court of Common Pleas reasserted taxpayers' right to protection against property overassessment, while limiting taxing authorities' ability to proactively raise individual assessments.

Pennsylvania is the only U.S. state (besides California) that does not mandate periodic reassessments. Instead, it employs a county-by-county method: Each county annually submits sales data to the State Tax Equalization Board, which then creates a "common level ratio" between market value and the previous reassessment value.

Intervals between reassessments vary widely, with Butler County conducting its last reassessment in 1969 and others currently in reassessment. This results in a stilted system that assesses many new owners' properties at the sales price (which may or may not reflect market value), and leaves other assessments unaltered, without updates to reflect changes in the economy and submarket.

Pennsylvania's constitution requires uniform taxing schemes and prohibits government from distinguishing between residential and commercial properties when levying property taxes. As such, all taxing authorities dealing with assessments must administer the laws "in a spirit to produce as nearly as may be uniformity of result."

Actions in Allegheny County

Allegheny County, home to Pittsburgh, has faced extensive litigation over the sales data it submitted annually to the state equalization board for calculating the county's common level ratio. This ultimately resulted in its 2022 common level ratio being retroactively reduced after a county judge held that the county had been "cooking the books" by sending skewed data to the state board. Taxpayers received a special lookback period to appeal their 2022 assessments, and thousands had their property taxes reduced after applying the statistically correct ratio.

Pennsylvania is also one of the few jurisdictions that permit taxing bodies to file assessment appeals against specific properties to raise taxpayers' assessments. In Bhardway vs. Allegheny County, a residential property owner's assessment increased after a school district in Allegheny County filed a tax assessment appeal on the taxpayer's property, and the owner appealed to a higher court. The taxpayer then filed a motion to use an alternative ratio, highlighting the county's lack of transparency and history of sending artificially inflated data to the state equalization board. Finally, the taxpayer argued that it would be financially burdensome for taxpayers to disprove the county's ratio.

Specifically, the taxpayers in the Bhardway case sought to prove non-uniformity under the common-law method by introducing evidence of the assessment-to-value ratios of similar properties in the neighborhood, rather than from the entire county. The Pennsylvania Supreme Court had already approved using such evidence to protect taxpayers from high assessment ratios and to promote uniformity. Allowing this evidence also showed that justices recognized that ratios can vary greatly by location within a county.

In May 2024, the trial judge entered an order granting "parties" permission "to utilize the common law method for establishing common level ratios." This ruling would have been an affront to taxpayers by seemingly allowing taxing bodies to establish various common level ratios for different property classes, in contravention of the Pennsylvania Constitution and established jurisprudence.

Fortunately, taxpayers successfully argued that the Pennsylvania Supreme Court's approval of the common level method did not extend to, or approve of, taxing bodies' disparate treatment of residential and commercial property owners. Allowing taxing entities that ability would instead disrupt uniformity, create confusion, and result in more litigation, they argued.

On Sept. 3, 2024, the judge amended his original order in the case and limited taxing bodies' ability to use the common law method. As it stands, taxing authorities can now only use such evidence if it does not sub-classify properties, or to dispute a taxpayers' evidence by using similar properties of the same nature in the neighborhood.

While the judge's ruling protects taxpayers from the long reach of taxing entities, only legislation mandating periodic reassessments statewide will solve the problems that naturally arise from Pennsylvania's outdated base-year system, which does not accurately reflect the ebbs and flows of the real estate market. The state's current system burdens taxpayers with non-uniform and outdated assessments, while taxing authorities struggle to balance their budgets.

Until the state corrects these fundamental flaws to ensure fairness for all, it is essential that taxpayers continue to file tax appeals that assert their protections against overassessment and right to uniformity in taxation as guaranteed by the Pennsylvania Constitution and courts. 

The seniors housing sector can't seem to catch a break. Owners grappling with staffing shortages and other operational hardships lingering from the pandemic are facing new challenges related to debt and spiraling costs. High interest rates and loan maturations loom over the industry, with $19 billion in loans coming due within the next 24 months, according to Cushman & Wakefield's "H1 2024 Market Trends and Investor Survey" on senior living and care.

Factors driving high costs include wage pressures, inflation and — incredibly — rising property taxes. Despite operational challenges and declining occupancy at many facilities during the COVID-19 pandemic, property tax relief for seniors housing was mixed. Many assessors resisted downward adjustments to taxable values, maintaining that recovery was around the corner. Now, seniors housing operators face property tax assessments that equal or exceed pre-pandemic levels.

As in the hospitality sector, most seniors housing owners understand that their operating properties include more value components than real property alone. In evaluating whether a tax assessment is reasonable and fair, however, owners need to realize that how an assessor addresses their real estate, personal property and intangible assets can drastically affect property tax liability.

Intangibles have value

The Appraisal Institute's "The Appraisal of Senior Housing, Nursing Home, and Hospital Properties" states that the valuation of a going concern in the sector includes real property, tangible personal property and intangible personal property. Real property or real estate equates to fee-simple, leased-fee or leasehold interests; tangible personal property is furniture, fixtures and equipment.

Intangible personal property can include assembled workforces, licenses, certifications, accreditations, approvals such as certificates of need, employment contracts, medical records, goodwill and management.

The Appraisal Institute's text also cites a requirement from the Uniform Standards of Professional Appraisal Practice in stipulating that the market value of real estate must be identified and valued separately, apart from the tangible and intangible personal property. Adopted by Congress in 1989, the Uniform Standards serve as ethical and performance standards for appraisal professionals in the United States.

Assessors and real estate appraisers are familiar with the process of separating real property and tangible personal property for purposes of valuation. Valuing intangible personal property, however, is often less clear.

Top-down vs. ground-up valuation

Appraisers often back into an intangible personal property value by first developing a going-concern value and then subtracting values for real property and tangible personal property. In practice, the whole does not always equal the sum of the parts.

Appraisers frequently opt for this "top-down" approach, so described because the appraiser develops a value opinion for the total going concern and then works "from the top down," assigning values to the various components based on market statistics or other data.

By contrast, some appraisers take a "ground-up" approach by valuing all the components independently and then adding those amounts to value the going concern. If done properly, both methods should yield similar value indications for each component.

For especially difficult property tax cases, taxpayers may find it worthwhile to have two appraisers perform independent appraisals using each method and then present both conclusions to the trier of fact.

Either method can help to demonstrate the considerable investment value imbued in many elements of intangible personal property. The assembled workforce may have taken several months to adequately staff and train, for example, while acquiring and maintaining licenses requires investments of time, capital and effort to overcome regulatory and adherence challenges. The loss of licenses or a portion of the workforce at a seniors housing facility can impair its operation and send effects rippling throughout the business, reaching beyond intangible personal property.

Business appraisers, who are accustomed to valuing intangible assets as part of mergers, acquisitions and similar activities, can provide clarity for taxpayers building a case for a tax assessment reduction on their seniors housing property. A business appraiser can be invaluable in these circumstances, allowing for a ground-up approach to valuing the elements of the intangible personal property and even working alongside real estate appraisers to come up with a clearer picture of the going concern.

Accounting counts

Most seniors housing operators fastidiously follow Generally Accepted Accounting Principles (GAAP) and strive to maintain compliance with accounting rules from the Internal Revenue Service (IRS) and Securities and Exchange Commission (SEC). These taxpayers would be wise to include a fourth consideration for their accounting team, which is to understand how their state and local governments define taxable real estate.

Tax definitions may vary slightly from one jurisdiction to another. Thus, it is possible to have one allocation for IRS, SEC or GAAP guidelines while having a different allocation for property tax purposes that corresponds to tax practices in the area. This type of nuance is one of the reasons seniors housing owners or operators can improve their odds of success in a property tax dispute by working with an adviser who understands both local case law and the area assessor's approach to valuing components of seniors housing properties.

In several states and municipalities across the country, assessors will simply increase a property's assessment to the purchase price entered in county records. This can lead to sticker shock when an operator receives their first tax bill after an acquisition.

By working with tax professionals and valuation experts during the due diligence and acquisition process, and by documenting the consideration paid for each component of an acquired asset's value, operators can limit upside exposure for future increases in property taxes and retain the necessary documentation to support these allocations.

Property assessments change. Are you keeping up with them?

Benjamin Franklin has been credited (dubiously) with the saying, "in this world nothing can be said to be certain, except death and taxes." The Greek philosopher Heraclitus has been credited (also dubiously) with the saying, "the only constant in life is change." To synthesize dubious quotes from two brilliant minds, "you will certainly have to pay taxes, and they will constantly change."

With property tax bills subject to constant change, property owners hoping to predict and plan for future tax liability have their work cut out for them. Here are the chief factors taxpayers should consider in tax planning.

Track reassessments

Governments base property taxes on two things: assessed value and tax rate. Both elements change on a regular basis, and it can be mind-boggling for taxpayers to stay on top of just exactly when and by how much their properties' taxes will increase.

Reappraisal systems vary. While most jurisdictions reappraise either annually or on a regular, multiyear cycle, some jurisdictions do not. Famously, California's Proposition 13 requires reappraisal based on changes in ownership and other triggers, rather than on any regular cycle.

A jurisdiction's reappraisal history is no guarantee of its future cycle. For example, the Arkansas Legislature amended its reappraisal statute in 2023, transitioning from counties being on either 3-year or 5-year cycles to mandated 4-year cycles for all. However, even this information is not enough to know when a particular county's next reappraisal will be, because the transition will be phased to reach a substantially equal number of counties reappraising each year.

Various variables

While knowing the jurisdiction's reappraisal cycle is important, the taxpayer's team has many other local rules to follow, including potential caps on annual increases. For example, in Alabama, which reappraises properties annually, the legislature recently capped annual increases at 7%, effective in Tax Year 2025.

Once the taxpayer knows a jurisdiction's reappraisal cycle and methodology, there is still the question of how much assessed values will change from one reappraisal to the next. For jurisdictions that have longer cycles, value changes can be drastic.

For example, Tennessee assessors reappraise properties on a cycle of four, five, or six years, depending on the county. Nashville, one of the fastest-growing cities in the country, will undergo a reappraisal in 2025 for the first time in four years. Based on the exponential growth that has occurred in that interim, property owners will likely experience sticker shock once assessments come out in May.

Across the United States, all taxpayers receiving revised assessments in 2025 face uncertainty about how current events will affect new valuations. How Donald Trump's election and initiatives will affect the real estate market is unclear.

The Federal Reserve reduced the fed funds rate three times in 2024 after more than a year of tightening, but the future impact of their tinkering is uncertain. Office market fundamentals have deteriorated to an alarming degree, and multifamily transaction volume has slowed from a firehose blast in 2024 to a trickle today. Will the assessors of America take macro-economic changes into account, or will they fixate on conditions in early 2022, before interest rate hikes and the decimation of the office market?

Rate watch

After assessors establish taxable value, taxpayers still face the question of the tax rate. Rates can change in any year, whether there is a reappraisal or not. However, one important thing to know about any jurisdiction undergoing a reappraisal is whether it has a truth-in-taxation law.

These laws aim to ensure transparency by requiring local governments to inform taxpayers in advance about potential increases. Tennessee, for example, requires local governments in a reappraisal year to certify a tax rate that will result in revenue remaining neutral, or equal to the previous tax year's revenue. Then, if leaders wish to increase the tax rate to generate more revenue than the prior year, they must take a separate vote later.

Typically, values increase greatly in the reappraisal and the tax rate plummets to generate neutral revenue, due to the truth-in-taxation law. This prevents local governments from obscuring a potential tax windfall following reappraisal, because they must vote to increase the tax rate before anticipated revenue can exceed the neutral amount.

In the end, every jurisdiction is different. Staying on top of a portfolio's upcoming reappraisals requires the taxpayer or their advisors to understand and follow a host of variables, from the reappraisal cycle to potential caps, exemptions, truth-in-taxation laws and more. A seasoned, local advisor can help property owners understand current laws, monitor proposed changes, maintain relationships with local assessors, and identify the most effective strategies for limiting potential overassessments due to reappraisals in each property's jurisdiction.

The American Property Tax Counsel is pleased to announce that Washington, DC will be the site of an in-person meeting for the 2025 Annual APTC Client Seminar.

Save the Dates! October 22-24, 2025 - Hotel Washington, Washington, DC

THEME: Capital Insights: Innovation, Intelligence, and the Future of Property Valuation.

APTC seminars provide an exclusive forum where invited guests can collaborate with nationally known presenters and experienced property tax attorneys to develop strategies to successfully reduce and manage property taxes. 

FEATURED SPEAKERS 

MEMBER SPEAKERS 

Despite subjection to appraisal districts' flawed methodologies, property owners still have opportunities to reduce inflated property tax assessments.

No income tax in Texas. The Texas Constitution prohibits it, so local funding depends primarily on property taxes.

But to many Texas businesses, this "necessary evil" has become just plain evil. Over the last several years, property taxes in Texas have exploded.

State politicians have taken notice and are ramping up demands to reduce or eliminate property taxes, but the alternatives are more than unpopular. For instance, nobody wants to pay—and no politician wants to stand for election on instituting a near 20 percent sales tax. And everyone knows this. To avoid this reality, lawmakers have pivoted to find a villain, and the appraisal districts that place the taxable value on property are a ready target.

The popular solutions to rein-in this villain are appraisal caps, increased exemptions and value limitations, all of which offer relief to residential property owners but do little for commercial owners. dfafrfrttrtrtAnd these "fixes" result in a system that is neither equal nor uniform, undermining the constitutional foundation of taxation in Texas.

Our elected officials have yet to address the fundamental issue driving the over-valuation of most commercial properties, which is appraisal districts' methodologies. Instead of focusing on each appraisal district's valuation culture and policies, our elected officials have legislatively restricted appraisal districts from increasing property valuations by more than 20 percent per year. But this limit applies only if the prior-year value is under $5 million.

This isn't meaningful. It addresses a symptom that has inflamed small business' opinion of property taxes but does not address the root cause of exploding property taxes.

The root cause of exploding property taxes in Texas is exploding commercial property valuations, the direct result of appraisal districts' failure to appraise property at its fee simple market value.

Leased-Fee Valuations

Most businesses' real property is income producing and often leased. The thing about leases is that they split the real property subject to the lease into two interests: the landlord's leased-fee interest and the tenant's leasehold interest. Texas appraisal districts appear to operate under the assumption that the sum of these two interests equals the value of real property. They don't, and that is a problem.

Texas appraisal districts typically value income-producing property using the income approach, and in their analysis, they assume the property is at stabilized occupancy. This is a leased-fee valuation (landlord's interest plus tenant's interest), while the Texas Property Tax Code mandates that all real property should be valued at fee simple.

To perform a fee simple valuation, the appraisal districts should be valuing the property as though vacant and available to be leased at market terms, as set out in The Appraisal of Real Estate, 15th Edition. This approach will result in central appraisal districts properly performing their income-approach valuation by using a lease-up adjustment to stabilized occupancy. The result would be more accurate appraisals as well as equal and uniform valuation of commercial properties.

Without approaching property as vacant and available to be leased at market terms, appraisal districts overstate and unequally treat real property due to a host of intangible factors outside the value of the tangible real property. Examples of intangible value, which isn't subject to property taxation, include creditworthiness of tenants, superior management, assembled workforce and brand recognition, among others.

As an example of this practice, each year, Texas requires appraisal districts to value real property located in their jurisdictions. For income-producing properties, appraisal districts will estimate and capitalize each property's net operating income without any lease-up adjustment. Many owners will then protest the appraisal district's estimations and will ultimately obtain a value reduction because their income and expense statements reflect a net income that is lower than what the assessor estimated.

This behavior does not comport with fee simple valuation and has and will continue to create disparities between income-producing properties based on factors other than fair market value of the tangible real estate. This creates unfair competitive advantages for some properties over others.

How so? The lowered valuations taxpayers receive after successfully protesting their assessments aren't based on the market; they are based on lease contracts and other property-specific data, from rents to expenses, vacancy rates, brand value and other factors.

This pervasive assessor practice causes some property valuations to be reduced while other owners find their taxable values inflated, with taxpayers being punished for the income stream associated with their business rather than the fee simple value of their real property.

This creates an environment where the appraisal districts issue "come and see me" valuations for properties year after year. And then appraisal districts only agree to reduce the assessment once the property owner has provided their confidential leases, revenue, expenses, tenant improvements and net income.

What Can Property Owners Do?

Until the legislature steps in to address this unfair valuation methodology, Texas property owners do have options. First, do not be the first commercial real estate owner to have their protest considered. Unfortunately, the longer it takes for a protest to be considered, the better. Wait for those eager businesses with poor occupancy, low rents, and high expenses to produce their financials. Appraisal districts, aside from their leased-fee valuations, are limited in resources and information. So, the more financial information flows in, the more reviewers' perspective will adjust from their initial estimates to the lower valuation levels protesting taxpayers seek.

Second, and most importantly, invoke equal and uniform valuation. In Texas, all property must be equally and uniformly valued in addition to being valued at market value. To be equally and uniformly valued, a property must be valued equal to the median value of a reasonable number of comparable properties appropriately adjusted. In practice, this means a property should be treated the same as neighboring properties and competitors. So, point to similar properties that the appraisal district is valuing at a more favorable price per square foot than the subject property.

If these options don't work, pursue an appeal to district court. Armed with a true expert appraisal that focuses on the differences between fee simple versus leased-fee valuation, the taxpayer will have a powerful basis for reducing their property's assessment and, ultimately, their property tax burden. 

Can incentives cure the city's property market funk?

The City of New York's tax assessment valuations remain on an upward trajectory that compounds the burden on property owners. In stark contrast to this fiction of prosperity and escalating valuation, real estate conditions tell of a growing threat that menaces all asset classes across the city.

Pharmacies, retail stores and restaurants with deep roots in the community are vanishing at astonishing rates, victims to changes in consumer habits post COVID-19, competition with e-commerce, and rising costs associated with labor and supply chains.

Remote and hybrid work practices have taken a heavy toll on commercial office buildings. Submarket vacancy rates in the sector are cresting 20 percent, while individual office properties wrestle with vacancies ranging from 50 percent to 100 percent.

While hotels have improved due to demand for temporary migrant housing, they still have not fully recovered to pre-pandemic occupancy levels. Meanwhile, multifamily rents continue to rise, straining the budgets of long-term residents and driving many renters to an affordable housing sector where supply remains insufficient to meet the needs of an expanding population.

Despite the challenging market conditions, the city's property tax bills continue to increase, driven by a host of underlying factors.

Assessments ascending

Taxable, billable assessed value citywide increased by 4.2 percent this year to $298.9 billion. Assessments climbed 4.5 percent for co-ops and condominiums, but also increased in hard-hit commercial sectors. Retail valuation climbed 1.6 percent, and total valuation for office properties grew 2.5 percent from the previous year.

Why the disconnect between challenges in the real estate market and the rising burden of property taxes? Several factors could be pressuring assessors to increase assessment values. Here are just a handful:

Need to raise revenue. Property taxes represent approximately 30 percent of the city's budget, and the municipality's financial obligations continue to grow. The city continually seeks additional revenue to fund employment agreements, pension obligations, expenses associated with homelessness and migrant populations, and other expanding costs.

Market myopia. Property taxes are based on annual valuation updates that may not accurately reflect the quick shifts the market is experiencing, such as skyrocketing vacancy rates and the need to make costly building improvements to attract and retain tenants. As a result, property owners may face tax bills that do not correspond to the current economic environment

Debt, disregarded. The city's property assessments ignore debt service, leading to overestimations of taxable value. Commercial real estate sectors are facing growing pressures related to renewing existing debt, especially at today's high interest rates. Debt service obligations on many commercial properties now exceed the asset's market value, making it increasingly difficult for property owners to refinance, operate or sell their properties at a profit.

Dated data. Even where there is increased vacancy, the assessors still use outdated estimates of market rents and occupancy to impute income for vacant spaces, thus keeping assessments artificially high.

Tax relief options

Amid these mounting challenges, a property owner can often mitigate their tax burden by contesting the assessor's conclusions and arguing for a reduced assessment. Alternatively, or additionally, taxpayers can apply for relief under the city's abatement and exemption programs. An adviser experienced in the property tax law and local practices for the subject property's jurisdiction can be a valuable aid in identifying and pursuing tax relief options.

Here are the major real estate tax programs the city offers to provide property owners with relief while incentivizing investment in the community:

The Industrial and Commercial Abatement Program (ICAP) provides property tax abatements for businesses that make capital improvements in commercial and industrial properties. For both renovations and new construction, it provides a 10- or 12-year benefit for renovations in Manhattan below 59th Street, and 15 or 25 years of benefits above 96th Street and outside of Manhattan. By renovating and repurposing older, underutilized properties, ICAP helps generate productive spaces and revitalize neighborhoods. Without these incentives, the cost of construction and renovation is often prohibitive for the property owner.

ICAP was set to expire next spring, but the State Legislature recently extended the program to April 1, 2029. While this is a great program to encourage property rehabilitation, it hinges on the owners' ability to pay for substantial capital improvements and to secure tenants at market rents. Not all properties can fit that profile.

The Affordable Housing from Commercial Conversions program offers tax exemptions for owners who convert commercial properties into residential rental units. Also known as the 467-m program, this initiative seeks to increase the supply of residential housing and is a boon to owners of some outmoded office properties who seek to revitalize their buildings through a change in use.

The benefits are great – owners pay zero taxes during construction and 90 percent of normal taxes for 35 years after completion. However, 25 percent of the units must be offered at affordable rents.

The problem with this program is that many office buildings are poorly suited to residential conversion under current residential building and zoning codes. Achieving workable apartment layouts and window locations can be challenging, and in some cases, conversion may exceed the cost of new multifamily construction.

The Affordable Neighborhoods for New Yorkers program, or 485-x, incentivizes the creation of affordable rental housing across the city and is the successor to the 421-a program. Developers of buildings with more than 11 rental units, and who make 20 percent to 25 percent of the property's units affordable, are eligible for property tax exemptions for up to 40 years.

485-x is a critical tool in expanding the city's affordable housing stock as rising rents displace long-time residents. The affordable component remains in effect beyond the benefit period, however, which deters many developers.

The snapshot of NYC's assessment quandary is this: The market is demonstrating lower valuations, but tax assessments remain stubbornly high. The incentive programs require substantial new capital outlays for construction, and the end product needs to be economically viable.

As in all stories, time will tell how New York addresses its property tax dilemma. But if market conditions continue to decline, the current incentives will not resolve the problem of excessive property taxation. 

Property tax assessors in nation's capital city ignore post-COVID freefall in office pricing, asset values.

Commercial property owners in the District of Columbia are crawling out of a post-pandemic fog and into a new, harsh reality where office building values have plummeted, but property tax assessments remain perplexingly high.

Realization comes slowly

Immediately following the pandemic, many office property owners adopted a wait-and-see attitude toward the volatility permeating the sector, clinging to hopes that the rising popularity of remote work and similar office worker practices would prove temporary. Once the Federal Reserve began raising interest rates to combat generational inflation in 2022, however, hopes for a "return to normal" vanished and a grim reality set in.

Recent transactions involving office properties in the District clearly indicate that investors recognize the negative impact these market forces have exerted on office building valuations and are now pricing those changes into the amounts they are willing to bid for acquisitions. These recent sales show office building values have declined by more than 50 percent from pre-pandemic levels.

The other shoe began to drop on office market pricing in early 2023 with a rise in distress transactions, in which the office owner sells or forfeits the property to resolve some form of trouble, typically financial. These turnovers in ownership have continued to increase and now exert a growing influence on office pricing and valuations. Although properties have continued to transfer by traditional, arm's length transactions, the occurrence of foreclosures, deed-in-lieu arrangements, and lender takebacks is increasing. The proliferation of these non-standard transfer mechanisms is irrefutable and has a direct effect on the overall office market.

Denying reality

So, how has the District of Columbia adjusted its methodology to properly value office assets in this new and more challenging environment? In short, it hasn't.

A quick look at the 2025 tax year's assessment values (valued as of Jan. 1, 2024) shows the District largely ignored any change to the market. Among properties that traded in 2023 and 2024, the District's assessment-to-sale-price ratio is close to 200 percent! In other words, the District's methodology is producing assessments that are twice the values those properties are trading for.

This divergence from market evidence is perplexing, given that District of Columbia Courts have ruled that a recent purchase price provides the best indication of a property's value. In its 1992 decision in Levy vs. District of Columbia, the D.C. Superior Court observed that "a recent arms-length sale of the property is evidence of the 'highest rank' to determine the true value of the property at that time."

How does the District get around this decision when valuing office properties today? By ignoring any sales that it finds inconvenient and disqualifying them from inclusion in its assessment model.

Setting aside the impropriety of disqualifying these marketed, arm's-length transactions, the District has also excluded distressed transfers from its model. These exchanges of property, which may involve a lender's sale of real estate obtained through foreclosure, may not involve a sale between a conventional buyer and seller but they nevertheless establish value for the transferred real estate.

When non-standard transfers have become standard, as they have in the post-pandemic office market, assessors should include these transfers in their valuation models. That's according to the International Association of Assessing Officers (IAAO), which provides guidance on the topic in its Standards on Verification and Adjustment of Sales (2020 edition).

The publication states that when non-standard sales become more common, sales "in which a financial institution is the seller typically should be considered as potentially valid for model calibration and ratio studies if they account for more than 20 percent of sales in a specific market area."

The IAAO's Standards echo this qualification when addressing short sales. In that section, the IAAO states, "these sales should be treated like other foreclosure-related sales and considered for model calibration and ratio studies when, in combination with other foreclosure-related sales, they represent more than 20 percent of all sales in the market area, but only after a thorough verification process for each sale."

This 20 percent threshold is the IAAO's acknowledgement that when the market evolves, mass appraisal models must reflect the market's change. That means the District of Columbia can no longer ignore distressed transfers and should recalibrate the mass appraisal model used to value commercial properties in the District to include these types of transactions.

Despite these non-standard transfers representing well over 20 percent of DC's office market, the District has failed to adjust its model in accordance with IAAO guidance. As a result, assessors overwhelmingly base assessments on years-old data that does not reflect current market conditions.

Next steps

Moving forward, the most effective avenue for change will be aggressive advocacy by office market participants. Owners of commercial properties in the District must continue to engage with elected officials and actively appeal their assessments.

Fortunately, independent third parties administer the Real Property Tax Appeals Commission and D.C. Superior Court – two of the three levels of real property tax appeals in the District. If the District is unable or unwilling to change with times, the tax appeal process gives taxpayers the opportunity to force its hand.

Commercial property owners can maximize returns by minimizing property taxes, writes J. Kieran Jennings of Siegel Jennings Co. LPA.

Investing should be straightforward—and so should managing investments. Yet real estate, often labeled a "passive" investment, is anything but. Real estate investment done right may not be thrilling, but it requires active management, particularly in controlling one of the largest ongoing expenses, property taxes.

In recent years, the real estate industry has faced numerous challenges that harbored opportunities for savvy investors. From the COVID-19 pandemic and interest rate spikes to the work-from-home trend and increased vacancies, these disruptions were not just problems to solve—they were openings to reassess strategies, particularly regarding property taxes. Investors who seized these moments to reduce their tax burdens likely reaped significant benefits.

Consider the advice of the late judicial philosopher, writer and judge Learned Hand, who famously said: "Anyone may so arrange their affairs that their taxes shall be as low as possible; they are not bound to choose that pattern which will best pay the Treasury. There is not even a patriotic duty to increase one's taxes."

For real estate investors, this principle underscores the importance of addressing their largest tax expense: annual property taxes. These taxes not only erode returns year after year but can also negatively affect refinancing terms and eventual sales prices.

The best time to act? Now

Opportunities to reduce property taxes arise from shifting markets, new tax laws, court decisions, and even turnover among local assessors and prosecutors. Staying proactive means regularly reviewing these factors to determine whether each new assessment warrants a challenge.

To illustrate how market conditions and legal frameworks create opportunities, consider the following scenarios. Although these are hypothetical, they derive from true situations and case histories.

Tax is for tangibles: Soon after an investor purchased a hotel in Florida four years ago, the local assessor valued the property at 80 percent of its purchase price—a reasonable valuation for tax purposes at the time. Recent case law casts that value in a different light, however. Assessors must now exclude intangible business value, which can constitute up to 50 percent of a hotel's total value, from property tax liability. Ensuring the assessor valued their property correctly under the new directive enabled the subject property's owner to achieve a substantial reduction in the hotel's taxable valuation, saving tens of thousands of dollars annually.

Interest rates reconsidered: A multifamily complex acquired in 2021 was assessed at 90 percent of its purchase price. Although the owners had secured favorable interest rates at the time of acquisition, the taxpayer was still able to obtain a 30 percent assessment reduction in 2023. How? By citing the impact of rising interest rates on market conditions, which had suppressed property values due to buyers' increasing cost for debt financing. This assessment reduction helped improve the owners' cash flow and property valuation during refinancing negotiations.

Advanced to obsolescence. A newly constructed industrial facility in Ohio built to serve a rapidly developing industry faced obsolescence challenges as the needs of its intended tenant base changed in the evolving subsector. Under Ohio law, such properties are classified as special-use and must be assessed based on value to the user. The owners demonstrated significant economic obsolescence, effectively reducing the property's valuation. Additionally, the owners showed that many fixtures the assessor had initially included in the valuation were personal property. With strict adherence to legal definitions in revisiting the assessment, the assessor excluded the personal property from taxation. Understanding the legal definitions of assessable property and providing evidence of obsolescence enabled the owners to achieve meaningful tax savings.

These three examples highlight how market shifts and legal precedents create opportunities to lower tax burdens, even when the immediate need for action isn't obvious.

How to recognize a fair assessment

The methods for determining whether a property is fairly assessed depend on local and state laws, which vary widely and change frequently. Staying informed requires continuous monitoring of tax laws and local tax authority practices.

A taxpayer or tax advisor determined to stay current on local tax conditions should be sure to follow three key steps as part of their inquiries:

1. Understand local laws and definitions. Assessors calculate fair market value based on jurisdiction-specific guidelines.
2. Identify potential exemptions. Elements such as business fixtures might be reclassified as personal property and excluded from taxation.
3. Evaluate risks. Be aware that challenging an assessment involves risks, which can range from minimal to significant, depending on local laws and circumstances.

Combining a thorough understanding of jurisdictional laws with an analysis of property-specific facts is critical. This approach ensures taxpayers know what evidence to produce and will know when they're being fairly assessed.

The bottom line is that commercial property owners must exercise vigilance, expertise and a proactive mindset to manage their property taxes effectively. By viewing challenges as opportunities, property owners can minimize expenses, maximize returns, and protect the long-term value of their assets. Regardless of whether an assessment appeal requires an attorney, thinking like a lawyer will yield dividends.