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Sep
21

Self-Storage Property Taxes: How Assessments are Made and Ways to Potentially Lower Your Bill

Self-storage has become a hot investment and values are up, but many owners find themselves with excessive property-tax bills that eat into their cash flow. Here's an overview of how tax assessments are made and some ways to potentially lower your bill.

Self-storage facilities continue to command great cash flow, but many owners find themselves funneling more of their income toward exorbitant property-tax bills. Those who take the time to review their assessments and liabilities with a local expert often discover they're being taxed unfairly. This is why you should identify and question your assessor's methods, assumptions, data and calculations. By exercising your right to contest your assessment and presenting a convincing argument, you might be rewarded with a lower tax bill.

Self-storage is especially vulnerable to errant valuations by assessors who fail to differentiate taxable from non-taxable value. Key questions include whether the sale of a self-storage facility is completely subject to transfer tax and if the price directly equates to taxable value for real property tax. It can be argued that much of the value associated with self-storage is business value and personal property, which is typically exempt from transfer or property taxes.

Let's examine how self-storage tax assessments are made and arguments you can use to contest one assigned to your own property. A successful appeal can save significant money, so it's worth pursuing.

The Trouble With Assessment

Arguing that the value of your self-storage facility is largely derived from non-real-estate sources can be problematic. Much of the difficulty comes into play when the assessor obtains a copy of the finance appraisal, or when a purchase and sale agreement includes an allocation separating the real estate from non-realty items.

Assessors want to believe that all the value in a sale or from financing is derived from real estate. In the Ohio case St. Bernard Self-Storage LLC vs. Hamilton County Board of Revision, the state supreme court stated that although the purchase and sales agreement carved out goodwill in the acquisition price, it was unconvinced that the sale of a self-storage facility had any goodwill. Conversely, lenders are often unable to lend on value that isn't attributable to real estate.

For property owners, the first step toward minimizing taxes and maximizing their financing is watching definitions; the definition of the interest being appraised is paramount. Appraisers can properly find for two different values on the same property, depending on whether they're valuing for the purpose of financing or tax assessment, so it's important to establish the interest being appraised.

When it comes to financing, lenders can and do lend on the stabilized value of a property performing as a going concern. In other words, they're appraising the property's leased fee value. So, for financing, appraisers can rightfully take into consideration the income from the operation at stabilization, but that isn't necessarily true for tax assessors.

Many states require assessors to value the fee simple interest in the real property only. The fee-simple appraisal is based on the real estate value alone and excludes value from the return of and on personal property. When it comes to self-storage, the assessor's calculation of taxable value must ignore value associated with units, computer systems, national marketing and so on, based on circumstances. Individual units are capable of being assembled and disassembled, which means they are at best a business fixture and not real estate.

Many assessors and appraisers recognize the removal of the depreciated value of personal property, which means they must also remove the personal property—and any income attributable to it—from the going-concern value. The comingling of values from multiple sources is especially evident when there's a sale.

Arguments in Your Favor

When the assessor cites a tax assessment based on the sale of your self-storage property, you can make several arguments. First, look at the building's construction and acquisition costs without factoring in things like security, computer systems, marketing and individual units.

If your facility was recently converted from a different type of building, that too can give you an advantage. Properties like those transformed from big-box retail space often trade at much lower price before lease-up and stabilization, and the conversion costs are typically associated with the personal property and eventual occupancy. So, as the owner, you can present sales of comparable pre-conversion properties to support an argument for a reduced assessment. It's better than using the sales of operating self-storage facilities as comps because there's no need to remove the personal property from the equation.

In cases when there are few comparable sales of big-box properties to reference or your self-storage facility truly isn't comparable to others that have been sold, it's appropriate to assess the property based on the replacement costs associated with building new. However, the appraiser should stop short of including costs specific to individual units, otherwise they'd need to apply depreciation from all sources, including age and any economic or functional depreciation.

The last line of counterargument is based on the income approach to valuation. Income-based assessment is the most complex when it comes to removing non-realty income. The easiest and cleanest way to respond is to look at examples of same-generation retail or light-industrial rents.

That said, when trying to defeat a sales price, it may be necessary to look at the actual income and then determine the appropriate amount for the non-realty value. Appropriate income will be based on the initial investment to install personal property as well as the return from that personal property. The income derived from that non-realty component is then removed from the actual net income. This is an activity easier said than done, but appraisers can establish the return. After removing the non-realty income, they should apply an appropriate capitalization (cap) rate to arrive at the property value.

Preferably, the cap rate used by the appraiser or assessor should be created from a mortgage constant and equity returns rather than from sales of comparable self-storage facilities because cap rates from this industry have comingled interests.

As you can see, it's appropriate for self-storage owners to use different values for their property, including one for financing and another for taxable or assessed value. These will differ because the appraisals that produce them are truly measuring different property interests.

J. Kieran Jennings is a partner in the law firm of Siegel Jennings Co. LPA, the Ohio, Western Pennsylvania and Illinois member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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Deck - Summary for use on blog & category landing pages

  • Self-storage has become a hot investment and values are up, but many owners find themselves with excessive property-tax bills that eat into their cash flow. Here’s an overview of how tax assessments are made and some ways to potentially lower your bill.
Sep
15

Tricky Issues Impact Shopping Center Property Taxes

It's critical for landlords to understand how variations in performance affect property tax liabilities.

Property tax assessments of shopping centers and other retail real estate may not capture the full extent of value losses those properties sustained in 2020. To avoid paying more than their fair share of taxes, it is important for retail owners to examine how market conditions affect each aspect of the tax assessor's approach to valuing their real estate.

In most jurisdictions, assessors value real estate for property taxes as of Jan. 1 of each calendar year. Most appraisal districts assess retail properties at market value derived from the income approach, as would an investor looking to acquire one of these properties. Market value in this case is the probable price at which a property would sell in a competitive and open market, where the buyer and seller are motivated, well informed and acting in their own best interest, and with reasonable exposure time and typical financing.

In a stable environment, most appraisal districts' assessors capitalize the prior year's net operating income to reach a market value. Since the 2020 retail property market was less than stable, a modified approach could be to start with a stabilized value, then calculate the rent loss and leasing costs required to stabilize the asset.

The pandemic and stay-at-home orders affected retail property subtypes in varying ways, and performance often varied from property to property within a subtype through most of 2020 and into 2021. Multitenant strip centers saw large occupancy declines as a 20% drop in customer traffic nationwide left many tenants unable to pay rent.

Mall Mayhem

Malls were among the hardest hit properties. Foot traffic in some malls dropped nearly to zero and mall anchors including JC Penney, Macy's, and Dillard's began liquidating many locations. Prior to the pandemic, enclosed shopping malls and brick-and-mortar stores were already struggling to maintain customer traffic related to massive increases in ecommerce. The effects of changing consumer behavior, in addition to mandated stay-at-home orders, accelerated this shift to ecommerce, and many mall-based tenants closed their doors completely.

Big box retailers arguably fared better than other store categories, as those designated as essential businesses remained open throughout 2020. Because of this, in many cases sales volume at big box retailers (especially those with grocery components) outpaced sales at other retail property types. Store sales do not equal market value for the purposes of property tax assessments, which underscores the need in 2021 for property owners to be more aware than ever of tax assessors' valuation standards.

While appraisal districts may emphasize increased sales volume in big box retail, property owners need to remember that business performance does not equal real estate value. Store sales may be up, but an increasing percentage of these sales come from online orders. Property owners must prove that, despite increased sales volume overall, big box property values are generally flat or decreasing. Ecommerce has weighed on real estate values for the past few years and has forced big box retailers to re-evaluate their approach to storefronts.

Rent Adjustments

The pandemic forced property owners to make significant rent concessions to keep tenants in place throughout 2020, when those occupiers were able to do so. These rent concessions should reduce effective rents in the retail market, with variation by location and submarket. Additionally, with a large portion of tenants unable to pay rent, the retail market saw massive collection losses and climbing vacancy rates.

If a property is operating below average market occupancy, the assessor or appraiser must include a discount for lost rent or an adjustment for the cost of lease-up. Together with rent concessions, increased vacancies reduce the effective gross income these properties can produce.

Since most multitenant retail leases are structured on a triple net basis that requires tenants to pay for taxes, utilities, common area maintenance, administrative expenses and insurance, property owners are on the hook for 2020 expenses that they would normally pass through to tenants who are no longer in place. This could expose property owners to increased levels of risk.

The pandemic also compelled property owners to reallocate capital expenditures to make buildings more resilient to virus transmission risks. As a result, other necessary capital expenditures may have been deferred, which could impact the bottom line and increase the difficulty of finding potential buyers for these properties.

Questionable Cap Rates

After calculating net operating income, appraisal districts will then capitalize that income with a chosen capitalization rate to determine market value. The pandemic's effect on cap rates is difficult to ascertain, however, and lenders have grown more cautious. The increased risk associated with retail properties today requires an upward adjustment in cap rates, with a correlating decrease in property market values.

Property tax is a significant expense to the property owner, with numerous issues and nuances to consider. Managing this cost may appear daunting but can be accomplished effectively with the correct understanding of the market conditions affecting the property. It is important to understand the subtleties of how assessors value the property, or to partner with an experienced advisor with that knowledge. SCB

Nick Machan is a tax consultant at Austin, Texas, law firm Popp Hutcheson PLLC, which focuses its practice on property tax disputes and is the Texas member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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Deck - Summary for use on blog & category landing pages

  • It’s critical for landlords to understand how variations in performance affect property tax liabilities.
Sep
07

3 Ways COVID Changed Property Taxes

Cris K. O'Neall of Greenberg Traurig on new avenues for challenging property tax assessments.

Changes brought by the recent pandemic continue to impact the property tax regimes of many states. Clearly, COVID-19 greatly reduced property values and property tax revenues, particularly where real estate markets determine the fair market value used in setting assessments.

But the pandemic has had other far-reaching effects, some of which may continue for years to come. Here are three trends reshaping property tax dynamics, and ways taxpayers can use those factors to reduce their tax liability.

1. Downturn Horizons Extend (Will Things Ever Return to Normal?)

Many property types have experienced value declines over the past 18 months. The question is how much longer the declines will continue. For example, will hospitality property revenues and values rebound in 2023? Or 2024? Will consumers continue to make online purchases, as they were forced to do during the pandemic, forever abandoning the traditional brick-and-mortar retailing outlets usually found in power centers and shopping centers?

The difficulties in estimating time horizons for the recovery of real estate markets creates uncertainty. At the same time, it presents opportunities for short-term and longer-term property tax relief for many property owners and managers. This is particularly the case where pandemic-driven change has permanently changed markets and created "new normals" for some real estate subsectors.

2. Local Tax Authorities Offer More Leniency

When the pandemic commenced in spring 2020, property owners sought to extend the time within which property taxes had to be paid. Rather than penalize property owners for not paying by deeming them in default, many jurisdictions allowed property owners more time to pay, extending deadlines that were once thought unchangeable. Some jurisdictions extended deadlines for more than just payment: They gave taxpayers additional time to file property renditions, property tax appeals and exemption requests.

While many tax advisors expected this leniency to cease following the worst of the pandemic, the opposite has happened. Some property tax jurisdictions continue to give taxpayers more time to pay and have extended deadlines to comply with filing requirements. An example of this is seen in the California State Board of Equalization's July announcement that it plans to author legislation giving the tax agency more power to extend deadlines under certain circumstances.

3. Restricted Access Drives Property Value Declines

COVID-19 has tested and perhaps expanded the valid reasons taxpayers can cite to prove property value declines and seek property tax reductions in many states. Prior to the pandemic, taxing jurisdictions were quite willing to grant property owners value reductions and property tax refunds for properties damaged by fire, earthquake, flood or other calamities. But such value reductions were always based on the physical condition of the property: If the calamity caused physical damage to the property, making it less useable, then a value reduction and tax refund would be granted.

The pandemic changed this. COVID-19 had the unique effect of making properties unusable and, therefore, less valuable solely due to restricted access. Public health concerns in general and government orders prohibiting citizens from frequenting public places depressed property values without inflicting any physical damage at all. Thus, government stay-at-home orders and public health fears made ghost towns of shopping centers, hotels and resorts, entertainment venues and other places where large crowds previously congregated. Almost overnight, the values of those properties greatly declined, sometimes to a fraction of pre-pandemic values.

Existing laws relating to property tax relief were not written to address restricted-access value declines. Nevertheless, many local assessors recognized the effect of pandemic-driven property value declines, including those caused by restricted access. Some taxing jurisdictions have even been proactive in reducing assessments due to downturns caused by COVID-19 in selected real estate markets, not waiting for taxpayers to file administrative appeals or lawsuits challenging property tax assessments. For example, California county assessors have asked commercial property owners to voluntarily submit valuation data early in the assessment cycle in order to reduce assessed values before the deadline for filing property tax appeals.

Despite recent real estate market value declines and efforts by local assessors to recognize such losses, the values of property tax rolls have continued to grow. In Los Angeles, the largest property tax jurisdiction in the U.S., the assessment roll increased by 6 percent during 2020, which was consistent with the preceding three years. Tax assessment rolls in San Francisco and San Diego hit record highs during 2020. Miami, Seattle and even Oklahoma City experienced similar increases. This stable growth of property tax rolls during the pandemic has allowed assessors to grant assessment relief to properties most affected by restricted access.

So the question arises, how long will local assessors continue to give COVID-19 property tax relief? Further, have the pandemic's restricted-access property value declines created new opportunities for future property tax value reductions? Time will tell.

Property Tax Reduction Opportunities Abound

The pandemic has created many opportunities to reduce property taxes, particularly in states where assessments reflect fair market values, and especially in sectors hard hit by restricted access issues. Uncertainty as to when market values will rebound, if ever, means property value reductions may remain in effect for more than a few years or assessment cycles.

Furthering this opportunity is the willingness of local taxing jurisdictions to extend deadlines and consider pandemic-induced property devaluations, including those caused by restricted access. This year and next, and perhaps beyond that, property owners and managers would do well to work with local taxing authorities to reduce their property tax assessments and, if need be, file property tax appeals.

Cris K. O'Neall is a shareholder in the law firm Greenberg Traurig, LLP, the California member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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Deck - Summary for use on blog & category landing pages

  • Cris K. O'Neall of Greenberg Traurig on new avenues for challenging property tax assessments.
Aug
12

When Property Tax Valuation Worlds Collide

Simultaneously protesting an assessment and a government taking can put taxpayers in a quandary.

There are multitudes of ways for property owners to reduce their tax burdens, as well as missteps that can derail a tax strategy. With that in mind, taxpayers should beware of trying to prove a low value for a tax appeal while simultaneously claiming a higher value in another proceeding. And here is how it can happen.

Protesting a high assessment

Most real estate taxes in the Northeast -- including those in New York, Pennsylvania, Connecticut and Massachusetts -- have an "ad valorem" or "value-based" assessment method. Thus, the greater a property is worth, the higher its real estate tax burden. A property tax bill is calculated by multiplying the property assessment by the tax rate. The assessment or taxable value is determined by the local assessor or board of assessors and is typically a percentage of market value.

This percentage varies among states and even municipalities. In New York, it is based on a comprehensive analysis of sales. The percentage is released annually by the state's Office of Real Property Tax Services and is different for each municipality. Connecticut sets its percentage by statute. In Pennsylvania, it is set by the state's Tax Equalization Board. But regardless of the state or method, local statutes fortunately allow property owners to reduce their real property tax burden by protesting the assessment they receive.

To successfully appeal a tax assessment, property owners must file a tax appeal and conclusively prove a lower market value. There are a few accepted ways to do this, namely the sales comparison, income capitalization, and cost approaches to determining value. No matter which method is used, the calculation must value the property according to its actual use and condition as it existed on a specific date in the past. New York designates this as a taxable status date and most states use the same or a similar term.

Asserting a higher value

The "actual use and condition" guideline in setting taxable value stands in stark contrast with condemnation and eminent domain guidelines, which value property when it is taken for a public purpose. In that scenario, the property must be valued according to its highest and best use, regardless of how the property is actually being used.

When the government takes private property for a public purpose, it must compensate the owner for the damages to the property's most valuable use. This valuation standard is known as "highest and best use," and has a specific meaning in the appraisal and eminent domain world.

According to the Appraisal Institute's reference text, "The Appraisal of Real Estate," and a multitude of state and federal court cases, the highest and best use of a property must be (1) physically possible, (2) legally permissible, (3) financially feasible, and (4) maximally productive. A taxpayer building a case for maximum value will typically need a lawyer, along with an appraiser and/or engineer, to evaluate these four categories for the specific property, look at the range of uses that qualify under each of those categories, and then conclude which use will result in the highest market value.

For example, a vacant, five-acre, commercial-zoned parcel of land on Madison Avenue in New York City would not be valued as vacant land, but as whatever its maximum use could have been, such as an office building.

At crossed purposes

There can be a serious conflict between the two guidelines when there is a partial taking, such as when a government takes a strip of a larger tract for a road widening, during the pendency of a tax assessment appeal on the larger property. The conflict can arise when the property's highest and best use happens to be its present use and condition.

In that scenario, a property owner is in the difficult position of claiming a low market value for the tax assessment proceedings and claiming a higher market value during the condemnation proceeding. When that happens, the taxpayer's team must perform an analysis to determine which proceeding will potentially result in the greatest benefit to the owner.

A good rule of thumb would be to withdraw the tax appeal and concentrate on the eminent domain claim. This is because for condemnation, the damage has occurred on a single date (the date of the taking). Tax appeals, on the other hand, are filed annually, and market values can change from year to year. A wise petitioner would proceed with a tax appeal only after the eminent domain claim is concluded.

Jason M. Penighetti is an attorney at the Mineola, N.Y., law firm of Koeppel Martone & Leistman LLP, the New York State member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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Deck - Summary for use on blog & category landing pages

  • Simultaneously protesting an assessment and a government taking can put taxpayers in a quandary.
Aug
03

COVID-19’s Impact on Affordable Housing Property Tax Valuations

The pandemic leaves affordable housing property owners vulnerable and searching for ways to reduce their property tax liabilities.

After a pandemic year that decimated rental incomes, owners of affordable housing properties should prepare to protest property tax assessments that overstate their liability.

As stay-at-home orders in 2020 forced businesses across the county to change their operations, a large portion of the labor force began to work from home. But many renters, including a large contingent of affordable housing residents, found themselves without jobs and struggling to pay rent.

Job losses and other issues related to COVID-19 adversely affected tenants and property owners alike, straining rental income while adding the cost of new safety procedures and equipment to landlords' operating costs. To reduce property tax liabilities and limit financial losses from the pandemic, it is now crucial for owners of affordable housing to correctly navigate procedures across jurisdictions and weigh all relevant valuation considerations for their properties.

Here are key areas for affordable housing owners to consider in arguing for a lower assessment.

Procedures have changed

The global pandemic transformed interactions between appraisal districts and property owners throughout the 2020 tax year. Many appraisal districts across Texas closed their doors to the public and shifted formal and informal meetings to a virtual setting to combat the spread of COVID-19.

As hearings approach in 2021, appraisal districts are expected to keep many of the pandemic-related practices in place. Telephone and video conferences will likely be the preferred format for hearings and informal meetings, but taxpayers should be prepared to appear in person should the jurisdiction require. Property owners can avoid procedural uncertainty by proactively communicating with the appraisal districts and being sure to meet requirements related to the protest process. Appraisal district websites can also be a helpful resource with regard to procedural guidelines.

Affordable housing performance suffered

The pandemic presented unprecedented challenges for the affordable housing industry. Many tenants lost income as result of job losses and experienced increased financial hardships. The federal government provided economic aid in the form of stimulus checks, which enabled some renters to pay partial or full rental amounts. As the pandemic ravaged on, however, stimulus checks ran out and many tenants ceased to pay rent, cutting into property owners' revenue. Nine out of 10 low- and moderate-income housing providers experienced a revenue decrease as result of COVID-19, according to a study from NDP Analytics.

While tenants' financial difficulties contributed to decreased property revenues, property owners also incurred increased expenses. Property owners were forced to invest in personal protective equipment, increase their cleaning standards and take other measures to ensure the safety of their employees and residents. Research from NDP Analytics also found that low- and moderate-income housing providers across the country averaged an 11.8% decline in revenue and 14.8% surge in operating expenses due to the pandemic. These additional expenses, combined with decreased revenues, created major hardships for many in the affordable housing industry.

Property tax valuation outlook

The Texas Property Tax Code provides two methods for protesting excessive property tax valuations: a market value remedy and an equal and uniform remedy. A market value claim argues that the assessment is excessive based on the three approaches to valuing commercial real estate: income, cost, and sales. Assessors and appraisers typically value an affordable housing property using the income approach. Assessors will gather market income, vacancy, and expense data to arrive at a net operating income, and then capitalize that using a market cap rate reflective of market performance. Taxpayers should evaluate the assessor's cap rate and argue for a more appropriate rate if needed.

Decreased net operating incomes at affordable housing properties in 2020 could result in lower 2021 assessments. When addressing valuation concerns with appraisal districts, property owners should provide evidence of financial strain such as concessions and reduced rent. Data of this sort provides insight to appraisal districts on the performance of a particular property or market and can aid in achieving a value reduction.

The Texas Property Tax Code also requires that properties be appraised equally and uniformly when compared to a reasonable amount of comparable properties. Affordable housing owners should be sure their properties fall within a similar range of values with other like properties on a square-footage basis. Assessors must consider the characteristics of affordable housing projects when choosing comparable properties. Valid comparable selections will allow for a true comparison that reflects the unique characteristics of this property type.

Address tax rates, too

Assessed valuations and tax rates are the two components that determine a property owner's tax expense in Texas. Disgruntled property owners often place the blame of a higher tax bill upon the assessor and forget to address the issue of tax rates.

Taxing entities determine their respective tax rates in the fall, once appraisal districts have certified their appraisal rolls upon completion of the administrative protest process. Property owners should not only protest their property taxes, but attend tax rate hearings and voice their opinions with elected officials to minimize their property tax expense.

Managing Property Taxes

COVID-19 strained affordable housing property owners throughout the past 12 months. Skillfully managing property tax expenses will be vital to the financial health of the real estate. The decision to appeal a tax assessment and partner with a knowledgeable property tax professional will be crucial to successfully reducing assessed values and navigating challenges in the pandemic's wake.

Carlos Suarez is a tax consultant at the Austin, Texas, law firm Popp Hutcheson PLLC, the Texas member of American Property Tax Counsel, the national affiliation of property tax attorneys.

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Deck - Summary for use on blog & category landing pages

  • The pandemic leaves affordable housing property owners vulnerable and searching for ways to reduce their property tax liabilities.
Jul
17

2021 Annual APTC Client Seminar

2021 Client Seminar - Chicago, IL

The American Property Tax Counsel is proud to announce that Chicago, Illinois will be the site of an in-person meeting for the 2021 Annual APTC Client Seminar.

Save the Dates! October 20-22, 2021 - Omni Chicago Hotel - Chicago, Illinois

THEME -  New Solutions to Old Problems in Uncertain Times

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.

Event Information

This year's seminar will address recent developments and current trends in the areas of property taxation and real estate. We will bring together nationally-known economic, technological, appraisal, and legal experts to provide valuable insight on how to navigate the quickly-changing and often turbulent real estate market in these uncertain times. 

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.

See the Featured Speakers appearing at the 2021 Seminar.


Featured Speakers


Victor V. Anselmo, Esq.

Victor V. Anselmo is a partner in the property tax law firm of Siegel Jennings, Co., LPA. where he is a member of the Executive Board and manages the firm's Ohio practice. Mr. Anselmo concentrates his practice exclusively in the field of property tax law representing commercial taxpayers. He has over 30 years' experience in the field of ad valorem property tax litigation both as a taxpayer representative, and prior to coming to Siegel Jennings, as a representative of numerous school districts in Northeast Ohio. He has handled thousands of ad valorem tax cases at the administrative, trial court and appellate levels. His prior experience includes being a Magistrate in the Cuyahoga County Court of Common Pleas, Division of Domestic Relations and extensive civil litigation experience including several jury verdicts of seven figures.


Economist and Futurist Kiernan "KC" Conway, CCIM, CRE, MAI is the mind trust behind Red Shoe Economics, LLC, an independent economic forecasting and consulting firm furthering KC's mission as The Red Shoe Economist by providing organic research initiatives, reporting and insights on the impact of Economics within the commercial real estate industry. KC is a nationally recognized industry thought leader and Subject Matter Expert with expertise in Macro Economics, Valuations, Ports & Logistics, Banking Regulation, Real Estate Finance, MSA level market monitoring, Environmental Risk Management, Housing Economics and Tax Appeals.

A proud graduate of Emory University with more than 30 years' experience as a lender, credit officer, appraiser, instructor, and economist; KC is recognized for accurately forecasting real estate trends and ever-changing influences on markets all across the United States. With credentials from the CCIM Institute, Counselors of Real Estate and the Appraisal Institute, KC currently serves as Chief Economist of the CCIM Institute and as an Independent Director for Monmouth REIT MNR. 

He is a gifted and prolific speaker having made more than 850 presentations to industry, regulatory and academic organizations in the last decade, and has been published in many national and regional newspapers and journals with frequent contributions to radio and television programming.

KC Conway, MAI, CRE

William R. Emmons, Ph.D

 Bill Emmons is an Economist at the Federal Reserve Bank of St. Louis and President of the St. Louis Gateway Chapter of the National Association for Business Economics (NABE). He conducts research and speaks frequently on topics including the economy, housing and mortgage markets, banking, financial markets, financial regulation, and household financial conditions.

Mr. Emmons received a PhD degree in Finance from the Kellogg School of Management at Northwestern University. He received bachelor's and master's degrees from the University of Illinois at Urbana-Champaign. Mr. Emmons is married with three children.


Brian Grossman is the leader of the Walgreens real estate tax and personal property tax teams. The real estate tax team is responsible for reviewing and appealing (if necessary) the proposed assessments of over 9,200 stores, 18 distribution centers, and the corporate campus. Last year, the personal property tax team filed over 7,800 returns and successfully resolved 49 audits in-house.

Brian has been actively involved in legislation in multiple states. And he is one of the leaders of the Property Tax Retail Roundtable. Walgreens has hosted the Property Tax Retail Roundtable conference for the past three years.

Prior to joining Walgreens, Brian was a partner at a Chicago property tax law firm. During his over 11 years at the law firm, he successfully appealed proposed assessments of various properties including national retail businesses, retail storefronts, hotels, office buildings, industrial warehouses and plants, regional malls, mental health hospitals, apartment buildings, and condominium associations. Brian was a frequent speaker before various property tax groups including IPT, real estate management companies, and condominium associations.

Brian previously was an assistant state's attorney of Cook County, Illinois for over 18 years. His last role was supervisor of the Real Estate Tax Unit where he supervised a team of 14 assistant state's attorneys. They represented the Cook County Assessor, Cook County Board of Review, Cook County Treasurer, and various taxing districts in circuit court and before the Illinois Property Tax Appeal Board.

Brian is a former criminal prosecutor who conducted over 300 bench trials, 38 felony jury trials, and hundreds of contested motions and hearings. He drafted numerous appellate court briefs (both criminal and civil) and argued several appeals before the Illinois Appellate Court. Brian was the first chair (lead attorney) in two felony trial courtrooms and prosecuted more than 20 first degree murder cases.

Brian Grossman

Kieran Jennings, Esq.

J. Kieran Jennings is Managing Partner at Siegel Jennings Co., L.P.A. Previously a Certified Public Accountant (CPA), Kieran focuses his practice on real property taxation and general state and local tax litigation. He has successfully tried cases before administrative boards, tribunals, courts, and appellate courts, including the Ohio Supreme Court. Kieran has experience in managing real property tax appeals throughout the U.S. and Canada and assists clients in due diligence property acquisitions, tax planning, and structured agreements between taxpayers and taxing jurisdictions.

Kieran is the Vice President and a member of the Executive Board of the American Property Tax Counsel (APTC), a national organization of which Siegel Jennings is a founding member. Kieran is also on the Board of Directors for the Northern Ohio Chapter of NAIOP. Kieran regularly conducts seminars and workshops on numerous property tax issues for industry groups like the National Retail Round Table, The Ohio Society of CPAs, Institute for Professionals in Taxation (IPT), International Association of Assessing Officers (IAAO), National Business Institute, and Lorman Education Service.


David is a principal with Lennhoff Real Estate Consulting, LLC, which is officed in Gaithersburg, Maryland. His practice centers on litigation valuation and expert testimony relating to appraisal methodology, USPAP, and allocating assets of a going concern. He has taught nationally and internationally for the Appraisal Institute. International presentations have been in Tokyo, Japan; Beijing and Shanghai, China; Berlin, Germany; Seoul, South Korea; and Mexico City, Mexico. He has been a development team member for numerous Appraisal Institute courses and seminars and was editor of its Capitalization Theory and Techniques Study Guide, 3rd ed. He was the lead developer for the Institute's asset allocation course, Fundamentals of Separating Real and Personal Property from Intangible Business Assets, and edited the two accompanying business enterprise value anthologies. He also authored the Small Hotel/Motel Valuation seminar. David is a principal member of the Real Estate Counseling Group of America, a national organization of analysts and academicians founded by the late William N. Kinnard, Jr., PhD. He is a past editor-in-chief of and frequent contributor to The Appraisal Journal, and a past recipient of the Journal's Armstrong/Kahn Award and Swango Award.

David Lennhoff, MAI, SRA, AI-GRS

Andrew Lorms

Andrew Lorms joined Cushman & Wakefield of Ohio, Inc.'s Valuation & Advisory group in January 2004, and is a Senior Director in the Columbus, Ohio. Andrew Lorms is part of the Cushman & Wakefield's Advisory & Valuation Retail Division with his specialty practice focused on single-tenant retail, big box retail and multi-tenant shopping center valuations in various capacities inclusive of mortgage financing and Ad Valorem real estate tax appraisal services.

Work scope includes real estate appraisals, feasibility studies and consulting services for local and national lending institutions, national chain retailers, pension funds and REITs. Mr. Lorms has also played a role in development and ownership of multi-tenant retail shopping centers. Primary responsibilities include site selection, marketing, lease negotiation and coordination of center design and materials.


Mary O'Connor, CMI, ASA, CRE is Partner, Forensics and Valuation Services of Sikich LLP, a national accounting and advisory firm. She has worked exclusively in the field of valuation specializing in business valuation and the appraisal of intangible assets for litigation and corporate transactions with special focus in property tax. She has provided consulting and expert witness testimony in Federal, State and local jurisdictions (including US Tax Court, Delaware Chancery and Property Tax Appeal Boards) nationally and internationally in a wide range of complex property tax cases for hotels, senior living centers, big box stores, manufacturing, theatres, healthcare facilities and agribusiness properties. Prominent tax appeal cases include the Glendale Hilton, the Marriott at LA Live, SHC Half Moon Bay, DFS duty-free shopping at San Francisco Airport, and the Desert Regional Hospital. She speaks frequently about intangible asset valuation in property tax appeal to the IPT and APTC and has commented extensively on the various whitepapers published by the IAAO. She is a Senior Member of the American Society of Appraisers accredited in Business Valuation and is certified by Marshall Valuation Service in the application of Cost Approach methodology. She holds the CMI designation from IPT and is a Counselor of Real Estate (CRE).

Mary O'Connor, ASA

Jim Popp, Esq.

Jim Popp is Managing Partner of Popp Hutcheson and leader of the legislative affairs team.

Jim entered private practice in 1983. Since then, he has significantly impacted the practice of property tax representation across Texas. He pioneered the concept of start-to-finish client representation, including advocacy at the legislative, administrative, litigation, and appellate levels. This approach has greatly improved the quality and efficiency of representation for his clients.

He has drafted numerous items of legislation resulting in over 100 changes to the Texas Tax Code. Perhaps his most significant legislative contribution remains the 1997 amendment adding the equal and uniform remedy to the Tax Code. Other significant legislative contributions include the simultaneous exchange of appraisals, enhanced settlement discussions, truth-in-taxation provisions, rendition provisions, taxpayer rights before the ARB, the attorneys' fee statute and the new equal and uniform remedy statute. These changes have significantly improved taxpayer rights and remedies and immeasurably benefitted Texas property owners.

Jim started his property tax career in 1979 as Counsel to the Ways and Means Committee of the Texas House of Representatives, just as the Legislature was passing the new Property Tax Code. He then served with the Office of General Counsel of the State Property Tax Board during the implementation of the Property Tax Code.

He continues to be a tireless advocate for taxpayer rights at the Legislature and is the founder of the property tax advocacy PAC, Tax Equity Council. Jim is the exclusive Texas member of the American Property Tax Counsel (APTC), a nationwide invitation-only affiliation of 30 property tax law firms with over 100 property tax lawyers.

Jim received his B.A. with Honors, M.P.A. (LBJ School) and J.D. degrees from the University of Texas at Austin. He is a member of Phi Beta Kappa


Member Speakers


Angie Adolph, Esq.

Angie Adolph is a partner in the Baton Rouge office of Kean Miller. She joined the firm in 2011, and practices in the tax and municipal finance groups. Angie represents Louisiana, national, and international clients in a variety of tax and corporate matters. In addition to representing clients before the Louisiana Board of Tax Appeals, the Louisiana Tax commission, and in the Louisiana courts, she has special experience representing taxpayers in property tax incentive negotiations, including Payments in Lieu of Taxes. Angie is the firm's representative to the American Property Tax Counsel, an association of property tax firms with members throughout the United States and in Canada.

Angie also has extensive experience in bond transactions and in the development of Public-Private Partnerships and Cooperative Endeavor Agreements. She is a member of the National Association of Bond Lawyers, board member of the Louisiana Chapter of Women in Public Finance and is listed in the "Red Book" of bond professionals. Prior to joining Kean Miller, Angie practiced in the tax and municipal finance areas for over 15 years with a local law firm.


Wendy Beck Wolansky concentrates her practice in the ad valorem taxation area, where her expertise is in representing property owners throughout the State of Florida before Value Adjustment Boards in administrative appeals challenging the valuation of commercial property including regional malls, anchor department stores, big box stores, hotels, hotel condominium buildings, major office buildings, low income housing tax credit apartment buildings and major apartment buildings, among others.

Wendy Beck Wolansky, Esq.

William Elias, Esq.

Mr. Elias has been recognized in Oklahoma Magazine's Superlawyer Section as one of the top Oklahoma lawyers. Mr. Elias holds an AV Preeminent rating from Martindale Hubbell, the highest professional rating for attorneys. Mr. Elias is the Oklahoma member of the American Property Tax Counsel (APTC), the national association of preeminent law firms practicing in the area of property taxation. Mr. Elias has more than forty years of experience in a wide variety of oil and gas, property tax and commercial litigation matters.

Mr. Elias received a B.A. in Political Science from Oklahoma State University in 1977 and a J.D. with honors from the University of Tulsa in 1981. He is a member of the Oklahoma County Bar Association, the Oklahoma City Mineral Lawyers Society, and the Tax and Mineral Law Sections of the Oklahoma Bar Association.

Mr. Elias is a frequent guest speaker and lecturer on oil and gas and property tax related matters at programs sponsored by the Oklahoma Bar Association, the Mid Continent Oil & Gas Association, the Oklahoma Association of Tax Representatives (OATR), the Institute for Professionals in Taxation (IPT), the Texas Oil & Gas Association and the Oklahoma Independent Petroleum Association (OIPA). In 2007, Mr. Elias received the Distinguished Service Award from the Oklahoma Mid-Continent Oil and Gas Association for outstanding service to the petroleum industry and the Association.

For close to five years, Kathleen represented clients in the State of California (including a number of fortune 500 companies) in all aspects of employment law, from compliance to advice to litigating in state and federal court. Kathleen was a member of a three-person trial team that won a unanimous jury verdict in Los Angeles Superior Court.

Kathleen's practice now encompasses a variety of assessment and property taxation matters for both private and public sector clients throughout Ontario and Canada.

Kathleen represents taxpayers and municipalities before the Assessment Review Board and Superior Courts in valuation disputes for all types of properties including office buildings and industrial properties. She advises clients on all matters relating to assessment and municipal taxation.
Kathleen Poole, Esq.

Drew Raines, Esq.

Drew Raines is exclusively dedicated to the representation of taxpayers through the property tax appeal process. His background in the fine arts allows him to approach the law from a unique perspective and mine previously unexplored possibilities in the seemingly limited world of property tax rules.

Mr. Raines has been involved in Evans Petree's Property Tax Group for about two decades, working his way up from a file clerk to an attorney and partner in the firm. He has also clerked for Chicago property tax firm, Fisk Kart Katz & Regan, Ltd, and has been actively involved in the American Property Tax Counsel for several years.

Mr. Raines graduated from Memphis College of Art in 2007 with a degree in the fine arts, with dual-emphases in photography and printmaking, and a minor in art history. He entered law school at the University of Memphis Cecil C. Humphreys School of Law in the fall of 2008.There he served as President of the Law School Art Review Trustees (LSART), a student organization created to facilitate and manage the law school's art collection and display.

Since joining Evans Petree's Property Tax Group as an attorney in 2011, Mr. Raines has argued many successful appeals of a wide variety of property types before the Tennessee State Board of Equalization, helping Evans Petree earn the highest rate of favorable State Board decisions of any group in Tennessee.

Linda Terrill, Esquire is the current President of the American Property Tax Counsel. She is a partner with the law firm Property Tax Law Group, LLC where she is Co-Chair of the Real & Personal Property Tax Law Section. She has over 30 years of experience in state and local tax issues including real and personal property taxes, sales/use taxes and state income taxes.

Formerly, Ms. Terrill served as the General Counsel for the Kansas Court of Tax Appeals. As a member of the American Property Tax Counsel, she serves as the Chair of the Seminar Committee, Chair of the Marketing Committee and as the representative for the state of Kansas.

She is a frequent speaker and author in the field of property tax and valuation. She served on the national Legal Committee of the International Association of Assessing Officers and was a former President of the Administrative Law Section of the Kansas Bar Association.

Ms. Terrill is a graduate of Kansas University, Washburn University, and Washburn University School of Law. She earned her Master of Law in Taxation from the University of Missouri at Kansas City.
Linda Terrill, Esq.

Bart Wilhoit, Esq.

Bart Wilhoit is an experienced trial attorney with years of practice successfully representing businesses in civil and commercial disputes, state and local tax controversies, eminent domain litigation, tort and commercial litigation and administrative matters. Bart has successfully represented clients in all Arizona state courts including the Superior Courts, Arizona Tax Court and appellate courts.

Bart is licensed to practice in Arizona and Nevada. He is experienced in all phases of litigation, including investigation and evaluation of cases, complex discovery, settlement and alternative dispute resolution, jury and bench trials, arbitrations and appeals. Bart has broad litigation and trial experience in complex commercial litigation matters with an emphasis on valuation related litigation in commercial disputes, contract disputes, state and local tax controversies and all stages of the eminent domain/condemnation process.

Bart takes a pragmatic approach to his clients' matters – considering and evaluating options and potential outcomes from the onset to effectively and efficiently counsel his clients. He is dedicated to providing quality personal and client service, efficient and aggressive representation and dedicated to strong client relationships.

Bart is a graduate of Arizona State University and the UCLA School of Law. A native of Arizona, Bart is married with three children and enjoys all of the outdoor experiences Arizona has to offer. He also enjoys travel and playing music in his band.


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Jun
10

New York City's Pandemic Property Tax Problems Persist

Property tax assessments show market-wide value declines for the first time in 25 years but fall short of reflecting taxpayers' true losses.

What happens when an irresistible force meets an immovable object?

The longstanding physics conundrum encapsulates the situation in which New York City property owners currently find themselves, and for better or worse, they're about to discover the answer to the age-old question. 

City government has squeezed increasing sums of property taxes from its real estate stock in each of the past 25 years, but the pandemic is changing everything.

The basic fact is that 53 percent of New York City revenues come from real estate taxes. Fueled by rising rents
that are tied to high costs of new construction, the city property tax base has grown and enjoyed record tax revenues in recent years. 

Total real property tax revenue was almost $30 billion in 2020, according to the city's annual property tax report. Nothing paused the year-over-year tax increases – not the 2008 financial crisis, nor Hurricane Sandy, nor even 9/11. Only a global pandemic could do that.

COVID-19 has affected every element of New York City's economy, but its effect on real estate and property taxes deserves special attention. Total market value of Class 2 properties (cooperatives, condominiums and rental apartment buildings) decreased by 8% last year, according to the Department of Finance's tentative property tax assessment roll for fiscal 2022. Total market value for Class 4 properties (non-residential commercial properties such as hotels, offices, retail and theaters) fell by a whopping 15.75%, including a 15.5% drop for office buildings. Citywide declines were 21% for retail buildings and 23.8% for hotels.

Impact of Tax Status Dates

New York City assesses all its real estate as of Jan. 5 of each tax year. Therefore, last year's market values set as of Jan. 5, 2020, did not reflect any effects of the soon-to-arrive pandemic. For the 2021-2022 tax year, however, the valuation date of Jan. 5, 2021, must fully account for the impact of COVID-19.

As the tentative property tax assessment roll shows, tax assessors have acknowledged significant reductions in property values. But were these values decreased enough to reflect actual contractions in market value?

Many property owners and tax experts believe that recent assessments fail to adequately reflect the extent to which property owners have suffered due to the pandemic. Taxpayers filed a record number of appeals by the March 1 tax protest deadline and there are massive appeal efforts underway to complete the Tax Commission's review of all the filed cases by the end of the year.

While the newly released assessment values show that assessors addressed many COVID-19 issues, such as the negative effects of state and city executive orders and lockdowns, many properties have not seen adequate assessment reductions. Many hotels, for instance, are experiencing ongoing closures, and some hotels report that their total 2020 revenues are less than their property tax bills, even before accounting for operating expenses and debt service. Theaters do not have a hint of a future reopening in sight. Retail landlords have either lost their tenants or stores are withholding rent payments. Residential renters are not paying rent and new laws prohibit eviction proceedings.

Relief Strategies

Property owners can improve their chances for obtaining further relief on appeal by quantifying property value losses. Hotels should gather documentation showing closure dates, occupancy rates and any special COVID-19 costs they will incur when they reopen. Some 25,000 rooms have been permanently closed, and of the few hotels that did not cease operations, occupancy was about 25% for most of the tax year. Some occupied rooms were for COVID-19 patients and displaced homeless families. Industry forecasts anticipate a four-year recovery period for hotels.

Retail and office property owners should be prepared to show declines in gross income and rents received or paid on their financial reports filed with the city. Make a list of tenants that vacated and of those not paying rent. Additionally, the Tax Commission now requires taxpayers to explain the basis of rent declines greater than 10%.

Tax assessments must reflect the entirety of what this pandemic has done to the real estate industry. Almost every avenue and street in New York City has multiple empty stores and local standby establishments are out of business. Theaters and Broadway are shattered; tourists and all manner of visitors have vanished, leaving an empty, lonely and bleak picture for real estate.

New York City authorities must provide more substantial tax relief for property owners. Taxpayers and their advisors will need to take an active part in obtaining reduced assessments, by carefully assembling proof of the decline in their property's market value.

Joel Marcus is a partner in the New York City law firm Marcus & Pollack LLP, the New York City member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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Deck - Summary for use on blog & category landing pages

  • Property tax assessments show market-wide value declines for the first time in 25 years but fall short of reflecting taxpayers’ true losses.
Apr
14

Unwelcome Property Tax Surprises in D.C.

Insights into managing real property tax liabilities in the nation's capital.

After the tumult and disruptions of 2020, the last thing taxpayers need is another surprise. Our society craves predictability more than ever before, and commercial real estate owners want predictability in their property taxes. 

In the District of Columbia, commercial real estate owners keen to make their future expenses more predictable can start by familiarizing themselves with the full gamut of real property liabilities. In addition to the standard annual property tax, the District imposes a variety of charges on real estate that vary by the property's location, use and payment history. 

Managing these real estate charges can help a taxpayer budget for upcoming expenses and minimize the risk of incurring unplanned costs. What follows is a primer to help taxpayers manage real property tax liabilities in the District: 

Start with the basics 

The DC Office of Tax and Revenue (OTR) recently launched MyTax. DC.gov, a new taxpayer website intended to streamline the tax assessment and billing processes. This single portal offers insight into taxes on individual income, businesses and real property, as well as fees administered by OTR. 

The site features self-service tools that enable taxpayers to review and pay property tax bills online, view assessment histories, apply for tax relief benefits, request mailing address changes and submit mixed-use declarations, among other features. While this centralized system should help to organize the billing and payment processes, it offers little information about the District's fees and may leave owners still wondering: What are these charges? 

The BID tax 

Many commercial property owners in the District incur a business improvement district (BID) tax. The District defines a business improvement district as "a self-taxing district established by property owners to enhance the economic vitality of a specific commercial area." Each of the District's 11 BIDs assess a surcharge to the real property tax liability, which the District collects and then returns to the BID. Each BID dictates how it spends its funds, typically supporting the community with programs promoting cleanliness, maintenance, safety and economic development. 

The DC Code establishes BIDs and their geographic boundaries. These provisions empower each BID to establish its tax rates. How those taxes are calculated varies by BID. For example, an individual district may base its tax on the number of rooms in a hotel, a building's square footage and a percentage of the tax assessment value. Thankfully, these organizations often have robust, informative websites that can be useful resources for property owners. 

As with real property taxes, a property owner that fails to pay its BID tax on time and in full can incur penalties and interest charges on its tax account. Therefore, mismanaging a property's BID tax can lead to pricey consequences. 

Public space or vault rent 

To optimize the operation of an asset, many property owners rent-adjacent, District-owned space known as "public space." The District categorizes these offerings as either "vault space," which is below ground level; or above-ground "café space." Examples include outdoor café space, above or below-grade parking and areas for storage of utilities. 

The formula for calculating vault rent is Land Rate x Vault Area x Vault Rate. Therefore, changes in a property's taxable land assessment value will result in a change in the rental charge for associated public space. Unlike BID taxes, public-space rent is charged to the renter as a separate bill. This requires extra attention to avoid those pesky penalty and interest charges. 

Special assessments 

A variety of supplementary special assessments may arise to fund city-wide projects. Examples of these charges include a ballpark fee, Southeast Water and Sewer Improvement fee and the New York Avenue fee. The levy of these assessments is governed by specific criteria set forth in the related DC Code provision. 

Given the often-complex nature of the code, taxpayers may choose to consult a tax or legal professional to help navigate these less-common levies. 

Credits 

A credit on a property owner's tax account will likely come as a welcomed surprise, but the taxpayer should give these circumstances the same scrutiny they would give to unexpected charges. Understand that a credit is not free money, nor is it always an accurate designation. 

If a credit appears on the account, it will likely stem from a prior overpayment. This may reflect a reduction in tax liability that occurred after a bill was issued. Other possible causes include a DC Superior Court Refund Order, a dual payment from a third-party vendor or a prepayment of the full year tax liability on a first-half tax bill. 

Before enjoying the benefit of the lowered tax liability, it is important to verify this credit is justified. If the credit was wrongfully applied, a taxpayer will still be liable for the remaining balance. The District may issue a corrected bill for the outstanding amount, or the balance may appear on a future tax bill. A failure to remedy this balance can once again lead to penalty and interest charges. 

Penalties and interest 

The most unwanted surprise charges are penalties and interest. These charges can arise under several circumstances such as when the taxpayer has failed to file a yearly income and expense form with the District, or after missed, late or incomplete payments. 

Penalties and interest can cause a headache for taxpayers. The District will apply any future payment to penalties and interest before the account's principal balance. Therefore, it is easy for a small charge to cause a cascading liability if it is not timely addressed. In addition, while a taxpayer may petition for these charges to be waived, this process is often lengthy and the issuance of such a waiver is at the sole discretion of the OTR. 

The prospect of navigating these charges may seem overwhelming but it is a vital part of owning and managing real estate in the District. Therefore, it is best to learn the tax rules or consult with a local tax attorney who has experience dealing with these issues, as well as with the corresponding governmental entities. A knowledgeable expert can sort through this complicated web of liabilities, penalties and errors.

Sydney Bardouil is an associate at the law firm, Wilkes Artis, the District of Columbia member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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Deck - Summary for use on blog & category landing pages

  • Insights into managing real property tax liabilities in the nation’s capital.
Apr
06

Industrial Landlords: Beware of Higher Property Tax Assessments

Find out why not all industrial properties deserve increased tax assessments, contrary to popular belief.

While some commercial property types struggled to stay relevant in 2020, industrial real estate seemed supercharged by the pandemic. This year, tax assessors are likely to use strong investor and occupier demand for some industrial properties to support significantly higher assessments for all industrial real estate. They may see this as a solution to make up for value losses in the hospitality, retail, and office sectors. That means industrial property owners should prepare for major assessment increases and begin building arguments to establish their properties' true taxable value.

E-commerce in perspective

If e-commerce was rising before 2020, it skyrocketed after the initial shock of the pandemic. The e-commerce share of total retail sales jumped to 16.1% at the end of the second quarter of 2020 from 11.8% in the first quarter and 10.8% a year earlier, according to the Census Bureau. As e-commerce grew, so too did industrial leasing demand, as online retailers secured spaces to process incoming goods and fulfill orders for shipment to consumers.

The e-commerce operations driving the surge in demand brought with them a list of demands to serve their logistical plans, however. Their preferences typically included locations close to major transportation corridors, proximity to their customers for deliveries, high ceiling heights and other traits necessary for handling the rapid growth of logistics-related technologies.

For 2021 industrial property tax appeals, it is important to understand that not all industrial real estate is equally suited to meet the demands of e-commerce operations. In practice, occupier demand that makes some properties more valuable will often lower the marketability and value of properties not fitting that demand. This, in turn, can affect a property's taxable value.

A Checklist for Appealing Tax Assessments on Industrial Property

The following are issues to consider in 2021 industrial property tax appeals:

Pick the right approach. There are several appraisal methods that assessors can use to value a property, but taxpayers should pay special attention in 2021 to the sales comparison approach. Though Texas is a non-disclosure state, meaning the state does not require a buyer to reveal the purchase price for acquired real estate, assessors have tools at their disposal to obtain or back-into purchase prices.

For tax year 2021, it will be important to note that although there may have been a few transactions, overall industrial sales volume generally declined from the prior year's numbers among the major metropolitan markets. In the second quarter of 2020 especially, the drop off in sales indicate that lenders and investors had to reevaluate the market and their underwriting assumptions.

For the sales comparison approach to value properties accurately, the properties and transactions used as evidence need to be comparable to the subject property. If that is not the case, calculations may place an unnecessary premium on the property.

For example, sales of warehouses with cold storage capabilities should not be directly compared to a conventional warehouse without a cold storage component. Thus, if an assessing jurisdiction raises an assessed value based on limited sales information, chances are the sale is not representative or comparable to the taxpayer's property. The taxpayer should consider raising this issue in their property tax appeal.

Consider property age and class. The industrial real estate sector serves a wide variety of uses that require special buildouts or designs that must be completed for the intended tenant to conduct their business effectively. For example, older, Class C industrial buildings tend to have smaller square footage and lower ceiling heights than more modern spaces. With the rising cost of transportation and emphasis on logistical efficiency, these attributes make Class C properties less marketable than newer, Class A or B industrial buildings.

According to CBRE, the warehouses built in 2019 are typically greater than 100,000 square feet and have ceilings that average 3.7 feet higher than warehouses built between 2002 and 2007. The increased space is primarily for more inventory and reverse logistics for returns. The newest buildings also feature more bay doors and parking space for large trucks. If the assessor is comparing properties and valuing a 2002-built warehouse the same way as the newer product without adjustments for class and age, the taxpayer may have an additional issue to raise in their appeal.

Location is critical. Location is becoming more important than ever to the tenant. Since land is more expensive the closer it is to the central business district of any city, the potential for using the space efficiently becomes more crucial as well. Assessors may increase the value of properties that are close to these markets.

E-commerce businesses demand locations that can speed last-mile deliveries to consumers. Proximity to transportation corridors is a significant advantage for tenants because it improves the timeliness of the supply chain. If an industrial property does not meet current demand because of its location, that may be an avenue for relief from increased property tax valuations.

Is rent paid, or deferred? Governments have deemed some industrial real estate tenants to be essential businesses during the pandemic, and this has limited the disruption of rent payments to certain landlords. During property tax appeals, it will be important to highlight the properties that suffered decreases in net operating income and occupancy, so they are not treated like the properties that saw no disruption in rent payments.

Owners of industrial properties may be able to fight and defeat the property tax increases potentially heading their way. Keys to winning assessment appeals will include following the industrial trends and being able to distinguish the taxpayer's property from the desirable properties that are trading, possessing evolving technology, being in the right location, andcollecting strong rents. 

Darlene Sullivan is a partner in Austin, Texas, law firm Popp Hutcheson PLLC, the Texas member of American Property Tax Counsel.  Justin Raes is a tax consultant at Popp Hutcheson.
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Deck - Summary for use on blog & category landing pages

  • Find out why not all industrial properties deserve increased tax assessments, contrary to popular belief.
Mar
16

COVID-19's Heavy Toll on Property Values

Georgia taxpayers should start preparing arguments to lower their property tax assessments.

Few commercial properties emerged with unscathed values from the harsh economic climate of 2020. Yet Georgia and many jurisdictions like it valued commercial real estate for property taxation that year with a valuation date of Jan. 1, 2020 – nearly three months before COVID-19 thrust the U.S. economy into turmoil.

This means governments taxed commercial properties for all of 2020 on values that ignored the severe economic consequences those properties endured for more than 75% of the calendar year. When property owners begin to receive notices of 2021 assessments, which Georgia assessors typically mail out in April through June each year, property owners can at last seek to lighten their tax burden by arguing for reduced assessments.

The pandemic hurt some real estate types more than others, however, and with both short-term effects and some that may continue to depress asset values for years. For taxpayers contesting their assessments, the challenge will be to show the combination of COVID-19 consequences affecting their property, and the extent of resulting value losses.

The experiences of 2020 can serve as a roadmap for valuations in the current year and, in certain settings, in future years.

A three-pronged attack

COVID-19 can inflict a three-pronged assault on a commercial property's value, and taxpayers should explore each of these areas for evidence of loss as they build a case for a lower assessment.

Widespread losses. The first prong of the trident may be a drop in value stemming from an overall decline in the market. Like the Great Recession of 2008, the pandemic has reduced many property values by impeding economic performance in general.

Reduced income and cash flow, for example, can indicate reduced property value. Valuing the property with a market and income analysis approach can reveal this type of loss.

Reduced functionality. Is the property's layout or format less functional than models that occupiers came to prefer during the pandemic? In Georgia, functional impairments may have curable and incurable components beyond normal obsolescence. In other words, when changing occupier demand has rendered a property obsolete, there may be some features the owner can address to restore utility and increase value.

Adverse economic trends. Economic factors occurring outside the property can suppress property value. Georgia tax law recognizes that economic trends can reshape market demand and render some property models obsolete. This economic obsolescence can be short term while the economy is down or a permanent change.

Subsector considerations

Retail. Big-box stores, malls and inline shopping centers had already experienced a functional decline and an economic downturn, both of which accelerated as shopping habits changed during the pandemic. Big box properties were already becoming functionally obsolete as retailers reduced instore inventory requirements and shrank showrooms, which left little demand for the large-format buildings.

Moreover, outside economic factors such as declining instore sales, competition with ecommerce retailers, and high carrying costs have also undercut the value of these properties. The pandemic accelerated this decline, and it is unlikely there will be much, if any, recovery.

Hospitality. The pandemic has severely diminished travel and vacations, and hotel vacancies have skyrocketed. The income yield per room is declining. Operating costs have increased per visitor as amenities have been shut, curtailed or reconfigured. Many hotels have eliminated in-house dining and offer only room service.

The cost to maintain kitchen services is disproportionate to the number served. This decline is solely a product of COVID-19 and, over time, will revert to near normal. Some increased costs may remain elevated, such as extra cleaning supplies and labor to disinfect the property.

Office. COVID-19's effect on office buildings, especially high-rises, may be long-lasting. Fully leased buildings have seen less of a direct affect, but properties with significant unleased space are already hurting. Demand will diminish as more employees work remotely and companies consolidate with shared workspaces, motivated to reduce occupancy cost. This trend will produce both functional and economic effects on the value of office buildings.

Industrial. To a lesser extent, some manufacturing plants can suffer industry-specific economic consequences of COVID-19. Reduced travel has compelled airlines to reduce flights and sideline aircraft, reducing the demand for new and replacement aircraft. Less aircraft being built reduces the value of aircraft manufacturing plants, including the buildings that house them. Likewise, oil production, storage and consumption is down, due to reductions in leisure and business travel and commuting as more people work remotely. Excess capacity for drilling, storage and processing petroleum makes those facilities temporarily obsolete.

Multifamily residential. COVID-19 may have had little negative effect on multifamily complexes. During the pandemic, the supply of available housing on the market has contracted, driving up rents. As a result, apartments remain in high demand from renters and investors, although some areas may be overbuilt.

Despite high occupancy rates, properties may have non-paying or late-paying tenants. It would seem that yields per square foot may be higher, which would suggest increased property values for apartment complexes now. This is not always the case, however, and multifamily values must be considered individually.

Expect resistance

COVID-19 has also affected the mindset of taxing authorities, whose operating costs have remained the same or increased during the crisis. Taxing authorities will be reluctant to decrease tax revenue and will push back against property owners' arguments for reducing taxable values.

Just as individuals have taken personal health precautions against COVID-19, property owners must take precautions to protect the financial health of their properties from the virus' detrimental effects. All commercial property owners in Georgia should carefully examine assessment notices. Wise owners should strongly consider consulting with property tax experts to determine whether to file an appeal.

Lisa Stuckey
Brian Morrissey
Brian J. Morrissey and Lisa Stuckey are partners in the Atlanta law firm of Ragsdale Beals Seigler Patterson & Gray LLP, the Georgia member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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Deck - Summary for use on blog & category landing pages

  • Georgia taxpayers should start preparing arguments to lower their property tax assessments.

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