Gateway School District is challenging real estate assessments on major commercial properties in Monroeville in lawsuits that could significantly increase tax revenues. Gateway maintains that Monroeville Mall, Miracle Mile Shopping Center and the old Cochran automotive property are undervalued on the tax rolls. Hundreds of thousands of dollars, perhaps millions, are at stake. For every $1 million in assessed value, Gateway, Allegheny County and Monroeville collect $26,300. The school district takes the lion's share, or about $19,410. The tax cases, filed in Common Pleas Court, also offer a glimpse into the arcane world of high-stakes commercial real estate transactions.
The biggest challenge is over Monroeville Mall, which is assessed at $120.8 million. A year ago, according to news accounts, Miami-based Turnberry Associates sold the mall to CBL & Associates, of Chattanooga, Tenn., for $231.2 million. The mall pays about $3.2 million a year in property taxes. Using the sale figure, taxes would increase to $6.1 million. But CBL attorney J. Kieran Jennings testified at a May 27 hearing before the county Board of Property Assessment, Appeals and Review that CBL did not buy the mall for $231 million. "There was absolutely no transfer of property," he said. He said the original owner still owns the land and CBL is the tenant. CBL pays a ground lease of $650,000 a year and has an $11.95 million option to buy. He claimed the property is worth $12 million -- 90 percent less than the appraised value -- in a letter to the assessment board. But he testified at the hearing, "I'm not saying that's what it's worth. That is not what we're proposing. You have an extremely convoluted transaction here."
At $231 million, he said, the mall would be priced "way beyond what we ever see in Allegheny County. And $12 million is certainly a ridiculous number." The correct assessment may come down to separating the value of the mall's real estate from the business' other assets.
Both sides bolstered their cases with documents that CBL filed with the Securities and Exchange Commission, but they ended up confusing the hearing officer. Gateway cited a filing in which CBL declares that it acquired the mall "for total consideration of $231.2 million," including a $134 million debt, $61 million in new partnership shares and $36.25 million in cash. Jennings cited a different SEC filing in which CBL put the "transaction costs" slightly higher, at $231.6 million, including a $134 million debt, $46.2 million in partnership shares, $39.5 million cash and a $12 million obligation in the land underlying the mall.
"I certainly need some help here," said hearing officer Ken Gossett.
"It's confusing," The property should be appraised, Jennings said. "It may be that it gets appraised, and it comes in at $175 million," he said. "It may come in at $120 million. It may come in at $230 million. But ultimately we do know this. We know we have a sale ... that has a tremendous amount of extensions to it. It was certainly not something we'd call a clean deal."
Gossett said he would rule that the evidence was insufficient to change the assessment, and Gateway could appeal to Common Pleas Court. Hearing officers made similar rulings in the other cases. Miracle Mile, at 4100 William Penn Highway, is assessed at $31.1 million.
Oakmont Partners LLC bought the 51-year-old shopping center in March from Casto-Skilken Group, the original developer. The price was not disclosed, and the transaction included several other area shopping centers.
Oakmont partner Stephen Zamias would not say how much Miracle Mile is worth. "As it is now, $31 million is extremely fair, based on where the income level is," Zamias said. Then noting that three store spaces are vacant, he said "It's probably over-assessed."
The Cochran property at 4200 William Penn Highway is assessed at $13,057,300. Cochran Automotive used to sell cars there and now a Lowe's hardware store operates from the site. The property owner is listed as O.F.E.W limited partnership, which traces back to the new No. 1 Cochran automotive complex farther up the highway.
The partnership's attorneys declined to discuss the case. Gateway appealed the Cochran assessment to Common Pleas Court in April and the mall and shopping center assessments on July 12. Gateway Solicitor Lawrence Demase would not say what he thinks the three properties are worth. Gateway was not entitled to private records for the property assessment hearings, he said, but in court he can use the discovery process to get better information. "We can try to unravel the situation," Demase said. He said the cases could take several years to resolve.