With apologies to Charles Dickens, a tale of two corporate office campuses underscores the fickle nature of real estate fads and the difficulty property owners face in convincing tax tribunals that standard valuation matrices may not apply in properly assessing these large, suburban properties.

Aetna’s challenge

Aetna Life Insurance Co. developed more than 1.6 million sq. ft. of corporate and computer center space together with parking garages in the early 1980s in a rural area of Middletown, Conn., spending almost $170 million in the process. In 1995, the property owner challenged the city’s $250 million market valuation.

Aetna held that the property’s highest and best use was as a multi-tenant office project, rather than as a corporate headquarters designed for its exclusive use. This argument seemed reasonable because, among other matters, the developer had built the property with large atria and excessive common areas, together with a number of special amenities such as cafeterias and recreational space which a typical office building would not contain. These amenities obviously drove up the assessor’s value, but mattered little in the market place.

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The city contended that since the property was used as a corporate headquarters, its highest and best use was its continued use for that purpose, and that regardless of its inefficient features and super adequacies, it was typical of headquarters structures. In that sense, the highest and best user, not use, determined
market value.

Key to the owner’s argument in the tax appeal was that the reproduction cost was legally suspect because it was highly unlikely that anyone would reproduce such a quirky, outmoded structure as the 20th century ended. The owner argued that the situation called for a replacement cost approach that would eliminate the inefficiencies and super adequacies of the property.

Although a Connecticut appellate court upheld the trial court’s reliance on the reproduction cost approach, when Aetna’s occupancy concluded in 2010 and the property owner was unable to find another headquarters corporate occupant, it demolished the building—albeit too late to affect the valuation case.

Union Carbide’s conundrum

Union Carbide Corp. moved to Danbury, Conn. from New York City in 1985. It selected a beautifully wooded location close to the New York border to construct an idiosyncratic, multi-level property that floated above the site in so dramatic a fashion that many of its occupants referred to the building as “Battlestar Galactica.” Faced with excessive operating costs and a declining need for such a large area under one roof, Union Carbide reduced its occupancy, but was unable to find many subtenants.

The development’s unusual qualities and its practical insufficiencies prompted a property tax appeal. The company argued, as had Aetna, that whatever the construction cost might have been, the assessor should base its campus’ market value on replacement cost and/or income analysis. The resulting value, the company maintained, was far less than the one the City of Danbury’s assessor had produced.

Here again, the court was unsympathetic, given the huge amount of money spent on development, a juicy sale-leaseback deal which had little relationship to market realities, and what was likely the prevailing view 20 years ago that cost equals value.

Value the use, not the user

A valuation that relies on a single corporate occupant or user assumes a sale to a similar occupant. That essentially converts the market-value-in-exchange analysis, which is legally required in most states, to a market-value-in-use construct.

In the second decade of the 21st century we know that these buildings are seldom re-used by single occupants. Demolishing a bad decision, as with Aetna’s Middletown campus, or subdividing the structure for multiple users as in the case of Union Carbide, is far more likely.

Reliance by local assessors on the single occupant, value-in-use theory ignores the much greater likelihood of multiple occupancy, with attendant significant renovation, subdivision and tenant improvement costs, as well as a considerable period of vacancy while the building is marketed for lease.

The Egyptian pharaohs coerced thousands of slaves to build their pyramids three millennia ago, creating the classic single-user structure in the process. While these potentates succeeded in creating their brand and in making a profound statement about their majesty and importance, both in life and in death, most corporate campus headquarters lack these qualities and must stand the test of economic utility.

That so many campuses failed is one of the dramatic real estate stories of the last 40 years or so. Owners faced with appealing the assessments of overvalued headquarters assets today should emphasize that whether or not value in use to the user was ever a valid yardstick, is utterly irrelevant today.

Elliott B. Pollack is a member and Valuation Department chairman in the law firm of Pullman & Compley LLC, the Connecticut member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.  Melton Spivak, retired, was vice president of corporate property taxes for JPMorgan Chase & Co.

Updated March 2016

Tax Appeal Settlement Enforced

After engaging in extended settlement discussions, the owner of a shopping center and the City of Waterbury agreed to settle a tax appeal with a verbal understanding which touched all pertinent items. Indeed, a Superior Court noted that “[t]he terms of this agreement could not be clearer. There is no question . . . that the parties clearly understood the basis of an agreement and the impact on each of the parties.”

Well after discussions concluded, the City asserted the lack of authority of its Corporation Counsel to bind the City, especially as to the aspect of the case involving a penalty waiver for nonpayment of taxes. Arguing that Connecticut law and City of Waterbury ordinances did not permit her to waive the penalty, the Corporation Counsel nevertheless “admitted during (oral) argument that other similar penalty assessments may have been settled without specific . . . approval . . . . also.”

Holding that the property owner should not forfeit the benefit of its settlement under these circumstances, its motion to enforce the agreement was granted.

Elliott B. Pollack
Pullman & Comley, LLC
American Property Tax Counsel (APTC)

Charitable Giving vs. Tax Breaks

"A notable 1971 decision involving a staff apartment house owned by Hartford Hospital upheld the exemption even though the property had nothing to do with the direct provision of health care..."

By Elliott B. Pollack , Esq., as published by The Commercial Record, October 2009

It is no secret that Connecticut leans more heavily on local property taxes to support the activities of municipal government than almost any other state in the union. The recent economic downturn and lack of leadership in Hartford to achieve meaningful property tax reform has only exacerbated the situation.

Over the years, assessors in several Connecticut communities have tested entitlement to the local ad valorem exemption and have enjoyed a certain degree of success. Most of the cases have dealt with private schools, colleges, low income housing and fund raising organizations. A notable 1971 decision involving a staff apartment house owned by Hartford Hospital upheld the exemption even though the property had nothing to do with the direct provision of health care. A use "necessary" for an exempt use was sufficient to bring the property under the exemption tent. Judicial efforts to develop coherent rules have created confusion about just what the law requires.

Does It Make Sense?

As health care has consumed more and more of our gross domestic product, large health care organizations have become billion dollar businesses with executives who command eye-popping salaries. Assessing authorities across the country have noted that many of these behemoths are run like profit-making businesses, and, while they are exempt under federal income tax law, the rationale for their property tax exemption may no longer exist.

Most states have focused on the intrinsically charitable origin of nonprofit health care when they have awarded health care institutions the exemption. After noticing that some of these entities furnish very little charitable care, a number of assessors went on the attack. Other assessors became aware that institutional health care providers had developed a panoply of new profitable services, some of which seemed to go beyond the mission statement in their organizational documents.

Two cases, one decided by Connecticut's highest appellate tribunal in March 2009 and one now before the Illinois Supreme Court, exemplify this trend.

In the Connecticut case, Saint Joseph's Living Center in Windham lost its local tax exemption. The Windham assessor asserted that because virtually all of the Center's patients' care was being paid from public or private sources, insufficient free or charitable care was being delivered. Charitable contributions were not significant. He also claimed that the short-term rehabilitation services which the Center had instituted were totally compensated, no free care was rendered, rehab was not one of the Center's stated charitable purposes and even wealthy patients would be served. The last arguments were accepted by the Connecticut Supreme Court in what may prove to be one of our more significant property tax exemption decisions in decades.

In a case which has made national headlines, Provena Covenant Medical Center in Urbana, Illinois is seeking to overturn a lower court decision denying its property tax exemption. Citing evidence that only 0.7 percent of its revenue was devoted to free or discounted care, the Illinois Attorney General urged the state's Supreme Court to uphold the revocation. Serving only 302 of 100,000 patients on a charitable basis is far short of the commitment to charitable care which is necessary to support the exemption, claimed the Illinois Attorney General. He also noted that bills sent to indigent patients failed to mention the availability of free or discounted care.

Provena's response was that the amount of charitable care actually provided is unimportant. The only relevant factor is whether the institution makes such care available to all.

The fiscal stakes could not be higher. One has only to look around Connecticut and to guesstimate about the billions of dollars in exempt real estate and personal property owned by currently exempt hospitals (we have only one for-profit hospital) and nursing homes. Millions of annual potential property tax payments may be on the line.

The federalization of health care which occurred in the mid 1960s with the passage of Medicare and Medicaid, together with the relentless growth of employer-based insurance, directed billions of dollars of new revenue to American hospitals. Those located in central cities generally support substantial charitable care to poor and lower-income citizens. Those hospitals in suburban areas may receive payment for virtually every service rendered. Does this fact justify judicial intervention to overturn local property tax exemptions in the most egregious cases? Or is this issue so basic to the fabric of our society that it should only be addressed, if at all, by legislation?

The Connecticut Supreme Court's decision in Saint Joseph's supported the denial of the health care facility's tax exemption on narrower grounds than those asserted against Provena. That is not to say, however, that other cases will not bubble up through the court system in which a Connecticut nonprofit hospital or nursing home may have to answer the challenges presented in Illinois.

Elliott B. Pollack is chair of the Property Valuation Department of the Connecticut law firm Pullman & Comley, LLC. The firm is the Connecticut member of the American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..