Property Tax Resources


Pittsburgh Taxpayers Face Double Jeopardy on Assessments

Pittsburgh-area commercial property owners who received dramatic increases in their 2013 real estate assessments may see those taxable values go even higher. This wave reflects the growing nationwide issue of changes in property values and how they are assessed.

In the case of the Steel City, Allegheny County's first revaluation in 10 years dramatically increased assessments, which had remained static even during market highs in the mid-2000s and the crash in 2008 and 2009. While the overall increase in county assessments was 35 percent, commercial owners bore the brunt of the increase, seeing their assessments rise 54 percent overall.

More recently, however, local legislators enacted an unusual deadline extension that has effectively put property owners — especially commercial owners — at risk for even higher assessments.

Note that, rather than rely upon a central tax authority, each of Pennsylvania's 67 counties sets its own assessment. Because the state lacks a mandate for periodic revaluation, counties normally only undertake revaluation when a taxpayer files suit but will occasionally do so on the county's own initiative. Historically, reassessments are so infrequent in Pennsylvania (sometimes a decade or more passes between reassessments) that property values spike when a county eventually does reassess, which leads to public outcry and confusion.

Following publication of the new 2013 assessments for Pittsburgh-area properties, property owners filed 100,000 appeals before the original deadline on April 1, 2012. Then, in early 2013, Allegheny County's chief executive asked the county council to reopen the filing of 2013 appeals until April 1, 2013, ostensibly to help property owners.

At the time, the chief executive told local reporters that the deadline extension would give taxpayers another opportunity to appeal. What he didn't say, however, is that extending the deadline also opened the door for school districts to file appeals.

Increases in Store for Property Owners
Reopening the appeals process hurt more property owners than it helped. Most taxpayers who needed to appeal had already filed, but Pennsylvania law gives school districts a right of appeal as well. When the county council voted to reopen the deadline and allow new appeals, thousands of school appeals followed. School districts filed most of the 7,000 new appeals in 2013.

What's more, Pittsburgh's office market was hot in the latter part of 2012. The districts tracked sale prices in the last three quarters of 2012 and subsequently appealed to increase the property owners' new assessments based on these sale amounts. Most of these appeals to increase valuations target commercial owners.

Of the new appeals filed by property owners, the vast majority are attempts to re-hear appeals that were previously filed. Those are likely to be thrown out by the courts. That will leave mostly school-initiated appeals.

As of this writing, administrative hearings are complete for the original 100,000 appeals, and administrative decisions that caused the taxpayer or school district to be unhappy with the outcome are already pending in court. Hearings on the 7,000 new appeals are underway.

What to Do
When a taxing district files an appeal, state law requires it to send notice of the appeal to the address listed in county records as the property's Change Notice Mailing Address, which is published on the county's website ( Some of the county records are outdated as to owners' addresses and, in those instances, some new owners are unaware of appeals on their properties.

New owners should check the address the county has on record for their properties and watch for notices sent to this address in the coming months. If a school district does appeal, the property owner would be wise to seek counsel, appear at hearings and defend his property's taxable value, otherwise risk having his assessment increased even more.

dipaolo web Sharon F. DiPaolo is a partner in the law firm of Siegel Siegel Johnson & Jennings Co., LPA, the Ohio and Western Pennsylvania member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Highest And Best Property Use: Why Does It Matter?

"Any investor wants to maximize his property's value and income-producing potential, but many fail to take this concept seriously — until they realize what they could be missing out on"

Who cares about the highest and best use of a property? Well, appraisers certainly care, and when a property ends up in litigation, the judge cares. Understanding how these authorities determine value will make it clear that commercial property owners should care about highest and best use, too.

I learned the importance of highest and best use during my first year at the Department of Justice, in a small condemnation or government taking case. The property owner had a single-family home on a prime piece of commercial real estate, and a highway expansion was bringing traffic lanes to within 12 feet of the house. The property had been rezoned commercial and was surrounded by other commercial uses.

As a residential asset, the entire property before partial condemnation had appraised at $140,000, whereas the land as a commercial site was worth double that amount. Because the highest and best use of the property was redevelopment as a commercial site, the value for the land taken as right of way was worth more than the residential value of the entire, previously undivided property.

Not all analyses of highest and best use are so simple and obvious. This is particularly true in the context of appraising an industrial property for a property tax appeal. The standard test for determining highest and best use has four prongs, and each can be critical to the valuation of the property.

That question is: What use is legally permissible, physically possible, financially feasible and maximally profitable?

The first prong, what is legally permissible, refers to zoning or other governmental restrictions, as well as the deed restrictions, and the uses that those parameters allow for the property. In a recent case, a 57-acre property was zoned industrial, which allowed for offices as an accessory use to the industrial use. Improvements included several older flex manufacturing buildings totaling close to 600,000 square feet. The condition and use of the flex buildings varied but the need to use the structures primarily for manufacturing no longer existed.

The Oregon Department of Revenue's appraisal valued the majority of the 600,000 square feet as office use. This did not meet the test for what is legally permissible, because the zoning only allowed office as an accessory to an industrial use.

What is financially feasible? In this same case, the appraiser for the Department of Revenue also failed to address if it was cost effective to reconfigure several 80,000-square-foot, two-story flex manufacturing facilities for multitenant use. The government's appraisal lacked any discussion of the basic demising costs to create smaller rentable spaces, including common areas for hallways, lobbies, and relocation of elevators and restrooms.

What is physically possible? Many of the industrial buildings in this example were interconnected. They had shared utilities, were situated on a single tax lot and offered only limited access without dedicated parking for a given building. Separation of the buildings into viable stand-alone parcels may have been prohibited by the physical location of the utilities, the placement of the buildings on the lot, or by parking, ingress and egress to the site.

The fourth prong is often the simplest to address. Of the possible uses meeting the first three facets of the highest-and-best-use test, which offers the maximum profit for the owner?

An appraiser's failure to do a highest-and-best-use analysis and appropriately support its conclusions can be fatal in a trial setting. In a 1990 decision, Freedom Federal Savings & Loan vs. Department of Revenue, the Oregon Supreme Court held that highest and best use of the property subject to evaluation is the first question that must be addressed in a credible appraisal. This set the critical framework for valuation, and determines what other comparable properties can be used to value the subject property.

These highest-and-best-use tests must be appropriately supported. In the context of an investment property, for example, would an investor deem the current use to be most productive from a financial or physical basis for the property, or would an alternative use be preferable?

If a careful highest-and-best-use analysis is done at the beginning, the appraiser can select credible comparable sales or leases for use in valuation. The property owner, in turn, will be treated fairly, whether in a tax assessment appeal or an eminent domain acquisition.

CfraserCynthia M. Fraser is an attorney at Garvey Schubert Barer where she specializes in property tax and condemnation litigation. The firm is the Oregon and Washington member of the American Property Tax Counsel the national affiliation of property tax attorneys. Ms. Fraser can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Bay Area Real Estate Recovery Bolsters Proposition 13

The recovery of the Bay Area's real estate markets has muted the public outcry to change Proposition 13's restrictions on assessed value increases. Passed in 1978, Proposition 13 has come under fire for fostering unequal tax burdens.

The reasons that tax-reform fervor is weakening are twofold. First, as the recovery spurs real estate sales, properties will be reassessed at higher market values under Proposition 13's acquisition value system. Second, recent sales are also likely to increase real estate values generally, which will permit assessors to raise the assessments of other property owners. These trends have increased the values of property tax rolls and tax revenues.

Acquisition value system increases tax revenues

One under-appreciated aspect of Proposition 13 is its requirement that assessed values for property tax purposes be equated to acquisition values or sales prices. Critics of Proposition 13 contend that the law keeps values too low and reduces the amount of taxes going to government agencies. But in an active real estate market where properties are held for as little as five years, the opposite is true. In such markets, sales prices are usually climbing, assessed values increase, property tax collections rise, and local governments receive more revenues.

The recent up-tick in Bay Area real estate sales is proving the benefits of Proposition 13 because the values of tax assessment rolls have increased for all counties. For example, the 2013-2014 tax year assessment rolls increased over the previous year by 8.3 percent in Santa Clara County, by 6.0 percent in San Mateo County, by 5.0 percent in Alameda County, and by 4.5 percent in San Francisco. Statewide, assessed values increased by $191.5 billion or 4.3 percent over the prior year.

Recent sales affect assessments

The increase in real estate sales activity doesn't just impact the assessed values and taxes on properties that have sold. It can also affect the values and property taxes for real estate held by investors. Here's why.

Under Proposition 8, the bookend to Proposition 13, assessors can and have reduced real estate assessments in recent years to reflect across-the-board declines in market values. In some cases, the reductions have been considerable, well in excess of the 2 percent annual adjustments that are permitted under Proposition 13.

As real estate markets recover, the Proposition 8 reductions that assessors made in prior years to reflect market downturns usually are reversed. The Proposition 8 values of prior years can shoot up much faster than 2 percent per year for properties that are assessed below their trended Proposition 13 values, depending on where current sales show market values to be. As Proposition 8 values are reversed and values return to Proposition 13 levels, the property taxes on those assets also rise, thereby increasing tax revenues to local governments.

Split roll unnecessary

One of the changes currently advocated by opponents of Proposition 13 is to create a split tax roll which would tax commercial properties differently from residential ones, either by requiring commercial properties to be reassessed annually instead of upon acquisition, or by increasing the tax rates for commercial properties.

However, as described above, such changes are unneeded so long as there is an active market for commercial properties, and so long as sales prices generated by that market tend to increase over time, which is usually the case. When these conditions are present, assessed values will increase and property tax revenues will rise.

As markets continue to recover and assessed values rise, property owners should take stock of their assessed values. Local assessors will begin to set assessed values for the 2014-2015 tax year in January 2014. In some cases, values reduced under Proposition 8 in prior years will be restored to Proposition 13 levels. Taxpayers should ask whether those restored values represent market values, and if a value appears excessive, the property owner should file an appeal.

CONeallCris K. O'Neall is a partner in the Los Angeles law firm of Cahill, Davis & O'Neall LLP, the California member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. O'Neall can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Owner, Beware

"When Assessors Seek Business Income Information"

Is it appropriate for a tax assessor to use income information in determining taxable value?

That question comes up frequently in property tax cases when assessors seek income information from taxpayers. The answer is that whether a request is appropriate depends on the type of property at issue and the type of income information being sought. In several recent cases involving manufacturing operations, industrial enterprises and other types of businesses, assessors have sought information on income from the business or businesses operating on the property, rather than on income from the property itself.

Often, assessors have a legitimate reason to seek certain types of income information from taxpayers. For instance, if the property type at issue is typically rented in the marketplace, as is the case with an apartment complex or an office building, it will likely be entirely reasonable for the assessor to request, and for taxpayers to use, the property's rents when evaluating its market value. Indeed, investors regularly rely on rental information to determine the price for such property.

However, some types of income data should be excluded from a property assessment. In a number of recent instances, for example, assessors attempting to value manufacturing or industrial properties have sought income and production information relating to the manufacturing process, which is unrelated to the property's income-producing capacity. Where the business is something different from the rental of property and the business income derives principally from assets other than the real estate, reliance on income information will produce misleading conclusions about the value of the real property (whether for taxation or any other purpose).

To better understand the problem, consider a hypothetical downtown office building that houses law firms, accounting firms, travel agencies, dental offices and any number of other tenants. No reasonable assessor would consider the revenues of the tenants in determining the value of the office building.

Why not? Because that business revenue would indicate only the value of the business taking place in the building. Tenant revenues do not determine the building's rent, and no reaonable investor would value the building on the basis of such income information. In short, it is irrelevant.

The same generally goes for production and income information when it comes to manufacturing proeprties. A typical manufacturing process requires personnel, machinery and equpment, managerial expertise and real property. Add to that goodwill and other intangibles that allow the manufacturer to capture market share and sell its products, and it is clear the income from product sales incorpoates value from a number of assets unrelated to the value contribution of the real property.

Special Purposes, Special Properties

Why, then, might assessors seek business income information, and how should taxpayers respond to such requests?

In many markets, manufacturing properties are more lilely to be in owner-occupied rather than leased space, so determining the equivalent of market rents for such properties is difficult. Assessors seeking production or business income information occassionally argue that they cannot use sales data because the property is a special-purpose asset. But even if the property is special purpose, the assessor should not seek and use income information unrelated to the property and its market value.

Attorneys also hear assessors argue that the property represents a special component of, or provides a particular "synergy" to, the taxpayer's business. These assessors contend they need business income information to accurantely reflect the property's true value. But such efforts to capture special value apart from the real estate itself are efforts to tax an intangible, not the property.

In some cases, it may be appropriate to consider income information to determine whether a property suffers obsolescence and is, therefore, over-assessed. For example, if the total income from all operations is insufficient even to support the real property at its current assessed value, an argumnent exists that the real property suffers obsolescence (relative to its assessed value). However, the fact that income shortfalls might indicate obsolescence does not make business income generally indicative of real estate value.

When assessors request business income unrelated to the property or its rent, taxpayers should consider objecting on several grounds: First, if the information is truly unrelated to the property or its rent, the taxpayer should explain that to the assessor \and try to provide only the property's rental information, if available.

Second, taxpayers should guard against the disclosure of proprietary business information. Many states have laws that protect confidential taxpayer data such as information relating to earnings, income, profits, losses and expenses; taxpayers are wll advised to mark that information as confidential and take other steps to avoid public disclosure of any income information they provide to the assessor.

Suess David photo

David Suess is a Partner in the Indianapolis law firm of Faegre Baker Daniels LLP, the Indiana member of the American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.. Suess's partner, Brent A. Auberry, contributed insights and edits to the column.

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Case Study: If The Build-To-Suit Fits.....

"Once vacated by the original user, build-to-suit properties require a different valuation process."

Build-to-suit properties, like custom suits, are wonderful for the original purchaser. A made-to-order suit matches the specific user's size and build and looks just right on him. But try giving that suit to a friend, and the suit that looked great on you may not look as good or fit as well on him.

Similarly, build-to-suit properties may offer limited or no functionality to the next user. The following case study of a freestanding restaurant illustrates the challenges of determining the taxable value of a build-to-suit property.

The property was built in Austin in 2006 for a dine-in hamburger chain with restaurants in the U.S. and Canada. Located at a high-traffic intersection in front of a large shopping center, the restaurant measured 6,780 square feet, according to Travis Central Appraisal District records.

When the restaurant closed its doors in 2011, the restaurant appeared to the casual viewer to be in excellent condition, but the property owner demolished the building. From there, one might have assumed that a different property type would replace it.

As such, it was surprising to see another restaurant replace the demolished property in 2012. When completed, the new structure measured 6,350 square feet, tax records showed — nearly the same size as the previous building's 6,780 square feet. And the new building, like the old, was home to a national chain, in this case a steakhouse.

In this example, the value to the original user was an investment value and most likely equated to the original cost less physical depreciation. The investment value to the new owner was land value less the cost of demolition.

So how did a relatively new building suffer 100 percent depreciation after only a few years of physical depreciation? In this case, the custom suit was given to a friend, and it just didn't fit. The exterior of the first building matched the branded design of a specific chain restaurant, and on the inside, the builder had tailored the kitchen and dining areas to this particular chain. But the new user also wanted a specific exterior design, kitchen and dining area layout to match a different restaurant chain.

So, how then can an appraiser or assessor value a build-to-suit property without putting a nominal or "zero" value on the improvements?

In Texas, the property tax code requires assessors to value properties at market value, not the investment value to any one specific user. "The Appraisal of Real Estate, 14th Edition" states that, "it is generally agreed that market value results from the collective value judgments of market participants...In contrast to market value, investment value is value to an individual, not necessarily value in the marketplace."

In the case of a build-to-suit restaurant, it can be assumed that the pool of potential second-generation users who find functional utility in the property is limited to local restaurateurs or small local chains that do not require a specific look or layout for brand recognition. The market value to these users is likely somewhere in between the physically depreciated cost and the
land-less-demolition cost.

This implies that functional obsolescence is inherently built into a build-to-suit property. While measuring the amount of obsolescence is beyond the scope of this article, one strategy is to inventory the number of comparably sized restaurants in the subject's market area and determine the percent of those restaurants that are regional or national chains.

A larger percentage of such chains in the market area indicates a greater degree of functional obsolescence. Using the income approach to value, a larger percentage of regional or national chains implies fewer potential users of the property and, therefore, a greater risk, which can be reflected in the cap rate.

An assessor must consider these factors when determining the market value of a build-to-suit property for property tax purposes. Significant value swings can occur when looking at the investment value for one specific user rather than the market value for a collective of market participants.

Once the market participants who find utility with the property have been determined and weighed against the market participants for which the" suit just doesn't fit," the assessor can determine a proper market value.

Kevin Sullivan is an Appraiser and Tax Consultant with the Austin, Texas, law firm Popp, Gray & Hutcheson. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Sullivan can be reached atThis email address is being protected from spambots. You need JavaScript enabled to view it.

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South Carolina Taxpayers Play 'Dating Game'

Inconsistencies and confusion reign in determining effective date for valuing commercial properties.

"The practical implementation of the mandated five-year county-wide reassessment program further compounds the dating confusion. Many counties delay county-wide reassessment for one year, as authorized by statute, and in some cases, two years..."

Commercial property owners in South Carolina already faced an unsettled and confusing issue in trying to determine he valuation date for ad valorem taxes. Now, the South Carolina Court of Appeals has further complicated the issue.

Determining the valuation date should be simple: South Carolina law states the pertinent date of value for a given tax year is Dec. 31 of the preceding year. For example, logic suggests the valuation date for 2013 property taxes hould be Dec. 31, 2012. But that logic is often mistaken. South Carolina statutes require local assessors to engage in a countywide reassessment every five years. The process is referred to as an "equalization and reassessment program," and is intended to equalize the tax burden on property owners. Logic suggests the equalization program will equalize values, but that logic is also mistaken.

Act No. 388 and its Wake

Approximately seven years ago, the South Carolina General Assembly passed Act No. 388 which, among other things, capped value increases resulting from a county-wide equalization and reassessment to 15 percent of the property's prior assessed value, so long as the property had not changed hands in the past five years. However well-intentioned, the effort to lower property tax burdens wrought havoc with the concept of equalization.

The legislature also created the concept of an assessable transfer of interest, which eliminated the cap in some situations, such as in certain transfers of interest within the ownership entity, or following construction of improvements. In a sense, the legislation penalizes a landowner from a tax standpoint for improving a property's economic performance with new construction.

By their nature, caps erode the principal of uniformity since taxes for some properties go uncapped. Competing properties may have identical uses and financial performance, but taxes may be capped on one property, but not on the other. Under Act No. 388, two economically identical properties could be taxed using different valuation dates.
In fact, Act No. 388 promulgates a potential for four alternative valuation dates.

In an effort to address some of the outcry over the inequality engendered by Act No. 388, the legislature in 2012 provided an exemption of up to 25 percent of the purchase price of commercial properties. Unfortunately, this provision adds yet another little-known filing deadline, since the application for the exemption is due on or before Jan. 31 of the applicable tax year. In other words, a property purchaser must file for this exemption prior to the first Jan. 31 after acquisition. Failure to do so likely invalidates the exemption.

The practical implementation of the mandated five-year county-wide reassessment program further compounds the dating confusion. Many counties delay county-wide reassessment for one year, as authorized by statute, and in some cases, two years. For example, after delaying a scheduled 2004 reassessment to 2005, Charleston County delayed its next scheduled county-wide reassessment from 2010 to 2011 and decided to use a Dec. 31, 2008 valuation date rather than Dec. 31, 2010. The question is what date to use for valuation in the county-wide reassessment. Should it be the date on which reassessment was scheduled to occur or Dec. 31 of the year prior to implementation?
The correct answer is unclear.

Interim Appeals Defy Logic

So, what happens if a property owner wants to appeal the value of a property in the middle of the fiveyear period because of a change in economic performance? For example, is it fair to tax a property based on its economic status as of the valuation date used in the last county-wide reassessment, when it may have lost its anchor tenants since then? Logic and the clear language of state statutes suggest the valuation date should be the lien date, or Dec. 31 of the year prior to the year in which taxes are due, in order to treat properties equally based on economic performance.

According to the South Carolina Attorney General, however, that logic again would be wrong. In 2010, the attorney general opined that county assessors should ignore the unambiguous statutory language regarding valuation date and use the effective date of the last county-wide reassessment. County assessors are implementing this opinion regardless of logic.

In the 2013 case of Charleston County Assessor vs. LMP Properties, the South Carolina Court of Appeals further complicated the dating problem. In this case, the parties agreed to a Dec. 31, 2003, value date because 2004 was the date of the county's last county-wide reassessment. However, the Court determined Dec. 31, 2007, was the proper date for determining the property's highest and best use. In other words, the Court held an appraiser should use one date to determine the property's value and a different date to determine the property's highest and best use. How licensed appraisers meet these requirements and satisfy professional standards under the Uniform Systems of Professional Appraisal Practice defies logic. Logic suggests that assessors should use a uniform date, the lien date, for valuing real property. Logic also suggests the property's economic performance as of the lien date should control for interim appeals. But, then again, whoever said that dating — in love or taxes — had to
be logical?

ellison mMorris A. Ellison is a partner in the Charleston, S.C., office of the law firm Womble Carlyle Sandridge & Rice LLP. The firm is the South Carolina member of American Property Tax Counsel, the national affiliation of property tax attorneys. Morris A. Ellison can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Is History Repeating Itself in Multifamily Rental Space?

One of the bright spots that have emerged in the real estate market over the past five years of the economic recovery has been the multifamily rental segment. Of the 49 major metropolitan markets tracked by Cassidy Turley, only 17 have a multifamily vacancy rate above 5% and only two have a vacancy rate above 7%, according to the Firm's US Multifamily Forecast Report for Summer 2013.

Rental rates have increased in virtually all markets, with the strongest growth in top-tier cities. In Chicago, for example, rents at class A buildings have increased 21% since 2009. And at the national level, multifamily transaction volume quadrupled between 2009 and 2012. Despite these robust indicators, however, some observers worry that the industry may be overestimating the extent of the US multifamily recovery, and that developers are setting the stage for the next bubble.

Since 2012, construction has come to the fore. Almost 60,000 new multifamily units are expected to reach completion by the end of 2013 in the top 10 markets. The bulk of the new construction is class A buildings, which feature amenities such as a doorman, concierge services, work-out facilities, pools and in-unit washers and dryers.

Millenials, born between the mid-1980s and mid-1990s, appear to be driving the rental market. They are renting instead of buying for several reasons. Some have limited opportunities to finance the purchase of a home. Others want to remain mobile while pursuaing their careers. New construction is highest in cities like Austin, Washington, Chicago and New York, which are some of the prime designations for millenials.

While optimism is warranted, there are signs that the sector may have ignored the lessons of the 2008 recession. The availability of capital alone cannot be the determining factor driving development in a segment of the market that has become dominated by the addition of new supply. The real estate market must operate within the parameters of the greater economy, and that overall economy merits far less enthusiasm than the multifamily boom would suggest.

The liklihood of an over-supply in the apartment market raises interesting property tax concerns. The prospect of lower fundaments raises risk and lowers revenue expectations. Ultimately, it must be anticipated that pricing will change and values will decline.

Real estate taxes are based on market value, but the development of new values for real estate taxes lag well behind the market. In many places, the decline in value over the past five years still has not been fully recognized in the values established by assessors. Developers must have strategies in place which accelerate assessors' recognition of value changes taking place in the market. The key strategy to help owners keep real estate taxes in line with value changes is assiduous appeal of property tax assessments.

In 1989, the response to the savings and loan crises, the Uniform Standards of Professional Appraisal Practice were promulgated by the Appraisal Standards Board. These standards govern both the mass appraisal practices of assessors and the appraisal of individual properties by private appraisers, and will take into account the changes in the market as they arise. Thus apartment owners need to diligenty scrutinize their tax assessments in the next several years to ensure that these assessments reflect the changes in market values, and where they don't file an appeal.3

reganJames Regan is the managing partner of the Chicago law firm of Fisk Kart Katz and Regan, the Illinois member of the American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.. His Fish Kart colleague Antonio Senagore also contributed to this article and he can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Answer to a Question Posed to Members of the Real Estate Forum Editorial Advisory Board

"How will market conditions in 2014 be different from what we saw in 2013?"

Stephen H. Paul, Esq., President of APTC, answered as follows:

"As Congress has been prone to "kick the can" down the road on tough budget issues, I believe many financial institutions holding large amounts of real estate mortgage paper have been kicking the can down the road over the past few years on many of their loans that have been underwater for some time, extending balloon payback dates into the future in hopes of having their troubled properties recover from their lagging performance. At some point, these financial institutions will have to fish or cut bait as to those properties that haven't recovered during their period of leniency. To the extent these institutions swallow hard and take their hits, we could see a large number of properties come onto the market at attractive prices for investors during 2014 — a reprise of 2010-2012.

"As to those properties that have recovered during this forgiveness period, to the extent they come back to the market, if the they're higher quality retail and office assets, we could see some slight appreciation in prices during 2014, certainly in primary, and most probably in good secondary markets as well."

Real Estate Forum, December 2013


Stephen H. Paul is a Partner in the Indianapolis law firm of Faegre Baker Daniels LLP, the Indiana member of the American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Eagle Ford Shale Ignites Boom

"Natural gas reserves a boom for not just energy industry, but for all of South Texas."

South Texas is humming with activity, much of it attributable to the Eagle Ford Shale and the rapid growth it has brought to the region. The opportunities available and the boom resulting from the Eagle Ford resources have generated significant wealth and economic activity in these modest communities. As the population expands with workers and South Texas hastens to keep up with the surging demand for housing, roads and other infrastructure, property values are on the rise.

The boom has fueled significant tax assessment increases over the past few years. South Texas counties are reaping the benefits of the new prosperity by increasing property values and adding more property to their tax base. The trend serves as a poignant example of how externalities affect value.

What is the Shale?
The Eagle Ford Shale is a geological formation from the Cretaceous period spanning the Mexican border in South Texas into East Texas. It is roughly 50 miles wide, 400 miles long, and pans 30 Texas counties between the Buda Lime and Austin Chalk formations. The shale produces dry gas, wet gas, natural gas liquids and oil.

Some experts believe the Eagle Ford discovery could become the sixth largest oil discovery in the history of the United States. Combine this with the fact that it is as large as or larger than the Barnett Shale play in terms of natural gas reserves, and you have a recipe for a legendary oil and natural gas boom.

Since 2008, the exponential growth in the Eagle Ford Shale has been staggering. In 2008, there were roughly 350 barrels of oil produced in the region per day; today, almost 10 times more barrels of oil are produced per day. And, as of the end of September, an estimated 5,200 drilling permits have been issued.

Benefits to South Texas
In South Texas, housing supply has increased as numbers of transient workers migrate to work in the oil fields, on pipeline projects and in new gas processing plants. From 2000 to 2010, the population in just a six-county region (Dimmit, Frio, La Salle, Maverick, Webb and Zavala) grew by roughly 66,000 people, and housing grew by about 22,000 units.

The results from the new prosperity are evident in the increase in property tax assessment values. For La Salle County's Cotulla Independent School District (15D), total taxable value was over $2.3 billion in 2012, compared to $408 million in 2008. Nearby, the Dilley ISD total taxable value more than doubled to $235 million in 2012, from $103 million in 2008. While the majority of the increase in tax base is due to the value of oil, gas and minerals and the industrial personal property needed for these projects, the ripple effects can also be observed in commercial and residential properties.

For example, lodging room revenues in the oil and gas areas grew by almost 16 percent in 2012, which is more than the state average, according to a report prepared by Source Strategies Inc. for the Office of the Governor, Economic Development & Tourism. Also, room revenues in the city of Alice (Jim Wells County) were $12 million in 2012 compared to $5 million in 2008.
As room revenues increase, appraisal districts have captured the new income streams and raised hotel values.

This is just one example of how the activity from the Eagle Ford boom has filtered down to property values. But while room revenues have been consistently increasing over the last
couple of years, Source Strategies suggests that the growth seems likely to moderate, as revenues during the second quarter 2013 declined slightly in Victoria and Laredo.

Similarly, as the market begins to even out and supply catches up with demand, there may be more stabilization of property values. In any event, property owners should be watchful of market trends in reviewing their property values.

Continued Growth Ahead
Anticipated future production in the Eagle Ford Shale indicates continued expansion in South Texas. By 2021, the Eagle Ford Shale could produce as much as $62.2 billion in output and $34 billion in gross regional products, according to projections by the University of Texas at San Antonio's Institute for Economic Development. More permits continue to be

approved for drilling.

As communities in South Texas catch up with the increased activity, property owners should be on guard against unfair and inflated property tax assessments.

MelissaRamirez150Melissa Ramirez is a principal with the Austin law firm of Popp Hutcheson P.L.L.C., which focuses its practice on property tax disputes and is the Texas member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Ms. Ramierz can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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Will Flood Insurance Changes Put Property Values Under Water?

"Both residential and commercial policy holders currently benefitting from subsidized rates will see a 25 percent yearly rate increase until each rate reflects "true flood risk" according to the new flood insurance maps to be generated by FEMA. New risk tables will not be available until June 2013, making the magnitude of the adjustments uncertain..."

In Texas, flooding is a part of life. Between the Galveston hurricane of 1900 and Hurricane Ike in 2008, seven major hurricanes and destructive tropical storms have ravished the Texas Gulf Coast. The people of Texas have lived through, and re-built, in the wake of these and many other flooding events.

Congress enacted the National Flood Insurance Act of 1968 to create the National Flood Insurance Program (NFIP), intended to provide an insurance alternative to help property owners meet the escalating costs of repairing damage to buildings and other property losses. The program insures roughly 5.5 million homes, the majority of which are in Texas and Florida. The NFIP also provides building-and-contents flood insurance for businesses.

Communities participating in the program must adopt and enforce a floodplain management ordinance to reduce flood risks in zones recognized as Special Flood Hazard Areas. In exchange, the federal government will underwrite flood insurance for these high-risk communities. The Flood Disaster Protection Act of 1973 made the purchase of flood insurance mandatory for the protection of property within designated special flood hazard areas. Later, the Flood Insurance Reform Act of 2004 further modified the national flood insurance program to reduce losses to property owners with repetitive claims.

Rates for policies under the national program are in most cases substantially lower than privately available insurance, and are the only coverage available for some high-risk locations. Policy premium rates are depicted on flood insurance rate maps (FIRMs) and the mapping process is managed by the Federal Emergency Management Agency (FEMA), which oversees the flood insurance program.

Since 1978, the national flood insurance program has paid more than $38 billion in claims, and in 2012, it insured roughly $1.2 trillion worth of property. In January 2009, mostly as a result of the devastating 2005 hurricane season, the national flood insurance program owed the U.S. Treasury approximately $19.2 billion, with yearly interest payments of more than $730 million. The program's worrisome financial health brought it under scrutiny during the 2009 re-authorization process, and the Government Accountability Office issued multiple reports on the program.

Congress passed the Biggert Waters Flood Insurance Reform Act of 2012 to modify the way FEMA manages the national flood insurance program. The act will require the program's rates to reflect true flood risks, a premium hike that should make the program more financially stable. The 2012 act also calls for FEMA to change the way it implements flood insurance rate maps: Under the act's provisions, actions such as buying a property, allowing a policy to lapse or purchasing a new policy can trigger rate changes, effectively ending subsidies and grandfathered policies.

Both residential and commercial policy holders currently benefitting from subsidized rates will see a 25 percent yearly rate increase until each rate reflects "true flood risk" according to the new flood insurance maps to be generated by FEMA. New risk tables will not be available until June 2013, making the magnitude of the adjustments uncertain.

The uncertainty about rates presents a hazard to property values in high risk areas. The greatest uncertainty and risk to property values, however, may be updates to flood insurance maps, which FEMA is currently preparing.

Some policy changes, such as ceasing to recognize private levies and revisions to historical flood lines, may change the risk rating of many properties. For properties where the risk severity and availability of subsidies are changing, the overall economic viability of the property may be at risk.

Changes to the national flood insurance program have created economic obsolescence affecting the values both of properties currently in the program and of properties not in the program, which may have their risk rating changed by the flood maps' pending revision.

While the magnitude of the change in property values may be unknown for several more months, enough information is available to argue that the additional risk these regulatory changes introduce will reduce taxable values of potentially affected properties. Once all the variables are known, affected property owners should undertake an in-depth analysis of the effect of the regulations on property value to determine whether a tax appeal is necessary to obtain a fair property tax assessment.

RodriganoSebastian Rodrigano is a principal at the Texas law firm of Popp HutchesonPLLC. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Rodrigano can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..


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