"The key question for owners is: are these new assessments as accurate as they were before the new GIM technique was employed?

By Joel R. Marcus, Esq., as published by Real Estate New York, April 2008

The Tentative Assessment Roll for 2008/2009 demonstrates a significant shift in assessments for class 2 properties (rented apartment buildings, cooperatives and condominiums). This is due to the New York City Department of Finance abandoning the time-honored approach of net income capitalization in favor of the gross income multiplier (GIM) approach, which for the very first time ignores age, condition, location and expense factors. The key question for owners is: are these new assessments as accurate as they were before the new GIM technique was employed?

Different Methods, Different Results

First, what are the differences in the past and present methodologies and where are the pitfalls in adopting one formula over another? Net income capitalization has been used by assessors and endorsed by New York State courts for more than a century. In 1962, the New York Appellate Division ruled that value arrived at by capitalization provides the surest ground for sound appraisal. In an earlier case, the New York Court of Appeals determined that: "the net income of a property is more persuasive evidence of what a property is worth than using a sales price derived from a similar property. What an investor will pay for a property is measured in large part by the amount and certainty of the income that can be obtained."

The Finance Department provided two reasons for renouncing the capitalization approach: 1) expenses for some buildings were higher than others leading to lower assessments, while in some cases the expenses may have been overstated by the owner. 2) using the GIM eliminated the need to study expenses or expense ratios and offered a simpler, more predictable one-step method.

While GIM offers more predictability, it fails to provide more accuracy. GIM is not seriously employed by any major developer, investor, lender or appraiser today, nor has any New York court embraced it.

In the most recent edition of its handbook, the Appraisal Institute warned appraisers to be careful when using this GIM method. The handbook cautions that all properties used as a basis for this approach must be comparable to the subject property and to one another in terms of physical, location and investment characteristics. If properties have different operating expense ratios this method may not be comparable for GIM valuation purposes.

The GIM approach presents one overriding problem. It is applied to all residential property regardless of location, age physical conditions or the level of services. Also, using GIM throws retail rents, antenna, signage or health club income into the mix, thus, offering the distinct possibility of grossly inaccurate and unfair assessments for many types of properties.

In addition, many substantial valuation disparities occur due to factors such as rent controls, rent stabilization and complexes composed of a large group of buildings. There may be substantially different expense ratios for an aging multi-building housing complex and a 100-unit, mid-block, non doorman apartment house in the West Village. These differences generate unfair tax assessments.

Legal Flaws in GIM

Initially, the Finance Department used different GIMs depending on income level and whether the property is rental, co-op or condominium. This directly violates state law, which mandates that these properties must be assessed uniformly. Therefore, the New York City Law Department ordered Finance Department to make changes; co-ops and condominiums had their assessments lowered and rentals saw their assessments increase.

The fact remains that for all rent-producing properties, the city possesses detailed real property income and expense information from legally mandated filings, and requires detailed statements by CPAs in all but the smallest assessment challenges. This surely provides a database for accurate net income capitalization and takes into account location, condition and other significant factors which ordinarily would render GIM suspect.

As the Finance Department begins to use the GIM to derive property tax assessments, owners need to be on guard against property tax increases. When these increases appear, an owner's only defense is filing a property tax appeal. Income capitalization may be down, but it is not out.

Joel R. Marcus is a partner in the New York City law firm Marcus & Pollack, LLP, the New York City member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. He can be reached at: jmarcus@marcuspollack.com.

"Many assessors routinely send Chapter 91 requests to taxpayers seeking information about income producing property."

By John E. Garippa, Esq., as published by Globest.com Commercial Real Estate News and Property Resource, February 22nd, 2008.

New Jersey taxpayers need to know about two critical issues as they consider possibilities for property tax relief.

The first issue is the filing deadline. All property tax appeals in New Jersey must be filed no later than April 1, 2008. This date requires that the appeal be received by the Tax Court on that date. Merely mailing the appeal with a postmark of April 1st will result in a dismissal. As a precaution, taxpayers would be well advised to file their appeal anytime after January 1, 2008. When the appeal is filed, all property taxes due and owing must be paid in order for the appeal to be considered by the court.

The second issue revolves around the need to timely respond to Chapter 91 requests that have been made by the assessor. Many assessors routinely send Chapter 91 requests to taxpayers seeking information about income producing property. These requests, which must be answered within 45 days of receipt, are sometimes ignored by taxpayers. That is a fatal error. If the assessor sends out such a request, it must be answered in order for the taxpayer to have the right to file a tax appeal the following year. Many valid tax appeals have been dismissed for this failure.

John E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. He is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at john@taxappeal.com.

"Over the past 18 months, the residential market has faced significant erosion and downward pricing pressure with the subprime mortgage meltdown reducing the value of most residential property. The increasing inventory of unsold housing units causes additional downward pressure."

By John E. Garippa , Esq. as published by Real Estate New Jersey, February 2008

At the start of a new year, it is vitally important for New Jersey taxpayers to understand the challenges they should expect regarding property tax assessments. For 2008, many taxing jurisdictions have completed municipal-wide revaluations. Under New Jersey law, in a revaluation all tax parcels are valued at 100% of fair market value. The revaluation set for the 2008 tax year values all property as of October 1, 2007.

The difficulty in properly completing this assignment arises because it generally takes 18 months to properly complete an accurate revaluation. Most often, in the process of their work, revaluation firms consider comparable sales data and comparable income data derived during a 12-month period prior to the October 1 st date. They place greater reliance on that data which is closest to the October 1 st date.

Problems occur with revaluations when the data relied upon does not accurately measure the true value of property at October 1, 2007. In some markets, where a significant value change takes place, accuracy is almost impossible. This year that market will almost certainly be residential revaluations.

Over the past 18 months, the residential market has faced significant erosion and downward pricing pressure with the subprime mortgage meltdown reducing the value of most residential property. The increasing inventory of unsold housing units causes additional downward pressure. Revaluations commencing in 2008 are relying upon sales dating back to 2006, still a period of strength for the residential market. Taxpayers should carefully review their tax notices to determine if these revaluation notices accurately reflect the value of their property as of October 1, 2007.

In Commercial, a continuing challenge will be the fact that now most assessors routinely send Chapter 91 requests to taxpayers every year. These requests are designed to assist the assessor in determining current information about all income-producing property within a taxing jurisdiction. A taxpayer has 45 days to respond to this inquiry.

A failure to respond results in the automatic dismissal of any tax appeal filed thereafter for that tax year. Every year, hundreds of tax appeals are dismissed by the Tax Court because taxpayers failed to properly respond to these requests. While all taxpayers should be diligent in answering Chapter 91 requests, owners with larger portfolios need to stay particularly vigilant regarding these requests.

Taxpayers owning income-producing property also face challenges. High vacancies continue to be seen in many office markets, and the prospect of a slowdown in the economy puts pressure on many commercial values as well. Likewise, with the subprime mortgage market affecting other sectors, retail properties will face price pressure.

All of this makes valuing these properties difficult during 2008. Many of these properties will be worth less in the months after October 1, 2007, than they were prior to October 1. While that fact may not assist in reducing an assessment for 2008, it can be useful in negotiating assessments for 2009.

Key Points You Need to Know: Remember, it is not unusual during the tax appeal process for a tax assessor to request a dismissal for a prior year in order to reduce the following year's tax assessment. This allows the assessor to reduce an assessment for a subsequent year prior to collecting any taxes. The ploy puts the taxing jurisdiction in a position where they will not have to pay any property tax refunds.

The law in New Jersey presumes that assessments are correct. The burden falls on the taxpayer to demonstrate through probative evidence that the value placed by the assessor isn't correct. This makes it especially difficult for taxpayers when market value changes month to month and value must be proven as of October 1, 2007.

Once the tax rolls are closed and certified, a procedure that takes place by the end of the prior tax year, only by filing a valid tax appeal can an assessment be lawfully changed. The tax appeal process can be difficult and expensive, requiring significant proofs. Each taxpayer needs to be aware of the significant difficulties involved, and the fact that these problems are even more pressing when significant economic issues come into play.

Valuing real property in normal static times is difficult enough, valuing them during times of significant change can be almost impossible. Taxpayers face significant obstacles throughout all of 2008 as they try to obtain equitable tax assessments. Bringing together the combined knowledge and expertise of your entire tax team will benefit taxpayers in this tough environment.

John E. Garippa is senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair and Philadelphia. Mr. Garippa is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at john@taxappeal.com.

Using comparable market sales for taxation can correct errors assessor errors.

"The tax professionals' initial work identified three relatively recent sales of comparable properties that suffered from functional and external obsolescence, much like the taxpayer's property."

By Stewart L. Mandell, Esq., as published by National Real Estate Investor, February 2008

Assessors typically value industrial and commercial properties using a cost approach that starts with land value, adds the cost of property improvements and subtracts some physical depreciation, often based on the property's age. Deducting only the physical depreciation from a property tax valuation often results in egregiously excessive taxation. However, by applying data regarding comparable market sales, taxpayers can remedy this problem, sometimes with extraordinary results.

Seldom are such factors as functional or external obsolescence, which can dramatically diminish property values, used in assessors' property tax valuations. Functional obsolescence arises from the flaws that exist in a property. Examples include an abnormal size, shape, or height, concrete floors that are exceptionally deep or too shallow and so forth.

External obsolescence results from outside forces such as industrial properties becoming vacant because production moves offshore, or a change in tax laws that reduces commercial property values. Fortunately, data from comparable property sale can be used to identify specific amounts of functional and external obsolescence; amounts that must be deducted from assessors' valuations to eliminate unlawfully excessive taxation.

Consider an industrial facility with above market operating expenses that houses manufacturing barely surviving global competition. In an actual case similar to this example, the assessor made a mere 4% reduction for functional and external obsolescence even after the taxpayer had fully described the obsolescence. Ultimately the taxpayer retained property tax professionals who knew how to use sales of comparable properties to demonstrate the diminished values the obsolescence caused.

How the process works

Assessor's records commonly contain errors in a property's age, total square footage, net leasable area, number of units, unit mix, and facility amenities. An error in the property's basic data can significantly increase a property's overall assessment. Providing a current rent roll to the assessor can help correct mistakes in a property's basic data. An owner may also wish to produce a site plan for the property along with the most recent marketing materials that show the project's different floor plans and amenities. Correcting basic errors in the assessor's records remains the simplest path to lower a tax assessment.

The tax professionals' initial work identified three relatively recent sales of comparable properties that suffered from functional and external obsolescence, much like the taxpayer's property. The professionals used these sales to quantify depreciation in a way that enabled them to reasonably estimate the obsolescence in the taxpayer's property. Using the steps followed by the professionals, taxpayers can garner stunning property tax reductions. Here's how:

• Determine the value of improvements by subtracting the value of the land from its sale price for each of the comparable properties.
• Determine the construction cost of improvements when new by researching construction costs in national estimating services such as Marshall Valuation.
• Calculate the property's total depreciation by subtracting the value of the improvements today from the cost to construct the improvements.
• Ascertain physical depreciation by dividing the property's effective age by its life expectancy.
• Estimate functional and economic obsolescence by subtracting the physical depreciation from its total depreciation.

The taxpayer's reward

Completing this analysis for the three comparable sales produced an indication of functional and external obsolescence that was far greater than the assessor recognized in his assessment. Having established a 40% to 48% range for obsolescence, the professionals then determined whether any further adjustments were warranted such as those due to differences between the sold properties and the taxpayer's property.

For example, unlike the sold properties, the taxpayer's property was both excessively large and had an unusual shape. These features would cause the taxpayer's property to suffer from even greater obsolescence than the sold properties.

As a result of the analysis, the assessor agreed that a proper cost approach required both the physical depreciation originally calculated plus an additional 40% reduction for obsolescence, an $8 million assessment reduction.

This example demonstrates that the property owner was able to deduct functional and external obsolescence without relying on an income analysis. In this case, property was located in a market where virtually all of the industrial properties were either owner occupied or vacant, making it impossible to obtain income information.

In the cost approach, where physical depreciation represents the only deduction, taxpayers should expect that properties with functional and external obsolescence will be overvalued.

When that happens it is crucial that taxpayers take action. To paraphrase the renowned philosopher, Mick Jagger, when it comes to property taxation, taxpayers may not be able to get what they want, but armed with the right information and professional assistance, they may be able to get what they need.

Stewart L. Mandell is a partner in the law firm of Honigman Miller Schwartz and Cohn LLP, the Michigan member of American Property Tax Counsel (APTC). He can be reached at slmandell@honigman.com.

Under the proposed ICAP legislation, retail facilities benefits would be dramatically reduced

"Most knowledgeable developers disagree with restricting the program's benefits and eligibility and want the program extended unchanged."

By Joel R. Marcus, Esq., as published by Real Estate New York, February 2008

The Industrial and Commercial Incentive Program is New York City's largest commercial real estate incentive program, with approximately 15,000 applications filed since its 1984 inception. KIP provides partial real estate tax exemptions for new and renovated industrial and commercial buildings in most areas of the city. While the program's renewal seems certain, it's likely to undergo significant legislative revisions.

Critics contend that lClP operates at a substantial fiscal loss for the city, with approximately $371 million in real estate tax revenues foregone in 2006 alone. The city demands reforms to the current ICIP. Specifically, they want to restrict benefits to commercial and manufacturing buildings in geographic areas that truly require special real estate tax incentives to encourage construction, stimulate employment and foster significant new economic activity. Most knowledgeable developers disagree with restricting the program's benefits and eligibility and want the program extended unchanged. In the proposed legislation, three elements are particularly noteworthy:

1. Abatement vs. Exemption

The current IClP offers tax exemption for new and renovated buildings based upon building assessment increases directly attributable to construction, i.e. "physical increases" described in the application. Industrial and commercial buildings located in special exemption areas also qualify for exemption from assessment increases arising from inflation or market value appreciation, i.e. "equalization increases." It appears ICIP amendments will provide a tax abatement rather than an exemption. For that reason, the revised legislation is generally referred to as the Industrial and Commercial Abatement Program. While exemptions reduce the amount of assessment subject to real estate taxation, abatement's are tax credits that directly reduce tax liabilities imposed upon the property. A project's abatement base will reflect the difference between the assessed value of the completed building and 11 5% of its pre-construction assessed value.

2. Reduction of Retail Eligibility

Under the proposed new lCAP legislation, benefits for retail facilities would be dramatically reduced and would depend upon the type of project and its location. Critics of KIP contend that new retail facilities frequently displace sales from existing locations in the city rather than create new economic activity. Retail space within newly constructed or renovated commercial buildings in Manhattan south of City Hall would remain eligible for [CAP benefits. Commercial buildings in Manhattan between City Hall and 59th Street would not be eligible for abatement benefits on any retail space greater than 5% of the total floor area. In regular commercial benefit areas, retail space in excess of 10% of the building's floor area would not qualify for abatement benefits.

3. Reduction of Eligible Construction Period

The old ICIP program called for commercial or industrial construction work to be performed between the date the first building permit is issued and the sixth taxable status date (Jan. 5) there after. Failure to meet these construction benchmarks would not mean denial of benefits but merely serves as a cap on the exemption base.

Under ICAP, owners generally would have to complete new buildings within five years of the permit date and renovation projects within two years of the permit date. Failure to complete construction within these periods would mean revocation of all abatement benefits granted from inception. The abatement base would be limited to physical assessment increases within three years after the permit date for new buildings and one year after the permit date for renovations. ICAP would reduce the lClP construction period from almost six years to one to three years, depending upon whether the project is a new or renovated structure. Clearly, ICAP offers far less generous benefits than those available under KIP. To capture lClP benefits, owners must 1) file a preliminary application with the New York City Department of Finance prior to June 30,2008 and 2) obtain a building permit no later than July 31,2008. These dates are critical if owners want to qualify their projects under IClP rather than ICAP.

Joel R. Marcus is a partner at the law firm of Marcus & Pollack LLP: a member of American Property Tax Counsel, an affiliation of property tax attorneys. He can be reached at jmarcus@marcuspollack.com.

Assessors' misuse of highest and best use principle proves costly.

"To support inflated values, taxing units attempt to narrowly define the highest and best use of the property."

By Michael Shapiro, Esq., as published by National Real Estate Investor, December 2007

In many states, the war over property tax assessments based on "value to the owner" as opposed to "market value" has ended with a clear victory for market value. Nonetheless, some jurisdictions continue to try changing this outcome by misusing "highest and best use."

Assessors' attempts to misuse highest and best use can be seen most often in buildings used by big-box retailers and manufacturers, as opposed to properties such as hotels, office buildings and shop-

ping centers, typically valued using the income approach.

To support inflated values, taxing units attempt to narrowly define the highest and best use of the property. They claim that a taxpayer's comparable sales aren't evidence of market value because the sale properties have a different highest and best use than the property being assessed.

Two methods, two results

An assessor may contend, for example, that only stores purchased by Jones Corporation can be used to value a store used by Jones Corporation. This effectively eliminates comparable sales as a basis for valuation. One tax court addressed this issue when it held that a property's highest and best use cannot be defined "so narrowly that it precludes analysis and value based on market data."

The accompanying chart demonstrates the difference between the assessor's valuation of two big-box stores based on his narrow definition of highest and best use and the actual selling price of those same stores in the open market.

The assessor defined highest and best use as that use being exercised by that specific retailer. That definition led the assessor to value big-box store No. 1 at $62 per sq. ft. and big box store No. 2 at $58 per sq. ft. Actually, store No. 1 sold to another retailer for $49 per sq. ft. and store No. 2 was bought by a different retailer for $38 per sq. ft.By narrowly defining highest and best use, the assessor ignored market data and over assessed the property.

The relevance of a comparable sale's highest and best use was addressed in the case of Newport Center v. City of Jersey City. The New Jersey Tax Court held that a comparable sale should be admissible evidence of value, regardless of its highest and best use, if the claimed comparable sale provides logical, coherent support for an opinion of value.

Many jurisdictions want to effectively reinstate value to the owner, in legal terms called "value-in-use," as the lawful standard for property tax valuations, thereby inflating assessments by eliminating from consideration the sales-comparison approach to value. In the sales comparison approach, sales often provide the best indication of a big box or manufacturing property's market value.

Sales prices reflect loss in value from replacement cost due to obsolescence. That obsolescence generally includes a significant amount of external obsolescence, which represents loss in value caused by some negative influence outside the property.

For example, external obsolescence could result from limited market demand for a big-box store or manufacturing plant built to meet the needs of a specific user. Value may also be adversely influenced by functional obsolescence, a loss in value due to design deficiencies in the structure, such as inadequate ceiling heights, bay spacing or lighting.

What's a comparable sale?

Appraisers are taught to only use sales comparables with the same or similar highest and best use to that of the property being appraised. However, even this limitation is too restrictive.

For example, years ago a former automobile assembly plant was offered for sale and eventually sold for demolition and construction of a shopping center. No automobile manufacturer, or for that matter any other manufacturer, was willing to pay more for this property than the developer who bought it to build a shopping center.

Thus, the market spoke and defined the market value of the former automobile plant. In short, if a property is physically similar to the property being valued, but sells for an unusual use, that sale should not necessarily be disregarded as a comparable sale.

The sale of the former automobile assembly plant for use as a shopping center may not be the ideal comparable sale to value industrial property. However, that sale certainly puts a cap, or limit, on the value of a similar industrial facility, subject of course to adjustments for relevant differences such as location or size.

By understanding the issues involved in using comparable sales to achieve market value assessments, taxpayers can successfully appeal property tax assessments when they are based on the misuse of highest and best use.

Michael Shapiro is a partner in the law firm of Honigman Miller Schwartz and Cohn LLP, the Michigan member of American Property Tax Counsel (APTC). He can be reached at mshapiro@honigman.com.

"When the taxpayer rejects the protection of the Freeze Act, they must file a tax appeal and prosecute it in the normal course of events. More often than not, a taxpayer thinks twice, or maybe more, about rejecting the Freeze Act's protection, since filing tax appeals requires significant expenditures of time and capital."

By John E. Garippa, Esq., as published by Real Estate New Jersey, December, 2007

New Jersey taxpayers have long struggled against high tax assessments and property taxes imposed by the tax authorities. Historically, even when taxpayers successfully reduced high assessments, there were taxing jurisdictions that filed appeals year after year to increase those reduced assessments. Despite the fact that a taxpayer successfully reduced his assessment in a court proceeding, there was nothing to prevent an increase in assessment for the following tax year.

As a result of this abuse of the system, the Legislature passed New Jersey Statute 54:51A-8, a law commonly referred to as the Freeze Act. The single greatest defensive tool any taxpayer in New Jersey can employ, it was passed to protect taxpayers from the need to file and prosecute annual tax appeals. Now more than ever, it has become crucial that taxpayers have a clear understanding of how the Freeze Act works and under what conditions it may not work.

For the Freeze Act to apply, a final judgment by the Tax Court must have been rendered regarding a real property tax assessment, and that judgment must be binding and conclusive on all parties, including the taxing district and municipal assessor. Generally, the Act makes that final judgment of the Tax Court binding for the next two successive assessment years.

However, exceptions exist to this general rule. If the taxpayer's property increased in value more than the general rate of increase in value of all other property in that taxing jurisdiction, the jurisdiction must file an appeal to void the Freeze. For the most part, the Tax Court has strictly interpreted this change in value standard in a manner that protects taxpayers.

The appeal process requires the tax authority to take two steps. In the first, they have to prove an increase in value more than other properties in the area. Second, they still bear the burden of proof in substantiating the correctness of their valuation of the property.

Some unusual external changes have precipitated the voiding of the Freeze Act protection. For instance, the increase in value of property in close proximity to the proposed casino district in Atlantic City gave rise to an increase in property value that voided the Freeze Act protection.

Another example of how the Freeze act was voided involved the development of a super regional mall near a commercial property that was protected under the Freeze Act. The court concluded that the construction of the super-regional mall and the development of the casino district in Atlantic City, in each instance, caused a substantial change in property values to commercial property in those vicinities.

The following four other conditions cause the Freeze Act to be voided: A complete reassessment or revaluation of all property in the taxing jurisdiction, the subdivision of a property, a zoning change to the property and any construction change to the property that results in an added assessment. In each of these conditions, the taxing jurisdiction merely asserts that one of these is met at the subject property. No need then exists for the court to determine if a change in value has occurred.

In certain circumstances, the taxpayer may determine that it is in their best interests to waive the protection of the Freeze and seek an even lower assessment. This situation may take place where real estate values continue to deflate. When the taxpayer rejects the protection of the Freeze Act, they must file a tax appeal and prosecute it in the normal course of events. More often than not, a taxpayer thinks twice, or maybe more, about rejecting the Freeze Act's protection, since filing tax appeals requires significant expenditures of time and capital.

The use of the Freeze Act and the decision to waive its protection requires an exercise of professional due diligence, which calls for the taxpayer to appraise the property to determine whether continued erosion in the value of the property or a change in the ratio of assessment to value in that taxing jurisdiction has been experienced. If a review of either of these determinants indicates that the property continues to be over assessed, it might be prudent to forsake the protection of the Freeze Act and proceed in filing an appeal.

However, this is not a step to be taken lightly because, in dealing with New Jersey property taxes, prudence is often the better part of valor.

John E. Garippa is a senior partner of the law firm of Garippa, Lotz & Giannuario of Montclair and Philadelphia. He is also the president of the American Property Tax Counsel, the national affiliation of property tax attorneys, and can be reached at john@taxappeal.com.

By Joel R. Marcus, Esq. as published in Real Estate New York, December 2007

The new law also curtails exemption benefits for as-of-right areas

"The new law, however, greatly expanded the exclusion zones throughout the city to include all of Manhattan and most of Brooklyn's Carroll Gardens, Cobble Hill, Boerum Hill, Park Slope, Sunset Park and Downtown Brooklyn; along with parts of Long Island City, Astoria, Woodside, Jackson Heights and Willets Point in Queens."

On Aug. 24, Gov. Eliot Spitzer signed into law three bills that dramatically revamped New York City's 421a exemption program. The program was created in 1971 to encourage the construction of new multifamily dwellings by granting a partial exemption from increases in real estate taxes resulting from the new residential construction.

The new law compared to the old law. The previous law covered only projects commend prior to July 1,2008 and made 421a benefits available in any area of the city, except for those areas identified as geographical exclusion areas. The areas not classified as exclusion areas are commonly called "as-of-right' areas. The exclusion areas generally included portions of Manhattan between 14th and 96 th streets and the Williamsburg-Greenpoint areas of Brooklyn. Projects qualified for benefits in the exclusion zones if at least 20% of the units were created as affordable housing or if the developer purchased negotiable certificates for creation of affordable housing units off-site.

The new law, however, greatly expanded the exclusion zones throughout the city to include all of Manhattan and most of Brooklyn's Carroll Gardens, Cobble Hill, Boerum Hill, Park Slope, Sunset Park and Downtown Brooklyn; along with parts of Long Island City, Astoria, Woodside, Jackson Heights and Willets Point in Queens. Projects started between July 1,2008 and Dec. 27,2010 in these areas qualify for benefits only if at least 20% of the building's units are affordable to families whose income at initial occupancy doesn't exceed 60% of the area median income.

The new law reduces 421a benefits outside the exclusion zones. The controversy surrounding the new citywide exclusion zones may obscure the fact that the new law dramatically curtails 421a exemption benefits for as-of-right areas.

Under the old law, all assessment increases in excess of the pre-construction assessment, commonly known as the mini-tax, were exempt. Under the new law, benefits for as-of right projects are restricted to the first $65,000 in assessed valuation per dwelling unit. The cap increases by 3% each year, beginning in 2009/10. For the current tax year, the cap is equal to $7,750 in actual taxes per unit ($65,000 x 11.928%).

The new law also dramatically reduces tax benefits for nonresidential space in new multifamily dwellings. Under the old law, up to 12% of the building area could be used for commercial purposes, without loss of exemption. Developers often incorporated valuable retail space in their buildings to lease at market rates while enjoying full 421a exemption benefits. Under the new law, all commercial space in a building is considered one unit and is subject to the $65,000 exemption cap, greatly reducing the tax break for commercial space.

To demonstrate the effect of the exemption cap, consider a new 100,000-sf condominium building with 100 dwelling units and one retail unit constructed in an as-of-right area. The building includes 12,000 sf of retail space and carries a $100,000 mini-tax. The completed building is assessed for $1 5 million. Under both the old and new laws, the project would qualify for a 15-year exemption benefit.

Under the old law, taxes during the construction period and for the first 11 years after completion equaled the mini-tax multiplied by the tax rate. Assuming that the 2007/08 tax rate of 11.928% remains in effect, annual taxes for the entire building would equal $1 1,9280 approximately $118 per residential and retail unit. The exemption would not be affected by the retail space as it does not exceed 12% of the building's floor area. Under the new law, taxes for the entire building, including the retail space, would still be the same mini-tax ($100,000) each year during construction. However, for the first 11 years after construction is completed, the 101 - unit building would be subject to the exemption cap, as adjusted. For the first year, only $6,565,000 (101 units x $65,000) of the building's $15-million assessment qualifies for exemption. Taxes for the fiat year of the benefit period would exceed $1 million for the building or approximately $9,960 per residential and retail unit, a 1,000% increase. The new law will likely affect the feasibility and pricing of all new projects.

Joel R. Marcus is a partner at the law firm of Marcus & Pollack LLP: a member of American Property Tax Counsel, an affiliation of property tax attorneys. He can be reached at jmarcus@marcuspollack.com.

Frustrated by your assessment? You've got until Dec. 31 to fight it.

"To successfully appeal, you need to prove that the actual price for which you could sell your property, its "real" real Market value, is below the assessed value. How do you determine the real market value?"

By David Canary, Esq., as published by Daily Journal of Commerce, November 14th, 2007

Your property tax bills have arrived in the mail and, understandably, you're upset with the amount you're paying on your real and personal property. But there is some good news: You have a right to appeal.

So, what are you appealing? Unfortunately, not the tax itself. The amount of property tax you pay cannot be the basis for an appeal. A property tax is the product of multiplying two numbers, the tax rate and the assessed value of the property. Measure 5 limits the tax rate to 1.5 percent of real market value plus any local option property tax. Only in very limited circumstances may property owners challenge the rate.

What you are appealing is the property's assessed value. The assessed value is the lower of two figures: the maximum assessed value (MAV) or the real market value (RMV) of the property.

Under 1997's Measure 50, except for six exceptions, assessed value cannot increase more than 3 percent per year — which becomes the property's maximum assessed value. Real market value, on the other hand, is the amount the property would sell for between a willing buyer and a willing seller in the open market in an arm's length transaction.

Both the real market value and the assessed value appear on the property tax bill. Typically, the assessed value will be below real market value, in which case you are being assessed on the property's maximum assessed value.

To successfully appeal, you need to prove that the actual price for which you could sell your property, its "real" real Market value, is below the assessed value. How do you determine the real market value? First, if you recently bought the property for less than the assessed value, the sale price is a good indication. However, don't base your appeal upon the assessed value of other properties. The Oregon Tax Court has ruled that the assessed value of other properties isn't a sufficient legal basis for seeking a property tax reduction.

An examination of the income generated by your income-producing property may give you an indication that the assessed value is too high. Income may be generated by lease or rental rates of commercial real estate or, in the case of owner-occupied industrial property, by the cash flow generated by the operating facility. If the income generated from the property is far below the expected rate of return of the debt and equity capital invested in the property, this may indicate that the property is over-assessed because it suffers from functional or economic obsolescence.

The best evidence of the property's real market value is an appraisal by a qualified expert for property tax purposes. It may be that your property has been appraised already for other purposes — insurance, partnership buyout, or estate planning purposes. These appraisals may give you an indication whether the assessment of your property is inappropriately high. But appraisals for property tax purposes require that the appraiser render an opinion of the real market value of the fee simple interest of the property as of January 1 st of the tax year. An insurance appraisal that estimates insurable or replacement value is not sufficient. Likewise, an appraisal for estate planning or investment purposes may not fit the requirements necessary for an appeal.

A competent appraiser will determine the real market value of the property by use of one or more of the three approaches to value: the cost approach, the sales comparison approach, and the income approach. The cost approach adds the land value to the depreciated cost of the property's improvements. The sales comparison approach compares the sale price of comparable properties with the property being appraised and makes adjustments for any differences between the two. Finally, the income approach capitalizes either the market rental rate or the cash flow of the property by an appropriate rate of return that reflects the return on, and return of, the investment.

Taxpayers who own residential or commercial properties must first appeal their assessments to the County Board of Property Tax Appeals. Owners of the industrial property can either appeal to county bard, or appeal directly to the Magistrate Division of the Oregon Tax Court. However you chose to proceed, please remember that your appeal must be filed no later than December 31, 2007.

David Canary has specialized in state and local tax litigation for the past 18 years. He has worked for the past 13 years as an owner in the Portland office of Garvey Schubert Barer and prior to that was an assistant attorney general representing the Oregon Department of Revenue. He has the distinction of trying several of the largest tax cases in Oregon's history. He is the Oregon member of American Property Tax Counsel and an active member of the Association of Oregon Industries' Fiscal Policy Council. He can be reached at dcanary@gsblaw.com or 503-228-3939.

"The Kentucky General Assembly authorized cities and urban county governments to establish programs that grant property tax moratoriums for existing residential or commercial properties "for the purpose of encouraging the repair, rehab, restoration or stabilization of existing improvements."

By Michele M. Whittington, Esq., Bruce F. Clark, Esq., as published in Midwest Real Estate News, November, 2007

The Louisville-Jefferson County Metro Government offers a property tax incentive designed to encourage redevelopment of economically-blighted properties. While not a widely advertised offer, property owners and developers should be aware of this opportunity to reduce their property taxes.

The Kentucky General Assembly authorized cities and urban county governments to establish programs that grant property tax moratoriums for existing residential or commercial properties "for the purpose of encouraging the repair, rehab, restoration or stabilization of existing improvements." This program was established as the result of an amendment to the Kentucky Constitution passed in 1982 by Kentucky voters.

In 1983, Jefferson County was one of the very few local governments to implement the newly passed legislation, and in 2003, the then-merged Louisville-Jefferson County government continued the program. In essence, it encourages redevelopment of existing properties by "freezing" for five years a property's tax assessment at pre-rehab levels. Unfortunately, the moratorium applies only to the "county" portion of the tax assessment, which currently amounts to $0.125 per $100 of assessed value. Efforts to extend the moratorium to other portions of the total property tax assessment have thus far been unsuccessful. Nevertheless, the moratorium presents an additional incentive for a property owner to rehabilitate an eligible property.

The moratorium program is jointly administered by the Jefferson County Property Valuation Administrator ("PVA") and the Louisville-Jefferson County Metro Government's Inspections and Licensing Department ("IPL"). The eligibility requirements for the moratorium are relatively straightforward. First, the existing residential or commercial structure(s) must be at least twenty-five years old. Second, either (a) the cost of the repair or rehab must be at least twenty-five percent of the pre-rehab value (as determined by the PVA's assessment); or (b) the property must be located within a "target area," an economically-depressed area based on residents' income. In the latter case, the cost of the repair or rehab must be at least ten percent of the pre-rehab value.

A property owner wishing to apply for the moratorium needs to submit an application to the IPL. In addition to other requirements, the application must include proof of the building's age, a description of the proposed use of the property, a general description of the work that will be performed to repair or rehabilitate the property and a schedule for completion of the proposed work. The owner should also obtain the necessary building permits and submit them to IPL. Once the application has been submitted, the owner has two years to complete the project. Upon completion of the project, the owner notifies the IPL, which inspects the property for compliance with the rehab plan set out in the application. If the project has been successfully completed, the IPL notifies the PVA, and they issue a moratorium certificate.

The moratorium's benefits can be calculated by determining the difference between the property's pre-rehab and post-rehab value. The PVA certifies the pre-rehab assessment of the property as part of the application process. Once the project is completed, the PVA reassesses the property at the higher post-rehab value; however, with the moratorium in place, the assessment for the county portion of the taxes will be "frozen" at the pre-rehab value. For example, assume that a developer purchases a qualifying property for $1,000,000. After rehab, the PVA reassesses the property for $10 million. With the moratorium in place, the assessment remains at $1,000,000 for purposes of the county portion of the tax, while the assessment for all other property taxes (state, school and others) increases to $10 million. The resulting tax savings for the property add up to approximately $11,250 per year for five years, or a total tax savings of over $55,000.

Property owners considering rehab of an eligible property should pay particular attention to the pre-rehab assessment. If the owner believes the property may be over-assessed, she should meet with the PVA and present evidence of the true value of the property prior to applying for the moratorium. Given the fact that the moratorium freezes the assessment at the pre-rehab value, a decrease in the assessment results in a corresponding increase in the tax savings, once the moratorium certificate is issued.

Conversely, a developer planning to purchase a property for redevelopment should be aware that the PVA's pre-rehab assessment will most likely be governed by the price the developer pays for the property, rather than by the pre-purchase assessment. Using the previous example, assume that a developer purchases a property for $2 million. Prior to the purchase, the PVA had the property assessed at $1 million. The PVA will inevitably pick up the purchase price from the deed and will reassess the property at $2 million, thus decreasing the tax benefit gained from the moratorium.

In any case, owners and developers should be aware of the moratorium process in order to take advantage of the potential tax savings on eligible properties.

Michele M. Whittington is Counsel in the Frankfort office of Stites & Harbison, PLLC, the Kentucky member of American Property Tax Counsel, the national affiliation of property tax attorneys. Michele Whittington can be reached at mwhittington@stites.com.

Bruce F. Clark is a Member in the Frankfort office of Stites & Harbison, PLLC, the Kentucky member of American Property Tax Counsel, the national affiliation of property tax attorneys.He can be reached at bclark@stites.com.