Property taxes are one of the most significant expenses affecting ownership of commercial real estate. Many owners don't take advantage of available strategies to reduce them. Especially in a slow economy, market and property-specific factors should be considered to reassess a property's value and possibly lower its taxes. However, tax assessors aren't necessarily attuned to market fluctuations or the particulars surrounding a certain property type, and owners often fail to point out such circumstances during revaluations.
In addition to changing market conditions, owners should be aware of timing and regulations to mount a successful property tax challenge. In the tri-county area, property owners must file the protest within 30 days following the newspaper publishing.
When analyzing a property after a revaluation, consider the following factors to determine if a reassessment is justified:
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Did the purchase price trigger a tax increase? Assessors can typically revise valuations after properties change owners. Invariably, revisions reflect sales prices significantly higher than assessed values. Even if a sale doesn't trigger a reassessment, the purchase price could be the basis of an increase for the next revaluation cycle. If the revised value assessment echoes the sales price, an appeal probably is warranted.
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Has something changed in the market? Market value is the normal standard for assessment purposes, but a number of market factors may have influenced the property since the assessor's date of value. If similar properties have sold for prices significantly less than your property's current assessed value, you should make that known in your appeal. The value of commercial real estate is sensitive to changes in the market, so determine if the market has softened for your particular property type.
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Has the property changed? Sometimes changes in use and/or configuration of a specific property may serve as the basis for a property tax reduction. If the property has sustained any casualty loss since the last revaluation or there's an impending loss of a major tenant property, values are affected. Changes in site access or environmental contamination on or near the site also may impact the assessed value.
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How does your property compare to other similar properties? Assessors try to render equitable assessments so specific taxpayers don't bear a disproportionate share of the community's tax burden. Therefore, similar properties should be assessed at comparable values per square foot, acre, or unit. If your property isn't unique, research assessments of comparable properties and determine whether the same unit of measurement and value is employed.
Property owners should be aware of factors affecting each specific property type.
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Retail properties. Retail properties are vulnerable to demographic and tenant mix changes. The loss of an anchor tenant usually has a huge impact on a retail property's value, and assessors often erroneously assume a departed anchor tenant can be replaced easily. They frequently don't adjust for the loss and ripple effect an anchor's departure may have on smaller retail tenants.
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Office properties. Competitive developments may depress the value of an office building. Owners should ask themselves the following questions: Do newer, more modern office buildings surround the property? Are deferred maintenance or necessary capital improvements driving down value? Is the building's assessed value greater than other office buildings with higher-quality amenities? If the answer is "yes" to any of these questions, property owners should conduct a more detailed valuation analysis.
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Industrial properties. The features and configuration of older industrial properties may not be as efficient or functional as they once were. Manufacturing plants and warehouses endure a great deal of wear and tear, and property owners should make assessing authorities aware of any unusual or major repairs that may be necessary.
Commercial property owners must be proactive to ensure all factors influencing the assessment of their properties have been considered by an assessor. When owners successfully reduce property taxes, the effects are dramatic. Another option for owners is to engage a property tax specialist to investigate the factors affecting value and make an appeal on the owners behalf. Typical charges for such an appeal are 50 percent of the first year's savings. IBI
