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Property tax appeal for commercial property
FOR COMMERCIAL PROPERTY Major triggering event: COVID-19
Not to mention on the current on-going Pandemic Catastrophe has had a major impact across both the real economy as well as in the real estate markets. With such uncertainty as to when the dislocations will resolve themselves, commercial property owners need to begin proactively assessing what this means for the value of their assets, with property tax reduction considerations being a focal point. Clearly, most income-producing properties will suffer coronavirus financial losses and should pursue assessment reduction.
If this is the case, the fallout of COVID-19 has the potential to result in reduced real property values, and open the door for tax assessment appeals seeking lower assessed values and property taxes. This is particularly the case for commercial properties under the income approach.
The income approach is the most common method for valuing commercial properties, which values the property as an investment, looking at factors that include income, expenses, vacancy, investment risk and property stabilization. COVID-19 has the potential to change the benchmark of what constitutes a “stabilized property” and the material factors in valuing income generating properties. Lower expectations for market rents and occupancy, coupled with increased investment risk, can result in lower assessed values and property taxes due to COVID-19.
In most counties in California, property owners can begin filing 2021 tax assessment appeals starting from July 2 in each county and will end either on September 15 or November 30, depending on whether the County Assessor has elected to mail assessment notices by August 1, 2020, to all taxpayers with property on the secured roll. (Deadline -- LA: 11/30, Orange: 11/30, RV: 11/30, SB: 11/30, SD: 11/30, VT: 09/15)
As a result, many property owners will be required to preserve an appeal to 2021’s assessed value long before they actually experience how COVID-19 impacts them next year. Property owners should begin considering whether their properties are candidates for lower assessed values and property taxes as a result of COVID-19, and prepare accordingly.
We can help you think through complex valuation topics and associated Property Tax Reduction implications. Some of the key areas we can help include: net operating review and cash flow analysis, portfolio analysis, discount rates and terminal capitalization rate analysis, and valuations for strategic planning, segregation of tangible assets and intangible assets in the bundle of going-concern value.
Especially, we can provide the Property Tax Reduction Appeal services for the heavily impacted property types as the following:
Hardest Hit:
- Hotel, Resort, Lodging, Hospitality
- Healthcare Facilities, Senior Housing
- Regional Malls and Large Retail Shopping Centers
- Student Housing
- Food Service Facilities
Less-Significant Hit:
- Self-Storage Facilities
- Office Buildings
- Industrial Facilities
- Data Centers
APPLY FOR REASSESSMENT CAUSED BY COVID-19 OR DAMAGE
Diminution of Value Damage Caused by COVID-19 Lockdown
In most States, property owners are eligible for property tax relief, resulting from damage or destruction caused by a calamity, such as fire, earthquake, or flooding not caused by the owner. Most County jurisdictions, have adopted measures to reappraise or reassess damaged/destroyed properties and assure rebuilt properties retain their prior assessed values.
To qualify for property tax relief, owners must file a claim with their respective county assessor within the time specified by the county ordinance or 12 months (some jurisdictions up to 36 months) from the date of damage or destruction, whichever is later. The loss must be at least $10,000 of current market value to qualify for relief. The property will be reassessed according to its damaged state, and property taxes will be adjusted accordingly. Relief is available to owners of real property, business equipment, and fixtures. After an application is processed, the county assessor issues a notice of proposed new assessment, and a supplemental refund will be made based on the amount of reduction.
Destruction Damages Caused by Civil Unrest Protests
As the protests continue across the nation, commercial and retail areas that were working to recover from COVID-19 are once again suffering another devastating blow as a result of the unprecedented destruction of their properties. Same Application to Reassessment procedure mentioned above can be utilized.
Burden to Prove is Up To The Property Owner
The income approach is the most common method for valuing commercial properties, which values the property as an investment, looking at factors that include income, expenses, vacancy, investment risk and property stabilization. COVID-19 has the potential to change the benchmark of what constitutes a “stabilized property” and the material factors in valuing income generating properties. Lower expectations for market rents and occupancy, coupled with increased investment risk, can result in lower assessed values and property taxes due to COVID-19.