Fighting For The Underdogs In Commercial Property Tax Appeals

To determine if an appeal is right for your commercial property, consider these questions.

Can your building accommodate multiple tenants?

Single-tenant buildings are constructed with a specific purpose for a specific client. These buildings don’t hold the same value as multiple-occupancy buildings designed to attract a variety of credit-worthy tenants.

Assessors sometimes confuse a single-tenant corporate headquarters building with multi-tenant Class A or Class B building. Single-tenant buildings misclassified as income-producing buildings may be eligible for a property assessment appeal. This is because these misclassified single-tenant buildings typically cannot match the value of similarly sized income-producing buildings. The difference in value between these two types of commercial buildings is dramatic; in some cases, there may be a 50-75 percent disparity between the values of the two properties

Have you suffered excess vacancy problems given the downturn in the market?

One of the primary consequences of the recession has been a dramatic increase in vacancy for Class A, Class B and Class C commercial buildings marketwide. In the new economy, as more people work from home and offices are downsizing, demand for office space in general is at best static. Many assessors haven’t taken this factor into account. In some cases, this excess vacancy has resulted in net rents 20-50 percent less than four years ago at the start of the recession.

Are you aware of the difference between leased fee and fee simple sales of commercial real estate?

Fee simple sales deal directly with what the building would sell for by itself, while leased fee sales address landlord and renter interests – for example, a commercial property being sold while renters are still in their leases. Assessors are reluctant to consider declining lease rates and excess vacancy when assessing properties, and have tended to ignore the difference between these two kinds of sales. The gap can be as much as $75 per square foot in assessed value.

What are the effective lease rates you’re able to negotiate/capture in the current economy?

Businesses are fitting more people in less space – the average individual size of a workspace is 200 square feet, down from 300 square feet 10 years ago. Tenant brokers are using this to their advantage, offering lease rates far below the market rents that once existed. A reassessment should reflect the accurate lease rates for properties, examining the true value of a property.

Are you taking into account the costs associated with capturing a tenant?

Tenant improvements can be very expensive. Assessors are often unaware of how the cost of bringing a tenant into a space impacts the value of the building itself. For example, an assessor will look at a lease when determining the assessed property value, but may not be taking into account the $1 million a landlord spent to make the building ready for a tenant. Both the tenant and landlord have the right to challenge the property assessment in such cases to recoup the costs of tenant