Industrial properties present special challenges to property assessors. As drivers of the economy, these properties are large, visible structures in the community, home to expensive equipment and activities that generate revenue. In smaller communities, industrial properties are often the main commercial tax base for municipalities. All of these factors make industrial properties opportunities for over-assessment.
Even with a well-maintained piece of industrial property, there are hidden factors that can drive down the true economic value of the building and property. Many hidden factors may differentiate a property from comparable recent sales, even if they appear similar on the surface.
For example, if an industrial property was built more than 30 years ago, there is likely asbestos insulation, antiquated HVAC systems and contaminated real estate. These considerable and costly building code and environmental issues would have to be addressed during any property repurposing, renovation or addition, and could substantially drive down the value of a property during a sale.
Another possible cause of over-assessment comes from elements inside the building, such as a productive workforce employing expensive machinery. These economic factors are a valuable going concern to the owner. Some property tax assessors impermissibly consider a property’s overall worth to an owner in determining assessments. A productive workforce and expensive equipment make a property more profitable to your company, but should not be used to artificially inflate its valuation.
Three questions CFOs should answer about their property assessment are:
- Could I sell my industrial property for the same assessed square foot value?
- Could I build or buy new comparable property in the larger community for the same assessed square foot value?
- Would it be economically feasible to bring the property up to current code and remedy any environmental issues, and continue my current business in the property on its current profit structure?
If the answer is no to any of these questions, it’s time to consider consulting with a professional property tax attorney about a reassessment. A bad financial year for business does not drive down the value of a property or generate a property tax rebate, but the converse is also true – a profitable business in an aging building does not justify settling for a higher property tax assessment.