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Tax Trauma - How Higher Assessments Can Cause Lower Net Rents

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November 1, 2016

Published with permission of Commercial Property Executive

By John Gendler, Esq.

Resurgent demand for commercial real estate is driving sale prices to record highs, pressuring assessors to increase taxable property values substantially. In the Minneapolis-St. Paul area, tax bills on some suburban and downtown Minneapolis buildings have shot up 30 percent or more within two years following a sale.

These assessment spikes yield staggeringly larger tax bills, with some buildings now taxed at $8 to $10 per square foot, up from $5 to $6.50, for taxes payable in 2014.

Read more... [Tax Trauma - How Higher Assessments Can Cause Lower Net Rents]
 

Apartments Risk Excessive Tax Assessments in Overbuilt Markets

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Published in: Apartment Finance Today
August 27, 2014

By John Gendler

As many industry veterans know, new construction can lead to overbuilding in some multifamily markets when, all too often, optimistic developers assume their projects will be successful despite signs of pending excess inventory. And when overbuilding does occur, new properties generally compete more successfully for tenants than old properties, thereby squeezing existing supply even further.

This untempered mind-set has consistently led to overdevelopment in the past and may be ushering in an oversupply of multifamily properties in some markets now, as well, creating challenges for tax-paying property owners . . . (Read more)

Click here to read the full article on the Apartment Finance Today website.

 

Fee (Not So) Simple: Property Rights & Market Value

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By:  Jack Pasternacki, CAE & Timothy Vergin, MAI

Presented: IAAO International Conference Sacramento, California

Date: August 25, 2014

The concept of the fee simple estate is often referenced in matters of ad valorem taxation, especially in property tax appeals. The concept of a specified set of ownership rights described by the phrase fee simple is generally understood by trained valuation professionals as the full set of property rights. The general concept of the fee simple estate is a central component of appraisal and often the mandated market value for property tax purposes in some jurisdictions.  Transactional data from the commercial real estate marketplace is the foundation for valuation in mass appraisal, and it is with those transactions that the complexities of property rights issues for assessors and appraisers begin.  

Read more... [Fee (Not So) Simple: Property Rights & Market Value]
 

Property taxes: Commercial owners nicked for state budget deal

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Published in: Finance & Commerce
December 1, 2011

Commercial property tax increases and the flat economy are hampering development and business investment, developer Kelly Doran says. Increases have pushed real estate taxes up to $13 to $15 per square foot on his retail properties, rates he says are "not sustainable."

Commercial property owners haven't had much to cheer about recently, and the tax bills they opened in November did nothing to change that.

Many of those preliminary bills showed taxes that were climbing, despite flat or declining earnings on the buildings being taxed, according to local government officials and real estate professionals.

One of the big culprits in that growing tax burden was a budget compromise adopted in last summer's special legislative session that ended up shifting taxes onto commercial properties, according to local officials and real estate pros.

Read more... [Property taxes: Commercial owners nicked for state budget deal]
 

Assessment Appeals Skyrocket

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Published in: Minnesota Lawyer Magazine
July 18, 2008

"Sensitive Income Data Protected"

Minnesota law requires that property tax filers with income-producing property provide the assessor with actual and projected income and expense information and lease data. The statutes also generally ensure that this sensitive information is to be used only for valid assessment purposes and should not be disseminated publicly.

However, in the fall of 2003, it became clear that there was a gap in the statutory protection scheme that exposed income and expense data to public release if it was more than three years old. A group of concerned property owners and public officials worked together to advocate that this loophole be closed. The result: an amendment to the law that protects income and expense information without a time limitation. In addition, any party requesting legal discovery of income property data of another must notify the affected party of the request. This will help ensure that property owners can appear to object to discover of their protected information. Minnesota Session Laws 2004, Ch. 290, §§12 and 13, amending Minn. Stat. §13.51.

 

April 30 Deadline for Minnesota Tax Payers

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Minnesota law permits property taxpayers to file a petition challenging value, level of assessment, and other claims by April 30, 2010. The filing deadline is absolute, and if missed, costs the taxpayer a chance to challenge its tax assessment.

Public attention has focused on the subprime lending crisis, and the woes in the residential real estate market over the last two years. Only recently has the freefall in commercial values started to manifest in foreclosures, prominent vacancies, and media attention. The assessment community is tuning into the problems in the commercial sector, and significant reductions in value and taxes are now possible. Filing opportunities should not be ignored in this environment.

Assessors and Tax Court officials are bracing for a near-record number of tax petition filings this year. Values that have been held flat, or even cut 5-10% are almost certainly high, with some property sectors estimated to have lost 30% or more of value from just two years ago. Taxpayers should ensure that the April 30 deadline does not pass without a review of their assessment.

 

Assessors May Testify Once Again in Minnesota

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Recent statutory changes enacted by the Minnesota legislature restored assessors' qualifications to testify in Tax Court proceedings. Tax Court rulings had excluded assessor testimony, based upon statutory language construed to limit assessor valuation to the mass assessment process.

The new language permits assessors to prepare and testify to appraisal reports for properties within their jurisdiction. Since assessors have been testifying in the Tax Court since 1977, the result merely restores the status quo, upset by the decisions excluding testimony over the last year.

One result that may be averted is taxing jurisdictions' wholesale resort to using private fee appraisers in contested cases. Given the costs of such a strategy, there was widespread concern over the ability of cash-strapped counties to hire appraisers across the board in these tough economic times. The amended law handles that concern by endorsing the long-standing practice of admitting assessor testimony in tax court proceedings.

 

Tax Court in Minnesota Deluged with Cases

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The economic meltdown of the last few years has sent assessors scrambling to mark down values for commercial and industrial properties. Those efforts have necessarily come up short. The result: near-record numbers of appeals to the MinnesotaTax Court, which handles all property tax disputes. Since filings are required annually, the court calendar is backed up with unresolved matters from earlier years.

As a result, taxpayers who file their case by the April 30 deadline in a payable tax year are not likely to see their matter appear on court calendars for anywhere from 12 to 22 months. Those settings are often continued, as assessors struggle to handle the swollen litigation caseloads, meaning that it can literally be years before a pending tax matter is resolved.

There is an opportunity for jurisdictions to settle matters in the fall, regardless of the court calendar, to avoid the specter of ruinous refunds in the future. Savvy assessors who are open to early settlement benefit the taxing districts, while the taxpayer gets desperately needed relief in a more timely manner.

 

Minnesota Tax Payers Cope with Recession, High Tax Rates

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Jurisdiction estimates for pay 2011 taxes have just issued, and the news is not good. Due to widespread cuts in both commercial/industrial and residential valuations, the effective tax rates at which properties are assessed have skyrocketed. Taxpayers are surprised to learn that while their assessed values have dropped , their taxes may have actually increased.

The bad news on tax rates could not come at a worse time for owners. The "jobless recovery" pundits identify does little to fill vacancies in properties. Also, the Minnesota Tax Court, coping with both near-record case filings by property owners, has already had to close for one week this year due to state budget cuts. This compounds the problem for taxpayers, whose overvalued properties need attention.

It is critical to try to resolve cases at the first opportunity. Owners should keep their property tax team informed of leasing and occupancy issues, so no time is lost when matters are finally scheduled.

 

What is Market when there is no market?

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Minnesota assessors are currently dealing with near-record numbers of tax petitions challenging the annual assessments made in the state. Assessors value property as of January 2, for taxes payable the following year. In stable markets, those that are flat or gently appreciating, with many sale transactions to study, it is easier for assessors to hit the mark on value.

Dynamic, distressed markets, like those in place right now, are more difficult to track. As sales dry up, market value proxies are harder to find. In-place rents might not reflect market leasing, requiring a judgment about what a space might command if renting on the valuation date. Cap rate analysis, once grounded in study of actual sale transaction data, becomes more anecdotal, relying on investor surveys and appraiser opinions. And, assessors, more historians than forecasters, are often a year or more behind the market.

And this is why assessors are facing near-record numbers of tax petitions in Minnesota.

 
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Tax Trauma - How Higher Assessments Can Cause Lower Net Rents

November 1, 2016 Published with permission of Commercial Property Executive By John Gendler, Esq. Resurgent demand for commercial real estate is driving sale prices to record highs, pressuring assessors to increase taxable property values ...

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