"By law, the Tax Court's role is to determine value, not to redistribute the tax burden."
General Motors vs. Linden, one of the oldest pending tax cases in the country, writes yet another chapter in the continuing saga of issues taxpayers must combat everyday. Each year from 1983 through 2004, General Motors appealed its local property tax assessments on its automobile assembly plant in Linden. In 1991, the Tax Court rendered a decision that found the highest and best use of the property to be an automobile assembly plant and, therefore, taxed all of the plant's machinery and equipment.
In 1993, the New Jersey Appellate Division reversed that decision and sent the case back to the Tax Court. In so doing, it stated quire clearly to the Tax Court that it was a mistake to characterize the highest and best use of the General Motors' Linden plant as an automobile assembly plant.
Recently, a judge sitting on the New Jersey Tax Court rendered an opinion of the highest and best use of the property. This was not the same judge who ruled in the 1991 case. This judge completely rejected the reversal of the Appellate Court some 12 years ago, and concluded essentially the same decision that was rendered in the 1991 case. What is astounding about this opinion is not only did the court totally ignore the principles set forth in the reversal, but it blatantly stated it was doing so to enforce a policy of the Tax Court to equalize the tax burden of certain taxpayers across the state.
This should send a chill up the spines of all non-residential taxpayers in New Jersey and across the country. In a time when activist judges are being called into question in high profile issues such as Presidential elections, the right to life and the right to die, property tax cases fly well under the radar. Nonetheless, make no mistake about it - this insidious activism is just as harmful as those issues attracting much more attention.
The seminal decision in new Jersey on the issue of "highest and best use" was rendered in Ford Motor Co. v. Edison Township in 1992. In that case, the New Jersey Supreme Court delineated the appropriate standard to be used in valuing property for tax assessment purposes. It very clearly made the point that property must be valued based on what a willing buyer would pay a willing seller for the property given the use to which it would put.
In the Ford case, the Supreme Court crafted a doctrine which recognized that limiting the review of the subject's highest and best use to its current use as an automobile assembly plant would distort how the market would analyze the property if it were sold. The property's highest and best use must be achievable, and not speculative or remote.
Thus, in order to reach its conclusion, the Tax Court in the General Motors case totally rejected the law in the Ford litigation despite the incredible symmetry of the cases. It concluded that the property should be valued not as a general-purpose industrial property, but as an automobile assembly plant. the Court made this finding in spite of the fact that experts from both the plaintiff and defendant testified that if the plant were ever offered for sale it would never be purchased for use as an automobile assembly plant and, thus, would trade as a general industrial facility.
The Tax Court openly admitted it was setting tax policy. The New Jersey Tax Court stated, "determining a highest and best use that will result in value being attributed to the automobile assembly features of the subject property is consistent with and effectuates the public policy of fairly and equitably distributing the property tax burden."
The focus of the Tax Court's policy is to tax industrial property at its highest value, not to tax it as the statutes require, at the true value in the marketplace. Its opinion merely furthers its policy objectives without regard to how market forces will treat this property. By law, the Tax Court's role is to determine value, not to redistribute the tax burden.
This latest 2005 General Motors opinion is saturated with the singular focus of a misguided philosophy regarding redistributing the tax burden. It replaces adherence to the law with policymaking by the judiciary. Judicial activism must be met with appeals to the highest courts in order to preserve property owners' rights under the law.
source:By Philip J. Giannuario, As published by Real Estate New Jersey, June 2005
Thursday, April 26, 2007
Proper Basis of Value for Property Taxation
Many assessors' offices display the same cartoon. It shows a shack to demonstrate how the taxpayer views the value of a home and a mansion to illustrate how the home is seen by the assessor.
Some element of truth exists in this cartoon -- particularly as it relates to commercial properties. Strangely, there is no single value for a commercial property. The value depends on the purpose for which property is being valued. For instance, leased fee value, as derived from existing leases, represents a property's value for mortgage purposes. New construction and owner-occupied properties are valued on a fee simple basis at current economic rental values. Value for insurance proposes is normally based on a cost approach.
When it comes to valuing commercial property for property tax purposes, almost all appraisals are based on fee simple value. The courts in New York State long ago settled the contract rent versus market or economic rent issue in favor of economic rent. The value for assessment purposes includes the value of all interests in the property. This includes the lease hold bonus value that a lessee with a favorable lease may have. A typical example of a leasehold bonus value is the supermarket in a shopping center which has a long-term net lease for $5 per sf when the current rental value is $20 net per sf. Thus, the lessee's interest in the shopping center represents a higher value than the owner's interest. When considering real property taxes, the assessor need not impose a lower assessed value because the owner made a bad bargain - or a bad bargain as seen after time passes. The same principle applies to the purchase of a property subject to below market leases. In that case, there is unsold leasehold bonus value.
The converse also applies. Above market leases on a property should be ignored, with current economic rents used by the assessor. Similarly a sale price of property with an above market lease should be disregarded as inflated by such lease.
At the heart of value for condemnation purposes lies the concept of highest and best use. However, it's completely irrelevant for property tax assessment purposes, where properties are required to be valued at their "actual use and condition." Golf courses provide a perfect example. The highest and best use for a golf course is usually a high quality residential subdivision, which could be worth up to $100 million. This would be the value in a condemnation action. However, the golf course must be valued for property taxes in its actual use as a golf course - a value of, say $10 million. Another example is a two-story suburban or inner city department store with a second story that's more or less unused. It's valued as a one-story store for taxation purposes, but might be valued in a condemnation case at a potentially higher and best use if conversion to, say, an office building is likely.
Other examples of different and lower values for property tax purposes include net leased properties, hotels and nursing homes. In a case now on appeal, the trial court held that a drug store net lease was not appropriate proof of rental value because it was based on the cost of assemblage and a built-to-suit lease. Instead, market rent for similar sized retail buildings was applied. In other cases, courts refused to apply prices and rentals from sale-leaseback transactions since such values derive from "financial transactions," not normal real estate transactions.
In valuing hotels, a careful appraisal technique is required because hotel income streams include revenue from non-real estate sources. This income must be excluded from hotel assessments to avoid a business enterprise value. Since most hotel sales and appraisals are based on the hotel's entire business enterprise value, separation of non-real estate income is essential.
Nursing home values should also exclude income from non-real estate operations such as nursing, recreation and therapy services, as well as food operations. This position was upheld in a recent court case, which excluded the non-real estate value by adopting only the real estate portion of the Medicaid reimbursement rate paid to the nursing home owner.
Many factors contribute to establishing the basis for valuing different types of commercial property. Properly determining and explaining the appropriate basis of value often becomes the key element in a property tax case. The best results in these cases come from a team effort among the client, property tax attorney and appraiser.
source:By William D. Siegel, As published by Real Estate New York, November/December 2006.
Some element of truth exists in this cartoon -- particularly as it relates to commercial properties. Strangely, there is no single value for a commercial property. The value depends on the purpose for which property is being valued. For instance, leased fee value, as derived from existing leases, represents a property's value for mortgage purposes. New construction and owner-occupied properties are valued on a fee simple basis at current economic rental values. Value for insurance proposes is normally based on a cost approach.
When it comes to valuing commercial property for property tax purposes, almost all appraisals are based on fee simple value. The courts in New York State long ago settled the contract rent versus market or economic rent issue in favor of economic rent. The value for assessment purposes includes the value of all interests in the property. This includes the lease hold bonus value that a lessee with a favorable lease may have. A typical example of a leasehold bonus value is the supermarket in a shopping center which has a long-term net lease for $5 per sf when the current rental value is $20 net per sf. Thus, the lessee's interest in the shopping center represents a higher value than the owner's interest. When considering real property taxes, the assessor need not impose a lower assessed value because the owner made a bad bargain - or a bad bargain as seen after time passes. The same principle applies to the purchase of a property subject to below market leases. In that case, there is unsold leasehold bonus value.
The converse also applies. Above market leases on a property should be ignored, with current economic rents used by the assessor. Similarly a sale price of property with an above market lease should be disregarded as inflated by such lease.
At the heart of value for condemnation purposes lies the concept of highest and best use. However, it's completely irrelevant for property tax assessment purposes, where properties are required to be valued at their "actual use and condition." Golf courses provide a perfect example. The highest and best use for a golf course is usually a high quality residential subdivision, which could be worth up to $100 million. This would be the value in a condemnation action. However, the golf course must be valued for property taxes in its actual use as a golf course - a value of, say $10 million. Another example is a two-story suburban or inner city department store with a second story that's more or less unused. It's valued as a one-story store for taxation purposes, but might be valued in a condemnation case at a potentially higher and best use if conversion to, say, an office building is likely.
Other examples of different and lower values for property tax purposes include net leased properties, hotels and nursing homes. In a case now on appeal, the trial court held that a drug store net lease was not appropriate proof of rental value because it was based on the cost of assemblage and a built-to-suit lease. Instead, market rent for similar sized retail buildings was applied. In other cases, courts refused to apply prices and rentals from sale-leaseback transactions since such values derive from "financial transactions," not normal real estate transactions.
In valuing hotels, a careful appraisal technique is required because hotel income streams include revenue from non-real estate sources. This income must be excluded from hotel assessments to avoid a business enterprise value. Since most hotel sales and appraisals are based on the hotel's entire business enterprise value, separation of non-real estate income is essential.
Nursing home values should also exclude income from non-real estate operations such as nursing, recreation and therapy services, as well as food operations. This position was upheld in a recent court case, which excluded the non-real estate value by adopting only the real estate portion of the Medicaid reimbursement rate paid to the nursing home owner.
Many factors contribute to establishing the basis for valuing different types of commercial property. Properly determining and explaining the appropriate basis of value often becomes the key element in a property tax case. The best results in these cases come from a team effort among the client, property tax attorney and appraiser.
source:By William D. Siegel, As published by Real Estate New York, November/December 2006.
Proper Basis of Value for Property Taxation
Many assessors' offices display the same cartoon. It shows a shack to demonstrate how the taxpayer views the value of a home and a mansion to illustrate how the home is seen by the assessor.
Some element of truth exists in this cartoon -- particularly as it relates to commercial properties. Strangely, there is no single value for a commercial property. The value depends on the purpose for which property is being valued. For instance, leased fee value, as derived from existing leases, represents a property's value for mortgage purposes. New construction and owner-occupied properties are valued on a fee simple basis at current economic rental values. Value for insurance proposes is normally based on a cost approach.
When it comes to valuing commercial property for property tax purposes, almost all appraisals are based on fee simple value. The courts in New York State long ago settled the contract rent versus market or economic rent issue in favor of economic rent. The value for assessment purposes includes the value of all interests in the property. This includes the lease hold bonus value that a lessee with a favorable lease may have. A typical example of a leasehold bonus value is the supermarket in a shopping center which has a long-term net lease for $5 per sf when the current rental value is $20 net per sf. Thus, the lessee's interest in the shopping center represents a higher value than the owner's interest. When considering real property taxes, the assessor need not impose a lower assessed value because the owner made a bad bargain - or a bad bargain as seen after time passes. The same principle applies to the purchase of a property subject to below market leases. In that case, there is unsold leasehold bonus value.
The converse also applies. Above market leases on a property should be ignored, with current economic rents used by the assessor. Similarly a sale price of property with an above market lease should be disregarded as inflated by such lease.
At the heart of value for condemnation purposes lies the concept of highest and best use. However, it's completely irrelevant for property tax assessment purposes, where properties are required to be valued at their "actual use and condition." Golf courses provide a perfect example. The highest and best use for a golf course is usually a high quality residential subdivision, which could be worth up to $100 million. This would be the value in a condemnation action. However, the golf course must be valued for property taxes in its actual use as a golf course - a value of, say $10 million. Another example is a two-story suburban or inner city department store with a second story that's more or less unused. It's valued as a one-story store for taxation purposes, but might be valued in a condemnation case at a potentially higher and best use if conversion to, say, an office building is likely.
Other examples of different and lower values for property tax purposes include net leased properties, hotels and nursing homes. In a case now on appeal, the trial court held that a drug store net lease was not appropriate proof of rental value because it was based on the cost of assemblage and a built-to-suit lease. Instead, market rent for similar sized retail buildings was applied. In other cases, courts refused to apply prices and rentals from sale-leaseback transactions since such values derive from "financial transactions," not normal real estate transactions.
In valuing hotels, a careful appraisal technique is required because hotel income streams include revenue from non-real estate sources. This income must be excluded from hotel assessments to avoid a business enterprise value. Since most hotel sales and appraisals are based on the hotel's entire business enterprise value, separation of non-real estate income is essential.
Nursing home values should also exclude income from non-real estate operations such as nursing, recreation and therapy services, as well as food operations. This position was upheld in a recent court case, which excluded the non-real estate value by adopting only the real estate portion of the Medicaid reimbursement rate paid to the nursing home owner.
Many factors contribute to establishing the basis for valuing different types of commercial property. Properly determining and explaining the appropriate basis of value often becomes the key element in a property tax case. The best results in these cases come from a team effort among the client, property tax attorney and appraiser.
source:By William D. Siegel, As published by Real Estate New York, November/December 2006.
Some element of truth exists in this cartoon -- particularly as it relates to commercial properties. Strangely, there is no single value for a commercial property. The value depends on the purpose for which property is being valued. For instance, leased fee value, as derived from existing leases, represents a property's value for mortgage purposes. New construction and owner-occupied properties are valued on a fee simple basis at current economic rental values. Value for insurance proposes is normally based on a cost approach.
When it comes to valuing commercial property for property tax purposes, almost all appraisals are based on fee simple value. The courts in New York State long ago settled the contract rent versus market or economic rent issue in favor of economic rent. The value for assessment purposes includes the value of all interests in the property. This includes the lease hold bonus value that a lessee with a favorable lease may have. A typical example of a leasehold bonus value is the supermarket in a shopping center which has a long-term net lease for $5 per sf when the current rental value is $20 net per sf. Thus, the lessee's interest in the shopping center represents a higher value than the owner's interest. When considering real property taxes, the assessor need not impose a lower assessed value because the owner made a bad bargain - or a bad bargain as seen after time passes. The same principle applies to the purchase of a property subject to below market leases. In that case, there is unsold leasehold bonus value.
The converse also applies. Above market leases on a property should be ignored, with current economic rents used by the assessor. Similarly a sale price of property with an above market lease should be disregarded as inflated by such lease.
At the heart of value for condemnation purposes lies the concept of highest and best use. However, it's completely irrelevant for property tax assessment purposes, where properties are required to be valued at their "actual use and condition." Golf courses provide a perfect example. The highest and best use for a golf course is usually a high quality residential subdivision, which could be worth up to $100 million. This would be the value in a condemnation action. However, the golf course must be valued for property taxes in its actual use as a golf course - a value of, say $10 million. Another example is a two-story suburban or inner city department store with a second story that's more or less unused. It's valued as a one-story store for taxation purposes, but might be valued in a condemnation case at a potentially higher and best use if conversion to, say, an office building is likely.
Other examples of different and lower values for property tax purposes include net leased properties, hotels and nursing homes. In a case now on appeal, the trial court held that a drug store net lease was not appropriate proof of rental value because it was based on the cost of assemblage and a built-to-suit lease. Instead, market rent for similar sized retail buildings was applied. In other cases, courts refused to apply prices and rentals from sale-leaseback transactions since such values derive from "financial transactions," not normal real estate transactions.
In valuing hotels, a careful appraisal technique is required because hotel income streams include revenue from non-real estate sources. This income must be excluded from hotel assessments to avoid a business enterprise value. Since most hotel sales and appraisals are based on the hotel's entire business enterprise value, separation of non-real estate income is essential.
Nursing home values should also exclude income from non-real estate operations such as nursing, recreation and therapy services, as well as food operations. This position was upheld in a recent court case, which excluded the non-real estate value by adopting only the real estate portion of the Medicaid reimbursement rate paid to the nursing home owner.
Many factors contribute to establishing the basis for valuing different types of commercial property. Properly determining and explaining the appropriate basis of value often becomes the key element in a property tax case. The best results in these cases come from a team effort among the client, property tax attorney and appraiser.
source:By William D. Siegel, As published by Real Estate New York, November/December 2006.
Monday, April 16, 2007
The Insurance
Saturday, April 14, 2007
Why Insurance
Insurance Claims AttorneysBaltimore, MarylandTwelve Secrets the Insurance Company Won't Share With You If you or a loved one has been injured in an accident, you will probably get a call from an insurance adjuster. Here are twelve secrets the adjuster won’t tell you. |
First Secret
Q: This accident was not my fault, but I am still suffering from some of the injuries. What can I expect from the careless driver’s insurance company?
A: The other driver’s insurance company will probably call you. The insurance adjuster might offer to pay your medical bills and lost wages to get a quick settlement. But don’t be fooled; by law you may also be entitled to money for your pain and suffering, and changes in your lifestyle. At Cohen & Dwin, we can help you decide how much they should pay.
Second Secret
Q: Everybody keeps talking about PIP and no fault. Just what is that?
A: PIP stands for Personal Injury Protection. Sometimes the adjuster will use the words “no fault.” That is the same thing as PIP. Virtually every Maryland car insurance policy includes PIP coverage. To get benefits from PIP, you should call an adjuster from your own insurance company (or the insurance covering the car you were in). If you were a pedestrian, call the insurance company for the car that hit you.
In Maryland, PIP is an optional coverage which requires an affirmative waiver from the named insured. This waiver covers all resident relatives 16 years of age and older. If a waiver is in effect for you, you cannot recover these benefits even if the owner of the car in which you were riding has not waived coverage.
PIP benefits should be paid no matter who was at fault in causing the accident. PIP insurance usually pays for 4 things: medical expenses, wage loss, household expenses, and death benefit.
Even though in Maryland the PIP is not to be considered by the careless drivers insurance company in resolving the matter, many times to the un-experienced person they start off with saying that since you got paid this money they are deducting it from any offer of settlement. Sound complicated? It is. Be safe. Call Cohen & Dwin at 410-LAW HELP.
Third Secret
Q: The accident caused some pretty bad injuries. I’m not sure what the future holds, but the insurance adjuster wants me to sign a settlement now. What should I do?
A: It’s almost always a big mistake to settle too soon. All medical bills past and future are needed to properly evaluate the claim.
. Before we settle cases, we contact your doctors to get estimates of future medical expenses and possible future changes to your lifestyle. On the other hand, if you wait too long, your claim might be banned by certain time restrictions. Be safe. Call us.
Fourth Secret
Q: I am all confused. The insurance adjuster is talking about all different types of insurance: underinsured coverage, uninsured coverage, and liability insurance. What do I do?
A: That’s where Cohen & Dwin comes in. There are many types of insurance. Depending on the circumstances, you might be entitled to benefits from more than one policy. But be careful. The insurance adjuster who calls you probably represents only the liability insurance for the other driver. If you sign the release he gives you, you might lose your rights to get benefits from other types of insurance.
Fifth Secret
Q: The insurance adjuster says the accident was partly my fault, so he wants to make a lower settlement. Can he do that?
A: Maryland is a contributory negligence state. If you are in any way at fault in the accident, recovery is completely barred. However, an attorney can often get a settlement since the the issue of contributary negligence is so harsh and everyone tends to want to avoid a courtroom jury making these findings.
Sixth Secret
Q: I was a passenger injured in an accident caused by a friend. Can I still recover without causing my friend financial hardship?
A: There are things you can do to make sure your friend suffers no financial hardship. That is why you need a lawyer. Even if your accident was caused by a friend or family member, you can usually be fully compensated. A Cohen & Dwin attorney structure your settlement with the insurance company so that your friend or family member has no out of the pocket costs, even though they caused the accident. Note that your friend's insurance premium may be subject to an increase.
Seventh Secret
Q: In the past, my family has used a general practice attorney for wills and family law issues. Is it really necessary to retain an attorney who only practices in accident/injury law?
A: At Cohen & Dwin, we work daily with numerous insurance companies and keep current with the specialized laws and regulations affecting accident cases. We have a substantial amount of experience and we have attorneys that only handle cases like yours. We also treat clients like people – not just another case file.
Eighth Secret
Q: My medical bills are mounting and my good credit is being jeopardized. What can I do to stop possible lawsuits and judgments?
A: Cohen and Dwin can often negotiate with your medical providers to delay collection actions until you get a settlement. Sometimes we can even help find other available medical insurance that you did not know about.
Ninth Secret
Q: I thought about negotiating my claim on my own. How do I know if the insurance adjuster’s offer is fair and reasonable?
A: You don’t. The fair settlement value of your case depends on many facts and issues. Remember, the adjuster works for the insurance company – not for you. His job is to get the lowest possible settlement. Our attorneys are knowledgeable, experienced, and work only for you. Our job is to get the highest possible settlement for you.
Tenth Secret
Q: Why does the insurance adjuster recommend that I not hire an attorney?
A: Probably because insurance settlements handled without an attorney are usually cheaper for the insurance company. Some people make settling their claim a “do it yourself” project to save money. Oftentimes, an attorney can point out rights and remedies you are entitled to which the insurance company is not obligated to tell you about. Injury law is probably not something you are well acquainted with. The insurance companies certainly know that. Let the professionals at Cohen & Dwin help you through this process.
Eleventh Secret
Q: Should I hire a lawyer now or wait for the insurance company to make me a first offer?
A: You certainly have every right to wait for the insurance company’s offer before calling an attorney. However, in the meantime, the insurance company will want to take recorded statements from you and other persons involved in the accident. You will not have appropriate representation to safeguard your interests in this phase of the case. The insurance company may also attempt to make use of medical release forms, which they are not entitled to use. Information a lawyer might use to benefit your case may become unavailable or lost by the time you seek legal counsel. The insurance company is working on the case within days of the accident occurring. You should also have appropriate representation as soon as possible so that your interests are safeguarded.
Twelfth Secret
Q: If I hire an attorney, does that mean my case will end up in trial?
A: No. Most cases are settled without a trial. In fact, less than 5% of such cases actually end up in trial. But if the insurance company knows that you and your lawyer are ready for a trial, they will often pay you more money in settlements. Sometimes we also get cases resolved by arbitration or mediation – both of which are much faster and less stressful than a trial.
TAX ISSUE
TAX ISSUE OF 'INTANGIBLE BUSINESS VALUE' IMPORTANT
by Martin S. Katz
As published in Midwest Real Estate News, May, 1997
Historically, the valuation of regional shopping malls for real estate tax purposes has been based upon a concept that all of the value is related to the real estate. This has occurred even though there has been a tacit acknowledgment that the successful operation of a shopping mall includes entrepreneurial skill on behalf of the owner/developer and hence, some "intangible" business value. The problem that has occurred lies in the difficulty of quantifying this intangible value and has led to a total lack of its recognition.
An excellent example of the contribution to value of the business acumen of a mall owner is the Old Orchard Shopping Center in suburban Chicago. The reported acquisition price was approximately $100 million. Old Orchard was an older shopping center that, although perhaps not dying, appeared to have seen its better days. The purchaser was able to attract both Nordstroms and Bloomingdales as anchor tenants in addition to Marshall Fields and Saks, create food courts and movie theaters and revitalize the Center to the point of turning it into an entertainment complex. After approximately three years, Old Orchard was sold for a reported price of approximately $260 million.
An intelligent analysis of the Old Orchard experience would lead to the conclusion that the increase in value from $100 million to $260 million cannot possibly be attributed entirely to an appreciation of land and building values. Therefore, the logical conclusion is that some portion of the difference between the price paid and the sale price must be allocated to the value of the operating agreements with the four anchor tenants, the goodwill created by the Old Orchard name and reputation and its returning customer base.
Additional intangible business value items are reflected in the revenues of a shopping mall such as stroller income and overage reimbursements of such expense items as property taxes, insurance, utilities, etc., which are paid by the mall tenants for the right to occupy space in a center run by an experienced and successful mall operator.
As stated above, one of the significant problems in trying to convince assessors to acknowledge intangible business value is the quantification process. Numerous theories have been propounded to accomplish this purpose. One theory is that, since anchor tenants can be viewed as "the horses which pull the cart" by attracting the customer base for the mall, most of the marketing expenses which produce that customer base are taken care of for the mall tenants. This relates to an increase in the rental which will be paid by the mall tenants to the owner/developer and corresponds directly to the developer's ability to attract the anchors in the first place. Therefore, in this analysis, the marketing expenses of the anchors, which have been projected to be approximately 6% of their gross sales, should be allowed as an expense on the owner/developer's operating statement. This would represent an amortization of the costs necessary to bring the anchors to the center and a reimbursement for costs expended to maintain the anchors' presence.
Another problem affecting the valuation of regional malls is the fact that it is not unusual for the anchor tenants to own their own stores and separately appeal the assessment from that of the in line portion of the mall. This creates a situation whereby the theory that the shopping mall is actually one economic entity and should be valued as such is physically difficult to accomplish.
Such a scenario is now being played out in North Carolina as the result of a recent State Supreme Court decision which dictated that the valuation of anchor stores should be based principally upon an income approach and not on a cost approach. Due to some language in the Opinion indicating that assessors might be able to pick up any loss in revenues resulting from the reduced values on the anchor stores by shifting the value to the in line portions of the mall, a number of dramatic (in one case tripling) increases in valuation on the mall portion of the property have already been proposed.
It is clear from several court decisions on this issue that a long and difficult battle will ensue before there is an appropriate acknowledgment that a significant portion of the total "value" of a regional shopping mall is "intangible" business value. In order to succeed, owners/developers will need the expertise of experienced legal counsel in assessment appeals and the valuation process, expert testimony from the appraisal community and, perhaps, evidence presented by academia to convince a court that this extremely complicated valuation analysis correctly reflects market value for property tax purposes.
###
Martin S. Katz is a partner with Fisk Kart and Katz, Ltd., which has concentrated its practice in Illinois property tax law for the past 55 years. He is also President of American Property Tax Counsel, an affiliation of prominent law firms across the United States and Canada which promotes professionalism in property tax law and provides owners of national property portfolios with the unique combination of experienced, local representation as well as the availability of centralized reporting.As published in Midwest Real Estate News, May, 1997
by Martin S. Katz
by Martin S. Katz
As published in Midwest Real Estate News, May, 1997
Historically, the valuation of regional shopping malls for real estate tax purposes has been based upon a concept that all of the value is related to the real estate. This has occurred even though there has been a tacit acknowledgment that the successful operation of a shopping mall includes entrepreneurial skill on behalf of the owner/developer and hence, some "intangible" business value. The problem that has occurred lies in the difficulty of quantifying this intangible value and has led to a total lack of its recognition.
An excellent example of the contribution to value of the business acumen of a mall owner is the Old Orchard Shopping Center in suburban Chicago. The reported acquisition price was approximately $100 million. Old Orchard was an older shopping center that, although perhaps not dying, appeared to have seen its better days. The purchaser was able to attract both Nordstroms and Bloomingdales as anchor tenants in addition to Marshall Fields and Saks, create food courts and movie theaters and revitalize the Center to the point of turning it into an entertainment complex. After approximately three years, Old Orchard was sold for a reported price of approximately $260 million.
An intelligent analysis of the Old Orchard experience would lead to the conclusion that the increase in value from $100 million to $260 million cannot possibly be attributed entirely to an appreciation of land and building values. Therefore, the logical conclusion is that some portion of the difference between the price paid and the sale price must be allocated to the value of the operating agreements with the four anchor tenants, the goodwill created by the Old Orchard name and reputation and its returning customer base.
Additional intangible business value items are reflected in the revenues of a shopping mall such as stroller income and overage reimbursements of such expense items as property taxes, insurance, utilities, etc., which are paid by the mall tenants for the right to occupy space in a center run by an experienced and successful mall operator.
As stated above, one of the significant problems in trying to convince assessors to acknowledge intangible business value is the quantification process. Numerous theories have been propounded to accomplish this purpose. One theory is that, since anchor tenants can be viewed as "the horses which pull the cart" by attracting the customer base for the mall, most of the marketing expenses which produce that customer base are taken care of for the mall tenants. This relates to an increase in the rental which will be paid by the mall tenants to the owner/developer and corresponds directly to the developer's ability to attract the anchors in the first place. Therefore, in this analysis, the marketing expenses of the anchors, which have been projected to be approximately 6% of their gross sales, should be allowed as an expense on the owner/developer's operating statement. This would represent an amortization of the costs necessary to bring the anchors to the center and a reimbursement for costs expended to maintain the anchors' presence.
Another problem affecting the valuation of regional malls is the fact that it is not unusual for the anchor tenants to own their own stores and separately appeal the assessment from that of the in line portion of the mall. This creates a situation whereby the theory that the shopping mall is actually one economic entity and should be valued as such is physically difficult to accomplish.
Such a scenario is now being played out in North Carolina as the result of a recent State Supreme Court decision which dictated that the valuation of anchor stores should be based principally upon an income approach and not on a cost approach. Due to some language in the Opinion indicating that assessors might be able to pick up any loss in revenues resulting from the reduced values on the anchor stores by shifting the value to the in line portions of the mall, a number of dramatic (in one case tripling) increases in valuation on the mall portion of the property have already been proposed.
It is clear from several court decisions on this issue that a long and difficult battle will ensue before there is an appropriate acknowledgment that a significant portion of the total "value" of a regional shopping mall is "intangible" business value. In order to succeed, owners/developers will need the expertise of experienced legal counsel in assessment appeals and the valuation process, expert testimony from the appraisal community and, perhaps, evidence presented by academia to convince a court that this extremely complicated valuation analysis correctly reflects market value for property tax purposes.
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Martin S. Katz is a partner with Fisk Kart and Katz, Ltd., which has concentrated its practice in Illinois property tax law for the past 55 years. He is also President of American Property Tax Counsel, an affiliation of prominent law firms across the United States and Canada which promotes professionalism in property tax law and provides owners of national property portfolios with the unique combination of experienced, local representation as well as the availability of centralized reporting.As published in Midwest Real Estate News, May, 1997
by Martin S. Katz
Tax Appeal
"All we're trying to do is place an accurate value on property."
Yes, death and taxes are certain -but you might get a lower assessment
It turns out Woody Allen was wrong about death and taxes – property taxes at least. Property tax assessments aren’t certain. They can be changed. And that could mean big savings for retail real estate owners.
Assessors determine tax bills by setting property values based for the most part on incomes. They also use price on recent comparable properties and may incorporate an estimate of replacement cost.
But that doesn’t have to be the end of the story.
As with other taxes, there are ways to reduce payments, which can mean significant savings. Property-tax costs comprise about 20 percent of all operating expenses for enclosed U.S. malls and one-third of operating expenses for open-air centers, says the International Council of Shopping Centers.
Retail property owners (and their lawyers and accountants) say that the key is not viewing the relationship with assessors as being adversarial. Make friends with tax assessors. Explain things clearly. Be nice. Desk pounding doesn’t lower assessments. Good information does.
The important thing to remember is that assessors are public servants trying to do a job. With cities and states strapped for cash, property taxes are an obvious area to try and increase tax revenues. (In 2002 for example, New York City officials jacked up property taxes 25 percent).
“Nobody likes us,” says Wayne Trout, who retired this year as assessor in Norfolk, Va., and continues to serve as president of the International Association of Assessing Officers in Kansas City, Mo., “But we’re not bad people. Our goal is equitable distribution of tax burdens within the confines of what the laws requires.”
Adds Barbara Perry, assessor for New London, Conn: “All we’re trying to do is to place an accurate value on property.”
In most states, property owners have a small window – a few weeks – to work with assessors between the time they make their valuation and the day it is finalized.
A key is to be prepared ahead of time – to look through your own numbers, check trends in the market and be prepared to make a case for why the assessment may be too high.
“Begin early and monitor things on an ongoing basis,” suggests Mark Parish, real estate tax director for mall owner Taubman Co. of Bloomfield Hills, Mich. "We find it's much more productive to deal with issues early on an information basis," Parish contends, "rather than waiting until it becomes conforntational or a litigation situation."
It comes down to a key change in the usual mindset. Most of the time, owners talk about how great their properties are. But tax time means outlining the flaws.
“We want to paint the property in the most unflattering realistic light,” says Jim Popp, an Austin, Texas-based tax attorney.” A couple dollars per square foot can make a significant difference.”
If a property is underperforming relative to other regional malls, explain that. A regional or super-regional mall may be the only such property that an assessor knows. It may not occur to the assessor that the local mall is a dog compared to the one a couple of counties over.
Even after the deadline, owners have recourse in getting assessments changed. They can take their case to a review board and then on to court. Litigation is a last resort, of course. “Very expensive,” says Taubman’s Parish-both in money and time.
But tax bills can be cut without going to court. Compare the assessment with an assessor’s prevailing ratios between market value and assessed value, advises J. Kieran Jennings, a Cleveland attorney who works with mall owners. In some states, that ratio is fixed. In others, it changes annually. “What you look for is not whether the assessment has changed much,” says Jennings, “but whether that assessment is still fair.”
The assessor will use existing leases to generate an income figure in deriving an assessed value. Have market rents fallen since leases got signed? A judge may decide that that assessed value should reflect a combination of existing leases and market rents.
Even in states with property-tax caps, it’s important to watch assessments, says Howard Klein, vice president for real estate taxes with Macerich Co., in Santa Monica, Calif.
California caps annual increases at 2 percent over a property’s base year – when it was last assessed or upon completion of construction. Thereafter, assessed value rises at the annual statewide inflation rate up to a maximum of 2 percent.
If a property is scheduled for redevelopment and underperforming and the value rises 2 percent anyway, an owner should go see the assessor, says Klein.
Even sophisticated tax departments may miss some wrinkles, such as the effects of retenanting or a shift to gross leases. For example, if five shops paying $25 per square foot get replaced with a single Old Navy store paying $12.50 per square foot, the big new tenant looks pretty spiffy to the assessor – but it generates only half as much rent. The assessor needs to know that.
For many landlords, such retenanting is defensive and therefore shouldn’t lead to a higher assessment. “It’s maintaining what you have – stopping an crosion – not creating an increment of value,” says Kenneth Rogers, director of real estate analysis at the law firm Fisk Kart Katz & Regan in Chicago. “The center looks nicer, but you’re not boosting your net operating income.”
Rogers won a 17 percent cut in a 2003 assessment for a Wisconsin mall that had remodeled to include Staples and Gap stores – moves to reposition the property against a competitor 20 miles away.
In the same vein, assessors’ models may assume properties use net lease structures – in which tenants pay for taxes, insurance and common area maintenance. But if tenants have a gross lease – in which the owner pays those extras – an assessor may overestimate income. It’s important to clarify that so the assessors’ models are correct.
But owners using net lease structures need to be wary of assessments, even if they aren’t bearing the brunt of the cost. Because the tax gets included in rent, letting assessments balloon means rents could be rising faster than the rest of the market. “If your property is paying more taxes than a competitor it puts yhour leasing people at a disadvantage,” warns Popp.
Assessments can also spike when properties change hands. Sale prices are an obvious guide for the value of property.
But property sale prices may include value beyond the worth of the real estate. Assessors won’t make that adjustment unless you spell it out for them, says Jennings. At the time of a sale an acquiring company should break out real estate value from other items. Non-real estate items might include above-market leases such as often occur in a sale-leasebacks, creditworthiness of tenants and build-to-suit improvements financed through the lease. Spell out those items in a purchase agreement that documents “the number that you are happy with,” says Jennings, “that you believe is the true value of the real estate.”
An independent study of regional and national capitalization rates for retail properties is also a useful tool. Such studies cost from $2,500 to $15,000, says Parish. Having such a document on file helps the assessor fend off politicians who want to milk the mall. Such a study shows where a property fits income-wise in the framework of other similar properties regionally and nationally – and can buttress an owner’s argument for a lower assessment.
To a great extent, working on property assessment is about building a relationship with the assessors. For example, recent retiree Trout wanted to see the owner or an employee of the owner. He was wary of lawyers and other representatives. “You have to have the question in your mind,” says Trout. “All they’re concerned about is their fee based on how much the assessment is lowered.”
That kind of talk makes tax pros bristle. Consultant Rogers says his firm may bill a fixed fee, by the hour or may collect a contingency fee based on tax savings. Whatever the arrangement, “the keys to a successful appeal are establishing credibility with the assessing authorities and proving your case,” says Rogers.
By Marc Hequet, as published in Retail Traffic, September 2006
Defending Against Property Taxes
Many now believe that filing a tax appeal in the Tax Court remains their only salvation from the ever-increasing property tax burden."
Legislation in New Jersey inflicts an ever-increasing property tax burden on commercial and industrial property owners. Many now believe that filing a tax appeal in the Tax Court remains their only salvation. With the deadline for filing appeals approaching quickly, owners need to understand the issues and the process involved.
All tax appeals in New Jersey must be filed by April 1st of each new year. At the time of the filing, all taxes due must be paid. having filed an appeal, a chronology of events takes place that ultimately leads to the court determining the value of the property.
Within four months of filing the appeal, the taxpayer will answer interrogatories relating to substantive issues regarding the property. These interrogatories normally focus on specific aspects of the property including the income and expenses.
Since most tax appeals relate to value, the taxpayer at some point needs to retain a real estate appraiser to value the property. This step should be taken in conjunction with a tax attorney. The taxpayer should choose an appraiser who understands the court's expectations as well as the rules of evidence.
These forensic appraisals are considerably different than the garden variety appraisals used in other settings such as financing, insuring and determining value for property sale purposes. In a forensic appraisal, the property must be valued on a standard of value based on competent market evidence. This evidence should include recent comparable sales data and recent competent lease transactions.
Throughout the tax appeal, the property owner must focus on the fact that the burden of proof always remains on the taxpayer - the assessment levied by the assessor is considered presumptively correct. Only cogent and probative evidence can overcome this presumption of correctness.
Taxing jurisdictions do not rely on testimony of the assessor in tax appeals. Rather, they retain independent appraisers to complete a forensic appraisal, which they use in defense against the appeal. Often, the spread between the assessor and the tax jurisdiction's appraisal can be enormous.
For many types of ordinary income-producing property, the appeal trial can be completed in one day. As the complexity of the property increases, the time required to complete the trial also increases. It's unusual for trials involving some of the more complex commercial and industrial property to take several days or more. These more complex properties include corporate headquarters, super-regional malls and major industrial complexes.
Much of the trial's time is devoted to cross-examination of expert witnesses, where every component of the appraisal is subject to intense scrutiny. Often, prior appraisals and testimony by the appraiser comes before the court to demonstrate inconsistencies in the theories espoused by the appraiser. Anyone involved in this process on a regular basis understands that real estate appraising is an art, not a science.
At the end, the court renders a final judgment. If the taxpayer is successful, the jurisdiction will have 45 days to refund the overpayment. Also, the taxpayer receives interest at the rate of 5% a day from the date the original tax payment was made. More importantly, once the court renders final judgment, under New Jersey law, that judgment will not only cover the years appealed, but also two succeeding years. This is called the Freeze Act, and it significantly helps taxpayers in bringing stability to a property tax assessment.
Only rarely can a jurisdiction void application of the Freeze Act. One exception is when a jurisdiction completes a municipal-wide revaluation on all property. The other is if a significant change occurs in the value of the property at a rate higher than other properties in that jurisdiction.
Prevailing in a New Jersey tax appeal has become a Herculean task. The courts have given significant protection to the assessments. To offer meaningful defense against these protections, a team effort is generally required right from the inception of the appeal. This team should include the taxpayer, property tax counsel and expert witnesses. In the end, the team effort should produce a significant return, well justifying the expenditure of time and money.
The views expressed here are those of the author and not of Real Estate Media or its publications.
By John Garippa, Esq., As published by Real Estate New Jersey, March 2007
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