The repeated mantra has been that commercial property values have dropped 30-40% from their 2007 peaks. The National Council of Real Estate Investment Fiduciaries purchase index shows Office down 41.1 percent, Retail down 31.2 percent, Industrial down 42.4 percent and multi-family down 33.1 percent.
Whether it is a lender looking for a “Broker Price Opinion” or an owner seeking our advice in marketing their property, determining a valid market price has become a challenge. Limited recent comparable sales combined with light leasing activity makes it very difficult to determine the actual market value. For instance, Georgia Power’s building at 600 East Bay Street in downtown Savannah is for sale. Though it is a unique property, there is not an asking price because no one is quite sure what the market will bear.
Income Approach vs. Replacement Costs
Chatham county property appraisers value the majority of commercial properties the same as residential properties - raw land values are added to the estimated cost to construct improvements less the total accrued depreciation of that structure. A few types of commercial properties such as hotels, apartments, mini-storage, shopping malls, large office buildings, etc. are valued based on the income approach - a factor of how much potential income a property can generate. For both methods, appraisers look at the prior year sales to confirm the values are accurate and whether or not they should be adjusted up or down.
So why hasn’t my property tax dropped?
Commercial properties are not typically re-valued every year, especially those that require the income producing method. Unless there has been are large amount of sales activity in a specific area that warrants it, commercial properties are appraised every 3 to 4 years. The majority of Chatham county commercial properties were re-appraised in 2006 using 2005 sales figures. Theoretically then, if 2007 was the peak for values, a property owner shouldn’t expect to recognize a full 30 to 40 percent drop in tax value. Their assessed values have remained constant based on 2005 sales comparables, construction values and when applicable, rental income. Recent construction costs, sales comps and leasing activity are all trending down. Though every property is unique, whether or not your assessed value will drop will probably be driven more by when it was last assessed.
This year, Chatham County has begun the process of re-assessing the majority of commercial properties and will be using 2009 sales figures. Change of value notices are expected to be sent out to property owners by mid June. If you are worried about increases don’t, for now. Last year the Georgia General Assembly, in house bill 233, found that property owners are “…experiencing a crisis in the reduction of value of tangible property of unprecedented magnitude…” and established a moratorium on all property tax assessment increases for the 2009, 2010, and 2011 tax years. The only increases allowed are for new improvements or additions to a property, re-zoning or errors in valuations.
To appeal, or not to appeal
Lower tax values are typically beneficial for both lowering taxes as well as making your property more attractive to a potential tenant or buyer. So, it may worth pursuing an appeal if values appear to be dramatically out of line. You have 30 days from the mailing of your notice to file a request to appeal the assessment. Prior to doing so though, it is recommended you consult a tax specialist that can assist you in the process.
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