Whenever improvements are added to a parcel, additional property taxes will follow. For example, if vacant land is purchased in 2016, and a building is built (improvements) and completed by tax day or December 31 of 2016, then value is added to the parcel in the following year or 2017. Taxable value will increase, as well as the annual property taxes. This is a great opportunity to impact the value that will be added as improvements and manage the property taxes that will be attached.
This client was in the process of building a $4,600,000 medical office building, which would be split between owner occupied space and tenant space. They understood that the potential for a large tax bill was very likely. At our data collection meeting, we reviewed similar properties in the market that would compete for a buyer’s attention, and a potential tenant’s attention. This value basis, based in reality, would be presented to the assessor.
After we had good data in presentable format, we met with the Assessor to discuss value. Our objective was to enable the Assessor to consider value based on market data & potential income data vs. the cost approach to value. Many times, the cost or investment to build can be higher than the value that translates to the marketplace.
The construction project was going to take 12 – 18 months, and span over two tax years. Therefore, we targeted tax savings for two unique phases, project completion & stabilization. Value during construction should be minimal, as the property owner is receiving very little value from the property. Value throughout stabilization is also debatable. Once a project is complete, there is a lease-up period where value is being generated, and market conditions should also be considered and applied.
We presented our information to the assessor and reached an agreement that an overall market value of $3,180,000 was more uniform than the actual cost to build the property. Furthermore, we were able to keep the market value low during construction and through completion at $1,430,000. It was projected that the stabilization timeline was close to 12 months and the increase of value from $1,430,000 to $3,180,000 was gradually implemented over two tax years. The property owner saved over $60,000 in property taxes for the year of construction, and over $30,000 for the years of stabilization. We also avoided appealing a value that set too high to begin with. When you invest in your property, we can apply our methods to create your tax savings.
