Posted by Donald Teel – Arizona Commercial.

In today’s commercial investment environment, property taxes can be lethal. Many investors are still paying property taxes that are reflective of the market run-up of 2000-2006 and not necessarily on the current valuations of their investments.

The questions are what can you do about inflated tax valuations, where do you turn and more importantly, how can investors challenge property tax values successfully?

Property Tax Analysis. Create an analysis of the assessed value of your property for the previous five years to determine the trend line. The analysis should show the assessed values and compare those with a legitimate Broker Price Opinion (BPO) to show market value trend compared to assess valuation trend. It might look something like the following (Download the FREE sample spreadsheet here).

Assessed Value VS Market Value Sample Analysis - Sample of Presentation for Tax Challenge

Commercial BPO. Secure a commercial property broker price opinion (BPO) for your property to help determine the market value trend line. Arizona Commercial can do this for you for a nominal fee. The report includes photos, recorded sales values, spreadsheet analysis and conclusion.

The BPO must include such detail as location within the market, property style, age, square footage, lot size, parking, vacancy/occupancy rates, number of leasable office/areas, and other issues that demonstrate the empirical value of the property.

Appraisal Approach. If the first two suggestions demonstrate that you have a potential tax overcharge, the final requirement may be to secure a full appraisal with detailed analysis of comparable properties. Appraisals are expensive and should only be used if the economics of the situation warrant such a measure. However, when push comes to shove, a certified appraisal will carry more weight than a commercial BPO.

Challenge Process and Procedure. States have specific procedures for challenging property taxes and the process must be respected in order to be successful.

The process will include forms, time frames and details that must be completed prior to consideration of a claim. Following these procedures and time limitations will be a critical factor. Most likely you will be required to pay the taxes while challenging their validity and if taxes are not paid in a timely manner, other negative consequences can occur in the form of interest and penalties and in severe cases, assessors may sell the delinquent taxes with a lien or even sell the property after a specified time.

Appealing a tax bill is not easy and may include several layers of review including a hearing for the property owner and even judicial recourse. Ask your County Assessor’s office for a copy of their appeal process.

Failure, Refusal or Inability to Pay Taxes. It is unlikely that a refusal to pay property taxes pending the outcome of a challenge will carry any weight and may further exacerbate the problem by creating a hostile situation.

Philosophical, political or principles of conscience are irrelevant to the process. However, in some cases, hardship may be considered as a factor in when and how the taxes are to be paid. Hardship exemptions are difficult when it comes to commercial property and typically are more successful when the property is a primary residence.

Generally speaking if an owner cannot pay the commercial real estate property taxes that owner should immediately communicate with the County Assessor’s office where the property is located and seek advice.

If a challenge is in order, owners may want to contact a competent lawyer with experience in real estate property tax law.

Declining Commercial Values. Most property types have declined in value and this naturally leads to an examination of all expenses related to market value and the cost of the property, including property taxes.

Declining values are now creating a backlog of challenges and yes, it can get very nasty, as some governments are deliberately protracting the challenges and the court cases to their advantage.

There is no doubt about it, however, that some owners are still paying taxes based on unsupportable valuations from previous years. Despite the declines, property taxes have continued to climb in far too many markets. As an example of the lagging, for the first time in 12 years, property taxes in some areas of Los Angeles County declined up to 15% while others increased.

McCormick Place - Prescott, Arizona

Post Sponsored by Donald Teel

What is the current state of commercial property ownership, user potential, performance and values in the Prescott, Arizona area?

Where is the commercial real estate market headed in 2009 and beyond and what should property owners be doing to focus on property performance going forward?

At Arizona Commercial, we believe it is critically important for owners of commercial property within the tri-cites of Prescott, Prescott Valley and Chino Valley to consider executing a thorough “Property Performance Analysis” or PPA, based upon changes taking place in the general market but especially with respect to changes taking place in commercial mortgage lending.

The Myth of Immunity

The tri-cities commercial real estate market is not immune from the impact of the economy on property performance in larger metro markets such as Los Angeles and Phoenix.

The local commercial market is directly impacted by the strength of the general ecomomy, unemployment, housing and most importantly, lending.

The decline in residential property values, a slowdown in new construction, the reversal of commercial appreciation rates and unemployment are all contributing to changes in the performance of all segments of the commercial real estate market.

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Property Performance Analysis

Arizona Commercial is currently engaged in conducting “Property Performance Analysis” (PPA) with commercial property owners as a FREE service designed to guage an owner’s financial objectives, the current financial performance of a property and the short and long term financing needs associated with the property.

Because we anticipate new challenges to commercial property performance as a direct result of the general conditions of the economy we think it imperative that owners assess their property performance situation sooner rather than later, and that they develop a sound financial plan going forward.”

Jim Pullaro – Broker, Arizona Commercial

Arizona Commercial’s PPA includes an assessment of and owners’s financial objectives measured against the quality of tenant mix, correct property use, lease performance, operating cost analysis, mortgage situation and estimations of user demand through 2010, with specific recommendations in each category.

Arizona Commercial’s PPA is like a property physical, in a sense. It measures and evaluates the critical components related to the health of a commercial property and sets forth prognosis and treatment before problems begin.

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Refinancing and Replacing

Commercial property owners and investors are keenly aware of the need for quality “R and R” or, refinancing and replacing. These are the two keys to perpetuating long term performance.

Lenders are currently tightening requirement for new commercial loans and refinancing. Qualification requirements are more stringent and under-performing properties or, select segments (property types) within the commercial real estate market are finding it more difficult to secure financing.

A PPA can signal issues an owner may face before they become critical and assist with pre-planning for mortgage refinancing, property replacement or, both.

Commercial real estate investments require monitoring, adjustments and sometime immediate changes in order to keep them performing. A PPA can flag areas where an owner can and should make adjustments in order to keep performance healthy.

Until recently, many properties were performing as a result of a strong demand and easy financing. Therefore, many owners ignored or postponed the need for regular property analysis. In today’s economy there is no guarantee that a property will appreciate or perform without careful “hands-on” attention and management of the components of performance.

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Your may contact any of our Commercial Associates for a confidential Property Performance Analysis or, if you prefer, call Arizona Commercial at 928.776.8460 or use our contact form.