To assist in determining which properties are subject to reassessment, the California State Board of Equalization recently issued an LTA (Letter to Assessors) that explains how the transfer of interests in Legal Entities are looked at for real property reassessment under Proposition 13.
The biggest highlight for businesses from the 2011 Arizona Legislative Session was approval of the "Jobs Bill" which included $538 million worth of business property and income tax cuts. According to the Phoenix Business Journal, once the Bill is fully implemented in 2016, Arizona will have lowered the Class 1 business property tax assessment ratio 28% over the prior decade, with the new Jobs Bill trimming commercial property tax rates from 20% to 18%.
Proactive investors are beginning to snatch up distressed properties across the nation that in total carry tens of billions of dollars in underwater commercial real estate loans coming due by the end of 2012. Middlemen, known as special servicers, on these troubled commercial mortgages are hired on the behalf of investors to work out bad loans and thus have a front-row seat at the auction when the assets are sold. Investors in turn could earn a good-sized return just from fees for handling the special servicing of the mortgages.
With the appeal deadline for Minnesota property assessments approaching on April 30, many property owners in the state are growing in frustration with their current property tax situation. According to the Minneapolis City Assessor, property tax bills jumped 10-13% from last year on properties that were in similar condition the year before. The hikes exceeded so many other metro cities because its levy (amount of revenue city leaders claim is needed through property tax) went up 4.7%.
Commercial Real Estate sales across the United States totaled $31 billion in the first quarter of 2011, a 69% year-over-year increase on the first three months of 2010. According to the report from Real Capital Analytics, the office and hotel sectors led the way with a 127% and 126% year-over-year gain on volume respectively. The downside, however, is that the increase in velocity of acquisitions coincided with a decline of prices that have fell 3.3% in February and are only currently 0.8% above their post-peak low set in August of 2010.
As other retail sectors struggle with high vacancy rates, regional mall owners are looking to take advantage by picking off tenants who traditionally have occupied freestanding stores or shopping centers. As this trend grows, regional malls will strengthen their status as retail mainstays. The time is right for these traditional freestanding retailers to move into malls due to a combination of market forces, including available space, desire to shrink square footage, and the large amount of 10- and 15- year leases signed in the mid to late 1990's coming to an end.
The VictoryLand gambling resort just east of Montgomery, Alabama failed to pay $1.3 million in state and local property taxes for 2010. The resort has also been unable to make payments to lenders for its luxury hotel ever since their electronic bingo casino was shut down. VictoryLand, which pulled in huge crowds from Alabama and Georgia, had to close down 6,000 machines in the casino in order to prevent a raid from the Alabama Task Force Against Illegal Gambling. The revenue lost from the shutdown of the casino has also prompted the closure of the hotel and restaurants on the resort campus.
Stemming from the fact that already in the month of April the Austin, Texas office market has had more positive absorption than all of 2010, analysts have absolute confidence that the market is stable and positioned for growth. According to the Austin Business Journal, as of April 19th, there have been a reported 13 properties with about $196 million in value close or going into contract during the past six months in the Austin area.
Every year, Texas assessors appraise full service hotels using Room Revenue Multipliers (RRM). While this technique aims to assess all properties equitably, it often fails because it assumes hotels are operating at the same profit margins. To combat this misnomer, Paradigm Tax Group’s Texas practice considers the individuality of every hotel property.
It isn’t a secret that Average Daily Rates (ADR), occupancy, and Revenue per Available Room (RevPAR) have declined significantly over the past few years for many of the nation’s full service hotels. Because of these declines, hotels are being forced to operate on tighter budgets. One of the categories affected the most by the latest belt tightening is capital expenditures. In a recent Reuters article, it was reported that hotel capital expenditures declined 40 percent from 2008 to 2009 with even worse projections of another 10 percent drop in the following year. The growing backlogs range from simply replacing carpet, wallpaper, and paint to more elaborate ballroom, lobby, and conference facility renovations. Putting these projects on the back burner has a resounding impact on the present and future marketability of many full service hotels, and consumers take notice. Hotels once loved for their impeccability are having trouble living up to the high standards they’ve established.
As operating performance and transaction activity in the hotel sector continue to improve this year, high-risk mezzanine loans are becoming more of a factor in the financing of many acquisitions. According to HotelNewsNow.com, stronger operating performance in the hotel sector (since February, occupancy is up 5.2%, average daily rate is up 2.5% and RevPAR is up 7.9%), coupled with the prediction of increased deal activity, has the prospects for increased mezzanine lending looking good.
A new economic recovery package, proposed by Mayor Bob Buckhorn, would make new and existing Tampa, Florida businesses eligible for property tax breaks. If the package is approved, new businesses would qualify to claim a 50 to 75 percent exemption on property taxes while growing businesses would be eligible for the property tax breaks based on improvements and increased tangible property. Exemptions would be allowed for 5 to 10 years depending on the jobs created, average wages and location of the business.
Despite the fact that consumers are buying, leases are increasing, and closings are slowing, retail is still unable to reach a full recovery due to the negative fundamentals of low jobs, high gas prices and a down housing market. Recovery is in motion though as vacancy levels have dipped to 7.2% and investment sales are up 51% since 2009 to $22.6 billion. Additionally the slowing of development is now seen as a good thing as the fourth quarter of 2010 saw 21.5 million square feet of retail space absorbed nationwide compared to negative 500,000 square feet in the first quarter of 2010.
Though the economy continues to recover, mall vacancies hit their highest level in over a decade during the first quarter of 2011. According to new figures from real estate research company, Reis Inc., the average vacancy rate for malls in the top 80 U.S. markets is 9.1% to date, up from 8.7% in the final quarter of 2010. Strip malls and other neighborhood shopping centers have an especially dreary future with vacancies expected to top 11.1% later this year, the highest level since 1990.
The rate of bank failures in the US has declined in recent quarters giving financial institutions more time to raise capital, but the banking sector is far from a complete recovery. A total of 26 banks, with assets upwards of $10 billion, failed in Q1 of 2011, the lowest total since Q2 of 2009. At that pace, failures would total 104 for 2011, down about 51% from 2010 and 35% from 2009. Still, the amount of banks grasping for air could skew the 2011 total upwards very quickly.
The recent increases in asset values amongst all commercial real estate has been limited to primary markets that offer the least perceived risk to investors. However, according to the National Real Estate Investor, transaction volume in secondary markets is expected to surge as the price gap between primary and secondary markets has opened to an almost 10-year high, driving investors out of the risk spectrum to grab those deals.
Focusing mainly of the relief on smaller businesses, Legislative Democrats have offered a $200 million plan to ease business property taxes and boost economic conditions. According to Bloomberg Businessweek, under the plan, the first $30,000 of the value of a business property would be taxed at residential property tax rates, which are about half of commercial rates. The plan would be phased over four years with the initial cost being $50 million a year and future cuts being dependent on state tax revenues.
House Republicans in Colorado have passed House Bill 1141, giving businesses a two-year exemption from the state business personal property tax. The Bill is being called an economic stimulus opportunity that is designed to boost the economy by giving large and small businesses more money to grow their companies. The belief behind this is that the improvement in economy will ultimately bring in more sales tax which will cover for any losses in property taxes.
The U.S. Senate and House have passed the "Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy Overpayments Act of 2011" (H.R. 4) to repeal controversial expanded information reporting on Form 1099 for certain business payments and rental property expense payments. The legislation, once signed by the President, will repeal expanded business information reporting which will in turn reduce the burden on taxpayers, especially on small business. The mechanics of the expanded reporting would have required taxpayers to capture significantly more information for reporting.
Since 2007, New York City has seen a sharp decline in major property transactions, suffered through the financial services industry collapse and watched debt financing all but disappear. Nowadays, in terms of NYC commercial real estate ownership and development, taxpayers are seeing a drop in occupancy for office, hotels and apartments with construction coming to a virtual standstill. Despite all of this, real estate taxes in the area, the largest component of buildings expenses, have skyrocketed.
In their March figures, The Labor Department has reported that the economy has added 216,000 jobs and the overall unemployment rate has hit a two-year low of 8.8%. These figures are great news for the commercial real estate sector due to the fact that these numbers represent a more significant uptick in permanent hiring compared to the temporary hiring that has skewed some previous numbers. Also, signs point to this stretch of job growth as being fueled by actual job creation and not people dropping out of the job market due to discouragement.
Many U.S. big-box chains are starting to shrink average store sizes to reflect the growing importance of multi-channel shopping, adapt to urban settings and recognize the need to optimize portfolios. According to Retail Traffic, the smaller store formats allow retailers to maximize profitability and open more stores in closer proximity to each other. Wal-Mart Stores alone plans to open between 30 and 40 smaller format stores in 2011.