The recent Supreme Court decision to uphold the Patient Protection and Affordable Care Act will lead to a large number of uninsured Americans entering the healthcare system. According to GlobeSt.com, for many in the commercial real estate sector, the decision is good news as the increased number of people in the system will require more space to accommodate them. The ruling removes any uncertainty about the immediate future of healthcare properties and can expect to lead to rapid motion and investment.
Hotels require a substantial investment in tangible personal property (also referred to as business personal property) in order to operate. Often, the investment in tangible personal property can comprise as much as 10-25% of the property’s overall value. Additionally, because of the rapidly depreciating nature of these assets, a reserve for replacement must be funded to routinely replace the personal property, not just simply from use, but to keep up with changing styles and tastes. Image is very important to a hotel’s operation.
The Ohio Department of Development recently announced $35.8 million in tax credits for the development of 111 apartments in downtown Cleveland. According to Cleveland.com, a total package of historic preservation tax credits has been given to 18 property owners hoping to remake 44 buildings across the state. The Cleveland market will see two buildings receiving the benefit that will bring more apartments to a market where demand for rental housing is outpacing supply.
In an effort to lure new businesses to the area, Boston has been offering millions of dollars in property tax breaks to companies that settle there. According to The Boston Globe, the policy has become so common over the last 50 years that state and local governments across the country are routinely forgoing up to $10 billion in revenue every year. New evidence, however, is showing that these incentives rarely work, both in the decision for companies to move and in promised economic activity or new jobs.
Earlier this spring, the Pennsylvania Supreme Court handed down their decision in Tech One Associates v. Board of Property Assessment of Allegheny County where the issue at hand was over the effect of a ground lease on taxation of real property in the state. According to the Institute of Professionals in Taxation, the Court decided that a building constructed on a property subject to a ground lease was also subject to real estate taxation and that the income approach applies to both the land and building even if subject to a lease.
Philadelphia, Pennsylvania City Council moved along a budget deal that will collect $40 million for School Districts by raising property taxes and the unpopular Use and Occupancy tax. According to Philly.com, the Use and Occupancy tax on businesses would increase roughly 19%, and property taxes would go up 3.6%, adding $49 to the average annual tax bill of $1,358. The Use and Occupancy bill has faced stiff opposition from the business community, but Council members were able to ensure it will send some revenue to the School Districts.
With the economy still only making slow, gradual steps to recovery, stronger malls are able to steal tenants away from weaker ones. According to a new report from Moody's Investors Service, strong malls have benefitted from a flight to quality properties among retailers, while weak malls are struggling with the sluggish economic recovery and competition from online merchants and other brick and mortar retail formats such as outlets, power centers and lifestyle centers.
Over the past couple of years, Washington, DC has lost close to $14 billion, or roughly 10%, of its property value. According to the Washington Examiner, the plummeting value of city real estate cost the DC government more than $100 million in property taxes in fiscal year 2011. The revenue lost due to the recession wasn't felt by the city until 2011 due to a two-year delay between when the city's properties are assessed and when payments are actually received based on those assessments.
It continues to be a tenant's office market as they are enjoying their pick of nicer, cheaper spots rather than building or leasing new space. According to Philly.com, almost the only places in the US where office demand and rents are rising are the usual primary markets of Silicon Valley, New York City, and San Francisco. Even Washington, DC is seeing a more pessimistic attitude to the office sector due to cutbacks and fear of continued divided government.
The Cincinnati, Ohio City Council is holding a special meeting today to discuss a proposed property tax increase to help fund city services and several new capital improvement projects. According to WCPO.com, if Cincinnati City Council approves everything on City Manager Milton Dohoney's list, property owners are looking at a $4 increase for every $100,000 in the first year, rising to $18 starting in 2014.
Honolulu, Hawaii saw its office vacancy rate rise to 14.6% during the first quarter of 2012. According to the Pacific Business News, the overall market lost 16,929 square feet of occupancy during the quarter. Downtown Honolulu specifically lost 43,091 square feet of occupancy in that time, but was saved somewhat by an existing tenant expanding their space by nearly 28,000 square feet. The central business district area of downtown showed a 16.1% vacancy in the first quarter.
Investors are continuing to shy away from large-scale office property expansions outside of primary markets. However, according to the National Real Estate Investor, on a national basis, the office sector is showing signs of sustained recovery with five consecutive quarters of positive net absorption. During the first quarter of 2012, asking rents on office properties went up 1.6% from a year earlier to $28.10 per square foot. Vacancy rates also fell to 17.2%.
More than ever, New Jersey property owners are seeing tax appeals head to trial. According to the National Real Estate Investor, the most significant reason this trend is occurring is that government is under increasing pressure to preserve the municipal treasury, and as the drive for tax revenue brings more taxpayers to court, many of those property owners find an uneven playing field during litigation. The level of proof taxpayers must provide to overcome and assessment is becoming increasingly more difficult to obtain.
An upcoming vote on whether or not to abolish property taxes in North Dakota could ultimately end up greatly benefiting businesses in the state of Minnesota. According to the StarTribune, while unlikely to pass, the banning of property taxes in North Dakota would cost the state $812 million in annual revenue, an amount that would have to be made up by raising sales taxes. This would lead many North Dakota consumers near the Minnesota border to do their shopping across state lines.
The Portland City Council will meet later on this week to assess a 2% fee on gross receipts of Portland, Oregon hotels with more than 50 rooms. According to the Portland Business Journal, the new fee would be in addition to the existing 1% transient lodging tax dedicated to promoting tourism and would generate an estimated $6.6 million in new revenue, based on $330 million in taxable receipts reported by affected hotels in 2011. Hotels with under 50 rooms would not be affected.
A recent PricewaterhouseCoopers and Urban Land institute survey of more than 1,000 industry professionals showed considerable optimism in their outlook for commercial real estate as a whole. According to the CoStar Group, the general consensus is that investors are looking for, and finding, stable asset investments. Corporate profits are expected to grow for CRE companies with the number of survey participants forecasting good-to-excellent profits for the rest of 2012 increasing over 7.5% from the survey administered last fall.
The number of retail assets for sale in the net lease market continues to rise due to strong investor demand. According to Retail Traffic, the number of retail assets offered for sale in the first quarter of the year rose 19.6% compared to the fourth quarter of 2011, to 2,976. Many of those properties were Class-B, a trend that sellers believe represents investors being faced with a shortage of Class-A product, which is so desirable it ends up going for above market value.
While 2012 thus far has seen a steady and strong pace of hotel transactions, experts expect activity to really ramp up for the remainder of the year and foreseeable future. According to Lodging Hospitality, lenders are more disciplined now, and a great deleveraging should be coming in the next five years. There is predicted to be an epic transition in volume, with several mega deals coming later on this year.
While the economy continues its slow pace to recovery, REITs still face several challenges, with the most prevalent still being the current state of the economy. According to a report by BDO USA, LLP, 100% of REITs analyzed believe that the economy is still in bad enough shape to be of concern for now and the near future. Property valuation also remains a key concern with nearly two-thirds of REITs identifying risks associated with stagnating or declining business and real estate values and asset impairment.
Cook County, Illinois home and business owners can expect second installment property tax bills to hit their mailboxes in early July for the first time in decades. According to the Chicago Tribune, the bills being mailed out on time is both good and bad news. Bad news is that payments will be due August 1 compared to November 1 last year, but good news in that school districts and local governments won't have to take out short-term loans to make ends meet, saving an estimated $20 million across the county.
A statewide property tax overhaul in Georgia, that was implemented to benefit taxpayers, has resulted in some counties being forced to increase workloads to the tune of as much as hundreds of thousands of dollars. According to The Atlanta Journal-Constitution, under the legislation, three-member panels of citizens appointed by grand juries to hear property tax appeals were transferred from the control of county tax assessors' offices to the Superior Court clerks. In addition, there is now a requirement that counties send all property owners an assessment notice with estimated tax bill information.