Perhaps the hardest hit sector by the great recession, retail may finally be seeing a consistent strengthening in fundamentals. According to the National Real Estate Investor, during the first quarter of 2013, the average vacancy rate at all neighborhood and community shopping centers declined by 30 basis points compared to the same period in 2012, to 10.6%. Over that same time frame, effective rents rose 0.7% to $19.13 per square foot.
On March 12, 2013, the Virginia General Assembly passed House Bill 1598, making things easier on taxpayers and providing fairer treatment for property owners facing appeals. This taxpayer-friendly bill made a number of changes, most notably:
New York City Mayor Michael Bloomberg has announced a $90.3 million property tax reduction for homes and businesses affected by Hurricane Sandy. According to LoanSafe.org, the reduction is a result of reassessments that the Department of Finance conducted to ensure that the final values reflected damages to homes and businesses, as well as changes in market following the storm. The new values reflect reassessments to more than 6,000 individual properties as well as overall reductions in Market Value.
The Texas legislature has extended school property tax breaks eight additional years in order to continue to encourage businesses to relocate or expand in Texas. According to statesman.com, the tax breaks, commonly called Chapter 313 agreements, allow school districts to reduce property valuations up to 90 percent for 10 years as a way to lure capital-intensive industries ranging from refineries to wind farms.
In an article entitled “Pitfalls in the Redemption of Property by Lenders” published in the BABC’s Real Estate Finance Newsletter, a recent ruling by the Alabama Court of Civil Appeals is discussed. According to the article, if an Alabama property owner does not pay their property taxes, a public auction is held and the property may be sold to the highest bidder. Before the recent case, as long as the back taxes were paid, the property could be redeemed by the either the delinquent tax payer or the lender holding the mortgage. However, the Alabama Court of Civil Appeals addressed the rights of redemption by various parties in First United Security Bank v. McCollum. Not only did the court’s ruling provide a windfall to the property owner that failed to pay their property taxes, thus allowing his property to be sold at a tax sale, but their decision also penalized the lender for redeeming property in order to protect its interest.
Iowa is one step closer to cutting commercial property taxes as the State Senate approved a compromise plan in a 43-6 vote. The plan, which will now move to the House for approval, will gradually reduce taxable assessments of commercial properties by 10% and provide property tax credits geared for smaller businesses. The goal of the plan is to stimulate the economy through helping businesses with job creation and returning money to taxpayers.
In an effort to create jobs, New York Governor Andrew Cuomo has unveiled plans for a series of tax-free zones on the state's public university campuses. According to TimesUnion.com, the tax-free zones, available to new businesses as well as to businesses that relocate from outside the state, and those that create net new jobs, would have no business or corporate tax, no sales tax, no property tax, no franchise fee and no income tax for the owner of the company or its employees.
Rumblings coming out of ICSC's RECon event in Las Vegas, in which Paradigm Tax Group is in attendance, is that new retail development is no longer a pipe-dream, but a tangible possibility as industry players being drawing up new projects. According to the National Real Estate Investor, some companies, primarily publicly-traded REITs, might already be close to putting shovels in the ground as they sign up expanding retailers to go into their new centers.
Several cities and counties in Minnesota will soon see a big increase in their state aid, and in return, they will be required to tamp down property taxes. A wide-reaching tax bill finalized over the weekend includes a one-year limit on local tax levies and is designed to keep rates from rising at a rapid pace for 2014 property taxes.
Commercial real estate performed better than expected in the first quarter of 2013, with excess of $63 billion in transactions taking place nationwide. According to GlobeSt.com, due to anticipated tax increases, there was an eagerness on behalf of sellers to get deals closed at the end of last year, so a lot of volume activity that had been expected for January was pulled to December. This led to the low expectations for the first quarter, but as it turns out, transaction activity remained strong.
Sequestration and its $85 billion in federal budget cuts planned for this year will bring significant challenges on the U.S. economy and the commercial real estate recovery. According to the National Real Estate Investor, the forced reductions that began March 1st will have real consequences for the U.S. economy, including eliminated and reduced government contracts, reduced private and public sector jobs and furloughed workers.
The reoccurring themes at the RealShare Student Housing conference this week in Irving, Texas were concerns about overbuilding and the search for perceived value in the segment. According to GlobeSt.com, panelists at the event were in agreement that students and parents alike are continuing to seek out the best value. This means the properties with higher rents are not going to be as popular as they once were, as the market is wary of adding additional costs on top of tuition.
The Florida Legislature has approved a bill that would cause businesses to no longer receive state tax breaks because of perceived pollution on their properties. According to the Orlando Sentinel, in 2011 and part of 2012, Florida companies received as much as $11 million in Brownfield economic-development tax breaks, even though many of which were building on ground that does not appear to be contaminated. These companies were able to get breaks anyways because the law is currently written in a way that only requires the perception of contamination, not actual proof.
Providence, Rhode Island property owners paid the highest commercial property tax rates in any of the nation's 53 biggest cities in 2011. According to the Lincoln Institute of Land Policy and the Minnesota Taxpayers Association, cash-strapped Providence slapped a tax bill of $4,975 on commercial property worth $100,000 - $69 more than the second-ranked Des Moines and $75 more than third-ranked Detroit.
Tucson, Arizona City Council has voted in favor of an incentive that when finished will waive property taxes for a multi-million dollar downtown development. According to Inside Tucson Business, the deal, a Government Property Lease Excise Tax Incentive, would exempt the developer of the 196-unit downtown student housing development The Cadence from paying property taxes for eight years. Costs of the development are estimated to be around $34 million.
Hotels are reporting a significant year-over-year increase in advanced bookings for the summer months. According to HotelNewsNow.com, not only is demand up, but most hoteliers say pricing power has returned and they are finally able to push rates without experiencing consequential declines in occupancy. Over June, July, and August, occupancy, average daily rate, and revenue per available room are all expected to be up from their 2012 levels.
Georgia Governor Nathan Deal has signed House Bill 604 this week which would prohibit Fulton County from raising property tax rates for the next two years. According to The Atlanta Journal-Constitution, if a court doesn't overturn it, the Bill will require approval by a supermajority of county commissioners for tax increases after January 2015. Many believe that this measure is a long overdue check on the County's spending.
According to the National Real Estate Investor, commercial properties are taking on larger and larger loans relative to their stabilized income - and that could mean trouble down the road. A first quarter review by Moody's Investors Service of CMBS found some initial signs of credit slippage, but also discovered that the currently low interest rates are strengthening property fundamentals, making it easier for owners to make their mortgage payments.
The April 1 deadline for New Jersey property owners to challenge their property taxes saw about 116,000 appeals, the highest total in over 20 years. One main reason that the number of appeals were abnormally high this year is Hurricane Sandy, which left billions of dollars in property damage in its path. According to NJ.com, more than 81,000 of the appeals were settled out of court or succeeded, resulting in nearly $5 billion in reduced assessments in municipalities throughout the state.
Although the average employment rate of nationwide office is growing at a little over 2%, demand for that space grew at half that rate during the first quarter. According to the CoStar Group, despite moving in fits and starts, the recovery has helped stabilize the office market and support relatively high property valuations, but at the same time, modest job growth seen to date has yet to translate into meaningful demand for office space, causing rents to remain at 'discount' levels.
Despite its unpopularity among Texans, property tax collections might bring more economic advantages than once thought. While Texas property owners argue that an expanded sales tax would have a more positive impact on economic growth, many studies have found otherwise.
Demographics, federal legislation and technological advances are all working in favor of medical office, generating growing attention from net lease investors. According to the National Real Estate Investor, the aging populace is expected to increasingly seek medical services, and the Affordable Care Act will expand insurance rolls, while improvements in medical services will also heighten demand, a situation that is not expected to go away any time soon.