Dietrich Mateschitz, the owner of major league soccer team The New York Red Bulls (named after his energy drink), has stirred a lot of controversy for a small New Jersey town. The Red Bulls soccer stadium, located in Harrison, has not been paying property taxes. According to Forbes, The Red Bulls believed the deal made with Harrison's Redevelopment Authority, which leased them the land the stadium was built on, meant they were not responsible for property taxes. No one consulted the town's tax assessor, however, and the town disagreed. The appellate division of the New Jersey Appellate Court has ruled in favor of the town, and The Red Bulls now owes Harrison $3 million in back taxes. Even though the land is owned by a governmental entity, it must have a public use to be tax exempt. The following is an excerpt from the ruling:
Two Michigan townships, Breitung and Marquette, took cases to the Michigan Court of Appeals in April, where they battled to overturn the Michigan Tax Tribunal's ruling to slash the property assessments of two “big box” retailers. After the failed appeals, Dickinson County has decided to step in and provide $5,000 to help Breitung Township (which already spent $80,000 on their unsuccessful efforts to appeal the property tax reduction for Home Depot) to help the county take the case to the Michigan Supreme Court. County Commissioner Joe Stevens, who proposed the spending, is taking action due to the major significance of the case and its statewide implications.
By Matthew Fossey, Texas Area Leader and Principal, Dallas
& Rahul B. Patel, Managing Partner for Patel | Gaines Law Firm, San Antonio
By Cameron Moore, Southeast Area Leader / Principal, Atlanta
The California State Board of Equalization (BOE) recently decided to increase property values for privately owned public utilities and railroads by $3.4 billion for Fiscal Year 2014-15. The utility property assessments will increase from $91.4 billion to $94.8 billion, and will generate $1.075 billion (an increase of $40 million) in tax revenue for local governments in the coming year.
Michigan voters will decide the fate of Proposal 1, which will officially eliminate the business personal property tax and guarantee a source of revenue to replace the tax for cities and towns, on the August 5th primary ballot. According to the Detroit Free Press, the proposal confirms and supports the Legislature’s actions to repeal the personal property tax and replace the revenues lost to communities with a portion of the state’s 6% use tax. The Legislature passed the bills eliminating the tax last year, and subsequent legislation to fix the revenue shortfall for communities was passed earlier this year. Proposal 1 will be the only statewide proposal voters will face on the August primary ballot.
Smith Travel Research, Inc. (STR) released the U.S. hotel performance data for the month of April 2014, and the industry continues to post positive results in key performance metrics. Overall, the U.S. hotel industry’s occupancy was up 3.2 percent to 65.7 percent, its average daily rate (ADR) rose 4.0 percent to $114.67, and its revenue per available (RevPAR) room increased 7.4 percent to $75.30. April was a good month for hotels, as the industry saw the highest RevPAR growth (+7.4 percent) so far this year and the strongest in the last 12 months, according to STR. In April 2013, RevPAR growth was also 7.4 percent, so this year’s growth was impressive against this tough comparable. ADR grew 4.0 percent, and has been above 3.0 percent each month since January 2011. STR expects rate growth to continue unabated for the foreseeable future. Supply growth for the month increased 0.8 percent, same as during the last two months. However, because of the strong growth in the under construction pipeline, STR expects supply will grow at a faster pace in coming months. Despite the Easter and Passover calendar shift, demand still grew 4.0 percent, which means the industry sold 3.7 million more rooms this April compared to April 2013.
Just a year after Republican legislatures slashed taxes at the state level, they are pushing cities to do the same at the local level. In the midst of North Carolina's legislative session, two controversial measures are being fast-tracked despite major opposition and uncertainty of how the significant tax breaks would affect revenue. One measure would cap the local taxes businesses pay cities and the other would limit spending. The House is pushing legislation that would cap local privilege taxes at $100 and is part of a larger bill that addresses major problems in the state tax code. The Senate is considering a measure to restrict county spending by limiting property tax revenues to 8 percent growth a year, and is part of a bill that green-lights shale gas drilling. Republican leaders argue that the changes are necessary to aide businesses and spur job creation.
The number of leases for fitness facilities doubled last year, indicating that gyms and boutique fitness business may be the next big trend in Manhattan's commercial real estate market. According to data compiled by Cushman & Wakefield Inc., a real-estate services firm, the number of leases signed for gym and studio space last year in Manhattan more than doubled to 22 from the nine that closed the previous year. These spaces play a vital role in the city's commercial real estate, as they are often located on ground floors, which helps lure tenants to buy or lease apartments upstairs and helps landlords attract commercial tenants to office towers. And unlike other retailers, they can slide into second-floor or lower-level spots that landlords sometimes struggle to fill. Fitness facilities are becoming the leading amenity to give landlords a competitive edge, and some luxury chains, such as Equinox Holdings Inc., are even anchoring high-end residential developments. Fitness centers help commercial spaces as well, as they are attractive to office tenants who value health and wellness in its workplace culture, and help to lure retailers looking for additional foot traffic in the area.
Commercial real estate owners in Washington, D.C. are experiencing an extreme case of "sticker shock" due to the city's new assessment method. In fact, they are now pressing the District to justify a sweeping change in how it assesses large office buildings, which is negatively affecting both owners and tenants by dramatically increasing their property taxes next year. The new method, effective Jan. 1, 2015, will tax large office building owners based on pooled market values, like all similar Class A office buildings in Penn Quarter, taking the emphasis off vacancy rates and the actual profitability of individual buildings.
The IRS recently proposed new regulations that would affect what is considered real property for REITs. For several months, the agency ceased issuing individual private-letter rulings to companies seeking REIT status outside "traditional" areas such as office, multifamily, industrial and retail. Because the private-letter rulings are not intended to be used as published guidance, the proposed regulations will offer a more concrete, lasting framework at the industry level for REIT qualification. A public hearing on the proposed regulations is set for Sept. 18.
Categories: Real Property
California's Proposition 13, the iconic tax limit passed by voters in 1978, has been the focus of countless political battles for decades. However, an agreement may finally be reached on how to apply the law to commercial properties after yesterday's hearing in the Capitol. During the hearing of the Assembly Revenue and Taxation Committee, business groups and tax reformers that have long-been disputing the issue compromised on a modest change of law governing the reassessment of commercial property when it changes hands. The committee, however, postponed a vote on the revision.
As sales continue to take a dive, Office Depot recently announced plans to close 400 U.S. stores by 2016. According to an article from the Wall Street Journal, Office Depot's first-quarter sales declined 2.9% to $4.35 billion, compared with pro forma revenue a year earlier generated by the merger with OfficeMax. Office Depot posted a loss of $109 million, compared with a loss of $7 million a year earlier. The closures stem from the overlap created by last year's merger, the company said. The retailer currently has 1,900 stores in the U.S., and said that it was still determining which stores would go on the chopping block, but 150 closures are pegged for this year. Rival office-supplies retailer Staples Inc. previously detailed plans to close as many as 225 of its stores by the end of next year. Office suppliers are cutting back floor space as consumers shift their spending online and shop less for certain kinds of technology.
As New York City's large deficits continue to grow, Mayor Bill de Blasio's new $73.9 billion budget has the real estate community concerned that the weight of the budget will be on their backs. The new budget, which burns through previous years' surpluses and looks likely to trigger deficits in future years, has the real estate industry fearing that the mayor will try to fill the gaps with their property tax bills. Although De Blasio says he will not increase the tax rate, landlords are convinced they will get a higher bills next year due to property assessments going up.
The Colorado Legislature approved 11 bills in 2014 that would grant tax credits or incentives of various sorts to businesses, despite the Capitol avoiding any kind of "tax breaks" for many years. The bills were passed in hopes to boost Colorado's economy, improve the business climate and spur job growth. However, legislative leaders don't expect the trend to last, because this year's tax breaks will take a significant amount of money from the budget and they agree it's not sustainable to keep adding them.
By Brian Wolford, Managing Consultant, Houston
Industrial land in Portland is getting harder and harder to find. The city's overall vacancy rate of just 5.6 percent indicates the industrial market is showing classic signs of post-recession stress: Supply hasn't kept up with demand. Colliers International's first quarter industrial market report found that “highlight functional distribution space” is so tight that tenants and would-be buyers are competing for the best spaces and finding limited properties that suit them. The vacancy rates is dropping and will likely continue to do so, which challenges both leasing and sales activity. However, the limited number of transactions is a better reflection of the lack of product being brought to market by seller rather than a shortage of demand, Colliers noted.
Troubling news for California commercial property owners: The California Senate is poised to adopt a bill that would create a split-roll parcel tax system at the local level. Senate Bill 1021, introduced by state Sen. Lois Wolk, would allow school districts to impose different parcel tax rates on different types of property. That means commercial, industrial, residential and multifamily residential could see different tax bills for properties of equal value. SB 1021, which would give school districts the power to pass parcel taxes just against commercial property, comes in response to a similar parcel tax adopted in Alameda County in 2008. Ultimately, the state appeals overturned Measure H, which imposed a $120 parcel tax on residential and small commercial properties and a substantially higher parcel tax — up to $9,500 a year — on large commercial parcels, citing a violation of the requirement that taxes “apply uniformly to all taxpayers or all real property within the district.”
Despite Mayor Rahm Emanuel's proposed $750 million property tax hike to resolve about half of the city’s pension debt crisis, downtown Chicago property owners face an additional dramatic tax increase from a potential expansion of a special taxing district. According to the Chicago Sun-Times, the Chicago Loop Alliance wants to nearly triple annual collections from the State Street “special service area”—to $6.3 million—to provide a sorely-needed facelift to a dark and dank Wabash Avenue and a “weak area” of Michigan Avenue south of the Chicago River. That would be accomplished by expanding the boundaries of Chicago’s oldest special taxing district to include scores of buildings on Wabash and Michigan between Wacker and Congress and 10 cross streets: Wacker, Lake, Randolph, Washington, Madison, Monroe, Adams, Jackson, Van Buren and Congress. The number of property identification or P.I.N. numbers impacted would go from 224 to 692. Residential properties would be exempt from the increase.
The annual 50-State Property Tax Comparison Study based on 2013 data, produced by The Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence, is now available. The study analyzes effective property tax rates in each state's largest city, the District of Columbia, the 50 largest U.S. cities, and one rural area in each states. Effective property tax rates measure the actual tax payment as a percentage of market value, providing a more accurate measure of the tax burden than nominal rates that may be applied to a percentage of full value because of statutory provisions or local assessment practices.
Buffalo Mayor Bryon Brown released his $504.5 million budget proposal for the city's 2014-2015 fiscal year. With a mere 1.9 percent increase from the current financial package, the budget includes both residential and commercial property tax cuts, with no cuts in funding to any existing services. In an effort to attract more residents to the city, Brown refers to the budget as "pro-growth," targeting residential growth, which he hopes will then spur more commercial growth.