Interest rates and the economy is the chief concern for the real estate industry in 2018 and 2019, according to the Counselors of Real Estate, which released its annual Top Ten Issues Affecting Real Estate List. As interest rates rise, the commercial and residential real estate markets are already experiencing changes – decreasing demand for commercial property, and higher home mortgage rates. Rate increases also limit value appreciation for commercial real estate and make housing less affordable. Lack of wage growth for all but the wealthiest population segment is dampening housing demand, and limiting consumer spending that the economy needs for growth.
The total property tax expense for U.S. hotels exceeds a potential $8.1 billion, according to a new study by STR utilizing 2016 HOST (Hotel Operating Statistics) data. The study found that roughly 36% of all hotel property tax expense resides in 15 counties. While 611 counties comprised STR’s HOST data, the report studied only those with a sufficient reporting sample. Overall, the median property tax expense for U.S. hotels was 3.7% of total revenue with a much higher expense percentage for limited-service properties (4.2%) than full-service hotels (3.3%).
By Alex Pace, Managing Consultant, Dallas
Mixed-use properties continue to gain popularity in response to the growing desire for the convenience and walkability of urban living. Savvy real estate developers and owners understand that providing a vibrant mix of office and living space, restaurants and retail under one roof allows them to meet – and capitalize on – a variety of consumer needs. While implementing a “live-work-play” concept certainly adds value to a project, the relatively new and complex nature of a mixed-use property is creating valuation challenges for Appraisal Districts that could be costing you.
By Carlos Villatoro, Senior Managing Consultant, Dallas
It is no secret that significant commercial real estate investments continue to pour into the great state of Texas. However, if an owner isn’t lucky enough to receive major tax breaks from local jurisdictions as an incentive to invest here, they will have to accept some of the highest effective property tax rates in the country. The tradeoff is that Texans enjoy a relatively low sales tax rate and zero state income tax rate. Fortunately, the Texas Property Tax Code offers multiple appeal recourse avenues, which allow owners and tenants alike to review the property tax liability from a fair and competitive standpoint.
The commercial real estate industry will benefit as a whole from the tax code overhaul signed into law Dec. 22. But some sectors will benefit more — and sooner — according to top economists polled in a Bisnow article.
- Retail: The retail sector will likely be the biggest beneficiary, Colliers Chief U.S. Economist Andrew Nelson said, because of the lowering of the corporate tax rate. The tax reform law reduces the corporate tax rate to 21% from 35%, but because of deductions, not all types of businesses had effectively paid that same higher rate. "Retailers traditionally pay a high corporate tax rate because they don't have the same kind of deductions as other sectors," Nelson said. "When you lower the corporate rate overall, retailers tend to benefit a lot."
by Jessica Vachiratevanurak, Managing Consultant, Miami | Today's Hotelier
For hoteliers, property tax expense is often a substantial fixed expense. As a result, understanding how property taxes are calculated and what owners and operators can do to mitigate them is crucial. Below are four tips for keeping property taxes from unduly impacting your hotel’s bottom line.
Hotels in Silicon Valley, California are experiencing above-average performance and attracting the attention of owners and developers across the country, thanks to the widely successful international technology companies in the area bringing in an influx of business – as well as leisure – travelers. The Santa Clara/Silicon Valley area is shaping up to be one of the most desirable markets in California due to its lack of overbuilding, scarcity of land and barriers to entry.
Philadelphia commercial property owners should expect major increases when they receive their property assessments mid-April. The value of the taxable portion of Philadelphia’s 14,000 commercial buildings went up by nearly 40 percent — from $14.4 billion to $19.7 billion — with the reassessments, an increase that will contribute to the expected $118 million in new tax revenue to be split between the city and school district. This is the first full reassessment of commercial properties since the controversial Actual Value Initiative (AVI) in 2014, which uses actual market values as the assessment standard.
Commercial property price indices (CPPI) continued to either hold steady or trend upward at the end of 2016, the most recent period for which data is available, signaling the likelihood of an extended market cycle. According to the National Real Estate Investor, the Moody’s/RCA national all-property CPPI rose by 1.4 percent in November compared to October. Over a three-month period, the index went up 3.0 percent. Suburban office buildings experienced the most significant month-over-month increase in prices, at 2.6 percent, followed by office properties in general, at 2.1 percent. Retail assets saw the least movement in prices, at 0.1 percent (prices in the sector also fell 0.4 percent over a three-month period). The Moody’s/RCA CPPI is calculated using repeat sales transactions that take place two months before the figures are released.
The hotel industry could be facing an uphill battle in 2017 as new supply may erode pricing power and hinder performance. Hoteliers are already seeing performance dip as supply meets and surpasses demand. In a Hotel News Now roundtable, hotel executives and market analysts provide perspective on supply growth and how it will affect the hotel industry going forward. Jan Freitag, SVP of lodging insights at STR (Hotel News Now’s parent company), says new supply will negatively impact occupancies, now more than ever since demand growth will slow. While it remains to be seen how hoteliers react to the new competition in their markets, Feitag expects continued pressure on pricing and limited (average daily rate) increases going forward. Some markets (such as New York City and Miami), however, are already observing pricing weakness and ADR declines.