California Commercial and Industrial Property Tax Update – 2009
California Hotels and Recreational Properties
Hotels, resorts, golf courses and other recreational properties have been hard hit by the economy. Unless a hospitality or recreational property has an old base-year assessment, and therefore a low assessed value, a property tax appeal may provide a significant cost-cutting opportunity. The decline in the value of such properties is supported by clear market indicators. For example, hotels are experiencing higher vacancy rates. Golf courses are experiencing lower rounds played and lower green fees. Moreover, capitalization rates have risen. All of this justifies lower property tax assessments, which are supposed to be no more than the current fair market value of a property.
Decline in Real Estate Values Hits Commercial and Industrial Properties
In prior years, evidence of a decline in value of commercial and industrial properties was sparse. In late 2007, the economy was already struggling. But proving that there had been a decline in the market value of commercial and industrial properties was difficult due to the lack of sales and slow changes in capitalization rates.
This year, however, evidence clearly supports property tax reductions. Bankruptcies of major companies like Circuit City, General Motors, Chrysler, and Linens & Things indicate how deeply this recession has hit. Higher vacancies, lower net income, higher capitalization rates, and lower sale prices for commercial and industrial properties provide proof that the fair market value of commercial and industrial property has declined. This new evidence makes it possible to obtain substantial property tax relief from an assessment appeals board.
Split-Roll Initiative The California League of Cities and the San Franscisco Assessor are currently each supporting initiatives to split the California property tax roll into two parts. “Split roll” initiatives have been around for years. They seek to undermine Proposition 13 and increase taxes by removing Proposition 13’s protection from commercial properties, leaving only homeowners protected from annual reassessment. The effects of a split roll would be dramatic, raising an estimated $5 billion dollars in additional property taxes from California businesses. But the negative effects would be equally dramatic – hurting businesses and undercutting economic growth. Several reports have analyzed the economic impact of a split roll. See for example:
www.stophigherpropertytaxes.com/split_roll_final_report.pdf