April 2023

16A —April 2023 — Financial Digest — Appraisal — M id A tlantic Real Estate Journal

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A ppraisal

By Carlo L. Batts, MAI, Rittenhouse Appraisals Commercial property taxes are not a fixed expense: Why regular reevaluation is a smart move

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ll businesses pay some menu of taxes, and a majority are property

a fixed value, but instead fluctuates based on vari - ous factors such as market changes, tenant demand changes, interest rates, and aging finishes. As with any variable ex - pense it should be a stan - dard course of business prac - tice to regularly review your assessment and taxes to ensure the property and its returns are not overburdened or short changed. Reducing the tax payments on a single property or port - folio of properties can have significant financial benefits,

as it decreases operating expenses and enhances cash flow. This could then improve Debt Service Coverage Ratios (DSCR) which is a key metric used by lenders, and conse - quently can provide improved financing opportunities for commercial property owners. In our work we often see properties over assessed with owners paying a much higher burden in taxes. While build - ings themselves may not move, the external and in - ternal changes surrounding them move their market value needle. Changing neighbor -

hoods, vacancy, altered ordi - nances, even the obsolescence of a building’s function all impact property value. For example, an assess - ment was not reflective of changes happening in the neighborhood. The valua - tion was brought to current market value which was significant documentation presented within the appeal process. In this instance the owner’s tax bill was reduced by $78,000. Similarly in another in - stance, the assessment of a property was based upon a

previous use, during a time when the neighborhood was flourishing. When a shift in population occurred the building’s purpose no longer made sense. An evaluation of the current fair market value was completed, which came in at 93% of the previ - ous assessment. This new information was presented with the appeal process and consequently the property taxes were recalculated. With the lower tax bill the owner earned a savings of several tens of thousands of dollars annually. By implementing these measures the savings own - ers often garner can then be used to strengthen the busi - ness and improve the asset’s overall value. The savings are put toward essential purposes such as paying down debt or on necessary maintenance and renovation work. This can be advantageous to the owner helping sell a property quickly and profitably. It is in the best interest of every business to create a plan and manage property taxes. This begins by regu - larly evaluating the assess - ment of a property to ensure it reflects its true market value. Owners, managers, and businesses can, and should, take control of their tax expenses, and utilize the savings for strategic initia - tives and investments. Carlo L. Batts, MAI is principal of Rittenhouse Appraisals. MAREJ

taxes based on the as - sessment of their real es - tate assets. Wh e t h e r for a single building or a portfolio, these taxes

Carlo L. Batts

are usually one of the largest expense items in the budget. But what may be easy for property owners to forget is that an assessment is not

Increase DSCR

A New Age of Adaptability in Healthcare Buildings

building owners must care - fully consider energy sources and implement high-efficien - cy electrified equipment. It is important to keep in mind the limitations and trade-offs in - volved while accommodating improvements in diagnostics and treatment and address - ing fossil fuel limitations. Jason Moss, PE is a proj- ect manager at AKF, an MEP/FP Engineering and Integrated Services firm with offices throughout the USA and Mexico. MAREJ continued from page 9A

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