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Urgent Message-California Property Tax Relief
Tax Help
May, 2010. The market appears to be bottoming out. At least, so say the gurus. But don’t you bank on it. CAPTA believes we are currently in the eye of the storm, with the 2nd half approaching rapidly. It is precisely at this time you need a professional tax reduction company to guide you through the coming, actually the continuing commercial real estate recession.
California is in a real estate crisis and indeed, an economic crisis the likes of which have never been seen in history. Major California commercial property tenants such as Mervyns, Hollywood Video, Levitz, Sharper Image, Performance Team Freight, Linens n Things and Circuit City have recently filed for Bankruptcy. It was only a few short months ago that one of the safest bets in Real Property Investment was a NNN tenant such as Circuit City. Today, owners of such leases are scrambling to sell their vacant big box space to nonexistent buyers. So goes conventional wisdom.
You are at this site because you realize that now more than ever before, commercial property owners and managers must streamline their expenses and prepare for a commercial property value decline that is just now becoming evident. Read the paragraph below from “CoStar Group, #1 Commercial Real Estate Information Company” written in May of 2009:
Retail Space Availability Reaches All-Time High
The nation’s retail market posted negative quarterly net absorption for the first time, along with the highest vacancy and availability rates, since CoStar Group began tracking retail trends in 2000, according to the Bethesda, MD-based company’s first-quarter 2009 retail review and forecast.
CoStar’s research shows that the average days a retail space is listed on the market as “available for lease” has continued to rise — from 174 days in first-quarter 2006 to 370 days in first-quarter 2009…Unfortunately, CoStar is forecasting that the retail vacancy rate will continue to climb…Spivey showed that the average sale price per square foot has dropped from $235 to $125 since the recession started, while the average time a property spends on the market has increased from about 255 to 334 days.
CoStar forecasts that sometime in the next two to three years, the average retail cap rate could hit a level that is 400 basis points higher than where it was at the start of the recession. If that happens, the average cap rate would be around 11% (a high not seen since 1994), which would create better margins for buyers and should fuel transaction activity. Additionally, CoStar forecasts that the average sale price per square foot could go as low as 70% off pre-recession pricing and sales volume could end up as much as 90% off pre-recession activity, sometime in the next two to three years.
Okay, things are bad nationally but what about California? Here it is:
Spivey identified Los Angeles and Atlanta as having more excess retail inventory than any other markets…The markets with the largest first quarter increase in the average retail vacancy rate: Las Vegas (+154bps), South Bay / San Jose (+113bps), Baltimore (112bps), Inland Empire CA (+111bps), Southwest FL (+98bps), Phoenix (+94bps), Atlanta (+94bps), Sacramento (+89bps), Oklahoma City (+82bps), and Orange County CA (+82bps)…During first quarter, the markets that saw the largest net amount of retail space become vacant, as a percentage of total retail rentable building area (RBA), in order, were: South Bay / San Jose, Las Vegas, Inland Empire CA, Sacramento, Pittsburgh, Baltimore, San Diego, Phoenix, Oklahoma City, and Nashville.
That is the nature of the future of retail. But maybe you own apartments or industrial or office buildings. Then you know that as goes residential so goes retail so goes the rest of the commercial market. It’s one big game of follow the leader. While there has been relatively good news in the commercial sector until last year, the tide is currently changing.
Make no mistake; there is a problem, a big problem in the commercial real estate market similar to what just happened and is currently happening in the SFR market. Obviously you understand the need to be proactive in the face of this problem. The question we need to answer for you is why use California Property Tax Associates to assist you with this problem. What sets us apart from our competitors?
We Are Property Owners and Developers
At California Property Tax Associates we understand the problems of commercial property owners, managers and developers because our partners are commercial property owners, managers and developers. In addition to starting to work in the area of property tax appeals and reassessments in 1989, our associates have various past and current experience building residential development and commercial properties, as well as leasing experience as landlord and manager in the California property market. You will not be turning your property tax issues over to ‘form filers’ as many companies are, but to a group of people led by commercial property owners and managers experienced in owning and managing commercial properties. We understand this business from the inside.
And one more very important thing. Again to quote Andrew Florance, President and CEO of CoStar Group, “When the market is moving this rapidly you have to switch gears and look at it from a different angle.” He was talking about the fact that the Office Vacancy rate is not showing the real situation in the Office space sector. But his statement is much more far reaching.
Think Outside The Box
We hate to use this worn out expression but it is exactly what is called for in our current California Property Tax Assessment / Reassessment situation. The tried and true, follow the book procedures of the past need to be reinvented with each case. Can you get a loan like you could 2 years ago? Can you count on real estate appreciation like you could 3 years ago? Can you count on Chevrolet, Chrysler or Ford like you could a few months ago? The answer is a resounding NO! Neither can you approach a Property Tax Assessment Appeal case like you would have just a few years ago.
In the last year there have been many changes in the Assessment Appeals arena. Appraisal methods used for the past 14 years are being replaced with ’shoot from the hip’ thinking. To prepare for an Assessment Appeal in California Counties is in many ways like an unscripted debate, where common sense and proving ones case in real life are becoming more important than following ‘the rules’. That’s what Mr. Florance is saying above: “When the market is moving this rapidly you have to switch gears and look at it from a different angle.” And that’s what we do at California Property Tax Associates.
Experience, Knowledge and Common Sense
Our experience started in the last serious downturn in the market back in the early 1990’s. We worked within our knowledge of the Revenue and Taxation Code, the Assessor’s Handbooks and California Assessment Appeal procedures, and, based upon our extensive experience representing thousands of Clients and working Statewide, we developed strategies to maximize our Clients Property Tax Savings, Credits and Refunds.
The result? California Property Tax Associates is on the cutting edge ready to put our experience buying, building and managing real estate to work for you. We will represent you to reduce your property tax liability by using our experience and knowledge of the Property Tax Assessment Appeals system in California. And the best part to you? If you do not receive a property tax savings, credit or refund, you owe us nothing. No Savings; No Fee!
Contact us at (909) 867-5000 immediately with any questions or go to our Frequently Asked Questions page. Or if you’d rather, just click here to CONTACT US by email and we will call you. But don’t put this decision off; deadlines are rapidly approaching.
County Property Assessment-Proposition 13
The following is a simplified discussion of Proposition 13 and California property taxes in general. It is not a complete Prop 13 explanation but simply an introduction into the California property tax assessment procedures. For a complete understanding of the California property tax Law on a county by county basis, please read the Property Taxes Law Guide and The State Board of Equalization audits (this one is for Contra Costa as an example).
Pre Proposition 13
Before the passage of Proposition 13 California property taxes were raised by an annual assessment of all property located in the state of California. Simply stated California property tax was based on the fair value of your property each year as shown in the assessment on your tax bill. Each year, as California property values increased, so did the value assessment for the property tax payment.
The system worked fine until California property values began to appreciate at an accelerated rate, which then resulted in increasingly higher assessments and increasingly higher California property taxes. People who didn’t change residences or other properties found themselves with escalating California property tax bills with personal income that didn’t follow suit. The California property tax system was broken and the fix was Proposition 13.
Proposition 13
To summarize, before proposition 13 California property taxes were based upon the fair market value of your property each year. Should values increase at a greater than normal rate, so did your California property taxes.
With Prop 13 California property tax law changed extraordinarily as stated in the paragraph from Proposition 13 below:
Section 1. (a) The maximum amount of any ad valorem tax on real property shall not exceed One percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.
This meant that each year the state could collect no more than 1% of the assessed value of California real property. It went on to say that the county assessor could raise the value of the given property no more than 2% annually. As an example, if the value increased 5% this new California property tax law limited the assessment to a 2% increase.
As stated in an earlier page, when a new property is completed (completion of new construction) or when a property is sold (change in ownership) Proposition 13 provides that a base year value be determined. To assist in this determination a rule was created, Rule 2 which stated that in the absence of evidence to the contrary, it would be assumed that fair market value was the price paid in a sale of property made in an arms length transaction between a knowledgeable buyer and a knowledgeable seller neither of which was taking advantage of the other. For the purpose of making a value assessment for California property taxes, if the buyer bought a property for $500,000 from the seller with no extenuating circumstances, then $500,000 would be considered the base your value.
Proposition 13 then stated that each year the maximum assessment increase was the base year +1%. The taxpayers voted, the government cried foul but the vote carried and Proposition 13 was passed.
All went well in the property tax world as properties appreciated and taxes lagged behind until something different happened. Property values began to fall and yet the assessed value continue to be raised by 2% in accordance with Proposition 13. This presented an unforeseen problem with assessments for California property taxes which resulted in a new Proposition.
Go to PROPOSITION 8
If this is enough information and you wish to have your property taxes reduced, please call us immediately at (888) 678-9TAX or fill out the simple form below and we will contact you at your convenience.
Comments or questions are welcome.
California Commercial Property Tax-Vacant Land
October 2009
As almost everyone knows, the state of the industry for California vacant land, whether commercial or residential development property is bleak. Many wish to sell but few are buying.
For the purpose of determining a value for property tax assessment reduction the appraiser is faced with a special problem: there are few comparable property sales, if any. To reiterate an earlier thought, it is critical that we think outside the box.
In the past, the County assessor resisted or outright refused to consider listings in commercial property tax assessment reduction hearings. Yet now, lacking comparable sales in the County and even throughout the state, listings become critical to at least prove what the property is not worth. For example, a residential development property listed for $20 million on the market for one year is fairly significant proof that it is not worth $20 million or more. While we cannot establish the certain property tax value for assessment purposes we can establish that $20 million is too high. But still we must fight each case aggressively to win the point.
Another critical point that is difficult to win in the County assessor’s office is the need to leave the the subject property County to review transactions in other counties. Appraisers in the County assessor’s office have been trained to stay within their respective counties when searching for comparable property sales. Yet again, in the absence of sales common sense tells us that we must search outside the County; we must think outside the box.
Currently, we have fought several aggressive battles on significant vacant land developments successfully. One example of that is a large development in Kern County, where the following results were achieved:
| Original | Reduced | Difference | Savings | |
| Vacant Development Kern
|
$24,442,777 | $16,147,698 | $8,295,079 | $93,734 |
As one can see, County assessment reduction successes are possible, but need to be hard-fought. In the example above our clients saved over $93,000 and will continue to do so until the market turns around. Additionally, each year we will endeavor to prove a greater value reduction to maximize his tax savings.
CAPTA is aggressively representing our clients and can assist you as well.
The Future
While hard to predict in light of our government’s ever changing attitude on capitalism, we think time will be tough in the foreseeable future across all segments of the real state market. Some of our clients continue to aggressively search out and purchase development projects where owners need to sell. Activity remains where bargain prices exist. If you are in this category needing to sell we will be happy to put you in touch with our clients who have told us they continue to be interested in buying. Please fill out the form below.
If you have inventory of vacant land, commercial or residential, lots or development parcels you understand the necessity of minimizing the Assessment value to reduce your property taxes. CAPTA will fight aggressively to enroll the lowest property tax assessment value for your property.
To speak to an agent immediately, please call us at (909) 867-5000 or, to have us call you at your convenience, use the form below. But the appeals deadline in most counties is November 30, 2009; after this date your opportunity for this year is lost. Please act now.
Comments or questions are welcome.
Property Tax Appeal Actual Case Study
ARTICLE
TITLE: California Property Tax Assessment Appeals-An Actual $8.4 million Case Study:
By: Jim Guffey, Partner CAPTA (jim@capta1.com)
June 25, 2006 –Running Springs, CA: In September of 2001 at a time when most property owners were seeing appreciation of their property values, I prepared a case before the Assessment Appeals Board in a large Southern California county. The property was an $8.4 million assessed Assisted-Living Apartment Hotel. I had successfully won reductions of this property’s value in years prior but the appraiser I was dealing with at the County Assessors Office refused to reduce the property’s value any further, citing the rise in commercial property values as his reason. My company had performed property tax reduction work on several of this particular owners properties with great success and he asked us to work with this property as well.
After meeting and talking with the appraiser and finding that he refused to consider a reduction in the assessed value, we were forced to the next level of a formal Assessment Appeals hearing before a three-member Assessment Appeals Board. The county has up to two years following the filing of the appeal to hear the case and we were close to the deadline when we attended the hearing.
The following is the actual case study of an assisted-living apartment complex located in Southern California. The Assessment Appeal covered the year of 1999\2000 for the lien date of January 1999. Wherever possible the actual case is presented. Valuation numbers have been rounded to the nearest $100,000.
Property Location: Southern California
January 1999 Assessed Value $8,400,000
Case Won-New Value $6,500,000
Actual Client Savings (Two Years) $ 43,000
CASE
The subject property is located at XXXX. Known as the XXXX Retirement Hotel it is situated on just under 3 acres and was built in phases starting in 1985 and ending in 1991. Constructed of wood frame with stucco exterior, the six buildings range in height from two to four stories with three buildings featuring elevators. One building has subterranean parking and all the buildings are sprinklered.
The buildings house 187 units (78,201 sq.ft.) as well as the common areas, including dining room, administrative offices, lounges, recreational and activity rooms and hallway bathrooms (43,343 sq.ft.). All six buildings are connected, and all rooms have air conditioning via wall units. Most of the units have no kitchen facilities; 10 of the larger studios do. All units have emergency pull cords in the living area as well as the bathrooms.
INDUSTRY
The housing industry for the elderly can be classified by three major types of buyers: the active seniors, intermediate seniors, and the senior who needs constant care. The first group, active retirees, want recreational amenities with the housing they buy. Intermediate seniors want a congregate-type of lifestyle that allows them independence yet gives them the opportunity to take part in quiet activities with arranged transportation and supervision. And retirees who need constant care are concerned with medical assistance. The subject property is generally targeting the intermediate retiree.
From a real estate and financial perspective housing for the elderly is complex and difficult to analyze as it usually represents a combination of other businesses and very high expenses. The major types of homes for the elderly include:
1) Senior Apartments: Apartment units set aside for active seniors. Typically these are apartments with an age restriction on residents. Stairs to upstairs units, parking spaces for each resident, and very little common area improvements are the norm. No supervisory or support services are offered. These developments have expenses, vacancy and cap rates very similar to any other apartment complex.
2) Congregate Housing: Specially planned, designed and managed multi-unit rental housing with self contained apartments. Supportive services such as meals, housekeeping, transportation, social and recreational services are sometimes provided. In California these are not licensed and have moderately greater expenses due to the increased services. Cap Rates are generally higher than apartments as well.
3) Assisted Living: Group living arrangements that provide staff supervised meals in a dining room, daily maid service, Registered Nurse on site, personal care (assistance with bathing, medication, incontinence, etc.) and private and shared sleeping rooms. Amenities such as Beauty Shops, Guest Accommodations and Emergency Pull Chords are typical. These facilities are licensed and must meet designated operating standards including minimum staff requirements. Vacancy rates vary and expenses are high. Cap rates are high as well because of the risk of running a complicated business with so many different functions (medical, dining, entertainment, nursing, etc).
4) Care Facilities (skilled nursing): Skilled nursing facilities are commonly known as nursing or convalescent homes. Around the clock licensed nurses and aids provide medical care and are generally one step below a full acute care hospital.
The subject is a State Licensed Assisted Living Retirement Hotel (#3 above).
SUBJECT ANALYSIS
Entry is made into the subject by walking through a large lobby to a reception area. The large restaurant style dining room is located off this lobby and one of the numerous libraries is opposite the dining room. Throughout this complex are over 44,000 square feet of common area (1/3 of the total square footage), including dining rooms, TV rooms, family rooms, craft rooms, exercise rooms, laundry rooms and bathrooms. At any time of the day or night guests are free to use the rooms to exercise, read, participate in crafts or group functions, or just rest while walking from the dining area to their rooms. Guests wishing to visit the pool area must be accompanied by one of the many staff members required by law to be on site.
The hallways are similar to a hotel with elevators placed at strategic locations for guests’ convenience. A number of ramps are also located in the building. Inside each room there is a living area, closet space and bathroom. Emergency pull chords summon help from staff in an instant (a full time Registered Nurse is also on site). Several units have been combined to form one larger unit, and 10 have kitchen facilities.
All residents receive maid service daily as well as all meals and snacks served to them by staff in the dining room or at the 24-hour snack center. Exercise, crafts, and other activities are supervised and offered daily and there are numerous trips set up by Arcadia Gardens to various local sites. A full time RN is also available for medication assistance. 24 hour Security is provided. Subterranean parking is provided although few are able to drive (58 spaces for staff and up to 200 residents). Each of these services is included in the base room rate as well as all utilities except phone.
As can be seen by the above subject analysis there is no way to compare an Assisted Living Retirement Hotel with a property type that does not share the same overhead and risks. This business is set to explode as the baby boomers reach retirement age in the years to come (starting around the year 2010). But currently there are many players poised to take advantage of the coming boom and a current saturation in the marketplace. Few properties are changing hands, making it difficult to find comparable property sales.
At this point in the case we presented substantial information as to market rents and expenses as well as presenting and analyzing the subjects income statement’s over the past several years. We concluded with several approaches to value and reconciled the approaches into a request for a value of $6.25 million.
The day of the appeal I arrived at the hearing and informally spoke with the appraiser from the Assessor’s Office. We notified the board that we were both present and ready to present our cases, at which time we went outside and informally discussed the information we were going to present to the board. Upon seeing my case presentation and the information contained therein, the appraiser and I mutually agreed to a value of $6.5 million which he agreed to carry for two years. Upon appearing before the board the appraiser notified them that there had been a stipulation agreed upon in the board formalized it, resulting in a savings to our client of over $43,000.
It is extremely important when considering a property tax reduction company to ensure that the agents representing the property owner actually understand the system, appear at the hearings and argue cases successfully. You should beware of companies who file papers and wait for results. These companies do little work for the money they earn and seldom achieve maximized results. As in the case presented above, the appraiser working for the Assessor’s Office refused to lower the value until he saw the case I prepared and understood that we had done our homework and represented our client in a professional and efficient manner.
You can find out more about California Property Tax Associates by visiting their website at www.capta1.com.
SUMMARY: An actual Property Tax Assessment Appeals Board case study of an $8.4 million Assisted-Living apartment complex in Southern California, the subsequent appeals hearing and the annual tax savings passed on to the client.
BIO: Jim Guffey is a real estate developer who owns commercial and residential properties in Southern California. In 1989-1990 he started one of the first full-time property tax consulting companies in California. At a time very similar to today he built this property tax reduction Company into a successful venture representing property owners in assessment reductions informally and before the Board of Appeals throughout California. Jim is the Vice President Of Strategic Oversight at California Property Tax Associates. (www.capta1.com)
OPEN LETTER TO A PROSPECTIVE CLIENT
Mark,
Allow me to introduce myself. My name is Jim Guffey and I’m one of the partners in California Property Tax Associates. I’m also Tom’s brother.
In 1989-90 I started a property tax reduction company in San Bernardino County, California. You may or may not recall that property values were doing very well and foreign investors, particularly the Japanese were buying up commercial property at record levels. Properties frequently appreciated during the escrow period 5 or even 6%. You could almost do no wrong. Business was good and Tom and I worked together for over 10 years reducing property values for our clients. Tom has told me that you want letters of reference but I hope this e-mail will suffice.
In the early 90s one of our first clients was a gentleman based in San Diego County who was buying small pieces of property in San Bernardino County from individual landowners. The size of the parcels was two to five acres. When he bought enough small pieces he began the entitlement process and subsequently sold the properties to a large company who would build the homes. He was very successful but the assessors office saw what he was doing and immediately began assessing his property when he first purchased the vacant lot for what a year and a half later he would sell the parcelized property for, per acre. In other words, if he bought the raw land acre for $4000 and sold it a year and a half later, entitled for $40,000 an acre the assessor was immediately assessing all of his raw land purchases for $40,000 an acre. We were successful in appeal in getting all of these transactions reduced to his original purchase price arguing stage of development. This was hundreds of individual parcels.
Another client was Premier Homes, a French company based in Corona. They were in a similar position to your company with large holdings of land in Southern California. We worked on many of their properties but in particular, one parcel in Lancaster had a value of $16 million and was fully entitled, ready to build. We were successful in reducing this property to less than $4 million. It subsequently sold a short time after we achieved the reduction for $8 million.
It is important to understand that fair market value in the marketplace is not the same as fair market value for assessment purposes. Frequently we are successful in reducing property that sells for far greater than what our reduction showed. Again, this is because when we value property in accordance with the Revenue and Taxation Code in the state of California we follow the guidelines set forth in the appraisal manuals and also the guidelines used in each particular county. Unfortunately these differ substantially from county to county. However, frequently these appraisal guidelines work in our favor and our clients, many of whom told us there was no possible way for us to get reductions on a given property, are amazed at our results. Not always but frequently.
Another client was located in the Beaumont area in Riverside County and had purchased a property known as the Three Ring Ranch. It was situated at the split of the 60 and the 10 freeway’s and was purchased by an individual who planned on flipping it to a housing company. But while he was negotiating the market turned and nobody was interested. We began our work for him in 1990 and subsequently he lost the property in foreclosure. We continued our work for the new owner securing large reductions in the back taxes. This property did subsequently sell and was developed in later years and is still known as Three Ring Ranch.
In the same area Highland Springs Resort had just transferred ownership in the late 80s. In addition to the resort which had many varied buildings and improvements, along with a mobile home park there were numerous residential development parcels. Although this property took a considerable amount of time and numerous appeal hearings due to its complexity, we were also successful in reducing it’s assessed value substantially.
We did substantial residential development properties in the high desert area of Victorville as well. Schaffer Real Estate and Investment Company, Inc. had substantial vacant land holdings and we succeeded in reducing scores in his portfolio. Additionally, Thomas Rhubik had a number of large residential development properties that we had great success with.
These are the companies that come to mind. We also worked extensively in the Central Valley as well as the Bay Area. In short, we have experience with all the major counties in California and a number of the smaller counties as well. While the rules are all the same as each county has to live by the Revenue And Taxation Code they each have latitude to accomplish certain tasks their own way. When you hire us you hire someone who has the ability and experience to accomplish the task at hand in the shortest possible time with the greatest possible results.
I hope this helps. The decision you have before you is complex and infinitely important to the bottom line of your company and its investors. The inventory that currently exists on your balance sheet is an expense. The quicker you can reduce the related expenses the easier it will be to wait out this market. But make no mistake: if you don’t file, you don’t see reductions. And if you do file but lack the experience and understanding of the system you will likely lose as well. In the least you will not accomplish the maximum possible result. We will.
One last thing. Over the years our client list has included many attorneys who knew better than to try to understand the workings of the assessors office when they had no experience. One of our early clients was actor Tony Curtis. We never met him, we only worked through his attorney. With great success. His attorney knew better than to venture into this territory.
In case Tom didn’t tell you, I am currently in Guatemala but will be happy to fly out to meet you once we have a relationship. If you’re not comfortable paying us a percentage we do work on an hourly basis. However, as you know our percentage fee is based solely on results. But the sooner we get started the better for you.
Sincerely,
Jim Guffey
