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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.

Apartments Show Higher Vacancy, Lower Rents

Apartment Values-Moody

The accompanying chart shows the state of the market relative to apartment prices in the United States. Rest assured there is also a similar chart showing Southern California in a similar trend. To quote MIT who made the chart:

The RCA Database

The commercial property index is based on the RCA database which attempts to collect, on a timely basis, price information for every commercial property transaction in the U.S. over $2,500,000 in value. This represents one of the most extensive and intensively documented national databases of commercial property prices ever developed in the U.S.

The Associates At California Property Tax have known that apartment prices were soft for some time. Still, many of our clients are doing very well with their larger complexes. In spite of their success according to their financials, and using market information as opposed to specific financial information from the subject properties, The Associates were able to find substantial reductions as shown in the chart below:

Just to simplify the reductions, that’s $100 million worth of property, reduced $38,940,208 for an annual tax savings of $412,108! Our clients will save this amount of money each year until the market turns around! Could you use a 39% reduction in your property’s value?

An even more incredible thing is that when we spoke to the client in Property 2 above, he told us he thought the properties were worth maybe a total of $32 million from their assessed value of $36 million. When we analyzed the financial statements we felt that his property was well worth the $36 million should he place the property for sale on the market. But we took the case anyway and began negotiating with the appraiser in the assessor’s office. We approached the value for assessment purposes on the market instead of the subject, with a great deal of success. This “outside the box” thinking saves our clients far more than they expect.

Still not convinced? Why not read our frequently asked questions?  or, simply call us at (909) 867-5000.

County Assessment-Value Appeal

Note about the Assessment Appeal process and County Property Tax procedures

In each county the County Assessor is charged with providing an assessment value for each property. You should understand that the State Board of Equalization (SBE) oversees the administration of the Property Taxes Law Guide for each county.  Audits are performed by the SBE regularly in all California Counties to assure compliance.  But to receive their maximum share of property tax revenues, counties only have to comply with a percentage of SBE requirements. That means that from county to county the rule of law can be significantly different.  For this reason the presentation here is of a general nature and could vary significantly in specific county appeals hearings.

California real and personal property is assessed annually by the Assessor in each county, who then provides the assessment roll to the Tax Collector who prepares the bill to collect the property tax.

When the county assessment for a real property is not correct, and trying to achieve a satisfactory adjustment from the County Assessor fails, there is but one alternative:

California Property Tax Assessment Appeal

In most counties the Assessment Appeal Board is appointed by the County Supervisor to serve a certain term.  The appointments can be filled by individuals with real estate or appraisal experience but is many times made up of the spouse of a contributor who has little understanding of real estate or appraisal procedure.

The County Assessment Appeals Board generally had 3 members; however, they may serve with only two if no objection is made.  The meeting chambers consist of vastly different settings by county; some meet in the formal Supervisors chambers which is like a courtroom, while others are informal and meet in normal offices.  In some counties the County Counsel (attorney) upholds the value in the County case and in others, the Assessor appoints one of the County appraisers to represent the Assessors side.

The normal Assessment Appeal hearing is much like a courtroom scene:  the Assessors Representative (AR) is the prosecutor wishing to prove his value correct.  The county property tax payer presents his case first, depending on the property and value, and then defends against the questions of the AR, as well as answers questions from the board.  The AR then presents his case, after which he defends questions from the property tax payer and the Assessment Appeals Board.  Both sides are then given time for closing arguments.  The board at that time either makes a determination or takes the matter under submission, sending letters to the parties generally within a week.

Once the Assessment Appeal Board makes a value determination it is generally the end of the process.  The only other option is a further appeal in Superior Court with the obvious complications and legal expenses.  Generally, only extremely complicated, high dollar cases are appealed at this level.  Seek counsel early if you anticipate going this route.

Go to COUNTY PROPERTY TAX APPEAL ACTUAL CASE STUDY

Go to URGENT MESSAGE FOR COMMERCIAL PROPERTY OWNERS 2009

Go to CALIFORNIA PROPERTY TAX FREQUENTLY ASKED QUESTIONS (FAQS)

To speak with one of our Consultants you may call (909) 867-5000 or (888) 678-9TAX.  If you prefer, simply fill out the form below and we will contact you at your convenience. Deadlines vary by county, but for most counties it is November 30. Our costs and fee structure is simple:  No Savings, No fee!  But act now; once deadlines pass you have lost your right to appeal. Do not allow this opportunity to pass without beginning the process. Please call or write today.

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.

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County Property Assessment-Proposition 8

Pre Proposition 8

Before Proposition 8 (California property taxes measure) was adapted in late 1978 the voters passed Proposition 13 which held that only a 2% increase in the assessed value could be enrolled by the County assessor for any given year despite the actual amount of increase in the real property value. California property tax payers were very happy with this property tax measure as it limited their property taxes they have to pay each year in the face of an ever appreciating real estate market. But what would happen if the values actually fell?

County property tax payers understood real quick that they had painted themselves into a corner. They had a piece of legislation that said the value of Real property could be raised to more than 2% a year; now they needed something to address property tax values in a declining market.

In 1978, California voters passed Proposition 8, a constitutional amendment that allows a temporary reduction in assessed value when a real property suffers a “decline-in-value.” A decline-in-value occurs when the current market value of real property is less than the current assessed value as of January 1 of a given year.

As an example for California property tax purposes, say your property has a value of $200,000 on January 1. The assessor needs to prepare the property tax value for the upcoming fiscal year, which runs July 1 through June 30 of each year. January 1, prior to the beginning of the fiscal year is the date of valuation for each fiscal year. So on January 1 your property was worth $210,000. But under Proposition 13 the California property tax assessor can only place an assessment $202,000, even though the market value is $210,000.

Taking the same example for California property tax purposes, say your $200,000 property has a value of $190,000 on January 1. Under Proposition 13 your property would still be valued at $202,000. But under the new Proposition 8 the assessor is allowed to enroll the lower of the factored base year value ($202,000) or the current fair market value ($190,000). The assessment should rightfully be $190,000. But is it?

Problems with the System

We’ve shown how the California property tax payer tried to deal with an unfair property tax system. Both Proposition 13 and Proposition 8 attempted to regulate the value of the assessment so that real property owners pay the right California property taxes in both an appreciating and a depreciating market. But notice the wording in the paragraph about Proposition 8:

In 1978, California voters passed Proposition 8, a constitutional amendment that allows a temporary reduction in assessed value when a property suffers a “decline-in-value.”

Notice that the amendment “allows” a temporary reduction. Some County assessor’s have held they are not required to reduce values. Others have been very forthcoming in recognizing the value declines and have been very proactive. But they can never do the job of recognizing individual property valuation changes. So they are held to doing mass appraisal for the most part on housing tracts and across very similar properties. Invariably, some are too high and some are too low. And still there is another problem.

Once the property taxes and the value have been reduced under Proposition 8, the County assessor is charged with raising the California property tax value when the value increases. Once again this is very subjective. The assessor enrolls a value of $195,000 for the coming year. Should it have stayed at $190,000? Should it have dropped further? Should it have been $193,000. All of these answers are dependent upon one person’s opinion of value. Are you content to let the assessor’s office make that determination?

Let’s look at some bigger numbers. In one of our examples of a recent reduction achieved on a property in central California, a $36 million property was reduced to $15 million. That’s an annual property tax savings of $226,000 for our client. Maybe next year the California property tax assessor wants to raise the assessment up to $25 million. Will that be correct? Maybe it should be $22 million. The difference is some $30,000 in California property taxes paid. That’s a lot of money for one man’s opinion.

So there you have it. Under Proposition 13 the value can only be raised 2% per year. Assuming the annual property tax values appreciate greater than 2% there is no dispute. But if the values depreciate there is only one thing to do: fight!

Go to PREPARING THE APPEAL

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.

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