CREJ - Office Properties Quarterly

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Page 6 — Office Properties Quarterly — April 2015
Taxes
E very year in Colorado there
is the opportunity to protest
a property’s assigned value
as determined by the county
assessor, potentially saving
money by minimizing your Colo-
rado property tax liabilities and
enabling a fair and just ad valorem
valuation.
Property owners and managers
are sensitive to rising expenses, and
managers often audit energy and
maintenance costs looking for ways
to operate their buildings more
efficiently. Property taxes are the
single-largest fixed-expense item.
However, many overlook a possible
expense reduction that requires no
change to current business opera-
tions. An inappropriate valuation
for ad valorem purposes cuts into
the net operating income and the
property value.
While management styles vary,
all property owners and managers
are wise to implement a strategy
for protecting against paying more
than their fair share of property
taxes. Experienced property manag-
ers are keenly aware of the occu-
pancy costs when negotiating rents
with potential tenants. An accurate
ad valorem valuation is essential
in remaining competitive in today’s
marketplace. This strategy applies
not only to office buildings but also
to all real estate investments.
By lowering the taxable value of
a $10 million commercial building
by 10 percent, in an area with a mill
levy of 100 mills, the property taxes
can be lowered by $29,000 annu-
ally. With any tax reduction, net
operating income is increased, thus
enhancing the value of the property.
As Colorado asses-
sors reappraise all
real property every
two years, a reduc-
tion to the taxable
value in one year
often will capture
that tax saving in
the following year
(also known as the
intervening year).
Ideally, the
valuation for ad
valorem pur-
poses should be
monitored every
year for unfairly
assessed values. Possible grounds
for an appeal include general
overvaluation by the county asses-
sor or improper classification of a
property. Other circumstances that
may impact value include chronic
underperformance, occurring situa-
tions of excess vacancy, high main-
tenance costs associated with aging
and dated buildings, or erroneous
application of market factors by the
assessor. Assessor valuation errors
also can occur during times of
property transition, such as during
development and new construction,
at the end of economic life of an
improvement or at the time of rede-
velopment. On occasion, an event
causing significant damage to the
property will impact value.
While many property owners
attempt to appeal ad valorem valu-
ations themselves, most quickly
learn they do not have the time or
expertise to navigate the complex
ad valorem valuation rules and
statutes, often leaving valuable tax
dollars on the table.
Ad valorem laws and valuation
rules are ever-changing and dif-
fer from an appraisal for other
purposes. Many owners of office
buildings do not understand the
difference between their valuation
for ad valorem purposes and a “fee”
appraisal.
Appraisals can be done for many
purposes, such as asset manage-
ment, estate purposes and, most
often, used in lending decisions.
Appraisals can provide an opinion
of value for various types of own-
ership interests and typically will
reflect the value at the time of the
appraisal.
By law, ad valorem valuation in
Colorado must be retroactive to
a specific date in the past, using
a specifically defined data collec-
tion period and can only value the
fee simple estate. Further, due to
the enormity of the task of valuing
thousands of commercial proper-
ties, most county assessors use a
computer-assisted mass appraisal
system to value many properties at
once. This process can make it dif-
ficult to properly consider all attri-
butes of individual properties.
Professional property tax con-
sultants are knowledgeable in ad
valorem valuation as well as the
many specific ad valorem distinc-
tions that the typical property
owner may not be aware of. The
benefit of using a tax consultant
extends beyond that of a single
appeal of a property’s ad valorem
valuation. A tax consultant can
analyze the property and recom-
mend which properties should be
appealed as well as recommend
filing abatement petitions for real
property valuations for up to two
years of past valuations, if no pro-
tests were previously filed for those
years. Further, a property tax con-
sultant can educate the property
owner regarding the appeal pro-
cess and the financial feasibility of
pursuing an ad valorem valuation
appeal.
Although appealing an ad valorem
valuation can be complex and time
consuming, hiring a professional
who is skilled and knowledgeable
at negotiating the multiple levels of
appeal will increase the opportunity
for a successful appeal, and most
likely increase the amount of any
realized tax savings.
Most property tax consultants
offer a variety of fee options. Some
consultants offer the ability to
negotiate a contingency fee based
upon the tax savings. In many
cases, if an appeal does not result
in a tax savings, there is no cost to
the property owner.
It is important to seek a profes-
sional tax consultant with strong
local market knowledge and a
longstanding exemplary reputation
(especially with the local assessors)
to advocate on behalf of the prop-
erty owner.
By Colorado statute, the current
year ad valorem property values
can be appealed during the month
of May. Be prepared to file an appeal
in a timely manner. Now is the time
to consider how your property tax
liability affects your bottom line,
and what you can do to lessen your
burden. Engaging a property tax
protest specialist is the best way to
ensure your assigned values are fair
and accurate.s
Kendra L.
Goldstein
Vice president,
Sterling Property
Tax Specialists Inc.,
Denver
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