Written by: Patrick Price, CRE, CCIM — Vice President of Operations, Property Tax
In the wake of substantial economic shifts, the commercial real estate market has witnessed a notable increase in distressed CRE loans. According to recent data, cities like Chicago, Denver, Houston, and Philadelphia have reported concerning rates of troubled CRE loans, with Chicago leading the way at 22.7%. These indicators signal broader economic challenges and directly impact property valuations (and, in turn, property tax assessments).
In this article, we highlight strategies office property owners should consider to reduce their property tax burden, preserve net operating income, and preserve value in this difficult market cycle.
Analyzing Distressed Loan Data for Insights
Rather than viewing distressed loans as isolated data points, office owners must recognize them as valuable indicators of market dynamics and influences on risk rates (i.e., cap rates and discount rates). By examining the specifics behind distressed loans — such as location, property type, and underlying financial conditions— you can gain strategic insights into potential changes in property valuations.
Dynamic Scenario Planning for Maximum Flexibility
Acknowledging the fluidity of the current market, office owners are employing dynamic scenario planning techniques. This involves creating multiple tax scenarios based on different economic outcomes. By simulating various scenarios, you can proactively adjust your property tax strategy to align with potential changes in property valuations and tax liabilities.
Targeted Assessment Reviews to Uncover Impactful Reduction Opportunities
Today’s fair market value is based on forward-looking projections by market participants. You cannot ascertain today’s value by looking at historical data – which assessors often do – because the past is not indicative of the current state of the markets.
For office owners seeking to proactively manage property tax liabilities, a targeted assessment review strategy becomes paramount. This approach involves a detailed examination of market valuation methodologies, accepted assessment methodologies, and jurisdiction-specific nuances. By leveraging this in-depth analysis, you can uncover opportunities for assessment reduction or appeal.
Tax Mitigation for Portfolio Efficiency
Beyond traditional tax appeals, office owners are also exploring advanced tax mitigation techniques. These strategies may include exploring tax incentives, optimizing property use, and leveraging available exemptions. By implementing these techniques, you can further enhance tax efficiency in your portfolio.
Engaging Specialized Property Tax Consultants for Custom Guidance
Recognizing the intricate nature of property tax management in the context of distressed loans, many office owners are turning to specialized property tax consultants who possess a deep understanding of the CRE landscape.
At DMA, we specialize in providing advanced property tax and incentives consulting services to office owners in the commercial real estate industry. Our team of experts is dedicated to delivering custom strategies that align with your real estate portfolio’s unique objectives.
For advanced insights and customized property tax solutions, contact us today.