Divide and conquer...
Owners of multiple parcels of real property often ponder the advantages of having only one property index number to deal with. How nice would it be to have one assessment, one tax bill and one stamp for the envelope?
In assessment parlance dividing one parcel into many is known as a "division". You may have valid reasons for separating parcels but be careful. It is not always to the taxpayer's advantage to divide.
Building owners with a mix of office and retail space often ponder what if we divide questions. There is a strong desire to better determine the contribution of office versus retail to an assessment. Knowing such can assist in allocating real estate tax bills and other expenses more accurately for their tenants. It is, however, an invitation for the Assessor to reconsider your current assessment.
Because office and retail tenants draw from different markets their income, expense and occupancy summaries differ. A building may have considerable vacancy on the office side with 100% occupancy on its retail side. The income on the retail carries a major portion of the overall income for the building, but the space allotted to retail tenants is small compared to the net rentable square feet of building. The real estate taxes are high and an apportionment based solely square footage places a higher pass through to the office tenants. Sound familiar?
Knowing that the Assessor often considers an income approach to value if you separate the two entities would they not then carry their own assessment? But, you have to first consider what economies of scale actually support a lower overall assessment on the entire building rather than its parts.
The assessor usually views a mixed use property as all one kettle of soup. Its overall income, expense and vacancies are easily packaged together to determine a net operating income upon which a reasonable capitalization rate can be applied. Separating office from retail can change the dynamics with different industry standards and capitalization rates. Attributing only vacancy to one leaves no adjustment to income for the other. Separate accounting issues can arise for ownership as the assessor would not accept a combined reporting summary. Such an arrangement for the convenience of determining allocation of an assessment could also run afoul of public accounting standards, or asset accountability. Do you have one asset in the portfolio or two?
You cannot rely upon simple math in determining tenancy allocation based on its current assessment. You have to consider the possibilities that after a division, the assessor will arrive at a different market value. The sum of the parts might just add up to a bigger whole!
Ok, we suppose you are wondering if the opposite is true. Should you consolidate multiple parcels into one? Something we can discuss further in our May email.
In the meantime, let us help you determine the most advantageous means of lowering your assessment. Give us a call.