FOUND MONEY IN HARD TIMES
Why a Real Estate Tax Appeal
May be in Order
Cole, Schotz, Meisel, Forman & Leonard, P.A.
Wendy M. Berger, Esq.
Carl A. Rizzo, Esq.
Integra Realty Resources, Inc.
Raymond T. Cirz, MAI
Matthew S. Krauser, CRE
January 13, 2009
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
INTRODUCTION
(Carl A. Rizzo, Esq.)
• Economic Troubles Abound
(recent headlines)
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
• Opportunity Knocks
(client story)
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
Outline of Today’s Itinerary
Wendy M. Berger, Esq.
- To discuss nuts and bolts of tax assessment process and the
anatomy of and basis for tax appeals.
Raymond T. Cirz and Matthew Krauser
- To provide overview of market conditions and specific
marketplace sector data.
- Discussion of recognized methods of real property valuation.
- Offer overall opinion on values
Carl A. Rizzo, Esq.
-To discuss how to prevail before the Tax Court or the
County Tax Board.
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
THE ANATOMY OF A TAX APPEAL
Why file a tax appeal?
(Wendy M. Berger, Esq.)
• Good Management Practices Dictate an Annual
Review of Real Property Tax Assessments.
• Enhance Value of Property and Increase Viability for
Sale/Rental
• Opportunity for Real Tax Savings
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
IS A TAX APPEAL WARRANTED?
• Preliminary Determination of Property Value
• Tax Nuts and Bolts
(tax assessments, bills, rates and average ratios)
• Compare Assessed Value to True Value
(“AV” = “TV” x “AR”)
• Chapter 123
(common level range, a safe harbor for municipalities)
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
As Of: October 1, 2008
__________________________________________________________________________
CHAPTER 123 ANALYSIS
ASSESSED VALUE:
TRUE VALUE:
$2,550,200
$1,959,000
Ratio
Assessed Value
True Value
=130%
The above ratio exceeds the upper limit of 93.67% therefore, Chapter 123 applies:
True Value
Municipal Tax Ratio
Taxable Value
-
$1,959,000
81.45%
$1,595,605
- say $1,595,600
BREAKDOWN
Land
Buildings
Total
-
$ 481,300
$1,114,300
$1,595.600
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
FILING A TAX APPEAL?
• Time for Filing Appeal (April 1, 2009)
• Prerequisite for Filing Appeals
- payment of taxes and municipal charges, jurisdictional
prerequisite
- compliance with Chapter 91 requests
(must produce income and expense information to
assessor)
- payment of filing fees
($5-150 County Board of Taxation)
($200 State Tax Court)
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
• Where to File Appeal
- if assessment is $750,000.00 or greater, choice of
either County Tax Board or State Tax Court
- if assessment is less than $750,000.00 must file
at County Board of Taxation initially
- if dissatisfied with decision of County Board,
may file appeal to State Tax Court or to Appellate
Division if initial filing was with Tax Court
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
• Judgments/Settlements
- Freeze Act (N.J.S.A. 54:51A-8)
(“Where a judgment not subject to further appeal
has been rendered by the Tax Court involving
real property, the judgment shall be conclusive
and binding upon the municipal assessor and
the taxing district, parties to the proceedings,
for the assessment year and for the two assessment
years succeeding the assessment year by the final
judgment, except as to changes in the value
of the property occurring after the assessment
date.”)
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
- Tax Refunds (N.J.S.A. 54:3-27.2)
• Entitled to interest at rate of 5% per annum on any
excess taxes paid and calculated from the date of
payment of the excess taxes
• Municipality obligated to make refund within 60 days of
entry of judgment
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
MARKETPLACE CONDITIONS FAVOR
THE FILING OF AN APPEAL
(By Raymond T. Cirz and Matthew S. Krauser)
• Introduction to Integra Realty Resources, Inc.
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
Integra Realty Resources,
Inc.
Local Expertise…Nationally.
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
Integra Realty Resources
The Nation's Largest Commercial
Real Estate Valuation and Counseling Firm
- Nation’s largest commercial real estate valuation
and counseling firm
- Providing services in the following area:
•
•
•
•
•
•
•
Condemnation
Litigation Support
Market studies
Estate Tax and Estate Planning
Due Diligence
Damage Studies
Tax Appeals
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
• What’s happening in the Commercial Market?
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
What’s Happening in the
Commercial Market?
- Decline in deal volumes
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
Decline in deal volume driving pricing
down, cap rates up
- Decline in value?
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
Decline in Value?
- Adjustment to “safest” investment class
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
Adjustment to “Safest” Investment Class
- Wall Street job losses
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
Wall Street Job Losses Twelve
Months to June 2008
Citigroup
Bear Stearns
UBS
Lehman Brothers
Merrill Lynch
Morgan Stanley
J.P. Morgan Chase
Bank of America
Goldman Sachs
Wachovia
Credit Suisse
Deutsche Bank
Total
*Source: Bloomberg, Crain's research, June 2008
3,000
7,000
1,000
2,000
2,000
2,000
1,500
1,000
500
1,000
750
250
22,000
SPECIFIC MARKETPLACE SECTORS
• Office Sector
- General and specific submarket example
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
Office Sector
SPECIFIC MARKETPLACE SECTORS
(Continued)
• Industrial Sector
- General and specific submarket example
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
Industrial Sector
SPECIFIC MARKETPLACE SECTORS
(Continued)
• Retail Sector
- General and specific submarket example
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
Retail Sector
• a
• Summary of Current Values in Main Market
Sectors
- office
- retail
- industrial
- multi-family
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
REAL ESTATE VALUATION METHODOLOGIES
• Sales Comparison Approach
- like-kind buildings
• Cost Approach
- land value plus depreciated replacement cost
• Income Approach
- Market rent (not contract rent)
- Less vacancy (stabilized)
- Less expenses = Net Operating Income (NOI)
- Convert to value by applying capitalization rate (derived
from market)
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
HOW TO PREVAIL BEFORE THE TAX COURT?
(by Carl A. Rizzo, Esq.)
• Standard of Review
- municipal assessments afforded “presumption of
correctness”
• Overcoming the Presumption of Correctness with
Sufficient Evidence of Property’s True Value
“must present evidence of true value of property
sufficient to demonstrate that the appeal is based
upon sound appraisal theory and objective data
and not mere wishful thinking.”
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
• Tax Court/County Board will Focus on the
Strengths of the Analysis Presented and
Application of Appropriate Recognized Valuation
Methods. (“Battle of the Experts”)
• Determining “Highest and Best Use” (Compare
Apples to Apples
- legally permissible
- physically possible
- financially feasible; and
- maximally productive (presumption in favor of
existing use)
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
• Sales Approach (“comparability”)
- location/access
- Condition/construction
- Physical/legal constraints (slopes, property
configurations, environmental restrictions,
wetlands, highlands regulations)
- Size (economies of scale)
- Timing of sales (market appreciation/
depreciation)
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
• Income Approach
(Stabilized-hypothetical approach)
- actual rent vs. market rent
- vacancy factor
(typically utilizing 10%)
- capitalization rate
(risk factors, investor expectation)
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
• Cost Approach (obsolescence considerations)
- physical obsolescence
(age/remaining life)
- functional obsolescence
(efficiencies/conditions: inadequate
parking, ceiling heights; building
configuration)
- economic obsolescence
(marketplace conditions which
undermine viability of improvement)
(automobile manufacturing plants)
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
• Treatment of Property as Taxable Real
Property/Fixtures vs. as Non-Taxable Personal
Property
- legal test (“a and b” part tests)
- (Material Injury Test and “Ordinary”
treatment of improvement)
- (Business Apparatus and Machinery used in
production process and which is not a fixture
itself)
Examples:
- Processing machinery and equipment.
- Refrigeration equipment
- Piping for bottling plants and dairies
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
THE NEXT STEP IN DECIDING
WHETHER TO PROCEED
WITH AN APPEAL
Complete Confidential Property Tax
Information Sheet and schedule an
appointment for a consultation
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation
THANK YOU
Wendy M. Berger, Esq.
Cole, Schotz, Meisel,
Forman & Leonard, P.A.
(201) 525-6203
wberger@coleschotz.com
Raymond T. Cirz, MAI, CRE,
FRICS
Integra Realty Resources, Inc.
(973) 538-3188, ext. 109
rcirz@irr.com
Carl A. Rizzo, Esq.
Cole, Schotz, Meisel,
Forman & Leonard, P.A.
(201) 525-6350
crizzo@coleschotz.com
Matthew S. Krauser, CRE
Integra Realty Resources, Inc.
(973) 538-3188, ext. 107
mkrauser@irr.com
COLE SCHOTZ
Cole, Schotz, Meisel, Forman & Leonard, P.A.
A Professional Corporation