Archive for category: General Information

This morning on my way to the office, I made the decision to stop for fuel as the needle on the gas gauge illuminated a bright yellow warning, “Don, let’s not be stupid about things…” So, I casually filled the tank until I decided $50.00 was my limit. Well, that did not quite get us to the “F” but close enough for the weekend. Just under $5.00/gallon currently, which I know doesn’t seem too bad if you are reading this from either coast or living in a bigger city, but for Kansas Citians, this is a BIG DEAL.

Watching the Dow drop 1,000 points this week; the Federal Reserve increasing rates an additional 75 basis points; utility costs rising and the overall cost of living on the rise, I am concerned when the real estate market, both residential and commercial, will be negatively impacted. Not IF, but WHEN…

In the property tax world, valuations continually lag what is transacting in the current markets. 

Assessors must value property on a particular lien date, in many cases January 1. When the pandemic initially hit in March of 2020, the pushback from most counties came in the form of, ”As of January 1, we were not in a Pandemic”, and even more challenging, several states assess properties every other year, so the valuation date may have been January 1, 2019.

Interest rates remained historically low during 2020 and 2021, creating opportunities to purchase/invest in real estate and take advantage of the low interest rates being offered. Investors were willing to accept lower yields on their investments as the cost to borrow was so inexpensive.

We have now witnessed in the past 2-3 months how quickly things can change.

How will all of these real estate acquisitions which have transacted over the past 24 months affect the value of real estate from a property tax perspective? Will jurisdictions push to keep values high based upon sales the past two years? Will they factor in rent concessions which took place in 2020/21 in order to keep existing tenants in place? Will residential, multi-family, warehouse and distribution type properties continue to soar in value, or will we see a softening in the market place over the next 6 months? What about the sectors that have been slower to recover? Hospitality, retail, office, sit down restaurants, theaters… Certainly reasonable questions, but the answers may be a little more challenging.

Approaching my 37^th year in the property tax world, I have witnessed and participated in the highs and lows of the real estate market. I can assure you we will be ready to assist owners and property managers with their valuation needs. We anticipate the 2023 – 2026 could be bumpy ride for owners of commercial, industrial and residential real estate. Let us help make the ride a little smoother.

As always, I am appreciative of my clients and my always growing readership. I would welcome feedback to either email – dswartz@swartzaai.com or dswartz@indurantetax.com as well as posting in the comments below.

By Donald Swartz, President

In our weekly Monday morning meeting, my challenge to the group for 2022 is to spend more time discussing contacts we have made, marketing efforts, events to attend and other concepts to promote brand awareness. Over the past several years, we’ve used our Monday meetings to discuss current caseload, property tax hearings on the horizon and general bantering about our pipeline of property tax cases. I have found when we focus too much on the appeals and work we do, we can lose sight of the potential opportunities in front of us.

The Balance

The challenge of balancing the work in place and seeking opportunities to expand your customer base is a fine line when operating as a small business. There are certainly tools available to assist in the organization and follow up (CRM software, database development, and in person events.) But ultimately, the burden falls on your team members to make things happen; to initiate conversations; to attend various events…. Sometimes that can be overwhelming and hiding behind a desk and working on the projects in front of you allows people to stay in their comfort zone. While this can create work efficiencies, it’s important to get out of the comfort zone and create interactions.

Face to face interaction is finally coming back – in person meetings are being scheduled; conferences and seminars are being attended and conversations are taking place. The conversations may be politics, issues in Ukraine, the cost of gasoline, the cost of groceries, rising interest rates and maybe even sports! For those who read my blog regularly, feel free to blast my non-sense about my Hawkeyes reaching the Final Four, while the J-Hawks are left watching on the sidelines. I guess I missed that prediction by… “just that much…” No betting sports app for me just yet!

Anyway, the fact that these conversations are occurring and opinions are being offered, provides an opportunity to listen and determine how this will affect our businesses. Will continual increase in interest rates slow down the hot residential and commercial real estate market? Will the rising costs of labor and materials slow down new construction demand? How is the remote working environment making its mark on office space?

I was on a conference call this afternoon and the discussion turned to a downtown Central Business District in a decent sized metropolitan area possibly reaching a potential 40% vacancy rate by mid 2023. That will have a significant impact, not only on the landlords, but the surrounding supporting businesses – restaurants, convenience stores, specialty retail, etc.

Counties have been aggressively raising property tax values in an effort to match the market.

We need to keep an eye on the summer and fall activity, but my hunch is that it will be time to put the brakes on rising property tax values. Whether this occurs in the fall of 2022 or summer of 2023, the conversations I hear tell me there is change in the wind.

As always, we will be here – ready to answer any questions and representing your property tax interests. Thank so much for your continued support.  If you have any questions about your commercial property taxes, please reach out to me at the following: dswartz@swartzaai.com or dswartz@indurantetax.com.

Happy belated Valentine’s Day to everyone! I hope your Super Bowl weekend and lead in to the 14^th was filled with sweet chocolates and parties for the Big Game. As a longtime Chiefs fan, I must admit to not having my “heart” in the game. Still reeling from the second half collapse against the Bengals, the game didn’t have much attraction for me and I feel like a… a… Patriots fan??? How did I become one of them so quickly? It was only a few years ago, we were at the bottom of the well, looking like we would never see the light of day. And now, a casual attitude to historically one of the more enjoyable weekends. But I digress…

Quantitative Easing

I recently watched an interview with Christopher Leonard, author of The Lords of Easy Money: How the Federal Reserve Broke the American Economy.  I found his comments extremely interesting about what sort of effect the concept of Quantitative Easing will have long term on the real estate market as well as the valuation of equipment owned by manufacturing companies.

Generally, the idea revolves around the Federal Reserve creating money to de-value the dollar; create cheaper debt and increase asset prices. As the author describes with so much money available, it becomes necessary for money to find a home to make more money, or in Leonard’s words, “Searching for Yield”. We’ve seen this as the residential real estate market continues to push upward; commercial development continues at a blistering pace and those with money to invest are turning to real estate opportunities.

Increasing Valuations

Certainly, the assessor’s offices around the country have been taking notice as valuations have increased in many jurisdictions by 30% and even higher. It’s a difficult argument when sales of commercial properties support these increases and lower capitalization rates drive the value of income producing properties upward.

As an example, if a typical investor were looking for an 8% yield on a property that is achieving net operating income (exclusive of debt service, depreciation and amortization) of $100,000, it is fair to assume the value of the property is around $1,250,000 ($100,000/.08). Suppose another investor looks at the same property, creating the same NOI but this investor is willing to achieve a 5.5% return on the investment. Nothing about the property has changed – the income generated and the expenses are the same, however the anticipated yield has dropped to 5.5%. This creates an increase in the value of the property to over $1,800,000 ($100,000/.055). The fundamentals of the income producing property are identical, but the lower yield creates a valuation increase of $550,000.

Important Questions

Can current owners raise their lease rates? Can they pass the tax increases along to their tenants? And if so, what are the prospects of a tenant remaining in place once their lease expires? The COVID-19 world has created a significant amount of available space in the commercial markets as the hybrid working environment may have a permanent place in society. What sort of long-term effect will this have in the commercial real estate world? All are good questions and subject to consideration as the new valuations on properties are being issued over the next 30-60 days.

Hold on to your hats – the wild ride of property tax increases is in full force. As always, you may reach me directly dswartz@swartzaai.com or dswartz@indurantetax.com to discuss your portfolio.

We welcome the opportunity to assist you!

As we conclude 2021, I’m amazed at how quickly the year passed by. It was just yesterday we were contemplating what 2021 would look like from a virtual perspective. Could we really continue to operate in 2021 like we had in 2020? What changes would be necessary in the work environment? How would our relationships with our clients and the county/state jurisdictions survive? How would owners of private railcars continue to survive and thrive and what will be the state of commercial real estate, particularly in the hospitality and entertainment venues?

After months of no travel, I began attending conferences, client meetings and visits to Las Vegas office in June. Previously, blogs suggested traveling was… different.  I contend this continues to be the “new normal” and with variants of COVID continuing to rear their ugly heads, I anticipate more of the “new normal” throughout much of 2022.

So, what does this mean in the world of property taxes?

Good question, and we’re definitely looking for clues to guide us. The Federal Reserve recently announced plans to potentially increase interest rates three times in 2022. How will this affect the ability to borrow money or finance commercial/industrial real estate? Will money market rates increase to a level so investors may consider this option over speculative real estate? I don’t believe so, but there could be a slight “cooling off” of real estate transactions heading our way.

Closer to home, Missouri completed the bi-annual reassessment of real estate values. Particularly, the greater Northland area of Kansas City saw tremendous increases in property valuations. Owners of property located in Clay County witnessed valuation increases between 20%-150%. Many appealed the increased values to the local Board of Equalization, but many more didn’t meet the deadline in June to appeal their valuations and were in for quite a surprise when they received their tax bills in late November.

Please remember, taxpayers will have the right to again appeal their valuations in 2022 and at least have the opportunity to achieve a fair assessment for the 2022 tax year before undergoing the re-assessment cycle in 2023. The same theory holds true in the States of Iowa and Colorado. Please contact me if you have any questions concerning these states and what rights you have as owners of property.

Looking Ahead

While certain sectors are thriving (industrial/commercial warehousing; multi-family and residential), other properties continue to suffer and will to seek ways to create value. High-end hospitality, office space and segments of the commercial retail space are not coming back to the pre-pandemic levels and it will be interesting to see if they’re permanently affected.

Restaurants, theatres and live entertainment venues are re-imagining what necessary steps must be taken to drive individuals to their businesses. All of these factors must be considered when looking at valuations for property taxes. The majority of the states must value property at its true market value on a “fee simple” basis. While jurisdictions love to look at contract rent (or the “leased-fee” aspect), fee simple valuations require these jurisdictions to review the market rents, not encumbered by lengthy, long-term leases.

On the rail car side, owners are excited to see goods on the move.

We filed a significant number of railcars this year with an “idle capacity” or “placed in storage” as many cars were not in service at the valuation date of January 1, 2021. We expect the numbers of cars in service to be much greater as of January 2022 and will be gathering the data over the next 30-60 days.

All in all, a very busy and challenging year. As I embark on my 37^th season in the industry (Really???) I’m just as passionate about our clients and their needs as I’ve been in the past. Hop on, it’s going to be an interesting ride over the next 3-5 years.

Happy holidays to everyone and here’s to ringing in a great 2022!

Last month, I discussed the CinemaCon convention I attended in August and thought it would be interesting to compare this conference to the NBAA – BACE at the Las Vegas Convention Center I attended last week.

The differences were striking.

The NBAA (National Business Aviation Association) is the leading organization for companies relying on aircraft to make their businesses more profitable. I was invited as a guest of SkyMark Refuelers (a big thank you to Mike Ellis for allowing me the opportunity to attend.) I knew this would be an excellent opportunity to meet business owners as well as suppliers, fixed based operators and others to discuss the aspect of business personal property taxes levied against various types of equipment. These types of equipment include refueling trucks, maintenance equipment, private jets and the leasehold improvements situated on airport property.

The event was fascinating.

Exhibitors from all across the globe gathered to show their wares in extremely elegant and sophisticated tradeshow booths. While smaller than past years, this was the largest convention gathering post pandemic Las Vegas has hosted with over 18,000 registered attendees. This is roughly 4-5X the number of attendees at CinemaCon and held in the recently completed West side of the Las Vegas Convention Center (as well as aircrafts located at the Henderson Airport).

The feel of the event was completely different. You had to be fully vaccinated to attend and pick up your credentials for entering. This was streamlined by installing the Clear App on your mobile device; downloading a picture of the front and back of proof of full vaccination card; downloading a picture ID of yourself and showing the application at the Registration Area to collect your credentials. After receiving credentials, masks were not required within the Conference Center. It was as close to “normal” as I’ve felt as part of an indoor setting with so many people. Kudos to the event planners for making this happen so efficiently.

While many conventions highlight the social aspects of getting away, make no mistake, these attendees were here to meet up with clients, learn about the latest technologies and most importantly – conduct business!

The tradeshow booths.

Many tradeshow booths were set up for staging areas for the “chit-chat”, while stairs led to 2^nd story conference rooms (within the respective vendor’s booth) for privacy and real work. Additionally, there was a section of floor space dedicated to first time presenters. I spent time meeting with the “first timers” to determine what was the deciding factor to exhibit. Several indicated to me they would recoup their investment as much as 20-30 fold within the next year. I believe anyone would consider that a successful return on investment!

As a summary to these two recently attended conventions, I’m continually reminded of the importance of marketing – Marketing of your company;  your brand; yourself! You can never underestimate the power of marketing. It’s completely exhausting, exhilarating and essential for brand awareness, as well as keeping your name out there. I was surprised by the number of different types of companies attending the conference – now it is up to me to see what happens next.

Happy Trick or Treating!

As always, please respond with any thoughts or comments as they are always read and appreciated.