The Swartz Report: Timing the Market, Market Conditions and What’s Next?

Last Friday, the employees of Swartz + Associates met to discuss the balance of the year and looking ahead to the 2021 property tax season. With articles being written about the future of commercial real estate; whether it relates to the hospitality industry, the retail sector, re-configuration of shopping centers or changing the use of office buildings, one thing is certain – change is coming!

Timing

TimingThe timing of the change is much harder to predict, but it is fair to assume the dynamics of commercial real estate over the next 3-5 years will be quite different than what we have traditionally experienced. The question is, how will the county jurisdictions react?

As I have stated in previous blogs and as you may already be aware, property taxes levied against a property primarily are used for local school district funding. Between 60%-75% of the total property tax liability is used for public, local schooling. With the changes due to the coronavirus and the increase in virtual learning, demands for newer technology and equipment are straining the current budgets. There will be significant pressure on the county assessor’s offices to maintain current values or risk a reduction in property tax dollars collected in 2021 and beyond. This represents a major challenge for everyone; taxpayers, county assessment officials, investors, school districts, community colleges, ambulatory services, libraries… you get the idea.

How will the respective assessor’s offices react?

Most states define “Market Value” as “Value in Exchange” rather than “Value in Use”. Current market conditions and sales are the driving factors in this determination rather than historical data, such as leases in place and/or sales dating back 2-3 years. Based upon the current environment, we are monitoring the marketplace to see if leases are being renegotiated, rents are being deferred and/or if concessions are being offered to reduce vacancies. All of these issues will affect the valuation of a property, particularly if a county is obligated to value a property as it sits on its valuation date (typically January 1st).

In the Midwest: Iowa, Colorado and Missouri are all subject to re-valuation for the 2021 tax year, while, Kansas, Minnesota and Nebraska are subject to an annual assessment review. Many other states have caps in place as to how much the value can increase in a given year until there is a change in ownership. As you can see, it can be quite confusing. During our planning meeting we discussed these situations and how to best represent our clients in the jurisdictions they have property.

Next Steps

What's Next?We will be working on expanding our presence in the Las Vegas market, as we believe changes in market value first appear in the Southwest (AZ, NV and CA) and the Southeast (FL and GA). With our Indurante office creating a presence in Las Vegas, this is a natural opportunity to grow the Swartz practice with existing clients and expanding our service to those with properties in Clark County.

The Indurante business will remain busy for 2021 as well. The pandemic has had an effect on many industries, and the railroads are certainly not immune. Railcars have had significant idle time and/or storage time due to decreased volume in the shipping of goods, products and materials. We have witnessed a steady decrease in rail activity throughout the year, but hopefully we will start to see an uptick. We are constantly reviewing the market to determine how these conditions are affecting the valuation of railcars and avenues we can review to insure “fair market value” is assessed to these assets.

As always, we appreciate the opportunity to represent your interests and thank you for thinking of us. If you should have any questions, please do not hesitate to reach out to me – dswartz@swartzaai.com.

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