Many Commercial Property Owners In City Appealing Last Year's Revaluation
By KENNETH R. GOSSELIN
April 13, 2012
The market value of Hartford's iconic, riverfront "Boat Building" has tumbled by nearly 30 percent since the city's last revaluation in 2006 amid a devastating recession that left the city with soaring vacancies.
But owner The Phoenix Companies Inc. isn't worried — in fact, it is now arguing that the building isn't even worth that much. The insurer is pressing for a decrease of 50 percent.
Commercial property owners from throughout the city have seen their building values lowered, but, like Phoenix, many are not satisfied with the adjustments, including landlords in some of the most recognizable office towers in downtown Hartford. They are appealing the market values assigned by the city in last year's revaluation, hoping to shave their tax bills in times when it remains tough to attract tenants and large blocks of space remain vacant.
Although appeals are commonplace after a revaluation, Hartford is being buffeted by an unusually high number this year, especially among commercial property owners. Appeals by commercial owners have jumped by more than 40 percent since 2006.
Overall, the city faces nearly 800 separate appeals, including those for residential properties and apartment buildings. But the largest share — 327 appeals — involves commercial properties.
The differences in appraisals by the city and property owners show just how far apart the two sides are, according to a review of appeal filings by The Courant. In the case of the "Boat Building," at One American Row, the city puts the market value at $20.8 million, while Phoenix values its property at $14.5 million, a difference of 30 percent.
If property owners are successful in arguing their cases, and get lower market values — from which tax bills are calculated — that could mean even tougher decisions for a city that is facing a $56.2 million budget deficit in the 2012-13 fiscal year. The mayor's budget proposal will be released next week, and a tax increase is likely. That tax increase could become even steeper if building owners succeed in knocking their property values lower.
Property owners contacted by The Courant declined to comment on their appeals, citing the ongoing cases. For the majority of them, the appeal hearings now being held at city hall are just a warmup for cases that will be decided before a Superior Court judge.
The issue comes down to this: Owners say the values of their properties should be based on their ability to make money on leases, and in a depressed market, any increase will make their profit margins even slimmer, considering that there is little upward growth in rents.
True, commercial property owners are getting a break with the elimination of a long-imposed, 7.5 percent surcharge on top of their tax bills. But they say that they continue to be squeezed in a weak leasing market.
And although pushing down the value of a property could present problems for obtaining credit because the owner might have less equity in the property, the consideration of how much tax needs to be paid wins out.
"The real nut at the end of the day is how much you have to pay out of your pocket," said Coleman Levy, a commercial real estate attorney at Levy & Droney in Farmington who has represented property owners in appeal cases. "The driving force is the tax you have to pay."
There is a wide gap between what the city believes it should collect in taxes and commercial property owners think they should pay.
For instance, the CityPlace II office tower on Asylum Street, which is now in foreclosure, is valued at $20.1 million by the city, but owner Northland Investment Corp. has zeroed in on $16 million as the market value. Based on the current tax rate of 71.79 mills, the difference in the tax bill would be $205,153.
City Assessor John Philip says the city has met informally with property owners and has adjusted some of the appraised market values, even before the formal appeal process got underway.
In one case, the former Troutbrook Grille & Brewhouse on Bartholomew Avenue in the city's Parkville section was appraised at $581,000, an increase from the 2006 value of $541,300, even though the building is now vacant. The city dropped the fair market value to $486,800, but owners Ruth Schaefer, and her husband and partner, Virgil Guzulescu, say the value should be $164,069. Schaefer and Guzulescu declined to comment.
Philip said the city's appraisals are based on an analysis of rent, occupancy, expenses and the ratio between net operating income and the original price paid to buy the building.
Appraisal models can assign different values for the same building, so when a case goes to court, two appraisers will battle it out in front of the judge. Quick resolutions are not expected because appeals can take months, if not years.
Property owners are still bound to pay taxes, while appealing, but at a reduced rate. Larger properties must pay 90 percent of their tax bill while an appeal is pending, plus any interest if the appeal is later denied.
In 2006, there were, of course, appeals, Philip said, but the real estate market was much stronger. Now, with office vacancies downtown at or near 30 percent — the highest figure since the early 1990s — there's more attention on taxes.
"In a period of a rapidly rising market values, it's harder to make the argument," Philip said. "Now, in a period of turmoil and falling values and uncertainty as far as you can see, if you can cut a few hundred thousand in taxes, that's real money."
Reprinted with permission of the Hartford Courant.
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