New assessment figures may be bad for business
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After more than two decades of buying, selling and owning property Downtown, Aaron Stauber just might be finished.
Not because the market is bad. Not because real estate values have plunged. Simply because of the bad taste left in his mouth by the Allegheny County reassessment.
"I've been doing business in Pittsburgh for 22 years. This is so disappointing to me," said Mr. Stauber of Rugby Realty in New Rochelle, N.Y. "What I've seen causes me to think about whether we want to do business here anymore."
Some wonder how many others there are like Mr. Stauber -- property owners or businesses so fed up over soaring real estate assessments that they would consider leaving Downtown or, conversely, avoid it altogether when searching for a location.
Jonathan Kamin, a Downtown real estate attorney, said he already has had one client back out of a deal to buy a building on Smithfield Street after estimating his taxes would increase from $5 a square foot to $17 a square foot.
Mr. Kamin argued that the reassessment not only has caused panic among property owners but essentially has acted as a "complete freeze on commerce" as buyers, sellers, and renters try to determine what the fallout will be.
"I do think it's a situation where you have a total death spiral on development because people can't sell, people can't buy, and nobody wants to come in and lease," he said.
The concerns come as Common Pleas Senior Judge R. Stanton Wettick Jr. prepares to decide today whether to use the new 2012 assessed values to calculate property tax millage this year or to postpone their use for a year to give property owners time to appeal numbers they believe are out of whack.
No doubt some commercial property owners are facing sticker shock over property values that have jumped sharply in the county's first reassessment in a decade.
The combined assessments on the two buildings that make up Macy's Downtown store, for example, have shot up almost 272 percent, from $18 million to $66.9 million, even though the retailer is now using only half of one building.
Across Fifth Avenue, the assessment on the former Lord & Taylor building, which has been vacant for nearly seven years, soared 436.4 percent, from $2.5 million to $13.4 million.
Likewise, the assessment on the Regional Enterprise Tower, which was sold at sheriff sale last year and which has lost a number of tenants, jumped from $10.1 million to $38.1 million. At the Henry W. Oliver Building, which sold for roughly $10 million, the assessment jumped from $20 million to $47.9 million despite a vacancy rate of nearly 70 percent.
"[Higher assessments] is not what we need," said county Executive Rich Fitzgerald, who has been fighting to block the reassessment. "We have fought for decades to try to reverse the decline in the occupancy rates in Downtown Pittsburgh and it's the best it's ever been, or the best in decades, and I don't want to do anything that will hurt that market."
Overall, commercial property values in the city have increased nearly 72 percent, on average, in the reassessment, compared to 46.89 percent on the residential side.
While the reassessment itself might not be the sole factor in a decision to leave Downtown, it could be the final straw for some companies already contending with high parking rates, occupancy taxes and the cost of doing business in the city, said Dan Adamski, managing director of real estate firm Jones Lang LaSalle.
"If someone is looking to leave Downtown, [that firm] could make the case that it's too expensive to be Downtown or in Allegheny County," he said.
Although Mr. Adamski noted that he did not think the reassessment itself would stop anybody who wants to be Downtown from making the move, he said it could put building owners at a disadvantage when competing for tenants who also have the option of going to Cranberry or other locations where taxes are lower.
Most property owners pass on tax increases, whether caused by reassessments or other factors, to tenants.
"Corporations would have to weigh that potential dramatic increase in taxes in determining where they would want to locate," he said.
Jeffrey Ackerman, executive vice president of the CB Richard Ellis investment properties group, said the lower cost of doing business in Westmoreland, Butler, Beaver and Washington counties always has been an issue with companies considering space or properties Downtown.
The reassessment, he said, "just widens the differential between doing business outside of the county and doing business inside the county because ultimately the taxes are passed along to the tenant."
He and Mr. Adamski also said that the uncertainty over which values are going to be used -- the 2012 numbers ordered by Judge Wettick or 2002 base-year figures sent out by Mr. Fitzgerald in defiance of the court -- creates even more problems.
"No one's certain what's going to happen right now and big companies don't like uncertainty," Mr. Adamski said.
Likewise, Nick Nicholas, the coffee merchant who owns a number of properties in Market Square, said the reassessment is "going to make people assess whether they want to come to Pittsburgh."
Mr. Nicholas is still scratching his head over some of the values placed on his properties in Market Square.
The assessment on the building that houses Bruegger's restaurant, for instance, jumped from $484,000 to $1 million. The land value alone soared from $193,600 to $604,800.
"Obviously, that's ridiculous. How can that land triple in nine years?" he asked.
Mr. Stauber, one of Downtown's biggest property owners, saw the value of one of his holdings, the historic Frick Building, go from $17 million to $37.3 million.
Nonetheless, he said it isn't so much the value increases that have infuriated him as it has been the errors he has found in the information used to calculate his assessments.
"The assessments are so egregious that to call them assessments is faulty," he said.
Just how many commercial property owners could be facing tax increases this year or next because of the reassessment remains a matter of conjecture.
Under state law, the city and the Pittsburgh school district must lower their millage rates to prevent revenue windfalls from the reassessment. Overall, residential and commercial values in the city have increased about 58 percent, meaning anyone whose assessment has jumped less than that likely will be in line for a tax decrease.
Nonetheless, the city school district has asked the judge to allow the use of the 2002 values for one more year to calculate tax rates. It fears that massive appeals involving the 2012 values could play havoc with its budget this year.
For Mr. Kamin, even postponing the implementation a year might not ease the uncertainty or concerns facing some Downtown property owners.
He noted that commercial appeals typically can take two to three years between the county assessment board and the Common Pleas Court board of viewers.
In the interim, property owners must continue to pay taxes -- typically passed on to tenants -- on the higher assessment until the case is resolved and any refunds are awarded.
And Mr. Stauber said the appeal process is no panacea for bad numbers. He said it will force commercial property owners to spend thousands of dollars on lawyers, appraisers and other experts to get unfair values reduced. That is money that could have been spent investing in Pittsburgh, he said.
"You could not have created a worse situation for business if you tried," he said.
First Published January 12, 2012 12:00 am
