• Tue. Jun 21st, 2022

It might be time to appeal your commercial real estate appraisal


COVID-19 has had a dramatic impact on all levels, creating economic uncertainty and negatively impacting the value of commercial properties which continues to this day. In Allegheny County, the effects are perhaps most pronounced in the office market, and particularly in Class B offices in downtown Pittsburgh, but no type of commercial property with interior space has been found. been spared, explains Peter Schnore, shareholder of Babst Calland.

“The tenants’ initial response to COVID was a pattern of waiting to see if they were going to renew leases or move to a new space,” says Schnore. “As a result, many landlords have had to dig deep to retain and attract tenants by offering unprecedented periods of free rent or rental improvement allowances, creating a negative impact on net operating income. The unknowns surrounding COVID still affect almost all types of commercial properties, not just office properties. “

Smart business spoke with Schnore about the impact of COVID on the value of commercial real estate and why it may be a good idea to review your recent tax assessment.

What is the current situation for owners of commercial buildings?

Future uncertainty as we remain in the throes of COVID increases the risk of commercial real estate investing, driving down the value of commercial properties. Landlord concessions – in some cases several years of free rent or triple-digit leasehold improvement allowances – increase operating expenses and reduce short-term income, resulting in an immediate and substantial negative impact on value. As a result, many properties that house offices, retail, restaurants, hotels and the like now have appraisals above the current value of real estate merits.

COVID-19 has also had an impact on business owners who own their own space as they wonder if they really need the amount of space they have. If your space has been partly empty for a year and a half now because employees are working remotely, do you really need to hang in there? This adds to the glut of space available in the market and drives down the value, including the value of owner-occupied space.

Why might your rating seem low when it is actually high?

In Allegheny County, the last reassessment was in 2012 – so your tax bill’s valuation represents the value of almost a decade ago. Pennsylvania does not have a regular reassessment schedule, and it’s easy to forget that taxpayers have the right to challenge assessments every year. Each year, the state publishes an equalizer ratio for counties based on a comparison of the county’s most recent years’ sales data against valuations of properties sold. In a properly filed appeal, this ratio can be applied to the current fair market value of the property to establish the appraisal. Because counties are not required to reassess regularly, the financial benefit of a reduced assessment can be enjoyed for many years.

It is important to note that for Allegheny County there has been a sudden and significant drop in this ratio from last year, the largest drop since the last reassessment. This makes 2022 a particularly good year for homeowners to assess whether an appeal is warranted.

Owners of commercial properties in Allegheny County have until March 31, 2022 to appeal; for property owners in the rest of Pennsylvania, annual appeal deadlines are between August 1 and October 3, 2022, depending on the county.

What is the appeal process?

Start by gathering your income and expenses for the past three years. Work with a lawyer to discuss property income and expected rate of return. Whether it’s an income-producing investment property or an owner-occupied facility, a lawyer, often with the help of the right appraiser, can assess current value and help determine if an appeal is. justified.

While you can’t appeal in Allegheny County until January 1, 2022, speak to a lawyer now. Keeping your information in order allows you to be ready at the start of the reporting period. Property taxes are often the biggest operating expense for an income-generating property, so it’s important to assess your situation, with the help of a lawyer, to make sure you’re not paying more than you. shouldn’t be.

Insights Legal Affairs brought to you by Babst Calland


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