cole schotz cole, schotz, meisel, forman & leonard, p.a. a professional corporation found money...

COLE SCHOTZ

Cole, Schotz, Meisel, Forman & Leonard, P.A.A Professional Corporation

FOUND MONEY IN HARD TIMESWhy a Real Estate Tax Appeal

May be in Order

Cole, Schotz, Meisel, Forman & Leonard, P.A.

Wendy M. Berger, Esq.Carl A. Rizzo, Esq.

Integra Realty Resources, Inc.

Raymond T. Cirz, MAI Matthew S. Krauser, CRE

January 13, 2009

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INTRODUCTION(Carl A. Rizzo, Esq.)

• Economic Troubles Abound(recent headlines)

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• Opportunity Knocks(client story)

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Wendy M. Berger, Esq.- To discuss nuts and bolts of tax assessment process and the anatomy of and basis for tax appeals.

Raymond T. Cirz and Matthew Krauser- To provide overview of market conditions and specific marketplace sector data.- Discussion of recognized methods of real property valuation.- Offer overall opinion on values

Carl A. Rizzo, Esq. -To discuss how to prevail before the Tax Court or the County Tax Board.

Outline of Today’s Itinerary

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THE ANATOMY OF A TAX APPEAL Why file a tax appeal?

(Wendy M. Berger, Esq.)

• Good Management Practices Dictate an Annual Review of Real Property Tax Assessments.

• Enhance Value of Property and Increase Viability for Sale/Rental

• Opportunity for Real Tax Savings

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IS A TAX APPEAL WARRANTED?

• Preliminary Determination of Property Value

• Tax Nuts and Bolts(tax assessments, bills, rates and average ratios)

• Compare Assessed Value to True Value(“AV” = “TV” x “AR”)

• Chapter 123(common level range, a safe harbor for municipalities)

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As Of: October 1, 2008__________________________________________________________________________

CHAPTER 123 ANALYSIS

ASSESSED VALUE: $2,550,200TRUE VALUE: $1,959,000

Ratio Assessed Value =130%True Value

The above ratio exceeds the upper limit of 93.67% therefore, Chapter 123 applies:

True Value - $1,959,000Municipal Tax Ratio - 81.45%Taxable Value - $1,595,605

- say -$1,595,600

BREAKDOWN

Land - $ 481,300Buildings - $1,114,300Total - $1,595.600

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FILING A TAX APPEAL?

• Time for Filing Appeal (April 1, 2009)

• Prerequisite for Filing Appeals

- payment of taxes and municipal charges, jurisdictional prerequisite

- compliance with Chapter 91 requests (must produce income and expense information to assessor)

- payment of filing fees ($5-150 County Board of Taxation) ($200 State Tax Court)

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• Where to File Appeal- if assessment is $750,000.00 or greater, choice of either County Tax Board or State Tax Court

- if assessment is less than $750,000.00 must file at County Board of Taxation initially

- if dissatisfied with decision of County Board, may file appeal to State Tax Court or to Appellate Division if initial filing was with Tax Court

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• Judgments/Settlements

- Freeze Act (N.J.S.A. 54:51A-8)

(“Where a judgment not subject to further appealhas been rendered by the Tax Court involvingreal property, the judgment shall be conclusiveand binding upon the municipal assessor andthe taxing district, parties to the proceedings,for the assessment year and for the two assessmentyears succeeding the assessment year by the finaljudgment, except as to changes in the valueof the property occurring after the assessmentdate.”)

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- Tax Refunds (N.J.S.A. 54:3-27.2)

• Entitled to interest at rate of 5% per annum on any excess taxes paid and calculated from the date of payment of the excess taxes

• Municipality obligated to make refund within 60 days of entry of judgment

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MARKETPLACE CONDITIONS FAVOR THE FILING OF AN APPEAL

(By Raymond T. Cirz and Matthew S. Krauser)

• Introduction to Integra Realty Resources, Inc.

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Integra Realty Resources, Inc.

Local Expertise…Nationally.

Integra Realty Resources The Nation's Largest Commercial

Real Estate Valuation and Counseling Firm

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- Nation’s largest commercial real estate valuation and counseling firm

- Providing services in the following area:

• Condemnation

• Litigation Support

• Market studies

• Estate Tax and Estate Planning

• Due Diligence

• Damage Studies

• Tax Appeals

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• What’s happening in the Commercial Market?

What’s Happening in the Commercial Market?

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- Decline in deal volumes

Decline in deal volume driving pricing down, cap rates up

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- Decline in value?

Decline in Value?

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- Adjustment to “safest” investment class

Adjustment to “Safest” Investment Class

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- Wall Street job losses

Wall Street Job Losses Twelve Months to June 2008

Citigroup 3,000Bear Stearns 7,000UBS 1,000Lehman Brothers 2,000Merrill Lynch 2,000Morgan Stanley 2,000J.P. Morgan Chase 1,500Bank of America 1,000Goldman Sachs 500Wachovia 1,000Credit Suisse 750Deutsche Bank 250

Total 22,000

*Source: Bloomberg, Crain's research, June 2008

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SPECIFIC MARKETPLACE SECTORS

• Office Sector

- General and specific submarket example

Office Sector

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SPECIFIC MARKETPLACE SECTORS(Continued)

• Industrial Sector


Industrial Sector

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SPECIFIC MARKETPLACE SECTORS(Continued)

• Retail Sector


Retail Sector• a

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• Summary of Current Values in Main Market Sectors

- office

- retail

- industrial

- multi-family

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REAL ESTATE VALUATION METHODOLOGIES

• Sales Comparison Approach- like-kind buildings

• Cost Approach- land value plus depreciated replacement cost

• Income Approach- Market rent (not contract rent)- Less vacancy (stabilized)- Less expenses = Net Operating Income (NOI)- Convert to value by applying capitalization rate (derived from market)

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HOW TO PREVAIL BEFORE THE TAX COURT?(by Carl A. Rizzo, Esq.)

• Standard of Review- municipal assessments afforded “presumption of

correctness”

• Overcoming the Presumption of Correctness with Sufficient Evidence of Property’s True Value

“must present evidence of true value of property

sufficient to demonstrate that the appeal is based

upon sound appraisal theory and objective data

and not mere wishful thinking.”

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• Tax Court/County Board will Focus on the Strengths of the Analysis Presented and Application of Appropriate Recognized Valuation Methods. (“Battle of the Experts”)

• Determining “Highest and Best Use” (Compare Apples to Apples

- legally permissible- physically possible- financially feasible; and- maximally productive (presumption in favor of existing use)

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• Sales Approach (“comparability”)- location/access- Condition/construction- Physical/legal constraints (slopes, property configurations, environmental restrictions, wetlands, highlands regulations)- Size (economies of scale)- Timing of sales (market appreciation/ depreciation)

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• Income Approach

(Stabilized-hypothetical approach)- actual rent vs. market rent

- vacancy factor

(typically utilizing 10%)

- capitalization rate

(risk factors, investor expectation)

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• Cost Approach (obsolescence considerations)- physical obsolescence

(age/remaining life)- functional obsolescence

(efficiencies/conditions: inadequate parking, ceiling heights; building configuration)

- economic obsolescence(marketplace conditions whichundermine viability of improvement)(automobile manufacturing plants)

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• Treatment of Property as Taxable Real Property/Fixtures vs. as Non-Taxable Personal Property

- legal test (“a and b” part tests)- (Material Injury Test and “Ordinary” treatment of improvement)- (Business Apparatus and Machinery used

in production process and which is not a fixture itself)

Examples:- Processing machinery and equipment.- Refrigeration equipment- Piping for bottling plants and dairies

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THE NEXT STEP IN DECIDING WHETHER TO PROCEED

WITH AN APPEAL

Complete Confidential Property Tax

Information Sheet and schedule an

appointment for a consultation

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THANK YOU

Wendy M. Berger, Esq.Cole, Schotz, Meisel,

Forman & Leonard, P.A.(201) [email protected]

Carl A. Rizzo, Esq.Cole, Schotz, Meisel,

Forman & Leonard, P.A.(201) [email protected]

Raymond T. Cirz, MAI, CRE, FRICS

Integra Realty Resources, Inc.(973) 538-3188, ext. [email protected]

Matthew S. Krauser, CREIntegra Realty Resources, Inc.(973) 538-3188, ext. [email protected]

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