One of the biggest expenses in a commercial real estate portfolio is property tax. Whether you own your own property or pay property taxes with CAMs on net leased spaces, minimizing your tax expenditures is an excellent way to positively impact your bottom line.
In most states, the assessor will set your property's value, apply a "mill rate" and calculate your taxes. While the mill rate, which is just another way of saying tax rate, is usually not negotiable, your property's value can usually be appealed. If you can appeal the value of your commercial real estate portfolio downward, you will reduce your property tax liability.
To appeal your property's assessed value, you will need to compile evidence that the price is incorrect. One of the most common tactics is to use recent sales comparables to prove that the market does not support the assessor's value. For instance, if they value your property at $120 per square foot and recent sales are at $90 per square foot, you would have a good argument for a reassessment.
If you are a a tenant, your landlord needs to have the property reassessed. While the landlord should be doing it on your behalf as a part of professionally managing the building, the reality is that since landlords do not pay the tax, they frequently neglect the issue.
As a tenant, you can also proactively manage your exposure to real estate taxes. Some states, like California, have their most meaningful reassessments when a property changes hands. In some cases, these assessments can double the property taxes, making a significant increase in the cost of maintaining a leased commercial real estate portfolio. To protect against this, insist on a clause in your leases that says that your tax reimbursements will not be increased in the event that the property you occupy is sold.
Commercial property tax is a major income source for governments and businesses cannot vote. Because of this, they will take as much revenue from your commercial real estate portfolio as they can. Aggressive management is the best way for you to minimize your property tax exposure.
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