Posted on August 23, 2022 · Posted in Industrial / Flex, Investments, Land, Multi-Family, Office, Retail

Florida’s commercial real estate markets experienced a boom as buyers migrated from other states amid the pandemic, drawn by the Sunshine State’s business-friendly tax laws and historically low cost of living.

Investors spent over $11.4B in 2021, buying 603 rental properties across Miami-Dade, Broward and Palm Beach counties. The trend continued into 2022, but now, major economic events have begun to trigger caution among investors.

Higher interest rates, lower stock prices, inflation driving higher living costs and the growing concern of a recession all reflect that the economy is shifting. As a result, deals that seemed financially solid a few months ago aren’t as appealing today, causing buyers and lenders to pause and apply more due diligence.

Jeff Nelson, managing partner with the Property Tax Alliance Group, a prominent local property tax consulting firm in Fort Lauderdale, said that by the time Florida’s counties send their property tax bills in November, many expect market conditions to be substantially different than they were on Jan. 1 — the date county appraisers assess real estate, or the state’s “lien date.”

Despite the changing economic pressures, 2022 CRE assessments in Florida will receive a significant increase on this year’s TRIM notices in response to 2021’s sales. County appraisers value property based on the economics leading up to Jan. 1, not after.

“We expect a tactical about-face from county appraisers this tax season compared to last year,” Nelson said. “Real estate markets were much stronger during last year’s tax appeal season in contrast to the pandemic’s economic effects leading up to the 1/1/21 lien date, which appraisers were reluctant to acknowledge.”

He added that many businesses continued to experience the pandemic’s impact well into 2021. For the upcoming 2022 tax appeal season, PTAG expects county appraisers will be more focused on the rearview mirror and locked in on the bullish hype leading to Jan. 1, 2022.

He added that today’s market is very different than it was nearly nine months ago. This year’s tax increase could arrive while business costs are rising. Taxpayers’ responsibilities to successfully navigate the property tax management and appeal processes have never been higher.

Of course, he said, some owners can raise rents depending on the lessees’ ability to pay. Many owners are wondering: How are their tenants’ businesses performing, and can they afford a higher rent? Or will there be an uptick in vacancies?

Florida’s 2022 assessment notices will not be available to taxpayers until late August, and most of the state’s tax appeal deadlines are in mid-September.

“It’s critical for business owners to have effective tax practices to avoid rising property tax costs,” said Nelson. “Tax advisers are urging taxpayers to be vigilant and preemptively plan to avoid overpaying what is already their most significant expense. An aggressive approach is highly recommended for property owners to have more control over their property tax liability, especially in South Florida, where the increases will be substantial.”

Property owners should not assume Florida appraisers will automatically acknowledge times of economic turbulence unless they are forced, he added. And even then, local governments will focus on factors that support the highest values.

For new acquisitions, Nelson recommended that investors follow his firm’s proactive approach while expanding their Florida footprint.

“For those planning to buy in our markets, options exist for structuring deals for the lowest possible initial tax basis — opportunities that most are unaware of,” Nelson said.

PTAG professionals recommend that clients communicate their expansion plans during the earliest stages because most of their strategies involve the seller.

“Given their firsthand experience with our full-service culture’s benefits on profitability, our clients contact us before committing to new projects,” Nelson said. “The most successful owners are more conscious of controlling every possible taxable event during the buy phase than in years past. They appreciate the extra advantage, especially during volatile markets.”

Nelson advises owners to consider proactive strategies to help them more effectively navigate financial risks in Florida’s aggressive property tax environment.

“Most are waiting for TRIM notices to show up before considering their options, and tax appeal petitions have to be filed within 25 days of the mailing date,” Nelson said. “Since we manage all communications between clients and the county, we start the new tax year’s dialogue with appraiser staff after they send their information requests in January. We’ve been discussing our clients’ 2022 values since February, some of which have been settled already.”

Florida’s commercial real estate markets are distinctively different than the rest of the U.S., and county appraisers will aggressively defend this year’s higher values.

To see 2022 Preliminary Taxable Values for Florida’s 10 largest counties, click here.

 

Source: Bisnow

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