Commercial property valuations in question

Valuations are on the rise for nearly 60 percent of Greene County’s 8,505 commercial properties, and many business owners have questioned the validity of the higher assessments.

Among them is Sam M. Coryell, son of TLC Properties founders Sam E. and Carol Coryell, the owners of 16 apartment complexes in Springfield.

While Sam M. Coryell said Greene County Assessor Rick Kessinger and his staff have been responsive to the company’s concerns, he believes rising property values in the face of the current real estate market go against common sense.

“The idea that property taxes are tied to property value is sound. The problem is, it doesn’t seem that the county wants to admit that property values have plummeted,” said Coryell, TLC’s chief operating officer. “I’ve heard all of Rick Kessinger’s explanations and none of them have rang true with me. I’m not saying he’s lying; I’m saying they haven’t given him a good cover story yet for why he’s raising property values in the middle of the Great Recession.”

According to Moody’s/Real Commercial Property Price Index, commercial values have dropped by roughly 47 percent between October 2007 and January this year, and values at the first of the year now are about equal to January 2001 levels.

Data is key
Kessinger said one of the big flaws in the local system is that real estate companies are not required to provide sales data to the assessor’s office.

“I don’t worry about revenue at all,” he said. “I worry about getting accurate numbers.”
Missouri counties are required to perform real estate assessments every other year.

Kessinger said 2011 valuations decreased for about 1,739 commercial properties, or 20 percent of those assessed in the county, while 1,717 property values remained the same.

Almost 1,800 commercial property owners, or 35.5 percent of those who received increase notices, appealed their values, according to the assessor’s office.

The county has on record 8,508 commercial parcels. Final numbers on this year’s assessments won’t be produced until all appeals are settled in August.

Kessinger said properties with higher 2011 assessed values were brought in line with Missouri statutes, which requires that counties assess properties between 90 percent and 110 percent of market values.

The county’s appraisals, which are intended to reflect market values, establish its assessed values. According to state law, commercial properties are assessed at 32 percent of fair market values; residential property at 19 percent; and agricultural property at 12 percent.

Kessinger said many people don’t understand that taxing levy districts, such as school districts, can increase levies to prevent operating revenues from falling. That means taxes can go up even when assessed values are flat or falling.

“Your assessed value can go down, and still your taxes can go up,” Kessinger said.

In fact, the Springfield R-XII School District has done just that each of the last four years without a vote of the people. In 2010, the district’s levy was 3.6226, up from 3.6187 in 2007.

Kessinger said Greene County uses a computer-assisted mass-appraisal program to deal with the large number of assessments.

Kessinger said his staff is constantly checking to see if the values the program generates are consistent with neighboring properties.

He said a full assessment was not conducted in 2009 due to unstable market conditions.

Kessinger said 15 percent of the more than 58,000 property owners who received increases this year appealed the changes, which is normal for an assessment year. His staff set up informal hearings with those people by phone or in person and asked for data to back up the claims that values hadn’t risen.

Kessinger said roughly 95 percent of those cases would not go on to the formal appeal process, which is managed by the county Board of Equalization. The formal hearings begin June 20 and are scheduled through July, before final numbers are submitted to the state.

The appeals process
A consensus among three real estate professionals who represented commercial property owners with appeals is that the county is willing to drop market values if presented with accurate information.

Dave Murray, co-owner of R.B. Murray Co., said in his experience, income brought in by commercial property owners has been flat or declining in recent years, which means values should be flat or declining on the whole.

“What I’ve found is that when we went through our process, and we put together quite a number of properties to be reviewed, the county reviewed all of those and, for the most part, understood the argument and made adjustments to what I think market value is,” Murray said, adding that he represented 15 to 20 commercial property owners through the informal appeals process.

Barbara Beyer, owner of Beyer Commercial Realtors, said she represented a handful of commercial property owners through the informal appeals process this year.

“It’s been my experience that the assessor’s office is fair if presented with the right information,” Beyer said.

Husch Blackwell Attorney Shawn Whitney has represented dozens of property owners, including TLC Properties, through the appeals process.

“The assessors have a difficult job to do in that since Missouri is a not a sales reporting state. They often have no idea what (properties) are actually being sold for,” Whitney said. “With no Multilist data … they may only have one or two comps for each piece of commercial property.”

The three basic approaches the county uses to appraise commercial property are comparable sales; property income, which factors in lease agreements, available space and expenses; and costs, which examines the cost of land and materials minus depreciation.

Kessinger views the income approach as most accurate, but he said it can’t be used in all cases, such as with owner-occupied properties.

At TLC Properties, the values increased on 12 of its 16 multifamily properties, according to Chief Financial Officer Dave Coryell. Through informal appeals, each of the 12 assessments has decreased and are now below 2010 values.

For example, the 360-unit Coryell Courts apartment complex was valued at $22.3 million in 2011, up from $19.4 million 2010.

The appeals process brought the 2011 values to $21.1 million, said Dave Coryell.

Walt Nelson, associate professor of finance and general business at Missouri State University and a licensed Realtor since 1975, said reporting sales data in Missouri could possibly help prevent a future housing bubble.

“If war is too important to be left to the generals, then real estate pricing is too important to be left in private hands,” Nelson said. “It’s got to be public.”[[In-content Ad]]