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| Sunday, 10 August 2008 23:16 |
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St. Louis County Commercial Properties Jump in Value
By Paul Hampel
ST. LOUIS POST-DISPATCH
03/15/2009
 CLAYTON — When many St. Louis County homeowners learned last week that their property assessments — a key factor in determining property taxes — had dropped, owners of commercial property got sobering news.Commercial values, and taxes, are headed higher, according to the county. It reported a median rise of 8.3 percent in the values of the county's 13,500 commercial properties. That change, between 2007 and this year, is almost the opposite of the 9 percent drop in median values of residential properties. Business owners across the county were shocked, and many angered, to see big jumps in their values. They wondered how that could happen in a down economy — and in a year when the county's residential values dropped so much. Vernon Trampe is one of the business owners facing higher taxes. He saw the value on his Maplewood business, Martin Office Machine, climb 45 percent. His taxes last year were $6,770. Based on current tax rates, he can look forward this year to a bill of $9,817. Trampe, 66, leases the business, but his landlord passes the taxes on to him. "We just had the worst October, November and December in the 40-year history of this company," said Trampe, who specializes in repairing old typewriters. "This upsets me drastically because we're barely making it."
The reassessment left Trampe wondering if the county had manipulated commercial figures to offset a potential drop in revenue from the fall in residential values. "I guess they have to find money somewhere," he said. On Friday, the county's director of revenue, Eugene Leung, and its chief operating officer, Garry Earls, defended the system for determining the commercial valuations. "While it is better from a revenue point of view to have some things go up when others go down, people need to understand that there was absolutely no jiggering with this system to produce numbers that we liked," Earls said. Unlike the assessment of residential property, which is based on sale prices of comparable homes, commercial properties are valued according to estimates of the revenue a business could be expected to generate in the next year. That figure is then used to calculate an estimate of how much it would cost to rent the building per square foot. As with residential properties, a computer crunches financial data to produce values. However, just as foreclosures are not fed into a computer when determining home values, slumping commercial sales are not part of the computer calculation that determines how much a commercial property is worth. Instead, Leung said, appraisers make "judgment calls" about the effect a downturn in sales will have on businessrevenue. "In a down economy, if there are any sales at all, you have to compare those to what the computer-calculated income approach has derived," Leung said. "What happens is that the appraiser would then make some kind of a judgment. But he has to rationalize that using generally accepted appraisal practices, and he has to note that on the file." Earls noted that a survey of the 160 commercial properties that sold in the county in the last six months of 2008 showed they fetched a market price that almost exactly matched the county's assessed value. He said he did not know how many of those properties sold after the real estate market crashed in the fall. But, he said, "These sales are the best evidence that we have not rigged this information." Real estate experts say, however, that when sales volumes fall in a slumping economy, those properties that do sell are generally purchased by the few people whose incomes have not taken a hit. Peter Krombach, senior managing director for the commercial real estate firm CB Richard Ellis, said commercial sales have ground to a halt. "Any sales price prior to six months ago is ancient history," Krombach said. "The asking price for commercial properties is pretty much the same as it was in 2007. The problem is, the properties are not turning because the owners are not able to get the asking price they want." Tom Stern, chief executive officer of Solon Gershman, said the county's commercial figures do not reflect the true market situation. Solon Gershman is a Clayton-based commercial real estate brokerage and management firm. Stern criticized the reassessed values of the shopping centers that his firm manages; those values have increased between 8 and 27 percent. "The difficulty is that the assessor has to use mass appraisal techniques that don't reflect what's going on in the market," Stern said. "All the banks are writing down the values of the loans — they think the property values aren't what they were when they made the loans," he added. "If the banks think the values have gone down, why wouldn't the assessor? Why would the assessor's values go up?" County Councilman Greg Quinn, R-Wildwood, agreed. "I find it very difficult to believe that in this economy, with layoffs, with so many businesses struggling, that the values of commercial properties have gone up," he said. The county's handling of residential values also touched off widespread anger. Earlier this year, residents flooded the county with calls, e-mails and letters after officials said they expected values would fall only slightly. Residents wanted assessments to drop in relation to the plunge in home price sales. After the outcry, the county said it would change the way it assessed residential properties, primarily by looking only at comparable sales in 2007 and 2008, rather than going back three years. When the county released its figures last week, residential values had indeed dropped further than officials initially predicted. TAXING TIMES Several entities, such as the county, libraries and fire districts, get a share of residential and commercial property tax revenue. Schools get by far the largest cut. When the county released its report on residential values, there was speculation that those jurisdictions would be put on the spot. They'd either have to tighten their budgets, or raise tax rates and risk the wrath of voters in a severe economic downturn. Taxing entities are allowed by law to collect the same amount of revenue as the year before by "rolling up" their tax rates. Schools and other taxing entities will decide what to do with their tax rates in upcoming weeks. But it does not appear that a spike in commercial values would offset potential losses on the residential side. In most cases, school districts will see a minimal benefit from the increase in commercial assessments. That's because the vast majority must cap the amount of revenue increases from commercial property taxes at the consumer price index. Because of the steep drop in consumer spending in the past year, the index is expected to be extremely low, about a tenth of a percent. "I think marginal would be stretching it," said Ron Orr, chief financial officer for Pattonville, who said the gains won't make much of a dent in 9.4 percent drop the district saw in home values. 42 PERCENT INCREASE Businessman John Barr is facing a double whammy. Along with the slumping economy, the Brentwood business owned by him and his wife, K. Hall Designs, is struggling to recover from a major flood in September against which it was not insured. Barr, 33, learned this week that the county had increased the commercial value of the business to $732,100 this year from $517,100 in 2007, an increase of 42 percent. If tax rates remain steady, the Barrs will pay $17,149 this year on the fragrance and home furnishings store at 8416 Manchester Road. The taxes last year were $12,113. "Higher taxes is the last thing I need," he said. "I'm laying people off and cutting back (employee) hours to try to survive." Informed Friday of the Barrs' plight, Leung urged him to contact the county. "Tell him to call us so we can take another look at his case," Leung said. Nancy Cambria, Margaret Gillerman and Phil Sutin of the Post-Dispatch contributed to this story. |
| Last Updated on Thursday, 19 March 2009 17:44 |