California Property Values Affected by COVID-19 Issues


Sean P. Keegan, EVP & Principal

With the COVID-19 pandemic, each taxpayer has been impacted in some way from the personal changes, someone known to you that has become ill, workplace distance rules, more video conferences, business interruption, effects on manufacturing processes, unemployment, and tenants’ ability to pay their rent timely. California real property owners (multifamily, hospitality, commercial and industrial property owners) and business owners who own machinery or equipment, referred to as personal property, will have the opportunity to review their County Assessment(s) when the Notices are issued this summer or when the 2020/2021 Tax Bills are delivered. After the Notice is received, the first step is to determine if the County Assessor’s enrolled value(s) for your property is fair or does it exceed the market value as of January 1, 2020.

In the cases where the County Assessment exceeds what you believe to be the “fair market value” (FMV), an Assessment Appeal Application may be completed and filed with the County Clerk of the Assessment Appeals Board (Board) completing the second step. These “Appeal Applications” are filed to contest the fair market value where the taxpayer believes the actual value is less than the property’s factored base year value (Proposition 13 – Value). Proposition 8, which was approved by the legislature in late 1978, provided for value declines to be recognized after a property was acquired (referred to as “Prop. 8” – Decline in Value Appeals). In some situations, the County Assessor may determine that the enrolled value should be lowered or that a hearing is necessary.

Due to COVID-19, Governor Newsom’s Executive Order restricted access to many businesses when he ordered “all individuals living in the State… to stay home.” (EO No. 33-20, 03/19/20). In many cases, conditions resulting from COVID-19 have caused “actual” damage or value loss to equipment, tenant fixtures, and real property. The Revenue & Taxation Code (RTC) provides guidance for “misfortune or calamity” damages and the available relief under Section 170. The County Assessors have stated that the conditions resulting from COVID-19 were not known or measurable until early March of this year. In these uncertain times, we are recommending to our clients that a 2020/2021 Appeal Application be filed by the County filing date (09/15/20 or 11/30/20) to protect your rights (RTC 1603).

With the economic impact of COVID-19 which is now in its fourth month and the effects that will be felt for many more months, we are also recommending a proactive approach to providing valuation information this fall to the County Assessor’s Office for the January 1, 2021 lien date. The information may assist their office in understanding your property and enrolling a lower value. We will continue to monitor information from the Governor’s Office, the State Board of Equalization, and the County Assessor’s Websites for new developments which may provide relief opportunities to you and our clients. Stay Safe & Healthy!

Property Tax Reduction News


Sean P. Keegan, EVP & Principal
Fall 2010

Considering the Income Approach to value.

icon_4We have witnessed dramatic changes in California real property values during 2009 & 2010. As asset managers, property managers, owner users, and institutions look for ways to reduce costs, the annual review of property tax liabilities may provide tax savings opportunities. This tax liability is based on the Assessor’s Property Value which is then multiplied by the tax rate (CA – estimated at 1.1%). For the 2010/2011 Tax Year, tax bills will start to be issued in October.

In the County Assessor’s Office, the Real Property Division has already issued their 2010/2011 values for land and improvements. They will review assessments as they are appealed. For properties built or acquired during the period of 2004 through 2008, it is probable that the property values have decreased compared to the County enrolled values. The 2010/2011 county values may not reflect a value decrease which is contrary to the real estate market downturn during 2008-2010. The Assessor’s Office will be challenged with the 2009/2010 & the 2010/2011 Appeals due to the fact that for many property types there have been a low number of property sales to provide meaningful sales comparables. This affects our ability to have any meaningful rates derived from these sales (OAR-Overall Rates).

It is important to determine whether the Assessor knows the facts, any limitations to the income (i.e. restrictions, expensive renovations, demand due to newer projects nearby, age, functional obsolescence, or the expected changes associated with your property). We believe that the subject property income and the income approach may be more accurate in valuing your property than trying to find sales comparables.

For the income approach to value, if the Assessor is relying primarily on leasing information (rent roll report) as contracted without making adjustments where the taxpayer is providing several months of free rent to retain a tenant due to current market conditions, then the resulting value estimates will require adjustment. Also, actual vacancy and collections may differ from the Assessor’s estimates.

The California Code of Regulations outlines in Rule 8(a), the Income Approach to Value is “used in conjunction with other approaches when the property under appraisal is typically purchased in anticipation of a money income …” The Assessor’s Handbook (AH) 501 states “[T]he income used in rate derivation must be the investor’s anticipated income, because the decision to invest in property is directly related to its anticipated return.” If the anticipated income is not reasonably accurate for the subject property or a comparable property, it can create a flawed value result. “In direct capitalization, only the next year’s income is forecasted.” (Advanced Appraisal, AH Section 502, P. 67) However it is beneficial when subject property information is available for two years, currently we do know that rents have decreased and the net operating income may have decreased. It helps in countering the county appraiser’s forecasts. This is possible since assessment appeals are not calendared for hearing for more than a year.

In our opinion, the income approach to value provides opportunities for value reductions on properties since real value estimates may be made for the subject property. If the reduction in value is processed and the taxes have been paid, then a refund will be issued. These monies may provide a reduction to operating expenses for the owner-user or these efforts by the landlord create value to the property tenant. To protect your rights for many of the California counties, we will need to file the Assessment Appeal Application by 11/30/10 on your behalf.

Tags: Real Estate Property Tax Reduction, Reducing Property Taxes, California, Nevada, Oregon, Utah, Arizona, Property Tax Relief Assistance