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FOUND MONEY IN HARD TIMES Why a Real Estate Tax Appeal May be in Order

FOUND MONEY IN HARD TIMES Why a Real Estate Tax Appeal May be in Order. Cole, Schotz, Meisel, Forman & Leonard, P.A. Wendy M. Berger, Esq. Carl A. Rizzo, Esq. Integra Realty Resources, Inc. Raymond T. Cirz, MAI Matthew S. Krauser, CRE January 13, 2009. INTRODUCTION (Carl A. Rizzo, Esq.).

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FOUND MONEY IN HARD TIMES Why a Real Estate Tax Appeal May be in Order

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  1. FOUND MONEY IN HARD TIMESWhy a Real Estate Tax Appeal May be in Order Cole, Schotz, Meisel, Forman & Leonard, P.A. Wendy M. Berger, Esq. Carl A. Rizzo, Esq. Integra Realty Resources, Inc. Raymond T. Cirz, MAI Matthew S. Krauser, CRE January 13, 2009

  2. INTRODUCTION(Carl A. Rizzo, Esq.) • Economic Troubles Abound (recent headlines)

  3. Opportunity Knocks (client story)

  4. Outline of Today’s Itinerary Wendy M. Berger, Esq. - To discuss nuts and bolts of tax assessment process and the anatomy of and basis for tax appeals. Raymond T. Cirz and Matthew Krauser • To provide overview of market conditions and specific marketplace sector data. - Discussion of recognized methods of real property valuation. - Offer overall opinion on values Carl A. Rizzo, Esq. • To discuss how to prevail before the Tax Court or the County Tax Board.

  5. THE ANATOMY OF A TAX APPEALWhy file a tax appeal?(Wendy M. Berger, Esq.) Good Management Practices Dictate an Annual Review of Real Property Tax Assessments. Enhance Value of Property and Increase Viability for Sale/Rental Opportunity for Real Tax Savings

  6. IS A TAX APPEAL WARRANTED? • Preliminary Determination of Property Value • Tax Nuts and Bolts(tax assessments, bills, rates and average ratios) • Compare Assessed Value to True Value(“AV” = “TV” x “AR”) • Chapter 123(common level range, a safe harbor for municipalities)

  7. As Of: October 1, 2008 __________________________________________________________________________ CHAPTER 123 ANALYSIS ASSESSED VALUE: $2,550,200 TRUE VALUE: $1,959,000 Ratio Assessed Value =130% True Value The above ratio exceeds the upper limit of 93.67% therefore, Chapter 123 applies: True Value - $1,959,000 Municipal Tax Ratio - 81.45% Taxable Value - $1,595,605 - say - $1,595,600 BREAKDOWN Land - $ 481,300 Buildings - $1,114,300 Total - $1,595.600

  8. FILING A TAX APPEAL? • Time for Filing Appeal (April 1, 2009) • Prerequisite for Filing Appeals - payment of taxes and municipal charges, jurisdictional prerequisite - compliance with Chapter 91 requests (must produce income and expense information to assessor) - payment of filing fees ($5-150 County Board of Taxation) ($200 State Tax Court)

  9. Where to File Appeal - if assessment is $750,000.00 or greater, choice of either County Tax Board or State Tax Court - if assessment is less than $750,000.00 must file at County Board of Taxation initially - if dissatisfied with decision of County Board, may file appeal to State Tax Court or to Appellate Division if initial filing was with Tax Court

  10. Judgments/Settlements - Freeze Act (N.J.S.A. 54:51A-8) (“Where a judgment not subject to further appeal has been rendered by the Tax Court involving real property, the judgment shall be conclusive and binding upon the municipal assessor and the taxing district, parties to the proceedings, for the assessment year and for the two assessment years succeeding the assessment year by the final judgment, except as to changes in the value of the property occurring after the assessment date.”)

  11. - Tax Refunds (N.J.S.A. 54:3-27.2) • Entitled to interest at rate of 5% per annum on any excess taxes paid and calculated from the date of payment of the excess taxes • Municipality obligated to make refund within 60 days of entry of judgment

  12. MARKETPLACE CONDITIONS FAVOR THE FILING OF AN APPEAL(By Raymond T. Cirz and Matthew S. Krauser) • Introduction to Integra Realty Resources, Inc.

  13. Integra Realty Resources, Inc. Local Expertise…Nationally.

  14. Integra Realty ResourcesThe Nation's Largest Commercial Real Estate Valuation and Counseling Firm

  15. - Nation’s largest commercial real estate valuation and counseling firm - Providing services in the following area: • Condemnation • Litigation Support • Market studies • Estate Tax and Estate Planning • Due Diligence • Damage Studies • Tax Appeals

  16. What’s happening in the Commercial Market?

  17. What’s Happening in the Commercial Market?

  18. - Decline in deal volumes

  19. Decline in deal volume driving pricing down, cap rates up

  20. - Decline in value?

  21. Decline in Value?

  22. - Adjustment to “safest” investment class

  23. Adjustment to “Safest” Investment Class

  24. - Wall Street job losses

  25. Wall Street Job Losses Twelve Months to June 2008

  26. SPECIFIC MARKETPLACE SECTORS • Office Sector - General and specific submarket example

  27. Office Sector

  28. SPECIFIC MARKETPLACE SECTORS(Continued) • Industrial Sector - General and specific submarket example

  29. Industrial Sector

  30. SPECIFIC MARKETPLACE SECTORS(Continued) • Retail Sector - General and specific submarket example

  31. Retail Sector • a

  32. Summary of Current Values in Main Market Sectors - office - retail - industrial - multi-family

  33. REAL ESTATE VALUATION METHODOLOGIES • Sales Comparison Approach - like-kind buildings • Cost Approach - land value plus depreciated replacement cost • Income Approach - Market rent (not contract rent) - Less vacancy (stabilized) - Less expenses = Net Operating Income (NOI) - Convert to value by applying capitalization rate (derived from market)

  34. HOW TO PREVAIL BEFORE THE TAX COURT?(by Carl A. Rizzo, Esq.) • Standard of Review - municipal assessments afforded “presumption of correctness” • Overcoming the Presumption of Correctness with Sufficient Evidence of Property’s True Value “must present evidence of true value of property sufficient to demonstrate that the appeal is based upon sound appraisal theory and objective data and not mere wishful thinking.”

  35. Tax Court/County Board will Focus on the Strengths of the Analysis Presented and Application of Appropriate Recognized Valuation Methods. (“Battle of the Experts”) • Determining “Highest and Best Use” (Compare Apples to Apples - legally permissible - physically possible - financially feasible; and - maximally productive (presumption in favor of existing use)

  36. Sales Approach (“comparability”) - location/access - Condition/construction - Physical/legal constraints (slopes, property configurations, environmental restrictions, wetlands, highlands regulations) - Size (economies of scale) - Timing of sales (market appreciation/ depreciation)

  37. Income Approach (Stabilized-hypothetical approach) - actual rent vs. market rent - vacancy factor (typically utilizing 10%) - capitalization rate (risk factors, investor expectation)

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