Written by Zach Parrish, Senior Director and Property Tax Services Leader
With market activity reaching unprecedented levels in Dallas-Fort Worth, it’s essential for investors and owners to proactively plan for the tax assessment for a property that’s under development—from ground-breaking through stabilization—to effectively manage their property tax liability.
In order to do so, it’s essential to understand various milestones as of each Jan. 1 assessment date here in Texas. These milestones typically include:
- Land only
- Percentage of completion
- Stabilization of occupancy
- Stabilization of income
Initially, land valuation and corresponding tax liability will be the simplest level to project, based on current assessments or sales prices of similar properties or the subject property itself.
Within the development, lease-up and, thereafter, market conditions, dictate the overall year-to-year variations of the assessment, most visibly at stabilization. Outside of the typical market indicators, a number of factors could create a disruption to the typical assessment trend.
One scenario that could increase the assessment would be the sale of a subject property (or nearby comparable property) discovered by the assessor. In this instance, if the assessor did not adequately adjust the assessments of the comparable property set, a thorough analysis of the property’s competitive set can be utilized for an “equal-and-uniform” approach to assessment appeals.
The primary advantage of the Texas property tax system is that true equality can be achieved, regardless of market value implications or recent sales prices. This ensures that with adequate representation that each tax payer’s burden is no greater than their core competitors.
There are also disruptive events that could lower the assessment, such as a major tenant vacating the property. In this case, the assessor is more likely to reduce an assessment below the competitive set, due to the impact on the financial performance of the property.
Once a building has reached stabilization, the assessment can continue to increase based on improving market conditions, which are typically equalized to similar properties in a mass appraisal system.
It’s important to keep property life-cycle tax considerations in mind, and to stay on top of events and issues that can impact the financial performance of your commercial property assets.
Zach Parrish, Senior Director and Property Tax Services Leader in Cushman & Wakefield’s Dallas office, specializes in real and personal property tax and valuation and serves a diverse array of companies and industries.