State and local officials have pushed in recent years to breathe new economic life into New Jersey's urban hubs. But planned property tax revaluations in the state's two largest cities, Newark and Jersey City, could raise new questions for commercial real estate.
The full impact of the revaluations will not be clear until each city crafts a budget that reflects the new assessments — that could mean late this summer or early fall in Newark, and a year from then in Jersey City. Still, real estate experts say one thing is almost certain: if the process results in substantially higher assessed values for non-residential buildings, the two cities may be in store for a spike in commercial property tax appeals.
"From the town's perspective, that's a laudable goal," said David Wolfe, a Livingston-based property tax attorney, referring to the objective of "equalizing the playing field" through revaluation. "From the commercial property owner's perspective, if it results in an increase in their taxes, it doesn't matter that it's a laudable and totally acceptable thing for a town or city to do — what they recognize is that their taxes have gone up."
Wolfe, a member of Skoloff & Wolfe P.C., said revaluations often shift the property tax burden to commercial users. That's likely to happen this year in Newark, which this year is implementing its first revaluation since 2003 and now assesses property at about 74 percent of true market value, he said.
Owners have until May 1 to file a property tax appeal in Newark and in other municipalities whose revaluations will take effect this year.
But higher assessments may not be a foregone conclusion for some of Newark's largest commercial taxpayers, said Gil Medina, executive managing director for Cushman & Wakefield's New Jersey offices. The city will likely feel the drag of major blocks of space that will hit the office market in the coming years, he said; that includes about 200,000 square feet at 80 Park Plaza, where Public Service Enterprise Group is consolidating space, and nearly 1 million square feet within three of Newark's four Gateway buildings, which Prudential Financial plans to vacate for a new skyscraper.
"If I were the owners of these four buildings, I probably would be looking to reduce my tax obligation because the economic value of my building is going to be impacted, certainly in the short term," Medina said. He said similar challenges exist in Jersey City, which faces the prospect of a shrinking financial services sector.
That means that if commercial property in either city ends up with higher assessments, "I think you can anticipate that there's going to be a number of appeals," Medina said. "And the appeals probably have a good likelihood of prevailing."
While data for Newark wasn't immediately available, commercial property tax appeals in Essex County already have been rising in recent years. About 1,860 appeals were filed by such users in the county last year, up 60 percent from 2009, according to the state Division of Taxation, which tracks appeals with county tax boards but not the state's tax court system.
This year's revaluation in the Brick City is raising alarm among multifamily owners, said Michael Schneck, a Livingston-based property tax attorney. He called the new assessments "catastrophic" for apartment landlords of all sizes, potentially causing their property taxes to rise by 50 to 100 percent based on the city's projected tax rate for next year.
"We typically expect … that the commercial properties of all types will be on the high end of the assessment range," said Schneck, managing member of Schneck Law Group LLC. "And you normally would go through an appeal to try to lower it, but the increase in the apartments at this multiple that we've seen is just incredible."
Newark city officials did not return requests for comment by press time.
Schneck said the housing downturn eroded the assessed values of single-family homeowners, and he believes that Newark's appraisers are underestimating the expense faced by apartment owners. In recent weeks he has met with local officials and the city's revaluation company in hopes of avoiding many lengthy property tax appeals.
While Jersey City's revaluation won't take effect until next year, the change in assessments stands to be dramatic. The city's last revaluation took place in 1988, and experts say the property there is currently assessed around only 30 percent of true value.
But officials involved with the revaluation say the effect may actually be limited on the city's largest office buildings and other non-residential users, at least for now. Steven Rubinstein of Realty Appraisal, the West New York firm conducting the revaluation, said most large-scale office properties were built using payments in lieu of taxes agreements, which often have long terms and are insulated from property tax changes for several years.
Jersey City spokeswoman Jennifer Morrill also said it was unlikely that commercial properties were assessed below their true value because the city is constantly grappling with tax appeals. Each year the city refunds some $6.5 million to property owners, she said.
Several Newark and Jersey City developers declined interview requests, but experts said any property tax increases that result from the revaluations will likely be passed onto tenants. Such tax hikes can also have long-term implications in the state's two largest cities and others, they said.
"I think until the reval is complete and the tax rate is struck, it's hard to predict what the impact would be on future development," said Wolfe. "But obviously if property taxes on commercial property increase significantly, that can be a drag on development."
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