GlobeSt.com: What advice do you have for appealing property taxes?

Foster: With the onslaught of data in the CRE space, it is important to understand how to harness the substantial amounts of data available at your fingertips to support your appeal positions. Whether you work with a consulting firm or you manage the appeal process yourself, you will need to secure the proper data, build the right case and present it with conviction. To be successful, it is critical to think outside the traditional fact patterns and use leading sector indicators to your benefit.

I also advise owners to know when your values are published and try to work out an agreeable outcome informally with the assessor's office. Many jurisdictions provide informal discussion opportunities or 'open books' that allow you to discuss the proposed valuation before the formal appeal process takes place. Make sure you know these dates and exhaust that informal opportunity–it can save a lot of time and money for both parties.

GlobeSt.com: What financial impact can appealing property taxes have on a property?

Foster: Property taxes are the largest line-item expense impacting your investment. Your asset's assessment should be reviewed annually for appeal opportunities. It is important to understand that the value you are challenging–the assessed value–represents the value you are being taxed on, not what you could sell the property for. Reducing your property tax liability increases the value of your asset. Every dollar you avoid paying in property taxes goes straight to the property's net operating income. Inflating the NOI increases value.

Let's take a simple example: An owner reduces the property tax liability on their 250,000-square-foot single-tenant industrial facility by $50,000. As they no longer pay this $50,000 in property taxes, this money flows down to NOI. At disposition at a 6% cap rate, the owner would realize approximately $833,000 ($50,000 NOI growth divided by 6% cap rate) more in proceeds upon sale due to the growth of NOI by the saved $50,000.

Let's take this example one step further. From an operating perspective, managing property taxes allows an industrial owner to better retain and attract tenants. As taxes can often be a pass-through, a landlord must be diligent in managing this expense in order to keep their tenants in place and retain a competitive edge. If an owner has a vacant building, high property taxes per square foot relative to their competition would put them at a disadvantage in attracting lessees.

GlobeSt.com: Is there a best time to file an appeal?

Foster: We suggest filing your appeal as early as possible. Speak with the assessor on an informal basis and attempt to work out an acceptable resolution. Also, make sure you know the statutory requirements around filing appeals as they are not uniform from state to state. Property tax is a local tax and you need to understand the nuance of your specific jurisdiction. Provide a preponderance of evidence early on and the odds of settlement are in your favor.

GlobeSt.com: How can you tell if your property is assessed too high?

Foster: Coming from the most basic position there are four common approaches: income approach, cost approach, sales comparison approach, and equal and uniform. In general, one of these will support the most advantageous position for your individual asset. At Paradigm Tax Group, we have a unique benchmarking solution that takes all data and valuation methodologies into account and uses predictive analytics and machine learning to calculate a target valuation. This process allows us to analyze a property and determine if it is over assessed, what valuation methodology will yield the lowest value and the target assessed value.

GlobeSt.com: What's the biggest piece of advice you have for commercial real estate owners when it comes to their property taxes?

Foster: Keep your eyes open and don't become complacent. Many owners have outside firms looking after their properties' valuations. Challenge your vendors and utilize available benchmarking solutions to ensure your providers are securing the best possible valuations on your behalf. Minimizing tax liabilities is a great way to increase the financial performance of an asset. Build a strategic plan of how you will minimize these taxes, and then be sure to measure your performance or the performance of your consultants.

DALLAS—With more than 20 years of experience in the accounting space, Rob Foster, chief commercial officer of Paradigm Tax Group, has worked at Deloitte, Thomson Reuters and Altus Group. He has in-depth knowledge on state and local taxes, property assessments and property tax technology. Foster recently shared insights into common property tax mistakes, tax appeal advice and assessment guidelines in this exclusive.

GlobeSt.com: What's the most common mistake you see property owners make regarding their property taxes?

Foster: The most common mistake we see is owners assuming there is no room for reduction if their properties are performing well and fully leased. While there are correlations between asset-specific performance and the assessed value, there are several creative positions that may be taken for a well-performing asset to receive a reduction.

The second most common mistake we see is owners believing there is a direct correlation between assessed value and the market value. These owners believe that lowering the assessed value of the asset will ultimately impact the value the asset could sell for but this is a common misconception.

GlobeSt.com: What advice do you have for appealing property taxes?

Foster: With the onslaught of data in the CRE space, it is important to understand how to harness the substantial amounts of data available at your fingertips to support your appeal positions. Whether you work with a consulting firm or you manage the appeal process yourself, you will need to secure the proper data, build the right case and present it with conviction. To be successful, it is critical to think outside the traditional fact patterns and use leading sector indicators to your benefit.

I also advise owners to know when your values are published and try to work out an agreeable outcome informally with the assessor's office. Many jurisdictions provide informal discussion opportunities or 'open books' that allow you to discuss the proposed valuation before the formal appeal process takes place. Make sure you know these dates and exhaust that informal opportunity–it can save a lot of time and money for both parties.

GlobeSt.com: What financial impact can appealing property taxes have on a property?

Foster: Property taxes are the largest line-item expense impacting your investment. Your asset's assessment should be reviewed annually for appeal opportunities. It is important to understand that the value you are challenging–the assessed value–represents the value you are being taxed on, not what you could sell the property for. Reducing your property tax liability increases the value of your asset. Every dollar you avoid paying in property taxes goes straight to the property's net operating income. Inflating the NOI increases value.

Let's take a simple example: An owner reduces the property tax liability on their 250,000-square-foot single-tenant industrial facility by $50,000. As they no longer pay this $50,000 in property taxes, this money flows down to NOI. At disposition at a 6% cap rate, the owner would realize approximately $833,000 ($50,000 NOI growth divided by 6% cap rate) more in proceeds upon sale due to the growth of NOI by the saved $50,000.

Let's take this example one step further. From an operating perspective, managing property taxes allows an industrial owner to better retain and attract tenants. As taxes can often be a pass-through, a landlord must be diligent in managing this expense in order to keep their tenants in place and retain a competitive edge. If an owner has a vacant building, high property taxes per square foot relative to their competition would put them at a disadvantage in attracting lessees.

GlobeSt.com: Is there a best time to file an appeal?

Foster: We suggest filing your appeal as early as possible. Speak with the assessor on an informal basis and attempt to work out an acceptable resolution. Also, make sure you know the statutory requirements around filing appeals as they are not uniform from state to state. Property tax is a local tax and you need to understand the nuance of your specific jurisdiction. Provide a preponderance of evidence early on and the odds of settlement are in your favor.

GlobeSt.com: How can you tell if your property is assessed too high?

Foster: Coming from the most basic position there are four common approaches: income approach, cost approach, sales comparison approach, and equal and uniform. In general, one of these will support the most advantageous position for your individual asset. At Paradigm Tax Group, we have a unique benchmarking solution that takes all data and valuation methodologies into account and uses predictive analytics and machine learning to calculate a target valuation. This process allows us to analyze a property and determine if it is over assessed, what valuation methodology will yield the lowest value and the target assessed value.

GlobeSt.com: What's the biggest piece of advice you have for commercial real estate owners when it comes to their property taxes?

Foster: Keep your eyes open and don't become complacent. Many owners have outside firms looking after their properties' valuations. Challenge your vendors and utilize available benchmarking solutions to ensure your providers are securing the best possible valuations on your behalf. Minimizing tax liabilities is a great way to increase the financial performance of an asset. Build a strategic plan of how you will minimize these taxes, and then be sure to measure your performance or the performance of your consultants.