Property values are going up $16B. Should the city worry businesses will flee?

The market value for 65,000 Philadelphia properties is increasing by more than $16 billion, bringing the taxable assessment of those parcels up by about 40 percent. And while the change to the city's real estate – estimated to generate an additional $118 million in property tax revenues – will likely lead to a public outcry, one expert says, it won't deter commercial property owners from investing in Philadelphia.

Over the past year, the Office of Property Assessment reassessed some of the city's "most complex and high-valued parcels," like Center City hotels and office buildings, as well as retail and industrial properties, and commercially-zoned vacant land. The project included commercial, industrial and institutional.

Changes to the property values vary – some saw decreases, but the year-long reassessment project mostly yielded increases ranging from around 10 percent for commercial buildings in city neighborhoods to as high as 40 percent market value change for some Center City buildings.

"The percentage increase will vary from property type to property type as well as neighborhood to neighborhood," said Michael Piper, OPA's executive director. "Anyone that gets an assessment that’s a big increase over the previous year, is not going to be happy about it. But we’re confident in our numbers."

The city's Finance Department initially estimated much smaller increases for the property values – a discrepancy Finance Director Rob Dubrow says came about because those figures came about independent of Piper and his team.

"We never asked Mike what do you think this is going to be because we didn’t want him to think we wanted him to hit a target," Dubrow explained.

Using 400 Market St., where the Philadelphia Business Journal has its offices, as an example, the reassessment means the market value for tax year 2018 is $35.4 million – a 47 percent increase from the $24.1 million value it had from tax year 2014 until now, city records show.

Piper said a lag in their work led to some large jumps in assessments, but the changes are warranted given the current state of the real estate market.

"The goal was to not only ensure the assessed values more accurately reflect the sales and market forces, but also to reduce value inequities among comparable properties," he said.

Starting next year, all 580,000 properties throughout the city will under annual reassessment.

"I don’t think we’ll ever see as large a jump in any type of property. That’s the idea behind annual reassessments," he continued. Any time a city doesn't keep up with the evolving market and then plays catch up, "you’re going to see drastic changes and that’s not considered good policy."

"Our job is not the tax increase, or tax decrease, our job is to look at the value," Piper said.

Yet the eye-popping increases don't worry city officials, who have watched with the rest of us as a reawakening in the commercial real estate market has brought out-of-state investors to Philadelphia and caused cranes to go up from river to river.

"This is actually indicative of the fact that the city is more competitive and seeing growth and a direct outcome of that is that are property assessments are going to be higher," Sylvie Gallier Howard, the chief of staff of the Commerce Department told the Business Journal.

"We don’t think there will be people walking away," she continued. "For people coming to the city, our property taxes are still low. There may be some grumbling from people who are already here."

It's a perspective David Fiorenza , economics instructor at Villanova University's School of Business, backs.

"There is going to be some backlash and some people who are going to appeal to the assessment office," he said. " But this shouldn’t be the thing that breaks the camel’s back for a business moving into the city."

"They should be looking at a variety of things, not just real estate taxes," he added.

He points out that property tax rates are higher in many nearby suburban counties, while those municipalities' other business taxes are lower than what we see in the city.

"Compared to other cities nationwide, we have a good city here. It seems the public is so focused on taxes that anytime you move even a fraction, people are up in arms," Fiorenza said.

Dubrow said the city anticipates a number of appeals. Notices are being mailed to all property owners who will see any type of change for the next tax year starting on April 14.

"We believe appeals are basically filed not necessarily because of an increase, or because someone thinks their property has been overassessed," he said. "It’s based on whether or not they think they can have success in the appeal."

 

Source: Philadelphia Business Journal