Florida Property Tax Update: Investor and Commercial Worries
The release of the newest version of the proposed Florida Property Tax Reform should worry a large portion of property owners in the State.
While Florida House Speaker Mark Rubio and Governor Charlie Crist have done a reasonable job accommodating homestead property owners, i.e. full time residents, especially those with property values under $500,000, I feel that there was a failure in this newest revision of the property tax reform to adequately address the issues facing investors and commercial property owners.
Many feel that these people don't need as much attention but I think that the ripple effect of not helping with their tax woes will be felt more directly than Florida Legislators might realize.
Apartment Investors
These investors will have the ugly job of informing their tenants that all this news about how tax savings will pass to them is just not the case. As property taxes will only lower slightly, and not at all in some cases, Rents will have to remain high to ensure that the properties cash-flow for the investor. The onus of the currently high tax rates on commercial properties will still fall on the pocketbooks of the renters.
Strip Center & Industrial Park Owners
These Investors are usually using Triple-Net (NNN) Leases which involve CAM (Common Area Maintenance) charges. The CAM usually includes Maintenance, Taxes, Insurance and other common fees. This benefits the investor in that they know they are collecting these fees from their tenants...but high inventory and vacancy rates will suffer as CAMs will not be able to be lowered without a true overhaul of the tax codes.
Condo Owners
This is a broad range of property owners but mainly consisting of small and medium businesses. These businesses are suffering from a double dose of the tax reform blues as they see a much less aggressive tax plan on their homes AND their work places.
Shopping Center Owners
Malls and shopping centers have very high per square foot rents right now plus CAM and sometimes Gross Leases to factor in. Due to high taxes, some small businesses are settling for lesser centers because of the high cost of doing business in newer Shopping Centers. Therefore large shopping center owners are seeing higher turnover rates and are now having to offer more incentives to potential tenants.
Land Owners
Some property owners lease their land instead of selling it or constructing on it themselves. Fast Food Chains are a popular target for this type of property owner. They buy the land and lease it to the franchisee who erects the building on it and stays for a certain period. With high taxes, this is creating a burden on property owners in higher traffic areas as they are the most affected due to higher property values.
A potential fix...
Some of these problems could be addressed by a proposition which was not offered up in the most recent coverage was a change in Assessment practices. If properties were consistently assessed with the same method and with an As-Used mentality rather than with a Potential Usage mentality, a small commercial property owner would not have as much to fear when the property appraiser comes to reassess after a new record was set for a price of another property down the street.
Comparables of properties of different Zonings, Usages, and Types should not be weighed in the judgment of an entirely different property. This is the problem with the Palm Beach County Property Appraiser who prefers to base assessments on Potential use regardless of the fact that a property might have been used in the same way for fifty years and has no reason to believe it will change.
The worst part...
There are definitely more property owners that will not feel the overdue relief promised by Legislators... but what these lawmakers are not seeing is that the indirect effect of high taxes on commercial properties on the middle and lower class is felt when employers cannot afford to create more jobs or offer higher wages... when apartment owners cannot afford to reduce rents... and when small businesses just cannot expand due to ultra high costs making financing property impossible.
David A. Podgursky, MBA
The Mortgage Go To Guy
Your Source for Residential, Commercial, Investment and Relocation Mortgages in Florida
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