“Capital Insights” with Jack Kern

The Taxman is Hungry

For a long time now, commercial properties, especially apartment owners have had a peaceful relationship with most taxing authorities. The cities  recognized that apartments were good housing for their residents and wanted to appear to have a balanced housing policy. Apartment developers obliged by adding units and taking advantage of local subsidies or other incentives. It appears that all bets are off. Acccording to a recent report by the National League of Cities detailing "City Fiscal Conditions," home price declines, increasing expenses at the municipal level and decreasing assessments have wrought havoc with city budgets. In 2008, property tax revenues declined by 3.5 percent, year over year, inflation adjusted and weak housing markets aren’t making it any easier. Apparently sales tax receipts declined on average a little under 5 percent and even income tax revenues dropped by roughly 4 percent, year over year, inflation adjusted.

So what’s a city administration to do?

They’re raising fees about half of the time, adding new fees a third of the time and almost 25 percent of the time, they’re increasing the levels of impact and development fees. Et-tu Brutus?

So much for cautious optimism.

Apartment developers and operators need to start documenting changes in values, increases in apartment operating costs and and risk factors if they’re going to beat back some ill-conceived attempts to raise cash from the rental community. Problems have become particularly acute in the West, followed by the Midwest, Northeast and South, according to the survey. Underwriting just got tougher, not that the capital markets are all that much fun these days.

The best bet, tell your residents to get into the community and spend, spend, spend. Sale tax revenues count and maybe it will be just enough so that they don’t notice all of those apartments in their town.

Just maybe…