Property values are declining in virtually all sectors of commercial real estate and with local governments seeking relief any way they can get it, assessments are rising. In New York, starting in January the Department of Finance released their tentative assessment listings planned for 2010. Not surprisingly the assessed value was up for all major groups. Most notably, apartment buildings rose 7.8% and commercial buildings went up 9.9%. Single family residences didn’t escape the increases either, rising by 4.41%. All of this designed to help close budget gaps plaguing the state. This is all part of a 5 year plan and so future increases are almost guaranteed.
There was a time our industry has peace of sorts, and apartments, especially pre-1980s were seen as workforce housing. In the days before REITs and the commoditization of units, apartment rents rose slowly, and incorporated communities recognized the need for all kinds of housing. Sadly, the reckless excesses of municipal spending, irresponsible politics and a clearly distracted affordable housing policy have collided in a most unfortunate way.
With the prospects of a continuing loss of pricing power in most markets, underwriting just got a lot trickier. It would be unusual, in today’s environment for property taxes not to rise, and ultimately the yields are going to suffer. At some point, when the markets turn, the cities that choose this short sighted tact will find their citizens paying higher rates and dealing with less competition. Tax increases apparently don’t discriminate, regardless of need.
(Jack Kern is the managing director of Kern Investment Research, LLC, a
market research firm. He can be reached at
301.601.1900 or [email protected])