Like residential property owners, many retailers experienced sticker shock after Mecklenburg County’s latest property revaluation this year. Also like residential owners, retailers are looking to pare down their property tax bills.
Unlike residential property owners, however, retailers are attempting to slash their valuations that the bills are based on by tens of millions of dollars. Some cite the headwinds the retail industry has faced, including a major decline in foot traffic, to argue that their properties aren’t worth that much anymore.
As a result, the county could be losing out on a substantial amount of tax revenue. To offset the loss, the county could eventually pass the tax burden onto residents or businesses, or scale back on the services it provides, experts say.
Northlake Mall, one of the biggest shopping malls in the region, appealed its new property tax valuation and has argued that its value ought to reduced by nearly $37 million.
The county’s proposed valuation of nearly $220 million is “in excess of market value,” wrote Nikki Graffam, senior managing director at Property Tax Resources LLC, on behalf of Northlake on its appeal to the county, according to records obtained by the Observer.
“Here are a few items we would like to discuss: Flat/declining (net operating income) ... National tenants leaving the center ... Overall valuation of the mall,” Graffam wrote in the appeal filed this spring.
While Northlake hasn’t lost any anchor tenants like department stores, it has had a number of popular national shops close their doors in recent years.
Gap and Anthropologie closed in Northlake in early 2016. J.Crew closed its store in the mall in early 2017. Also that year, the children’s clothing retailer Gymboree closed its store in Northlake as part of a major restructuring. And the women’s clothing retailer The Limited closed three area stores, including one at Northlake, before filing for bankruptcy in 2017.
Northlake, a 1.1 million-square-foot mall, opened in 2005 and was sold to private real estate investment firm Starwood Retail Partners in 2014.
“We do not comment on any on-going appeals,” Northlake Mall general manager Adam Kamlet said in an email.
If the mall succeeds in lowering its property tax valuation, it could save over $350,000 in property taxes each year, according to the new rates set recently by the city of Charlotte and Mecklenburg County.
Dine and dash analogy
Kirk Boone, a professor of Public Finance and Government at UNC-Chapel Hill, compares property tax revenue to the bill after a large dinner out at a restaurant. Imagine that everyone orders appetizers, drinks and meals, Boone says, but before the bill comes, a few people get up and leave without paying.
In such a situation, large property owners like malls and big-box retailers are the ones who dine and dash without paying their share, Boone says.
“When the bill comes the rest of the people still there look at each other and say, ‘Well I guess we have to pay for everyone who left,’ ” Boone says.
Despite the loss of the people who left — or the property taxes from large businesses — the bill remains unchanged and has to be made up somehow, he added.
Across Charlotte, property owners are appealing their property values because most soared since the last revaluation in 2011: The median increase in commercial property values was 77%, while the median residential rise was 43%.
A handful of other retail property owners are working to lower their property tax valuation.
Charlotte Premium Outlets, which opened in 2014, saw its property tax value soar to $177.5 million after the last revaluation. The mall appealed its valuation and wants it to be reduced by nearly $44 million.
In South End, the county appraised the tax value of the Lowe’s store there to be nearly $30 million; Lowe’s says it should be about $24.4 million.
Neither Simon Property Group, which owns the outlet mall, nor Lowe’s, could be reached for comment about the appeals.
The county expects to wrap up its review of the valuation appeals in the next few months.
County assessor Ken Joyner said the Board of Equalization considers a number of factors, including market conditions and renovations, when considering appeals.
“You look at what is going on in the retail market and as an organization, we would be crazy to say there haven’t been any changes in the retail market ... when in fact there have been major shifts and changes since 2011,” Joyner said. “We have to look at what those market conditions are and make sure they are equally and fairly treated just like other taxpayers.”
The ‘dark store theory’
This year has already been a difficult one for brick-and-mortar retailers. By April, retailers had announced more store closures nationwide — nearly 6,000 — than there were in all of 2018, according to a report by Coresight Research and reported by CNBC and other outlets. Some of those retailers include Payless ShoeSource, Victoria’s Secret and Gap.
Retailers around the country are using a rationale for lowering their property taxes known as the “dark store theory.” In it, retailers say that the value of their buildings is comparable to similar, but vacated retail buildings, according to a 2016 research note by Boone, the UNC professor.
“When argued successfully, a victory for a big box retailer can mean the loss of a substantial amount of tax revenue for a county or a municipality,” a 2018 UNC School of Government blog post about the dark store theory read.
Retailers in Charlotte haven’t turned to this theory exactly, Joyner said, but they have been aggressively working to lower their tax bills just like any other property owner.
When the county approved its budget, Joyner said, it anticipated that there would be many appeals.
“I don’t look at it as lost (property tax) revenue. I look at it as we’re getting the tax base to where it should be,” he said.