When Pearson’s Appraisal Services finished its revaluation of all Mecklenburg County property in March, the biggest winner was arguably TIAA-CREF’s Charlotte campus, near W.T. Harris Boulevard.
Mecklenburg had previously said the 92 acres and six buildings were valued at just under $168 million.
The consultant, Pearson’s, recently reduced that value to $100.1 million – a reduction that will save the company about $870,000 a year in property taxes.
The TIAA-CREF change was one of a number of commercial valuation reductions that surprised the county assessor’s office and caused budget shortfalls for the city and county.
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The General Assembly passed a law mandating that Mecklenburg review its property valuations after problems surfaced from the 2011 revaluation.
As the 18-month Pearson’s revaluation moved forward, Tax Assessor Ken Joyner said Pearson’s had told him that it expected that the value of commercial property might actually rise.
But Pearson’s reviewed much of the commercial property in early 2015, and some reductions were larger than expected. The drop in commercial values was almost as large as the earlier reduction in residential values.
Pearson’s says the drops accurately reflect the state of commercial property as of January 2011, but some wonder whether Pearson’s awarded some owners too large of a break.
“(Pearson’s) did a wonderful thing for the wealthy,” said Jim Barnett, a Realtor who served for 17 years on the Board of Equalization and Review, which hears appeals from property owners.
Barnett said there are numerous examples of commercial property that recently sold for millions of dollars higher than its recent revaluation.
An example is the Doubletree Hotel in SouthPark, which the county had said was worth $32 million in 2011.
Pearson’s reduced that value to $22.1 million. In October, it sold for $37 million.
“I don’t know many properties that have doubled in two years,” he said. “I have a problem when it doubles in value.”
Fred Pearson, the appraisal company’s general director, said a challenge during the reval was ignoring today’s thriving economy, and assigning property values based on comparable sales and how much money office and retail properties were generating at the depths of the recession.
“We are in 2015, but we had to use sales from 2009 and 2010,” Pearson said. “To put it mildly, that was a bad year for commercial real estate. But that’s what we have to use.”
An example of how current sale prices have far outstripped old assessments: The value of the Marriott hotel on Trade Street was essentially held steady by Pearson, from $55.1 million to $54.5 million.
The hotel sold for $111 million in October 2013.
County defends work
In many cases, Pearson said commercial property owners were lobbying for much larger reductions than what they received.
TIAA-CREF had the largest drop in terms of dollar amount in the county. The financial services company said in a statement that its property had been revalued but didn’t elaborate.
Pearson said the financial services company wanted an appraisal of no more than $90 million. He said he pushed back against that request, in part because the quality of the LEED-certified office buildings was so high.
“I was trying to get it at $122 million,” Pearson said. “But we have to look at what we can defend. They didn’t want to go off ($90 million). I just said, listen, my bottom line is we can’t go below $100 million on this facility.”
Joyner said Pearson’s did a good job overall.
“I know from our weekly meetings that they did a lot of analysis,” Joyner said. “They visited every neighborhood. They were looking at 360,000 parcels over an 18-month period. It was a very tough job.”
But he added that the change in commercial values was unexpected.
“I would say I was surprised. Maybe not when you look at individual properties, but they had said on the commercial side they didn’t think values would go down,” Joyner said in an interview last week.
The drop in commercial property value has impacted the city of Charlotte the most, adding to an already sizable budget shortfall. It came at the same time as the General Assembly’s repeal of the business privilege license tax.
The revaluation has cost the city about $14 million in property taxes and has helped create a roughly $22 million budget gap.
The city is considering an increase in the property tax rate and service cuts to balance its budget.
Even with the drop in commercial values, Joyner said residential property owners saw a bigger drop in their assessments.
Before the Pearson’s review, residential property was 64.6 percent of the tax base and commercial property was 35.4 percent.
After Pearson’s changes, that barely changed. Residential was 64.4 percent and commercial property was 35.6 percent.
Other large drops
Other notable properties saw sizable drops.
The Charlotte Plaza building uptown, at 201 S. College St., went down in value from $138.8 million to $99.6 million.
The building’s owner, Atlanta-based Hines, declined to comment.
Big-box retailer Target also saw many of its stores drop in value, saving the Minneapolis company hundreds of thousands of dollars in city and county taxes.
The Rivergate Target declined from $24.7 million to $14.7 million – a drop of 40 percent. The South Boulevard Target fell from $16.4 million to $8.6 million – a decline of just under 50 percent. The Target at Northlake Mall dropped from $22.3 million to $15.6 million.
A Target off of Albemarle Road dropped from $17.5 million to $10.7 million.
In some cases, commercial property had already been reduced by the state’s Property Tax Commission before the Pearson’s review.
The Dillard’s department store at SouthPark mall was assessed at $33.8 million in 20011. That was knocked down to $28.3 million by the commission, and then Pearson’s dropped it to $14.9 million.
The nearby Macy’s dropped from $20.3 million in 2011 to $15.2 million after the initial appeal. Pearson’s then dropped it to $10.7 million.
The same two department stores also saw drops in value at Northlake Mall.
Pearson said some department stores wanted assessments 30 percent lower than the values they were ultimately given.
“They wanted a lot less,” Pearson said.
Pearson said during the appeals process, commercial property owners brought detailed information showing how their income had dropped – either from a drop in rents or a decline in sales.
Valuation appeals are public, although financial information must be redacted under state law.
“They brought the income and expense information,” Pearson said. “With commercial property, that’s what drives it. We looked at their vacancies and we looked at income.”
In other cases, the value of empty parcels of land tumbled.
Seventy-eight acres on the southeast corner of Interstate 485 and U.S. 74 had been valued at $17.7 million in 2011. Pearson reduced the value to $10.2 million.
The land is owned by a company affiliated with car dealer Hendrick Automotive Group and owner Rick Hendrick. A spokesman for Hendrick said earlier revaluation had placed the land at a higher value than nearby vacant properties, and the adjustment brought it back in line.
The county had valued it at $19 million in 2007.
On Nations Ford Road, north of Tyvola, there is a mostly empty 7-acre parcel adjacent to a pair of hotels. It had been appraised at $8.5 million, but was dropped to $1.2 million.
Barnett, the former member of the Board of Equalization and Review, said he doesn’t believe the economy would have produced such dramatic swings in value.
Pearson said when the county’s next property valuation occurs – which will be in either 2018 or 2019 – there will be large increases in assessments.
“They are looking at a 25 percent increase in the tax base,” Pearson said. “The economy is a lot better.”
Staff writers David Perlmutt and Ely Portillo contributed.
Four major revaluations
Old value $33.75 million
New value $14.9 million
Tax difference $242,000
Old value $167.9 million
New value $100.1 million
Tax difference $870,000
Charlotte Plaza building
Old value $137 million
New value $99.6 million
Tax difference $480,000
Nations Ford Road parcel
Old value $8.5 million
New value $1.2 million
Tax difference $94,000