mazag08 said:

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aggieforester05 said:

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RSP715 said:

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texas commercial needs to be full disclosure.

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It's certainly a pain in the ass to get commercial comps unless you pay $600+ a month for a costar subscription.

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And that doesn't get you **** because the majority of commercial owners hang up when costar calls

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I'm saying that because commercial and complex property owners sue the districts to death and get away with murder on FMV. Our tax rates would go way down if they had to disclose and at least set a benchmark upon sale.

I doubt the tax rates would go down. They'd just get more tax revenue and spend more. Retail prices would eventually increase to compensate.

sawthemoffxx said:

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Yea I've seen some ridiculous rental rates on those single tenant net lease buildings, far exceeding a typical return on cost for any other property types. I am not sure how developers are getting them to sign leases that high.

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It's not just that, it's the cap rate too. The best way I can explain is that the purchaser isn't really purchasing the real estate; they are purchasing a bond backed by the credit rating of the company backing the lease.

Bingo.
Main st. and Main st, would you rather own a Starbucks or a local coffee shop both paying the same rent? Same real estate value without a tenant but drastically different with each tenant. Buyers are looking for coupons, real estate is secondary, valuations are complex. This is why cap rates are staying low for so long. It's much more than the real estate nowadays.

SteveBott said:

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What Meen said is spot on. Commercial way underpays their fair share.

Look at it this way 10-15% of your taxes are subsidizing commercial realty owners

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Maybe in some counties..

In Harris county, my company's entire portfolio after protest is about 90% of current value. Taxes the last two years have gone up between 25% and 40% on every property. Buyers for properties we sell don't even have to do a reversion calculation a lot of the time, because taxes are already where a new buyer would peg them.

And even if it was true, the problem is residential too high, not commercial too low. Taxes are rising on average 8% a year in most jurisdictions. That's absolutely insane.

If you increase taxes further on commercial, you're going to cause a lot of problems. Texas is on a pace to match the highest property tax rates of all major cities. What do you think that will do to investment in our markets?

Lower the taxes on everything. Stop trying to make everything pay equally high amounts.

Yes the study was performed for the City of Austin so there may be bias there...

An Analysis of TCAD's Commercial valuations for City of Austin

jpd301 said:

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Yes the study was performed for the City of Austin so there may be bias there...

An Analysis of TCAD's Commercial valuations for City of Austin

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Montgomery County is the same way. And I don't view that as a bad thing.

Also keep in mind, Austin is significantly more costly to build commercial product due to the over-regulated environment. At the same time, commercial cap rates are some of the lowest in the state due to a multitude of factors. This will push valuations up just from investors needing to be competitive to acquire property. So a larger margin between assessed value and sale value is to be expected. Austin also has really high tax rates, so a lower property value generates more tax revenue than some counties with higher values and significantly lower rates.

Maybe some of that was addressed in the article. I'll read through when I get more time.

mazag08 said:

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Thanks to Paul Bettencourt and R's in the Texas senate we will be getting some tax relief this year. Tax revenue growth for existing improved property within the tax base will be capped at 3.5%. New tax rate growth caps will be in effect as well. I think you'll ultimately see rates come down, even if assessed values continue to rise. This doesn't mean an individual property won't have a huge tax jump, just that the overall market is now capped.

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Not sure I'd jump to this conclusion. I sit on a MUD board funded by property tax. This has created a long term dilemma for us. Do we maintain taxes as low as possible as we've been doing, or do we need to keep them elevated to insure against the risk of a future shortfall imposed by the cap?

Reserves will need to be built more excessively than previously required as another way to protect our interests.

This is especially burdensome on smaller entities. Our annual tax revenue is about $3MM. It's not unrealistic that we'd need to raise a million somewhere down the road. Our debt is almost clear, which will reduce our operating budget to $400-500k. So if we lower our taxes to just cover our costs and a reasonable reserve, then we are in a bind if we ever need to raise even a few hundred thousand, the 3.5% cap is a problem.

Also, the cap just requires a vote to exceed it, and so few vote in those elections. Rules like this sound good in political speeches, but actually likely increase taxes over time.

Harris county commissioners court has some interesting political theater late 2019 dealing with this.

Thanks for the input.

One small note.. the 3.5% tax revenue growth cap does not include MUD's, hospital districts, or community colleges.

Developing utility districts are excluded... But developed districts are held to 3.5% revenue increase.