Commercial Real Estate Spot Assessments in the Philly Bubs

by Natalie Kostelni, Staff writer for the Philadelphia Business Journal

Cash-strapped suburban school districts have begun an aggressive campaign of initiating reassessments on everything from hotels and retail centers, such as the King of Prussia Mall, to multifamily properties and the Valley Forge Casino — costing some property owners tens of thousands of dollars a year.

Their target is commercial rather than residential real estate since it has the biggest bang for the buck. Apartment buildings have become a particular favorite as their values have shown some of the biggest gains over the last decade.

In Pennsylvania, school districts have the authority to appeal assessments on properties if they believe they are too low. Hamstrung from raising funds through other means and continuously facing funding cuts, these so-called reverse appeals have become an increasingly common method for districts to get more money into their coffers.

The owners of these properties, especially those of apartment buildings, believe districts are illegally "spot assessing" their real estate and the process goes against Pennsylvania's uniformity clause. This law states that taxes should be "uniform" across all property types and that a property type, such as office, industrial or apartment, can't be singled out or taxed at different levels.

Some of the biggest owners of real estate in the region have banded together to stem the situation. Along with the Pennsylvania Apartment Association, they are pushing legislation that would prohibit districts from having such power.
It's an issue that won't go away any time soon and will likely only get more contentious.
"When you have a loss of revenues, which the school districts have experienced, you have services cut, employees that are let go and at the end of the day the students get hurt," said Robert J. Ianozzi Jr., an attorney who represents several districts in Montgomery County. "You need to replace the lost revenue and school districts avail themselves to their statutory right and apply that to those properties that are under-assessed. What the districts are doing is leveling the playing field. This is about all property owners paying their fair share."

A chilling example
An example of this situation, which sent chills throughout the real estate community, took place in Chester County. An organization called the Chester County School District Managers hired a real estate appraisal firm to review the market values and assessments of all apartment properties from 2004.

Appraisal firms are typically paid a certain percentage of the reassessed value of a property.
The hired firm identified several apartment complexes in the county that it determined where potentially under-assessed. Five of those were in the Downingtown School District. The firm recommended that an assessment appeal be made on one property, the Black Hawk Circle apartments, owned by Westover Cos. of King of Prussia.

Black Hawk consists of two parcels. One that is 6.5 acres with 108 apartments and, at the time, was assessed at $3.17 million. The other parcel totaled 3.5 acres with 93 apartments and was assessed at $2.94 million.

The Chester County Boards of Assessment Appeals, where all of these issues initially go to, increased the fair market value of each parcel by $1 million. That resulted in increased assessments of roughly $53,000 in annual tax revenue for the district.

Westover appealed the reassessment to the Chester County Court of Common Pleas, arguing that the district singled the property out and didn't follow the uniformity clause. Westover won.
The school district then appealed the case to the Commonwealth Court of Pennsylvania, which sided with the district in a ruling handed down in March 2013. Westover filed a petition to appeal that result before the Pennsylvania Supreme Court, which declined to hear the case.

That final ruling, which sided with the school district, put commercial property owners on notice that they would be facing an uphill battle when it came to reassessments by school districts....

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