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The most recent data available suggests the Washington metro
area retail market is coming out of the economic downturn ahead
of the rest of the nation.
The encouraging
news could easily lead appraisers to overvalue retail
properties. It will be crucial for owners and developers to
monitor their tax assessments to make sure that assessments
reflect actual and not just perceived estimates of market value.
What Recession?
A new report by
Delta Associates suggests the retail recession in Washington,
D.C. actually ended during the first quarter of 2009.
The quick
turnaround was based on statistical data that Washington, D.C.
is historically underserved. In the District, there is about 8.5
square feet of retail per capita while the national average is
23.4 square feet. Another factor is the higher median income in
D.C. compared to other parts of the country.
Authors of the
report expect retail to grow by a modest amount this year. By
2011, they believe there should be noticeable improvement in the
retail market and the subsequent demand for retail space.
Avoid Over Assessment
In good times and
in bad, retail owners have been over assessed due to
discrepancies over business value. Assessors have been slow to
accept that shopping centers have considerable business value.
They tend to view retail the same as office buildings and
apartment complexes, which focus on leasing real estate.
However, shopping centers don’t just lease space; they must also
rely on the sale of merchandise in stores.
In appealing an
assessment, owners must demonstrate that the shopping center
depends on many contributing assets that include both real
estate and intangible business value. For example, there must be
an attractive and convenient environment – the real estate. And
there must also be non-realty assets, such as a well-known brand
name, a skilled workforce and a top-notch marketing program in
place – the intangible business value. The sum of all these
elements attracts and maintains a customer base. Ad valorem
taxes should be based solely on the economic contribution of the
real estate, not on revenues generated by intangible business
value.
By applying an
appraisal methodology that eliminates non-real estate elements,
it’s possible for retail assessments to be dramatically reduced.
The end result is substantial property tax savings and higher
profits.
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