Once again with sales price discolsure

Loren Steffy returns to a familiar topic.

By some estimates, Williams Tower could sell for as much as $475 million. When it comes to paying the taxes, though, the 64-story tower will be worth less than half that much.

That’s because the building’s current owner, the Hines Real Estate Investment Trust, waged a successful battle to lower the building’s appraised value year after year, as did the Kuwait investors who owned the building before Hines bought it in 2008.

Last year, for example, the building was appraised at $252 million, 7 percent below the $271.5 million for which it sold in 2008. As I wrote in February, market prices typically are far higher than the appraised value, which determines the amount of tax property owners must pay.

The appraised values, though, are lowered even more by the relentless efforts of building owners. Hines, for example, appealed the appraisal and got it reduced by another 22 percent last year, to $197 million, according to Harris County Appraisal District records.


Appraisal districts are required by state law to use the “fee simple” method in determining property values. That means the district must consider the physical building and its surrounding area, and then assign a value based on the average values and occupancy rates. It can’t consider many of the intangibles that give value to a prime property like Williams Tower.

In other words, HCAD’s appraisals don’t have much relationship to market prices but represent the district’s best estimate of taxable value.

“This is as good as it gets, and as good as it gets stinks,” said George Scott, a former HCAD researcher who left the district several months ago and now blogs about property tax issues.

Scott’s blog is here; I was not aware of it before reading Steffy’s column. Steffy wrote about this before back in February. That column was focused more on the sales price disclosure issue, while this one is primarily about the appraisal reduction business, but it’s all the same thing in the end, with the same result of lower tax collections for local entities. Patricia Kilday Hart wrote about this as well the week before during the height of the janitors’ strike.

While downtown building owners are shortchanging the janitors at payroll time, union reps argue, they also are shortchanging local governments by gaming the local appraisal system. Commercial building owners aren’t paying a fair wage to janitors, and they aren’t paying their fair share of government services. And that leaves the average Houstonian with a heftier tax bill.

“While janitors are fighting for enough money to keep the lights on and feed their children, the building owners are pulling money out of the services that help the average Houstonian,” said Durrell Douglas of the Texas Organizing Project, which is supporting the janitors’ union. “While some people are scraping pennies together to live, the building owners are not hurting, and they are not paying their fair share.”

Douglas bases his opinion on a study, conducted by advocates for the janitors, of appraisal protests by owners of 350 commercial properties in 2011. Big building owners were successful in knocking down their appraisals in 77 percent of their appeals, compared to only 55 percent of the appeals of single-family homeowners.

The study concluded that commercial property owners managed to knock more than $2.4 billion off of the appraised value of their buildings, which resulted in significant lost revenue for local governmental entities: $15.4 million for the city of Houston, $9.4 million for Harris County, $4.6 million for the Harris County Hospital District and $29.1 million for various school districts. (The study examined big skyscrapers not just in downtown but in Katy, Alief, Spring Branch, Cy-Fair and Clear Lake school districts.)

I don’t have any information about the study being cited, but when Steffy wrote his February column he referenced a “random sample of more than 40 office buildings that sold in the past five years”, and the revenue reductions for that sample are in line with the totals Hart cites. We’re talking real money, and I’ll give you three guesses where cities, counties, and school districts turn to make up for that lost revenue. (Hint: You and me.) I’ll turn it over to George Scott for the last word:

I am a conservative. Conservatism to me means that one has an inherent distrust of government and generally favors the free enterprise principles that less regulation is better than more regulation when it involves the production skills of the American economy.

However, I believe that I can hold that as a guiding principle and still not believe that everything corporations do, think, believe, or support is moral, ethical, rational, justified, or in the interests of the community or nation.

As far as the owners of these downtown buildings, I am personally dedicated to the notion that these folks should no longer be able to ‘game’ the property tax system. That they apparently want to do it at the same time they play hard ball with the janitors is particularly offensive.

There’s an old football sports analogy that comes to mind.

These folks have ‘over-kicked their coverage.’ It may take another year to get the instant replay showing that I am right, but I am right. Stay tuned.

I hope he’s right, because we’ve been talking about sales tax disclosure for several sessions now, and given the slash and burn priorities of the crowd that’s running things now, I don’t see how it will get any traction this time around. I’d love to be proven wrong about that.

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3 Responses to Once again with sales price discolsure

  1. I once saw a retired city official earn a nice consulting fee getting a high-rise reappraised. Wouldn’t be surprised to see that door still revolving.

  2. becky says:

    Wish I could run the Hines magic for my house appraisal!

  3. Pingback: It’s going to be a good year for the tax assessor – Off the Kuff

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