Philadelphia's belated Actual Value Initiative real estate tax reassessment, which rewards owners of declining buildings with lower city and school payments while punishing the owners of improved real estate with higher property taxes, has also resulted in lower assessments for the owners of Center City's office towers, compared to recent building sale values, as my colleague Harold Brubaker notes here.
Some of the "market values" look lowball. 1701 John F. Kennedy Boulevard, the Liberty Property Trust-built Comcast Center tower, last changed hands in a 2007 transaction for more than $500 million, or $400+ a square foot, but is listed at around $200 million, or under $180 a square foot, in the new AVI. (This is mostly an academic difference: like other new commercial construction, Liberty's German owners will pay city taxes only on the land, not the tower, til it's 10 years old.)
Elsewhere, "on average the typical Market St., 18th St., South Broad St. office buiding" in center City "is going to see about a 20 percent decrease in property tax," Robert Fahey, veteran broker at CBRE's Philadelphia office, told me after spending a few hours reviewing the new assessments.
"It certainly reduces the building on tenants" as well, "which will make downtown more attractive for employers and a more competitive alternative relative to the suburbs," Fahey said. They won't all be rushing downtown tomorrow: "Decisions over the next six months won't be acted on for another 12 or 24 months," he added.
It's worse for retail owners, stores and restaurants, whose taxable valuations are zooming alongside rising residential values. Indeed, "there are a signficant number of medium-size commerical and retail buildings that may also receive an increase under AVI," Paul Levy, director of the nonprofit Center City special-services district, told me.
In "booming" redeveloped neighborhoods like Northern Liberties, the businesses "springing up" to provide needed services can likely eat the higher rates -- but longtime residents who "used to live in a $10,000 rowhouse and now live in a $150,000 townhouse without having moved" are getting hit hardest, says Joe Matisoff, chief executive at Northern Liberties-based Hyperion Bank. "The politicians need to think about this some more."
Otherwise, the shift "will hamper prices in neighborhoods like No Libs, Queen Village" and other rebuilt sectors "and push people to Pennsport, Point Breeze and others that are a bit edgier," Matisoff added. Future tax increase zones!