We maximize opportunities, ensuring clients FOCUS on their business.
Commercial, Light Industrial, and Office Sector
The battle is won or lost in preparation. Our team prides itself on digging really deep, taking nothing at face value and developing and presenting solid arguments that can stand on their own.
This approach to preparation equates to stellar results in the role of negotiating with assessment officials and while acting as expert witness before various tribunals.
Hotel and Convention Centre
Case Study 1: Hotel and Convention Centre
The property consists of 8 acres of land, two hotels & convention centre located in an urban area with highway exposure. The client, a national hotel operator, acquired the property in 2005. At time of sale, it consisted of a full service hotel & convention centre. Subsequent to the sale, the client built a limited service, all-suites hotel.
MPAC’s returned assessment was based on:
Our initial review confirmed that rental revenue in the pro-forma was the revenue from leasing convention centre as the client was not an operator. F&B revenue assigned to full service hotel also included portion of F&B generated by the convention centre. This was a clear case of double taxation. The review of costing matrix revealed that the calculations have been done incorrectly resulting in value 40% higher. The limited service hotel was assessed with higher ADR and occupancy than full service hotel.
We were successful in persuading MPAC to properly account for revenue generated by convention centre. This resulted in significant reduction of a full service hotel component. MPAC then proposed to increase the value of limited service hotel, convention centre and excess land portion. We responded with counter proposal offering alternative approach to value for convention centre. We analyzed ADR and occupancy rates of limited service hotels in the area and counter with lower valuation. MPAC proposed yet another set of numbers, all backing up the 2005 purchase price. At the mediation meeting we addressed MPAC lack of consistency and presented argument supporting revised value for all components which resulted in significant reduction for the property.
Case Study 2: Results where the previous service provider missing opportunities
The client is a co-operative entity that occupies a large portion of a British Columbia property, with other portions leased out to multiple tenants. It was believed that, due to legislation changes, a certain portion of the property qualifies for a re-classification into a lower tax rate.
Property taxes and annual assessment had been historically reviewed by incumbent provider. In this process, incumbent provider had historically completed 'desk top reviews' that did not include inspecting the property or obtaining information from client to understand nature of occupancy / tenancy and content of operations.
Changes in legislation dating back to 2009 had not been reviewed in context of subject property despite annual "desk top" review and savings were missed for 2009 – 2010 and 2011. In excess of $150,000 of potential savings were over-looked by incumbent provider.
Using AEC's Tax Information Principle(™), we assigned a project manager with a high propensity of fact-finding combined with an instinct of coming up with ideas and having a strong desire to achieve. The project manager was able to utilize the information presented to him and determine a course of action that produces the best possible result for the client. He did not just rely on past results delivered by the competitive incumbent provider; he wanted to ensure a fair and equitable assessment for the client, given the new legislation.
Within seven (7) months of being engaged, we worked through initial PARP level and subsequently launched and successfully negotiated a settlement at PARB level realizing a refund of in excess of $50k for our client.
Client has peace of mind that they have benefitted from a thorough and comprehensive review, are the beneficiaries of a substantial refund and will benefit going forward as the classification adjustment made to the realty tax assessment will continue to attract a lower tax rate and provide lower costs going forward.
Case Study 3: Determining fair market rent for the best office building in the City
Like so many other downtowns, this one had become undesirable over the years as changes in City planning had shifted the major retail and professional service providers from the downtown core to outer rings of the City. Although the downtown core had a substantial amount of average and above average office space the office vacancy rate in the downtown core had been ranging between the high-teens and the low 20 percent range for more than a decade. The City acknowledged that it needed to reverse this trend and revitalize the downtown core. In the late 1990's this industrial client entered into a public private partnership with the City and a well known developer to create a new corporate head office and clean up a major block in the downtown core. The City had already entered into other projects but this block was a missing link in making the waterfront walkable and desirable again. Both the City and this industrial client were motivated for reasons beyond simply creating sufficient office space to house the corporate head office.
In order for the City to retain control over the redevelopment they expropriated the lands and then entered into a long term land lease with the developer. As a necessary requisite for this redevelopment project to proceed both the City and the industrial client entered into 20 year leases at rental rates double those that were currently being paid for good office space in the City.
A few years after completion of the project the developer sold their leasehold interest in the property to a German Syndicate. The purchaser viewed the transaction more as a bond than a real estate transaction given the long term stable income stream and the strong covenants of the City and the industrial client. In 2005 the City filed an appeal to increase the assessed value from $28,052,000 to $43,466,000 based upon the transaction price recorded in the land title office for the purchase of the leasehold interest.
Faced with a substantial increase in assessed value and property taxes, the new owner of the property contracted with a well known property tax consulting firm. AEC became involved when our client approached one of our partner law firms, with a request to review a settlement proposed by another consulting firm that recommend acceptance of an increase to $37,957,934.
What the City was proposing and MPAC was seemingly accepting was that the sale of the leasehold fee was a good indication of what the fee simple value was for assessment purposes. Our first step was to prepare a market rental study of office space. Based upon our impartial professional review it became clear that the long-term leases in place were significantly higher than market rents for similar space. As the purchase was based upon receiving these above market rents the transaction price for the leasehold interest was not representative of a sale that could be used for assessment purposes. As both the City appeal and the proposed settlement were tied to this transaction their reasoning and results were flawed.
From that point forward we took a strong position that Assessment Act required the valuation of the fee simple interest.Ultimately what it came down to was teaching assignment based upon strong research to get all parties to understand the meaning of fee simple, as if unencumbered, and how to determine fair market rents for the best building in the City.
The appeals on this head office property settled recently (subject to ratification by the City Counsel) after only the first week of hearings were complete.
Even though years went by and rounds of negotiations failed to get the point across our clients held faith in our approach. After highly effective cross examination by our legal partner of the City’s witnesses the desire for negotiations increased and a settlement was reached that was agreed to by the City, MPAC, the client and the current owner of the leasehold interest.
The settlement also included the taxation years 2009 to 2012 that were not currently before the Board. The agreed values for all years are lower than the initial 2005 returned assessment prior to the filing of the appeal by the City.
The sum of the 8 years of reductions in assessments was greater than $122,000,000. This significant reduction resulted in approximately $5,000,000 in tax savings.
Our clients have engaged us to attempt to pre-negotiate the 2012 base year assessment for the 2013 taxation year.
Case Study 4: Single tenant client resolved without going to hearing
Client occupies a large distribution warehouse. They are a single tenant user of the building, which was specifically designed for their needs.
In prior years there was significant tax savings through the appeal process taking into account the specific design elements which while adding to the cost of the building do not add to the market value of the building.
Upon first review; it appeared that the client's property had increased in value to take into account normal market movement over the past year.
The property was appealed as a protective measure to ensure that it was fairly and equitably assessed with similar properties in the neighbourhood.
There had been a history of appeals on this property, and we wanted to ensure that the adjustments made in prior years were reflected in its current assessment.
As this client was a tenant in the building, information on how the assessment went was not readily available. We had to go through the appeal process to get the detailed assessment information for our thorough review.
While the company had spent considerable effort in years past to ensure a fair and equitable assessment, the company needed to ensure the savings were not eroded over time by increases above the normal.
As we did not have the full detailed assessment information, there was a risk that the property was assessed to take all the savings into account.
Raising the profile of this property to the assessor's attention is risky as the property may even be deemed as under assessed.
From our experience we were able to do an initial review that would mitigate any potential dangers.
We have considerable experience in dealing with assessment matters. Value, property classification and equity all needed to be reviewed, as each of these components effects the final property taxes paid.
Our evaluation of each of these components allowed us to uncover the hidden tax savings that are not readily available.
Once we received the full detailed assessments, we were able to request a board order for details of comparable assessments.
Upon reviewing the comparable assessments we determined that the property was unfairly assessed in relation to other comparable properties. Negotiations with the assessor ensued.
This resulted in a $1,500,000 reduction in value and a $25,000 tax savings for the client based on our recommendations – without the need to go to hearing.
Case Study 5: Client Leases a Built-to-Suit Warehouse
Client recently occupied new 600,000 sf warehouse which was a build-to-suit where client was leasing the property.
Property was reviewed from both the cost and income approach perspective.
Nature and load requirements of warehousing facility and site conditions of green-field required substantial over-build requirements for footings, foundation and supporting floor.
Building was constructed specifically for user.
Assessment as prepared and returned by Assessor mirrored 'contract' rent and supported actual costs incurred during construction.
Lease rate, relied upon by Assessor, was a function of construction costs as designed and developed for specific use.
Our investigation and review of the lease, actual construction costs, building specifications and nature of the operation all pointed to an 'over-build' situation whereby
Sufficient evidence was uncovered to suggest market would not bear the premium that was inherent in construction costs and 'above market' rent for a typical warehouse facility.
Assessment was adjusted by 10% to reflect the super adequacy of the improvement and recognition that value sought was that of value in exchange.
In parallel to the valuation review, AEC was successful in adjusting the taxation Classification from Business & Other to Light Industrial, realizing an additional annual savings of 17%.
Annualized savings from the valuation adjustment and classification issue are approximately $360,000 / annum, over the course of the ten year lease.
Case Study 6: Developer Client has ICI Greenfield land.
Developer has large tract of ICI land that was in Greenfield state.
Subdivision process is undertaken with municipal authorities in absence of understanding of taxation impact
Property is located in taxation jurisdiction that provides for taxation increases to be capped and for assessed value increases to be phased in
Property has been subject to an appeal by the municipality, via their 3rd party representative, seeking an increase to the value
Property had been acquired in the reference period, Assessor’s value had not reflected the purchase price and municipality had filed an appeal
The combination of the valuation adjustment in context of historical capping position was manageable from a tax forecasting perspective with the ‘interim’ result being all parties were confident that accepting an increase in value, in light of the capping protection, was not financially punitive
Simple became complex when sub-division process was completed, new parcels were registered and previous protection provided by ‘capping’ was lost and properties went into ‘straight CVA’ taxation
AEC was able to dilute the impact of the tax spike arising from the registration of the newly severed parcels by working w municipal taxation authorities and sharing our thorough interpretation of supporting tax regulations.
AEC was able to deduce that all advisory parties and client personnel needed to be aware of taxation implications of development, physical or legal changes to land to eliminate unnecessary surprises and/or be aware of the potential risk.
Case Study 7: Client Acquires Property from REIT
Subject property was acquired by owner / user from a public REIT.
Purchase date was outside the reference year by 18 months, sale was less than assessed value and purchaser was making substantial investments to the warehouse property to make portions of it suitable for certified food preparation facility.
Outside of formal appeal proceedings, AEC was able to:
Appeal that was in "awaiting scheduling" mode was resolved inside 5 months
Sale out of the reference year was used to assist in value adjustment -client's concern of an increase arising from flash freezer improvement was eliminated