Building for Sale

Buyers don’t care how much money sellers put into a property.

Buyers don’t care how much money sellers put into a property and neither should assessors. For that matter they don’t care (and should not) what the retail sales were either. That is the case Robert Hill is making in Winona County as he represents multiple companies arguing Winona County overvalued their properties.

Read all about it at the Winona Post.

Follow our company profile on LinkedIn for related news and updates.

Money Minnesota

Minnesota Commercial Property Taxes & Valuations

There are many factors that determine the size of a Minnesota commercial property tax bill.

The most important contributing factors to a Minnesota property tax bill are:

  • the state tax rate
  • local tax levies
  • the class of property owned by a business
  • and the valuation of the property

Minnesota subjects three types of property to taxes:

  • Property owned by a nonprofit community service-oriented organization. (Class 4c(3)(ii) property is subjected to the to tax at a special rate.)
  • Seasonal residential recreational properties (cabins and small resorts.)
  • Commercial and industrial properties, including class 3 commercial, industrial, and public utility property exclusive electric generating machines and certain unmined iron ore property.

Businesses Do Not Want Overvalued Property

There’s very little that a business can do to impact tax rates or property classes, but the proper valuation of a property may result in significant tax savings that can boost the profitability of a company.

In the residential market, increased home values are generally viewed as a positive thing that boosts the net worth of a homeowner. It’s the exact opposite for businesses – a substantial overvaluation of business property can make a company less profitable because it increases the tax burden on the business.

Many tax assessments are outdated or fail to take all relevant factors into consideration. Issues such as hidden renovation costs, pollution or asbestos abatement, and building code changes are often overlooked by Minnesota property tax assessors. These factors may significantly suppress the value of a property tax bill and make a business eligible for a property tax appeal.


The Minnesota tax code is known for its complexity and exceptions, so speak with one of the property tax experts at Robert Hill Law before making any decisions on your Minnesota property tax strategy. Call us at 952-426-7373.

food processing plant

Case Study: $12 million reduction for a food processing plant

Owned by a food and meat products manufacturer based in Austin, Minn., this Illinois property was originally built in 1964 as a pork processing plant. Over time, several additions were built onto the property as the building was reconfigured into a general-purpose food processing plant with several new product lines.

The local assessor had valued the property at $16.2 million, but Robert Hill Law was able to convince the assessor that the high degree of functional obsolescence associated with the client’s property, combined with price declines for large industrial properties in general, required a major reduction in the assessed value for the plant. The assessor agreed, and the negotiated value was settled for $4.4 million just prior to a board of review hearing.

  • Assessed value: $16.2 million
  • Negotiated value: $4.4 million
  • Amount saved on property taxes: $1.06 million

industrial properties

Hidden factors can lead to overtaxed industrial properties

Industrial properties present special challenges to property assessors. As drivers of the economy, these properties are large, visible structures in the community, home to expensive equipment and activities that generate revenue. In smaller communities, industrial properties are often the main commercial tax base for municipalities. All of these factors make industrial properties opportunities for over-assessment.

Even with a well-maintained piece of industrial property, there are hidden factors that can drive down the true economic value of the building and property. Many hidden factors may differentiate a property from comparable recent sales, even if they appear similar on the surface.

For example, if an industrial property was built more than 30 years ago, there is likely asbestos insulation, antiquated HVAC systems and contaminated real estate. These considerable and costly building code and environmental issues would have to be addressed during any property repurposing, renovation or addition, and could substantially drive down the value of a property during a sale.

Another possible cause of over-assessment comes from elements inside the building, such as a productive workforce employing expensive machinery. These economic factors are a valuable going concern to the owner. Some property tax assessors impermissibly consider a property’s overall worth to an owner in determining assessments. A productive workforce and expensive equipment make a property more profitable to your company, but should not be used to artificially inflate its valuation.

Three questions CFOs should answer about their property assessment are:

  1. Could I sell my industrial property for the same assessed square foot value?
  2. Could I build or buy new comparable property in the larger community for the same assessed square foot value?
  3. Would it be economically feasible to bring the property up to current code and remedy any environmental issues, and continue my current business in the property on its current profit structure?

If the answer is no to any of these questions, it’s time to consider consulting with a professional property tax attorney about a reassessment. A bad financial year for business does not drive down the value of a property or generate a property tax rebate, but the converse is also true – a profitable business in an aging building does not justify settling for a higher property tax assessment.

Commercial Property

Age, Maintenance, Sales Price

Three things to consider about your property tax assessment.

There are three important factors to consider about your current industrial property tax assessment when determining if an appeal is the right next step.

 

Age: Has it been five or more years since the last property tax assessment?

Industrial property owners often see a static market and assume their years-old assessment is fine, but a lot can change in five years.

Property values decline over time because of age and condition, which an old assessment doesn’t reflect. Likewise, if an addition was put on, it doesn’t necessarily add value to a building because of the high rate of property depreciation. A property reassessment can determine the true value of a property in anticipation of sale or remodeling.

 

Maintenance: Have excess maintenance costs been incurred because of deficiencies or problems with the property?

Take this example: A 500,000-square-foot, 20-year-old building has a flat roof that needs to be replaced at a cost of $6 per square foot, bringing the total to $3 million.

An assessor might not know about the roof, and a buyer would challenge the asking price for the property with this or a similar maintenance issue. These and other excess maintenance costs incurred by the owner because of deficiencies or problems with an industrial property call for a reassessment.

 

Sales prices: Are you aware that sales prices have declined for major industrial buildings?

Sales prices of major industrial buildings have taken a hit since the start of the recession.

A recent example in the Twin Cities area was the sale of a 500,000-square-foot industrial space in Brooklyn Park. The company moved its production offshore and sold the building for $22 per square foot; pre-recession, the going rate of similar buildings was more than $40 per square foot. Fewer companies are able to sell their properties at the former value because of the number of properties on the market. A reassessment can lead to a more accurate reflection of property value in light of today’s economy.