Why Tax Assessors Should Value Your Commercial Property Like a Bank Underwriter
The commercial real estate landscape in New York is facing unprecedented challenges as we enter 2025.
At Realty Tax Challenge (RTC), we believe that tax assessors should evaluate your commercial property the same way a bank underwriter does: with a clear-eyed view of declining values, shorter lease terms, and the realities of the market. By doing so, you ensure your taxes reflect current market conditions while protecting your property from unnecessary financial strain.
The Disconnect Between Tax Assessors and Loan Underwriters
If you ask a tax assessor, they’ll tell you things are better than ever. But visit a loan officer, and you’ll hear a starkly different story: buildings are worth less, leases are shorter, and risks are higher. Loan officers require more equity, higher corresponding balances, and stricter terms, reflecting the belief that property values have plummeted. This disconnect leaves property owners paying taxes based on inflated assessments while struggling to secure financing.
Bank underwriters often assume worst-case scenarios, scrutinizing short lease terms, increased concessions such as free rent, and dwindling leasing volumes. In contrast, tax assessors often rely on outdated metrics that don’t reflect the current realities of the market.
Take this example: If your building was 54% rented on average for a four-year lease and remains at 54% rented today, the tax assessor might assume nothing has changed. However, a loan officer would see that most leases are nearing expiration with only two years remaining and calculate that the building is at significant risk of financial instability. This disconnect can have devastating consequences for property owners who fail to challenge inflated tax assessments.
Imagine if your tax assessor looked at your property the way a bank underwriter does. This shift in perspective would result in tax assessments that better align with current market realities, particularly during a time when valuations are in freefall. Your assessment needs to reflect the true value of your property.
The Role of Regional Banks in Commercial Real Estate
Regional banks have long been a cornerstone of commercial real estate financing. However, the sector is under strain due to deposit flight, rising funding costs, and regulatory pressures. Depositors are moving their funds to higher-yield alternatives, leaving banks with reduced liquidity to issue new loans. Moreover, regulatory scrutiny has compelled many regional banks to increase cash reserves, further limiting their lending capacity.
With approximately $500 billion in commercial real estate (CRE) mortgages maturing in 2025, a significant portion is expected to default, potentially triggering fire sales and further price drops. Regional banks hold 70% of the more than $2 trillion in commercial real estate debt maturing through 2025. Loans have risen by 400-500 basis points, making financing significantly more expensive. Many borrowers will face difficulty refinancing these loans, exacerbating financial stress on banks and property owners alike. As a result, the unofficial stance among many lenders appears to be “pencils down” on new commercial real estate loans, especially for office spaces.
How Does This Affect Property Valuations?
The inability to secure affordable financing directly impacts commercial property values. Office vacancy rates have hit record highs of 25.3% in Westchester, further straining the market. When potential buyers are forced to seek private credit—often at significantly higher rates—or use all cash, the market for these properties contracts. The increase in private credit costs makes buildings worth less, while banks, reluctant to show losses, are extending troubled loans. This diminished demand drives down property values, particularly for office buildings, which are already grappling with declining occupancy rates due to the rise of remote and hybrid work.
For many properties, values have dropped significantly, yet tax assessments often fail to reflect these changes. For owners struggling with leasing volume, shorter lease terms, and increased landlord contributions, the financial reality is clear—but often unacknowledged. RTC provides the expertise and data to push for realistic valuations, ensuring your property tax liability aligns with the market. Without intervention, owners may find themselves overpaying taxes on properties that are far less valuable than they once were.
Property Taxes: An Often-Overlooked Consequence
In New York, where property taxes are among the highest in the country and represent a significant cost for commercial property owners, the effects of declining valuations are compounded by delayed reassessments. Local municipalities often rely on outdated property values to calculate taxes, leading to inflated tax bills even as market conditions deteriorate.
Additionally, with regional banks tightening their lending practices, municipalities may face budget shortfalls as property tax revenues decline. This raises the question: How will local governments address these deficits? Will they increase tax rates, cut public services, or pursue other measures?
Why Annual Tax Grievances Are Essential
Given the volatile market conditions, grieving your property taxes annually is no longer just an option—it’s a necessity. Property tax assessments often lag behind real market conditions, meaning owners could be paying taxes on inflated values long after their properties have depreciated. By challenging your assessment each year, you can ensure your tax liability reflects your property’s current market value.
At RTC, we specialize in navigating these complexities. With over $100 million in tax savings achieved for our clients, our expertise ensures that property owners stay ahead of market trends and avoid overpaying.
The Path Forward for Property Owners
As the commercial real estate market faces headwinds, property owners must adopt a proactive approach:
· Monitor Market Trends: Keep an eye on changes in financing availability, property values, and regional economic conditions.
· Engage Experts: Work with valuation and tax grievance professionals who understand the intricacies of the New York market.
· Act Early: Start the grievance process well before deadlines to maximize your chances of success.
If you want to ensure your property taxes align with reality, it’s time to ask: What if tax assessors valued your building the way a bank underwriter does? Lowering your property taxes doesn’t just save you money—it directly increases the value of your property by reducing operating costs and making it more attractive to buyers.
At RTC, we’re here to help you navigate this evolving market, ensuring your tax liability reflects your property’s true value.
Want to know if you’re overpaying? Contact us today at 914-348-9473 for a free evaluation and let’s find out.
