Concord officials rethink annual property assessments
Commercial properties in Concord were reassessed last year based on a relatively small sampling of information.
The assessing office heard from only 25 percent of the property owners from whom it requested income information, and there were few commercial property sales on which to base assessments.
The data that the city did receive was used to reassess commercial property for the first time since 2010, resulting in a 13.77 percent increase in overall commercial property values.
The assessments have drawn criticism from commercial property owners. City and state officials say any inaccuracies will be corrected through an appeal process; Concord received 350 tax abatement applications in 2012, including about 300 from commercial property owners. Seeking an abatement from the board of assessors, and later appealing to Merrimack County Superior Court or the state Board of Tax and Land Appeals, is the only means of changing last year’s assessments.
Meanwhile, the Concord City Council must vote to authorize reassessments for 2013. After the council votes to authorize an assessment, councilors have no further involvement in the property appraisal process. But given last year’s increase in commercial property values, councilors have questioned the city’s practice of annual reassessments.
“The whole reason why we do annual assessments is to make sure these spikes don’t happen,” Councilor Dan St. Hilaire said. “So the question for the future is, do we continue to do these annual assessments?”
Tomorrow, the council will hold the second of two public hearings required before they authorize this year’s assessments. Councilors aren’t expected to take action until next month, when they’ll hold a vote to authorize 2013 appraisals by the assessing department.
Though Concord has reassessed property annually since 2005, state law only requires reassessments once every five years. But that doesn’t mean every type of property is reassessed every year.
The total value of residential properties decreased 2.64 percent in Concord last year, while the value of commercial and industrial properties increased 13.77 percent.
Kathryn Temchack, the city’s director of real estate assessments, said the increase in commercial property values came in part because she collected new data for the first time since 2010.
In 2011, Temchack said she reassessed some commercial properties on the Heights, and accounted for other changes and new construction. But she did not reassess all commercial and industrial properties in the city.
Temchack said she looks at economic trends and sales in Concord each year. Last year, she decided it was time to collect new income and expense data for the first time since 2010.
City Councilor Mark Coen said he had believed that the city was collecting new information every year, since the council authorizes annual assessments. He would like to continue annual assessments, but with assurance that new data and information will be collected annually.
“The concept of doing it every year versus every five years is . . . one doesn’t get a shock on their assessing statement,” Coen said.
The information that the assessing department collects from commercial property owners is used to determine value. Temchack said she uses that information to calculate income estimates for all properties, and determines a capitalization rate to assess its market value.
That method is standard for commercial and industrial properties, according to Stephan Hamilton, director of the property appraisal division of the state Department of Revenue Administration. Because there are typically few sales of commercial and industrial properties, Hamilton said assessors rely on the income approach.
In Concord last year, Temchack said she had only a 25 percent return rate on the information she requested from property owners. Temchack said she hopes the concern over this year’s assessments will prompt more property owners to provide income information to the city in the future. Her department uses the data to assess property values, but keeps the information confidential.
Coen said he has concerns about the small sample size of income information.
“But again, it’s a volunteer (survey), and I appreciate the idea of why commercial property owners would be hesitant to divulge confidential financial information to any entity, government or anything else, because it’s not mandatory,” he said.
While tomorrow’s public hearing will focus on the 2013 assessments, Mayor Jim Bouley said he still has questions about the 2012 property values.
“I am looking forward to hearing from the board of assessors so we have a better understanding of how this happened, and what happened. And I want to make sure that we have all the policies in place to make sure that we don’t see such a spike in the future.”
Property owners have questioned whether their property values should have increased, arguing that the economy is not improving. Temchack said the capitalization rates decreased in 2012, based on national and regional publications about the real estate market, interest rates and local property sales.
Bill Norton, president of Norton Asset Management, helped four clients apply for tax abatements in Concord this year. He said he hasn’t seen decreasing capitalization rates in New Hampshire, and doesn’t believe the commercial real estate market has improved in the past few years.
“From our experience, that may be true of Boston in the A markets, but that hasn’t been true in Concord,” Norton said.
Temchack said the data she collected in 2010 was based on income reports from 2008 and 2009, and the market has improved since then.
“Nothing was happening in 2009, and we lowered the values again in 2010 to recognize that,” she said.
Economist Russ Thibeault of Applied Economic Research said he has observed only small improvements in commercial real estate across the state since 2009. Vacancy rates remain relatively high, he said, and rental rates are not increasing.
“So to my mind, it has probably been a modest improvement in some properties, but I honestly don’t see it across the board,” Thibeault said.
A market outlook report from the real estate company CB Richard Ellis found that in 2012, the Interstate 93 corridor had a slight decrease in vacancies. The market for commercial office space “has not yet fully recovered to pre-recession levels,” Roger Dieker of CB Richard Ellis wrote in the report. But his report also calls Concord “a bright spot in the market,” citing developer Steve Duprey’s buildings on South Main Street as examples of new development.
Hamilton, of the Department of Revenue Administration, said he’s not yet able to comment on trends around the state for 2012. But his department’s annual study of Concord’s assessments found that its values are reasonable.
The state completes annual studies of appraisals in each city and town, comparing the assessed values to values based on property sales. The two figures would ideally be equal, though Hamilton said assessments can fall within a target range of 90 and 110 percent of fair market value.
The state found an overall percentage of 100.51 for Concord’s 2012 assessments. Hamilton said his determination of market values to compare with the city’s assessment is based solely on property sales within a given year. The overall number was based on 269 property sales in Concord.
There were only nine sales of commercial and industrial properties in 2012, he said. Based on those nine sales, he said commercial and industrial properties as a whole were assessed at 103.01 percent of market value.
To determine that ratio’s accuracy, Hamilton said the study found a 90 percent certainty that the ratio is between 81.87 percent and 107.24 percent.
“And really what that tells you is . . . you could see that it may be undervalued to an extent of 81.87 (percent of its market value). It could be overvalued, but only to the extent of 107.24 (percent of its market value).”
Few sales can make it difficult to assess property, Hamilton said, and demonstrates the necessity of the income approach to assessments. For example, the state’s study found only four valid sales of commercial properties in Concord in 2012.
Hamilton said assessing is “less than fully certain by its nature,” but the state’s appeal process is fair.
“The process of estimating value is usually referred to as an intersection of science and art,” Hamilton said. “There is not certainty about every single estimation that is made. However, there is a process that is built into this property tax assessing system to make sure that there is a bit of a money-back guarantee, where every property owner may file for an abatement.”
The board of assessors has already made decisions on 64 of the 350 tax abatement requests, granting 24 abatements and denying 40. Those decisions are based on additional information and property inspections for individual properties.
City Manager Tom Aspell said the abatement process is a chance to correct any inaccurate information the assessing office may have about a particular property.
“Once we have accurate information, we’ll apply that accurate information,” he said. “And you’ll get an abatement.”
Aspell said last week that “there’s plenty” of money to reimburse property owners for taxes if their abatements are granted. The city allocates money into a fund every year for that purpose, and uses the ongoing balance to pay abatements. The fiscal year 2012 budget included $317,000 in overlay funds, with an additional $300,000 in 2013.
It could take years before abatements are settled for 2012, if property owners appeal decisions. And while the city council will determine how often to assess property in the future, it has no control over the assessing process itself – or last year’s increases.
“Although my concerns remain, there’s really nothing the council can do about the outcome of that,” St. Hilaire said.