Tax assessments are up developers' mood is down Rise comes despite high vacancy rates

January 30, 1992|By Timothy J. Mullaney

David Kornblatt has a question for the Tax Man.

If St. Paul Plaza, the office building that the veteran developer opened in 1989, was a big enough bust to put his company into Chapter 11 bankruptcy, how could its tax assessment go up 15 percent last month?

Questions like that are breaking out all over. Office developers hammered by a market in which vacancy rates have climbed to more than 22 percent are getting -- and protesting -- new tax assessments that show their projects' values, and thus their tax bills, holding steady or even rising.

"This building is what put me in [bankruptcy court]; it's no secret," said Mr. Kornblatt, whose building at 200 St. Paul Place is 28 percent empty. "The market is half of what it was."

"We have a fundamental problem with a real estate economy that values real estate one way and taxes it another way," said Robert Manekin, senior vice president of Manekin Corp., developer of the Bank of Baltimore building downtown and other properties throughout the suburbs. "It's not acceptable to us to have [market] appraisals lowered and tax assessments increased."

But the problem doesn't just affect developers. It affects the city as well.

Any substantial decline in assessment values could lead to lower tax revenues. And even the state official in charge of downtown assessments expects them to be rolled back by $100 million after the developers' appeals are submitted.

At today's tax rates, that would cost the city nearly $2.4 million a year in lower property taxes.

"It's probably a situation that will require a higher tax rate in Baltimore City," said Ronald Lipman, a consultant with Lipman, Frizzell & Mitchell, a Lutherville firm that represents developers.

But Bill Brown, the city's finance director, thinks Baltimore's tax rate of $5.90 per $100 of assessed value is not necessarily endangered.

"We have fluctuations from one period to another," said Mr. Brown. "There are ways of dealing with shortfalls."

The developers claim that the value of their projects has plummeted in the past 18 months and that assessors are behind the times, using values that reflect 1990's realities instead of 1992's.

The state's assessors, on the other hand, say different things, depending on which assessor is talking.

"In the past, when values were rising, we couldn't go back and raise them," said Frank O'Neill, a commercial and industrial property assessor in Howard County for the state Division of Assessments and Taxation.

"By the same token . . . when the market is going down, maybe the shoe is on the other foot," he said.

But the state's assessment supervisor for Baltimore said he knows that the office market was crashing even as the assessments were being done and that many of the valuations won't stand up on appeal by developers.

"I fully expect to lose $100 million [out of $2 billion] in tax base downtown" when appeals are finished, said Roy R. Sleeman, supervisor of Baltimore assessments for the Division of Assessments and Taxation. "Some of them will have numbers lower than they were three, even six years ago."

Building owners must file their appeals by Feb. 10. "I'd be surprised if he only lost $100 million," Mr. Lipman said.

A $100 million adjustment from the state's original estimates would more than wipe out the 4 percent increase in downtown property values, worth about $78 million, reflected in the state's assessments last year, Mr. Sleeman said.

Developers' howls are loudest in Baltimore because the state didn't reassess the biggest office districts in most neighboring counties last year. Assessors did visit Howard County's Columbia Town Center area, one of that county's biggest office districts.

But commercial properties in Anne Arundel County's airport corridor, as well as Towson and Hunt Valley in Baltimore County, are up for assessment this year. Carroll and Harford counties don't have major concentrations of office space.

Curiously, two of the biggest jumps in city tax appraisals are for two of the most troubled office projects in town -- Mr. Kornblatt's St. Paul Plaza, which was assessed at $24.95 million (up from $20.97 million three years ago) and 6 St. Paul Centre, the copper-colored colossus at St. Paul and Baltimore streets that was taken back by Chemical Banking Corp. late last year.

6 St. Paul Centre's assessment jumped $3 million to $30 million, though the building is 85 percent empty and its biggest tenant has gone bankrupt.

"I don't look at that [assessment] as one of the more defensible numbers we have out there," Mr. Sleeman said.

The problems are that the commercial real estate market is moving too fast, on the one hand, and that it's not moving at all on the other. Assessors use three methods to appraise an office building -- what it would cost to build it today, what it could be sold for and what it is worth based on the rent that can be obtained for it.

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