Better real estate market foreseen

January 08, 1995|By Kevin L. McQuaid | Kevin L. McQuaid,Sun Staff Writer

The state's Department of Assessments and Taxation is projecting that values of city skyscrapers have reached their nadir and will gradually rebound by the time they are re-evaluated at the end of 1997.

"What we've seen is that the downtown market is close to bottoming out and that a slow recovery is under way," said Owen C. Charles, supervisor of Baltimore City assessments for the state agency.

The agency's reaction to the perceived improvement became evident earlier last week when it released new triennial assessments for office towers in the city's business core that are essentially unchanged from a year ago.

By leaving most assessments unchanged through 1997, the agency appears to be stating that the hemorrhaging of value that took place in the aftermath of the local market's collapse in 1990 has ebbed.

The agency is basing its projection on falling vacancy rates downtown and assumed future rental rate increases, Mr. Charles said. Although the Class A vacancy rate has dropped to 15.7 percent, the city's overall vacancy level is 19.7 percent, nearly 5 percentage points higher than the rest of the region.

The unchanged assessments are expected to benefit city businesses short-term as well because increases in valuations -- which directly relate to the amount of property tax paid to the city -- are normally passed on to tenants through rental increases. Without an increase in assessments, city office tenants' rents should remain essentially the same, several property owners said.

In the wake of the 1992 assessment cycle, dozens of property owners appealed -- and won -- reversals of state assessments that had increased despite one of the worst real estate climates since World War II.

As a result, landlords shaved millions off their assessments and cut into the city's property tax base. At the same time, building owners leveled criticism at the department for being unresponsive to weakening conditions downtown.

"The state [of Maryland] had been slower to react to changes in the market than in Northern Virginia," said James L. Kaplan, a senior investment analyst for real estate with MetLife Realty, owner of the 23-story One Charles Center. "There, we rarely had to challenge an assessment because they were more proactive."

In the past three years, MetLife reduced One Charles Center's assessment by 62 percent through appeals, to $11.75 million. State records show it will remain at that level through 1997.

With the latest round of valuations and past adjustments through appeals, many landlords said they did not expect to contest their 1995 assessments.

"I think any further appeal would be futile because our assessment was reduced so dramatically in early 1994," said Ray W. Hamm, executive vice president of MBC Realty Co., the real estate arm of Mercantile-Safe Deposit & Trust Co.

MBC Realty's assessment on the bank's 21-story headquarters at 2 Hopkins Plaza was cut by 25 percent after appeal to $31.7 million, state records show.

But other landlords may feel as if the state's cuts weren't deep enough.

"Values appear not to be as overstated as three years ago," said T. Scott Basik, a Basik, Bushel & Shelton attorney who has represented a number of property owners in successful appeals. "However, a number of buildings continue to have declining income streams and significant vacancies, and [they] will need additional assessment reductions to be brought in line with true market values."

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