Volatility strikes the latest round of commercial property assessments

AACI | Vice President, The Regional Group of Companies Inc.
  • Feb. 2, 2017

Property values go up and property values go down. It’s the nature of the beast, driven by the vagaries of market demand or lack thereof.

John ClarkBut every property has two values – its sale price, determined by what a buyer is willing to pay, and its assessment, drawn from what is deemed to be its fair value.

The former can be skewed, sometimes wildly, by market speculation and public perception. The latter, at least in principle, should be tempered by much more objective criteria based on its characteristics and the prevailing conditions in the local market.

In Ontario, that’s the role of MPAC – the Municipal Property Assessment Corporation. This body manages assessments for each and every residential and non-residential property in the province, about 5 million properties in total. The values assigned are used by municipalities in their determination of property taxes.

MPAC assesses on four-year cycles. Residential assessments for the 2017-2020 cycle were mailed out over the summer. Commercial assessments came out in the fall.

Something we’ve not seen often

In our office, we’ve been surprised by what we’ve seen so far on the commercial side – a level of volatility those of who’ve been around for a while have not seen before.

Take this example: the assessed value of an apartment building has jumped almost 25 per cent, while another comparable property in the same market has dropped by more than five per cent.

We of course do see such swings from cycle to cycle – properties may undertake renovations or other changes that impact their assessed value. Local market conditions may have undergone a significant shift. Or the assessment may have an error in the paperwork.

But we’ve not seen so much change to so many different properties that haven’t experienced any obvious changes that would impact an assessment. In some cases, assessment values have more than doubled. Others have dropped by the double digits.

Why is this? We’re not sure. There hasn’t been any change in MPAC’s basic methodology. The answer may be in the data, but all aggregate city-wide data by property class hasn’t been released yet for closer study.

Volatile cash flow for city hall?

One thing is certain at this point – volatility in the assessment base means volatility for municipal coffers. Municipalities try to run a zero sum game. They are not in the business of making a profit on reassessments. Instead, their goal is to take in just as much money as needed to break even on service delivery, paying the bills, meeting payroll and maintaining a healthy rainy day fund. It’s a complex exercise in budget forecasting.

But if the assessed value of their revenue base – properties – tracks down, that means higher tax rates. With the swings in the current reassessment, some commercial property owners will see tax decreases while others will see above average increases. The big problem will be for the individual city and its property owners where taxes go up materially. Some shouting likely will follow.

Until aggregate city-wide data by property class is available, it’s hard to say if the net increases and net decreases will balance each other out in terms of the tax rate impact. But from what we can tell, municipalities should brace themselves, at the minimum, for some discontent.

The deadline to appeal is March 31

Commercial property owners need to brace themselves, too. If your property has experienced a notable change, it may be an error. Go over every last period and comma of your assessment notice. Compare it to the last one. If you do feel an error has been made, the deadline to file an appeal is March 31, with dates for Requests for Reconsideration earlier in February and March.

On the other hand, if you are blessed by an unexpected decrease, don’t expect this means you can mount an appeal on the grounds you were over-assessed in the previous assessment cycle. Unless you filed an appeal for that cycle during its window of opportunity four years ago, you are stuck. It’s case closed, too late to reopen.

There hasn’t been much written so far about the latest commercial assessments, but there have been a couple of interesting stories emerge that demonstrate the need to take a close look at your notice. Despite the best efforts of MPAC’s hard-working staff, errors and mistaken assumptions do have an impact. It’s up to property owners and their representatives to work with MPAC to correct any problems – now is the time to act.

Cautionary tales

In Carp, a rural village that’s part of the City of Ottawa, we have The Carp Road Corridor Business Improvement Area business park. As reported in Ottawa Community News, there was a “tremendous percentage of error” in the 2012 assessments for the park, with the average error being 40 per cent to the plus side. A key cause was assessments based on models for an average industrial park that has municipal services such as water. But this park doesn’t operate on city water.

Meanwhile, farmers in Eastern Ontario have been getting big surprises in the mail with this assessment cycle. Some are facing assessment increases of as much as 70 per cent, according to The Brockville Recorder. Why? A number of factors, including speculative buying of fallow farm land for new housing development and growing demand for acreage to grow livestock feed with the rapid growth of factory farms.

We will continue to watch how this unfolds with great interest. If you received a whopper of a commercial assessment last fall, let me know. And if an appeal is likely for you, consider taking a less costly and time-consuming alternative to arbitration – mediation.

To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

Read more

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