A little over two years ago, the COVID-19 pandemic fundamentally altered how we conduct business and go about our daily lives. Although day-to-day life is beginning to return to normal, the pandemic’s effects on business and real estate are long-lasting and, for some sectors, potentially permanent. For owners and managers of property in the City of Philadelphia, recently issued property tax assessments are the first opportunity for taxpayers to seek relief by demonstrating the pandemic’s impact.
Last week, Philadelphia completed its first city-wide reassessment since the COVID-19 pandemic began. The results have caught some property owners off-guard. Assessments on real property increased in the aggregate by 21% since the 2019 reassessment. While residential properties increased the most — on average by about 31% — even commercial properties were assessed on average 9% higher than they were pre-pandemic.
Although it has been well-reported that residential property values have broadly increased over the last two years, many commercial properties have not fared as well. The hospitality and travel industries, for example, were hit hard and still have not fully recovered to pre-pandemic levels. Shopping centers, neighborhood retail shops, and other brick-and-mortar establishments — which were already depreciating in value due to the rise of e-commerce — have seen long-term vacancies become the norm, with bankruptcies and foreclosures on the rise. And almost all companies are reevaluating their physical office space needs, too, as work-from-home policies become more prevalent and institutional tenants consolidate their office footprints in all but the most vital markets.
Given the disconnect between values as reflected in the market and the new assessments determined by Philadelphia, prudent owners and property managers should promptly evaluate the new assessments, which became available online at property.phila.gov on Monday, May 9 (although written notices may not be mailed until September). While the City is focusing on mitigating the impacts of these increased assessments on homeowners (for which there are several relief programs in place), businesses are largely left to fend for themselves. That means the best option for relief is to appeal assessments that do not accurately reflect the market value of commercial real estate. The deadline to appeal the new assessments is October 3, 2022.
Faegre Drinker’s national property tax appeals and disputes practice group has been working with appraisers and market-participants to understand the changing marketplace in order to help taxpayers secure much-needed relief. Property taxes are often the largest expense of property ownership after debt service. To remain competitive in a post-pandemic world, owners must reduce tenant occupancy costs and their own holding costs. Until the uncertainty surrounding the pandemic is resolved and the market stabilizes, Philadelphia property owners should carefully consider whether assessment appeals will offer a competitive advantage as the pandemic wanes and the economy moves into the next stage of recovery.