Hello all,
How does one adjust for the spike in property taxes that occurs in development deals when thinking about year 1 ROC, stabilized value, etc. For example, if a newly constructed property is not to be reassessed, say, 5 months until after it has stabilized from an occupancy perspective, is your Year 1 NOI not artifically inflated because "full taxes" have not kicked in yet?
This depends entirely on the local jurisdiction. Consultant a local tax attorney/tax consultant. Most frequently, a jurisdiction will use cost of completion during construction (% complete X total value of project costs or construction costs = assessed value), and then transition to the predominant approach after C of O (income approach, comparables approach, etc).
I agree that it varies by jurisdiction. In our markets we're seeing municipalities are holding our development cost as the assessed value, even through the reassessment period. We file our income reports each year but it seems, at least in this municipality, that the assessed value relies heavily on sale price.
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