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Property Taxes And Local Government Are The Keys To The LA Real Estate Market

POST WRITTEN BY

Michael Polk

Polk Properties offers over 30 years of Real Estate experience you can trust and depend on. We focus on long-range portfolio management.

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Have you ever opened your property tax bill and, after looking it over, wondered how they come up with that amount? Or, who ”they” are? Maybe you called the tax collector’s office and complained that your taxes are too high. You were likely directed to the tax assessor next.

California’s unique property tax system treats all property, whether commercial, residential-income or family home, exactly the same — and is a system that any would-be investors or potential buyers would do well to familiarize themselves with.

Record-high prices, wildfires and even the ever-present threat of earthquakes seem unable to deter people from pursuing the Los Angeles dream and the opportunity offered by the largest metropolitan area in the world’s fifth-largest economy. The population of Los Angeles County alone exceeds 10 million, more than the populations of the vast majority of U.S. states. Home prices and rents continue to rise, though sales slowed this summer, which is to be expected in response not only to rising prices but increasing mortgage rates. According to the Office of the LA County Assessor, property values grew by an average 6.62% countywide and by 7.2% in the City of Los Angeles. That’s only the assessed value which, because of the property tax base-year stabilization of California’s Proposition 13, is often lower than the current market rate if that property were to sell today.

Prop 13 codified an event-based assessment system in the state constitution. It stipulates that property will be taxed at 1% of the assessed value and that this assessed value shall not increase by more than 2% yearly, to account for inflation. This means, for example, that when you buy a house, the market value of the property is appraised by the Assessor’s Office, and that that value (plus a maximum of 2% annually) will be used to calculate the 1% property tax each year.

If the significance of this isn’t yet clear, this means that the tax rate is stable and absolutely predictable, not just this year or the next, but a decade from now. Critically, it also means the assessed property value is “locked-in” at the time of purchase and effectively becomes the sole variable in determining the amount of taxes owed. This significantly increases the benefit of getting in early in areas experiencing renewal and new development, since the lower purchase price will also likely mean lower property tax for a long time to come.

The caveat to that is reassessable events. These mean that a property can be reassessed to the current market rate in certain circumstances.

These circumstances include the sale or transfer of property. When you sell a property, its new tax base year may be of little concern to you, but transfers can be triggered by adding people to a deed, moving property in and out of trust, etc. These actions can be taken without reassessment in some cases, but they require precise maneuvers. Construction also triggers reassessment but, importantly, it can be only a partial reassessment for additions.

This system puts singular importance on the role the Assessor’s Office. The value determined by the Assessor’s Office creates a strong incentive to appeal that decision in order to try to attain a lower value. The appeals go before an independent board, but with such incentive to appeal assessments, it quickly becomes overloaded, particularly in large jurisdictions.

The Los Angeles County Assessor identified 2.57 million taxable properties the County as of January 1, 2018, collectively valued at $1.51 trillion. With this number and value of properties, it’s easy to see how assessment appeals get backed up. In 2014, there was a backlog of approximately 23,000 appealswaiting to be heard, with additional new appeals being filed each year. The current Los Angeles County Assessor has prioritized assessment appeals, working with the Board of Supervisors to reduce to the backlog and looking for innovative strategies to reduce the need and incentive to file unnecessary appeals. The effort has been met with some initial success, but more work certainly remains to be done.

Because the assessed value is the single determining variable of property tax and can increase only modestly over time, property tax relief and benefits are effectively provided as exclusions from reassessment. Such a benefit exists for seniors 55 or older to be able to buy a home of equal or lesser value, within LA County or other participating counties, and take their existing property tax base year with them. Another exclusion allows parents, and in some cases grandparents, to pass their property tax value to their children (and grandchildren). There are also benefits for those with disabilities and for victims of natural disasters.

These savings and relief programs are administered by the Assessor’s Office which, through modernization and an emphasis on public service and coordination with other agencies, has greatly improved the experienced of interacting with the property tax system and the ability of those eligible to take advantage of the tax savings allowed by Prop 13.

Technology is fundamentally changing the way we conduct business. Local government is notoriously behind. But at the LA County Assessor’s Office, modernization, while slow and steady, is leading the pack in usable customer service and has made available valuable real estate data, including property values, recent sales and new construction.

Los Angeles County has seen consistent growth. The continued demand for property for both sale and rent — not only in the City of Los Angeles, but in the county’s growing suburbs — and the stability of property taxes make it an attractive investment destination for real estate professionals and homebuyers alike.




6440 Views|Jun 6, 2018,9:00 am

Technology's Impact On The Future Of Commercial Real Estate

Michael Polk / CommunityVoice

Forbes Real Estate Council

Real Estate

Post written by

Michael Polk

Polk Properties offers over 30 years of Real Estate experience you can trust and depend on. We focus on long-range portfolio mgt.


The retail industry has been experiencing disruption due to technological innovations that have pushed a growing number of consumers to mobile purchases and e-commerce transactions. In 2017, nationwide e-retail sales totaled over $409 billion. Amazon accounted for $54.47 billion and Walmart sold $14 billion in the U.S. alone. By the year 2021, forecasts for global e-retail sales expect the number to reach $603.4 billion (USD).

In tandem, local and national media headlines in the last few years have reported stories of major retail industry giants closing hundreds of brick-and-mortar locations due to steady declines in sales. Among the most notable retailers closing doors or filing for bankruptcy protection are RadioShack, Gap Inc., Kmart, and Toys R Us.

Across the commercial property board, access to information that was once limited to CRE brokers who paid fees for such data is now available to the general public for free. This has removed barriers between commercial real estate owners and prospective tenants.

For example, the website 42Floors provides office space rentals and commercial real estate listings for owners and prospective tenants. A fair amount of information is available for free, and a premium service lets licensed brokers access better-qualified prospective tenants. Some companies like CompStak and DealX implement a crowd-sourced platform by providing lease comparables for public usage, coupled with details like the tenant’s name, rent amount, length of lease and landlord concessions. Real Massive and VTS have even more comprehensive platforms, offering property listings, relevant market data, workflows and information to owners, CRE professionals and tenants.

These are just a few of the startups looking to transform commercial real estate through innovation and by making data transparent and ubiquitous.

Digital Disruption Is Affecting All Real Estate Asset Classes

It’s clear that technological innovation has affected many asset classes of real estate, including workspaces, retail shopping centers, distribution centers, offices and more. With an increasing amount of work and consumer purchases being performed from anywhere on mobile devices that have internet access, employees and consumers are transforming the way they do their jobs, purchase goods and services, and live. Retail stores are reorganizing their traditional infrastructure from a decade ago to better compete with e-commerce giants such as Amazon and Walmart.

Because of the amount of information consumers are able to access, change is taking place in the retail industry. Retail store owners, commercial brokers and staff are no longer the ones with absolute power. Consumers are not taking a back seat anymore and the ramifications for the commercial real estate industry cannot be taken lightly.

The road to a purchase is no longer a straight line for consumers. Nowadays, they include both traditional store and online channels. Consumers are investigating and learning all there is to know about the product well before going into a physical location — if they ever do. One of the outcomes is that square footage demand for retail space has decreased due to shifts in consumer behavior and buying patterns, efficiencies of the physical store and online channels. In many major cities across the U.S., foot traffic has been on a gradual decline.

Disruption in the retail market is having a similar influence in manufacturing. Warehousing and distribution markets have experienced an increasing demand due to the yearly growth in online purchases. It should come as no surprise that many large retailers are making investments in extremely complex technical fulfillment sites that are strategically located.

Customers can now receive merchandise that is directly shipped from the warehouse inventory instead of retail stores having to keep it within the store. This works out well for retailers since the cost per square foot of warehousing space tends to be a lot less expensive than retail space.

In the office class, the integration of technology, mobile devices and infrastructure empowers workers to work virtually anywhere. Traditional office environments have been places where employees go to perform their jobs Monday through Friday on a 9-5 work schedule. People communicated with colleagues and fellow staff and even met with customers. In essence, the original social network was the office. This system was linear, strict and offered few to no opportunities for personalization and uniqueness.

Overall, disruption is a positive thing that brings about progressive change for the disrupted industry. Commercial real estate agents and investors who are open to new methods and who evolve with the latest disruptive technologies should remain market leaders. Innovation will often produce very good results if you’re willing to embrace it. If not, you are likely to be left behind.

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Polk Properties offers over 30 years of Real Estate experience that you can trust and depend on. We focus on long-range portfolio mgt.



 















Polk Properties offers over thirty years of Real Estate experience that you can trust and depend on. We focus on long range portfolio management and tailor each portfolio to deliver value with measurable returns. We have sold and leased a rich mix of product types in the market place. For an insightful analysis of your current real estate holdings and an overview of the opportunities the market extends, contact Michael Polk at Polk Properties.

Polk Properties successfully operates locally and nationally. For the most informed real estate decisions, partner with us. Our brokers stand ready to deliver successful sales and acquisitions with precision, intelligence and integrity. Stay current on Commercial Real Estate industry news and trends, visit PolkProperties.net on a regular basis. We will make available current articles of importance, as well as specific industry podcasts.

 


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