Fee simple market value must be considered when evaluating office buildings. Owners buy buildings based on leased-fee, which is different than the tax code fee-simple definition. To the extent leases are above market or include concessions such as tenant allowances, adjustments must be made to reflect prevailing market conditions.
Medical Office Buildings
Doctors and ancillary service providers within medical offices and clinics often have symbiotic relationships. For instance, an orthopedic surgeon may utilize MRI services of his neighbor down the hall and rehab services from another tenant. These opportunities often result in some tenants paying above market rents not attributable to the real estate, and must be discounted for property tax purposes.
Only a portion of the room rate covers the real estate occupied by the hotel guests.The balance pays for occupancy taxes, food, housekeeping services, reservation systems and a recognizable brand name. Separating the non-real estate is essential in arriving at a fair property tax value.
The value of power centers is dependent on the intangible leasing and management expertise that can attract and retain synergistic tenants. A detailed lease deconstruction is necessary to ensure only the land and buildings are taxed.
Branch banks are designed to increase deposits from a very defined demographic area. A premium is often paid to acquire a site and built a structure that projects strength. However, market value is largely a function of prevailing rental rates in the area for general retail space, and must be considered when valuing banking facilities.
Integrated manufacturing plants are configured for unique processes creating “value-in-use” to the owner/occupant. Since property taxes are based on “value-in-exchange,” functional and economic obsolescence must be evaluated to derive a value suitable for alternate users.
The revenue generating capability of skilled nursing facilities is largely dependent on obtaining a facility license which entitles the holder to provide 24 hour nursing and rehabilitation care, dietary programs and other services. A careful allocation of revenue and expenses is required to ensure going-concern business value is not taxed.
Machinery and Equipment
Machinery and equipment are typically valued by assessors using trending schedules based on age and original cost. However, market data from brokers and dealers often proves that assessors’ schedules are overstated.
When valuing owner-occupied warehouse space, assessors often utilize a cost approach but only account for physical depreciation which overstates the property tax value. To properly quantify all forms of depreciation, market-derived adjustments for functional and economic obsolescence must be calculated using a pro-forma income study.