Delaware’s three counties have been operating under an antiquated 35- to nearly 50-year-old base dates for their property real property tax assessments; in Sussex, New Castle, and Kent Counties, the last assessments were in 1974, 1983, and 1987, respectively.
The assessment methodology was challenged by a lawsuit filed in early 2019 whereby litigants argued that the current real estate assessment system creates inequities in the state’s educational funding system. On May 8, 2020, Delaware Chancery Court Vice Chancellor J. Travis Lester ruled that the state’s use of long-outdated metrics in determining property tax assessments was unconstitutional and directed each county to begin to reassess their real property records.
In response, each county hired Tyler Technologies out of Texas to head up the mass property revaluation, starting with Kent County. The phases of their reassessment process involved an aerial imaging of all real property in Spring 2021, field work and property data collection starting in 2021 through the end of 2022, market data collection in 2022-23, and formulation of new assessments in late 2023 for Kent County.
The property tax assessment firm hired by each county utilizes a mass valuation statistical model in arriving at your assessments. However, sometimes models do not fit market pricing. Real estate is an imperfect market that is both cyclical and local. For example, mass valuation models don’t necessarily take into consideration in-place contract rents vs. market economic rents nor actual occupancy vs. reported market occupancy. Market knowledge and experience makes a difference.
Unfortunately, the past few years have been a challenging environment for commercial real estate owners due to the pandemic, heightened market uncertainty, higher interest rates, and a credit crisis. Commercial real estate transaction volume is a critical indicator of market health. When the Fed began raising interest rates to battle inflation in 2022, it threw the investment sales market into a tailspin. This dynamic has caused a bid/ask spread and a period of price discovery. The industry is feeling mounting pressure from both tighter liquidity and rising operating costs. In addition, there are a variety of stressors impacting all commercial real estate sectors, especially office buildings and poorly leased properties.
The commercial real estate market is also heavily influenced by macroeconomic forces and capital flows as it is a credit intensive industry. The year 2023 posed significant challenges for all involved in commercial real estate given challenges in capital markets, the persistent increase in Fed rate hikes, and rising operating costs. These factors impacted commercial real estate prices accordingly.
In addition to all of that, owners are now faced with new real estate property tax assessments. This makes a review of new assessments by a third party commercial real estate valuation expert with a fair and unbiased opinion very important. The professionals at Apex Realty Advisory work locally in Delaware and its surrounding areas in Maryland and Pennsylvania. Feel free to contact us to help assist you with navigating the reassessment process.