Philadelphia Commercial Real Estate Tax Assessments for 2018

On March 31, the Philadelphia Office of Property Assessment (OPA) entered new values for commercial and industrial, but not owner occupied single family residences, on its website and indicated that notices would be mailed in the coming weeks. The process which OPA followed may be open to constitutional challenge and its valuation methods are opaque with some very inaccurate values.

In the fall of 2016, the Philadelphia School District (“PSD”) entered into five year agreements, on a contingent fee basis, with two firms to bring market value appeals of certain OPA assessments. This resulted in approximately 140 appeals for 2017 and we are very involved in contesting those. Before even considering values in those appeals, certain threshold issues involving the legality of the appeals must be addressed. Some of those issues are pending before the Pennsylvania Supreme Court in the Valley Forge Towers case and some other issues are unique to Philadelphia. Additionally, the consultants for the PSD are reviewing OPA’s assessed 2018 values with an eye towards challenges where they believe values are low. As part of the 2017 value appeal contests, we are filing discovery requests and hope to learn more in order to determine whether the PSD process passes muster under Pennsylvania law.

We have seen many OPA proposed 2018 values that are simply too high for reasons that are not apparent. Obviously, taxpayers will fight those on the merits. Owners should be able to engage in discussions with OPA on those between now and the appeal deadline of early October. In many other cases, the value will not be out of line against the market, but the issue will be whether properties are assessed uniformly. For example, it appears improper to assess building A at its recent sale price when comparable buildings are assessed at 60% of their fair market values. Another question arises as to whether certain operating results are attributable to realty values or management. Consider hotels, although we believe the same principles can apply to all realty. Taxpayers might have to educate the court to value a hotel building based on a uniform amount per room, adjusted for age, condition, location etc., rather than solely on NOI which reflects the savvy of its operator.

The bottom line is that both the City and School District need funds to operate and every property owner needs to pay a proper share. Our job as making sure that “proper” is followed and is not a meaningless slogan. At the end of the day, if we compel the City to play by the rules, that should increase the attractiveness of the City to new investors.

If you have any questions or would like us to help you with these issues, please call Larry Arem-215.569.4142 or Carl Primavera-215.569.1663.

This Client Alert has been prepared by Klehr Harrison Harvey Branzburg LLP (the “Firm”) for the general information of our clients and other interested persons. This Client Alert is not, and is not intended to be, comprehensive in nature. Due to the general nature of its content, this Client Alert is not and should not be regarded as legal advice or the opinion of the Firm, and you should not rely on any information in this Client Alert for any specific situation. Rather, you should consult with us or other legal counsel with respect to particular circumstances addressed in this Client Alert before taking any action. Receipt of this summary does not create an attorney-client relationship between you and the Firm.