Bill Brown completed the building around January 1, and got the tax bill the following October. He knew the building was overvalued but Bill was very busy trying to get the units filled up. He thought he should check out the tax situation, but he had a lot of things going on. Besides, he could always appeal it next year when he had more time. BIG MISTAKE. Snick! The trap closes.
January 1 of that year was the magic day, the year the new construction was completed. So the valuation for that year set the Maximum Assessed Value, forever, more or less. That year his assessed value was calculated in a special way, for that year and that year only. For the year of construction, the real market value is multiplied by a factor called the Changed Property Ratio to set the Maximum Assessed Value. That Maximum Assessed Value is set in stone and will affect the value indefinitely. The method is not always bad, but if the value is wrong, the results can be disastrous.
The truly heartbreaking thing about this scenario is that the extra taxes will continue ad infinitum. Because he waited for the second year to appeal, he was able to get the real market value changed but not the assessed value. The tax stayed excessively high. This burdensome tax situation remains to this day, sapping the profits. The project is actually in danger of failing. This is all because Bill missed his window of opportunity.
The morale of this story is that new construction values should be watched like a hawk for the year or years of construction. This would have been the time to bring in a professional, such as myself or others, especially since the owner is burdened with so many projects. I don’t mean to imply that this trap is set on purpose. This trap is an unintentional consequence of Measure 50.
The actual tax computations are a bit complex but I will be glad to send you a more complete explanation if you request it.