Colorado-Real-Estate-Journal_335975

Page 36 - April 5-18, 2023 www.crej.com Finance T here is a new housing bill (HB-23-1190, first right of refusal) that would allow governments the first right of refusal on basically any mul- tifamily property. On the sur- face, the new proposal sounds innocuous, but the devil is always in the details. One item in the proposal would radically alter the real estate landscape and have far-reaching implica- tions on property owners. What is in the first right of refusal proposal? 1. Local governments would have the right of first refusal on any development with three or more units in rural-resort set- tings or five or more units in urban areas. 2. Once a property is under contract, governments have two weeks to exercise their right of first refusal, then 90 days to make an offer, then another 180 days to actually close. 3. Basically, governments could tie up any multi- family prop- erty for 9.5 months with no penalties, fees, etc., if they do not close and with no con- sideration. n The proposal as it is writ- ten will radically alter the real estate landscape. As the bill is written, qualifying unit owners would have to provide notice to local authorities that they plan to sell their property. Those authorities would then have two weeks to decide whether they planned to exercise their right of first refusal. If they do, they have 90 business days to make an offer and another 180 after that to close the deal. Those timelines are delays that will make developers leery of shifts in the economy like interest rates, said Rachel Mar- ion, CEO of the Denver Metro Commercial Association of Realtors. For example, if some- one is selling a property and gets an offer, the prospective buyer is put into a predicament as they might not want to wait 9.5 months to buy a property as a bank will not lock in rates that long, and a lot can change. Furthermore, an almost 10-month delay could put the seller in a precarious situation. Let’s assume they are selling because they have another property in mind or need the cash. With a 9.5-month delay, it drastically alters those plans. n How should the bill be written? The first right of refusal should be exactly as the other offer in regard to tim- ing, price, etc. There should not be a 9.5-month window where the government can tie up any multifamily property. Furthermore the government should have to provide consid- eration (deposit) in order to tie up the property that is forfeited if they do not close. How this bill is currently written could be greatly abused by the gov- ernment. Let’s assume that a property owner dies, and his heirs need funds for whatever reason. The owners list the property and price it for a quick sale. The government comes in and says it will match the offer, but not close for 9.5 months. The government could use this to further negotiate with the seller and put the seller in a precarious position due to the time lag. Furthermore, many buyers will likely get scared away knowing that their clos- ing could be delayed for 9.5 months. n Summary . The right of first refusal sound innocuous on the surface, but after digging into the details, the impacts will be far-reaching. I understand the premise of a first right of refusal, but allowing the gov- ernment to tie up a property for 9.5 months is ridiculous. This proposal will radically alter multifamily construction as no builder wants to build a property and then sit with it tied up for 9.5 months before they can actually sell it. Fur- thermore, there is no guaran- tee that after 9.5 months the government will even buy the property, which will scare away prospective buyers. The current proposal for the right of first refusal is a bad idea that will have unintended consequences for the market and ultimately lead to less con- struction of multifamily hous- ing. Additional reading/resourc- es: https://leg.colorado.gov/ bills/hb23-1190 s glen@fairviewlending.com Proposed new affordable housing rule puts gov’t first Glen Weinberg Owner, Fairview Commercial Lending 2 023 is a reappraisal year for Colorado’s 64 coun- ties, and all indications point to significant valuation hikes and property tax increases across a broad spectrum of property types. On top of this year’s property tax uncertainty are additional peripheral fac- tors that have the potential to add even more costs to Colo- rado owners’ property tax bills. These include but are not lim- ited to: n Denver’s mill levy increase. This new base mill levy is a 6.58% increase over 2021. Many property owners were anticipat- ing and budgeting for a smaller increase of around 1.5%. n Ongoing impact of pan- demic-related challenges, including uncertainty of tenant growth/con- traction plans based on newly adopt- ed hybrid w o r k i n g s c h e d u l e s , especially in office build- ings. n Addi- t i o n a l C O V I D - 1 9 impacts on property values, which are being considered and evaluated by the Colorado Supreme Court. The court’s rul- ing could send ripples through property values going back to 2020. n County assessor data col- lection timing. Colorado stops collecting valuation data and i n f o r m a - tion the June prior to an a s s e s s m e n t year. This has created an unusual “gap” where the impacts of COVID-19 and recent interest rate hikes weren’t fully accounted for in the coun- ty assessors’ valuation models. n Continued economic uncertainty around a potential economic recession. We have conducted exten- sive research to calculate the potential value increases and sales ratios using transactions from the past two years. Our research considers property type and subtype with per- centage sales ratio variables to deliver the most comprehensive report to our clients. The chart gives property owners a gen- eral glance at what’s coming, with the caveat that individual counties will be guided by their respective circumstances and data/fact patterns. In addition, 2022 was the most active assessment legisla- tion year in Colorado’s recent history. Of particular note are Senate Bill 22-238 and House Bill 22-1416. SB 22-238 address- es assessment ratio changes for various classes of property for 2023 and 2024. HB 22-1416 makes changes to procedures for property tax assessment appeals and amendments to property tax materials and requires that certain informa- tion be included on notices of valuation. It should also be noted that there have been a couple of bills introduced in the 2023 legisla- tive session. The first is HB23- 1054, which caps the valuation increase in 2023 to a 5% limit but does not address any cap on the mill levy or on additional spending. The title of this bill is rather vague and leaves the door open for amendments and other changes. There are groups working with the governor’s office to implement change in the property tax system, so there may be some good news coming. We’ll have to watch and see what is decided. Individually, these unusual peripheral circumstances and market conditions would influ- ence property values negative- ly and necessitate more thor- ough and thoughtful valuation review and analysis. Collective- ly, they represent potentially enormous negative pressures on net operating income, cap rates and actual (versus assessed) property values. The potential gap between assessed value and actual values has rarely seen such impactful anomalies as 2023’s assessments and valu- ations will experience. Property owners in Colorado will receive valuation notices for the 2023 reappraisal on or before May 1. Property owners who believe their 2023 assess- ments exceed fair market value as of June 30, 2022, should consider filing an appeal. The appeal deadline for 2023 is June 8. Colorado also offers an abate- ment opportunity, which is basi- cally a reach back for taxes paid, versus a reduction upfront. This can be done for a period of two years going forward from the tax bill due date. Property taxes are generally one of the highest expenses on the owner’s financial statement. Prudent and assertive manage- ment of this expense can yield significant NOI returns and increase the value of the asset accordingly. Paying appropri- ate property taxes is a necessary civic responsibility. Overpay- ing property taxes (or any tax) is bad business and decreases return on investment. The ulti- mate goal of the county asses- sor and the property owner is to arrive at the fairest prop- erty value, and thus tax, based on the most accurate appraisal data and market conditions. s matt.poling@ryan.com Stephen.Doherty@ryan.com Significant tax increases expected in 2023 for CRE owners Matthew Poling Principal, Ryan LLC Stephen Doherty Director, client services, Ryan LLC