San Francisco’s property owners requst%48value reduction to cut taxes as prices plunge

San Francisco’s property owners of office towers، shopping centres، hotels and homes are flooding the city’s Assessment Appeals Board with appeals to slash their property assessments and tax payments so as to asked for an average %48 reduction on property value assessed at more than US$60 billion for the fiscal year ended last Jun 30، as real estate prices sink in the beleaguered city that is famous for Victorian-era houses with painted Ladies، skyline of office and commercial buildings.

San Francisco’s property owners are some of the world’s biggest landlords

San Francisco’s property owners who are some of the world’s biggest landlords، including Brookfield Corp and Blackstone Inc، have filed for assessment cuts that the volume of such appeals have doubled in the three years since the pandemic.

Assessments of San Francisco’s property owners for this fiscal year went out in early July، and new appeals are expected to surge before a Sep 15 deadline to request reductions on their property assessments and tax payments.

About % 55 received a reduction of the 2،420 appeals

Globest. com. site reported that about % 55 received a reduction of the 2،420 appeals heard by the board of the San Francisco Assessment Appeals Board in the 12 months through last June annd the volume of appeals shows the broader impact of the real estate downturn in cities such as San Francisco، where office workers، shoppers and tourists have been particularly slow to return o theis normal life after the pandemic of corona virus.

Appeals on about US$11 billion of San Francisco property

Mark Ong، founder of Independent Tax Representatives in San Francisco، whose firm working for 37 years، filed appeals on about US$11 billion of San Francisco property for the last tax year to reduce assessments so as to lower tax revenue for city services from police to homeless aid.

San Francisco’s property owners revealed that a recognition by the San Francisco Assessment Appeals Board that property values have plunged only adds fuel to a potential doom loop of disinvestment، where indebted owners walk away from buildings rather than pour money into assets that are now worth less than they paid that US home builder confidence falls for the first time during the current year.

San Francisco’s City Hall faces a US$780 million budget deficit

The San Francisco’s City Hall already faces a US$780 million budget deficit through 2025، forcing Mayor London Breed to raid her reserves and leave vacant jobs unfilled، among other belt-tightening measures while San Francisco’s latest budget assumes the City Hall will be forced to refund US$167 million to property owners over the next two fiscal years due to appeals.

San Francisco is far from alone while the assessments are going to be challenging as landlords across the country grapple with shifts in real estate demand and rising interest rates that have sent building prices tumbling and assessment appeals have also risen in many cities such as Los Angeles، Chicago and New York.

Offices in New York may lose % 44 of its value

Like San Francisco’s property، offices in New York may lose an estimated % 44 of their pre-pandemic value by 2029 because of the impact of remote work and they typically account for about % 20 of the city’s property-tax revenue، according to a joint study from researchers at New York University and Columbia University.

San Francisco’s property Landlords aren’t waiting for San Francisco Assessment Appeals Board to catch up with the times، as Brookfield requested a %75 reduction in the value of the office tower at 685 Market St، which it bought in 2013 and is seeking a % 68 assessment reduction for One Post St، according to filings with the appeals board while both appeals، which were filed last year، are still pending.

San Francisco’s property Landlords asked for more modest discounts

Others San Francisco’s property Landlords asked the Assessment Appeals Board for more modest discounts، including Blackstone that requested cuts ranging from %20 to %25 on three office buildings near the San Francisco waterfront and apartment landlord Equity Residential filed appeals for reductions of as much as %20 on five properties in the latest two tax years.

Columbia Property Trust، a landlord acquired by Pimco in 2021، asked for 50% reductions on three office buildings، one of which is part of the portfolio that stopped making mortgage payments in January، but it is hoped that that San Francisco will recover and it's just going to take longer، and there are real structural impediments and challenges there that real estate landlords all aware of.

Prices for office towers may plunge 60 % from pre-pandemic levels

The San Francisco’s property forecasts are even more dire: Prices for office towers may plunge as much as % 60 from pre-pandemic levels، according to Boston Consulting Group.

Owners of the San Francisco’s largest shopping mall، two of its biggest hotels and two office buildings controlled by investment giant Pacific Investment Management Co stopped making mortgage payments this year rather than hold onto money-losing propertie.

San Francisco home price sank %16 in June

The median San Francisco home price sank %16 in June from a year earlier، and residential sales volume dropped almost %17، according to the California Association of Realtors،while the city has avoided a major hit to its property-tax rolls، which climbed % 4.6 to US$340 billion for the current fiscal year starting Jul 1.

That’s partly because of increases to assessments of long-held real estate، which are still playing catch-up to the boom years because of a law that limits assessment hikes to % 2 annually as the last time total assessments fell was in the mid-1990s، following a US recession.

Landlords to ask for a bigger reduction at the outset

Nick Fogle، a principal with Ryan LLC، the largest property-tax advisory firm in the US، indicated that initial reassessment requests are often placeholder numbers as it’s advantageous for landlords to ask for a bigger reduction at the outset than to take a conservative position and appeal for a deeper discount later.

Nick Fogle who has worked on cases for 15 years explained that there’s probably never been a larger disconnect between appeal outcomes and current assessments as there is a third-party appraisal for an office building in the city that shows an over 80% decline from its assessed value and that’s the first time he has ever seen that loss.

San Francisco’s property Landlords appeals came ahead of bigger troubles

Some San Francisco owners appeals came ahead of bigger troubles such as the owners of the Westfield San Francisco Centre on Market Street received a roughly 40% cut in the mall’s assessment in March، while in June، Unibail-Rodamco-Westfield and Brookfield said they were giving up the property to lenders، due to the declines in sales، occupancy and foot traffic.

Park Hotels & Resorts Inc.'s CEO Thomas J. Baltimore withdrew، early this year، an appeal to cut the assessment of the Hilton Park 55 San Francisco hotel by almost half and the landlord said in June hotel stopped making payments on a $725 million mortgage on the Park 55 and Hilton San Francisco Union Square hotels as the city’s pandemic recovery may take as long as 7 years.

San Francisco tax reform ballot will go to voters in November 2024

Meanwhile، mayor London Breed of San Francisco has proposed an overhaul of the city’s tax structure، to be developed into a tax reform ballot measure that will go to voters in November 2024 and has proposed to delay a Gross Tax Receipts tax increase for certain industries with providing a temporary discount of the tax for new businesses locating to downtown، but any significant tax reform will need to be approved by the same voters who have been increased business taxes.

The Gross Receipts Tax is the San Francisco primary business tax، generating about $800M annually for the city، nearly 70% of that revenue comes from three tech-oriented sectors: Information (33%); Financial Services (19%) and Professional، Scientific and Technical Services (17%)، those also are the three industries that were the quickest to embrace work-from-home policies during the pandemic.