Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/888015
www.REBusinessOnline.com Western Real Estate Business • October 2017 • 45 The Portland metropolitan area is undergoing an u n p r e c e d e n t e d boom in commer- cial construction that extends from downtown to the suburbs and into just about every product type. Many taxpay- ers are preparing to pay larger tax bills, either because they are devel- oping one of those new projects, or because they own properties that are becoming more valuable in re- sponse to growing demand for rede- velopment sites. This is particularly common in developed areas where infill construction is hot. Taxpayers in either of those posi- tions may be missing out on signifi- cant tax savings if they are unaware of two provisions of Oregon law that could offer some respite. The Oregon legislative has carved out property tax provisions for a prop- erty under construction and for a property subject to a governmen- tal restriction. The savvy property owner needs to know about these opportunities and comply with the statutory requirements to achieve the tax benefit. The provisions are especially rel- evant to Portland's latest round of development, much of which is con- centrated around infill in neighbor- hoods and on properties that were once used for industrial activities. It is important to remember that Oregon law bases property taxes on the real market value of the property or the maximum assessed value un- der the Oregon Limits on Property Tax Rates Amendment of 1997. Also known as Measure 50, this amend- ment imposed restrictions on future increases in assessed values and on tax rates. Taxing entities multiply the assessed value by the tax rate to calculate the taxes owed. The state defines "real market val- ue" as the price an informed buyer would pay to an informed seller in an arms-length transaction. The statute goes on to state that if the property is subject to a governmen- tal restriction as to use, "the prop- erty's real market value must reflect the effect of those restrictions." That brings us to the tax-saving opportunities associated with us- age restrictions and construction. Taxpayers typically think of govern- ment restrictions only as zoning law or a conditional land-use limitation. Often overlooked are environmen- tal restrictions on a property's use, such as when the federal Environ- mental Protection Agency or the De- partment of Environmental Quality has identified the land as a contami- nated site. When a property is governed by a qualified environmental remedia- tion plan, it is subject to a govern- mental restriction on the property's use. Obviously, the contamination and the future costs of remediation or containment significantly reduce the property's real market value. One way to measure the reduc- tion in market value caused by the government's environmental re- strictions is to calculate the present value of the future clean-up costs. The assessing authority will consid- er the responsibility and costs of re- mediation or containment, and will usually reduce the real market value of the property significantly. Another common governmen- tal usage restriction occurs when a governmental agency provides low-interest loans or tax incentives as a means of encouraging develop- ment of certain types of public in- terest projects, such as low-income housing. The government loan will typically require that the property reserve a number of units for lease at a below-market rent. In Oregon, the statute allows the property owner to choose whether it wants to enter into the special as- sessment program for low-income housing. A caution to the property owner that enters into the special assessment program for low-income housing is that the property could become subject to back taxes if it later fails to meet the requirements of the county, or of the loan. Importantly, the statute does not require the property owner to en- ter the special assessment program to achieve the tax benefit of certain low-income housing units, as long as the loan meets certain statutory requirements and is properly re- corded. Not to be missed is the construc- tion-in-progress exemption, which is available for income-producing properties. Most states encourage the development of commercial and industrial facilities by sheltering construction projects from the pay- ment of taxation until the property is in use or occupied, and therefore generating rental income or en- abling an owner-occupier to pursue business activities there. The construction exemption re- quires strict compliance with the statute, and inadvertently failing to meet one of the criteria could cost the property owner a year of tax savings. The exemption isn't lim- ited to manufacturing facilities; the Oregon Tax Court has held that this tax exemption is also available to a condominium under construction, provided that the units were held for sale until its completion. While taxpayers in Portland's hot construction market enjoy many op- portunities to take advantage of tax reductions, owners all across the state should be on the alert for these potential reductions. — Cynthia M. Fraser, Attorney, Garvey Schubert Barer in Portland, Ore. Garvey Schubert Barer is the Oregon and Washington member of American Property Tax Counsel, the national affiliation of property tax attorneys. OREGON LAW OFFERS POTENTIAL FOR PROPERTY TAX REDUCTIONS Properties under construction and projects subject to governmental restriction can take advantage of legislative provisions the state provides. Fraser 303.926.2769 www.erieco.gov/economic_development EconomicDevelopment@erieco.gov CON TAC T US 3 Retail Centers Under Development First opened Nov. 2016 anchored by King Soopers. 4 Additional Prime Retail Sites Available Strong traffic counts, available utilities and commercial zoning. Highly Educated 59% of Erie residents are college graduates. $112,000 Average House- hold Income. Population of 25,000. Income and population growing at a faster rate than the region. Median Age 37 Growing families, young professionals, and active adults are drawn to our panoramic location, scenic trails, championship golf course, recreational activities and over 300 days of sunshine per year. C O L O R A D O L I F E S T Y L E . R O O F T O P S . CUSTOMERS. Time to call Erie, Colorado home for business.