We just finished our presentation of the 2012 Industrial Market Report for the Commercial Industrial Association of South Florida. For those that missed it or need more copies of the report they can be found HERE, under our CIASF Tab, or on the CIASF website.
Hello, I’m Roger Lopez and this is my first newsletter for the Dixon Magenheimer Sisler Report.
Anthropology is the scientific study of humanity. It concerns itself with the biological and cultural evolution of our species. Generally it can be divided into four fields: biological anthropology, linguistics, cultural anthropology, and archaeology. The film character Indiana Jones is an anthropologist.
Biological anthropology focuses on the questions surrounding our physical evolution, as well as the evolution of the rest of our primate family. A lot of people are often surprised to learn that humans are classified as apes, just like chimpanzees and gorillas (our genetic cousins), except that we wear clothes and occasionally eat at the Cheesecake Factory. Monkeys and the rest of the primate clan are our cousins as well. The cultural and linguistic subfields deal with questions about our universal behaviors as well as those that make us unique in relation to other societies and how these are intertwined with our language. Archaeology, as our friend Indiana Jones has taught us, is the science of describing ancient cultures through their artifacts and fighting Nazis.
I have known the Dixons for 15 years, half of which I spent learning all about our species. I began my anthropological career at the University of Miami where I took classes spanning all four fields of the science. I graduated with a B.A. in anthropology with a strong focus on the biological component. I went on to graduate school at Kent State University in Ohio where I enrolled in the Master’s program. I spent three years learning about feeding behavior and the biomechanics of several species of South American monkeys. This required me to spend a whole summer in the jungles of Suriname stalking monkeys and drinking a significant amount of rum.
One day I decided to no longer pursue a life of anthropology. Making a career out of the science requires a Ph.D., something for which I was not prepared to commit. Despite my decision, I knew I had been exposed to a vast wealth of knowledge and to an invaluable set of skills. Aside from its academic component, anthropology serves many purposes in the “real world”. Archaeologists often work closely with governments and the private sector to ensure that land meant for development is free of any significant cultural resources (i.e. artifacts). And within recent history, linguists served an important function during WWII by helping the U.S. government decipher Japanese and German secret codes as well as developing our own undecipherable language based on Navajo.
While the leap from anthropology to real estate may seem counterintuitive, and it certainly was accidental for me, it can make more sense than expected. We believe real estate is about problem solving and understanding the needs of others and from where these needs stem and solving them. Being able to relate to anyone irrespective of their background is essential to successfully representing buyers and sellers. I recently earned my sales associate’s license and plan on making good use of it. If you are looking for representation in a real estate transaction, or if you just want to chat about monkeys, now you know who to call.
In Florida this is the time of year when property owners are notified of the amount of the real estate taxes to expect on the tax bill which will be sent the first of November. This notice know as a TRIM or “Truth in Millage” notice. For 2011 if proposed changes are adopted this should be equal on average around 5% lower property taxes than 2010 for properties whose values have not changed. If you do not see this drop in taxes, it is likely because the Property Appraiser’s Department has raised your assessed value!
How can they do this? Although the Market Value may have declined the “Assessed Value” (the amount used to calculate your taxes) increased because of the provisions Florida’s “Save or Homes” or Homestead Exemption legislation. Homestead Exemption provides that the assessment for residential properties, with Homestead Exemption, cannot increase per year by more than 3% or the Cost of Living, whichever is less. This can happen up until the Assessed Values and Market Values meet. But under no circumstances can your Assessed Value exceed your Market Value.
The other possibility is that the Millage Rate decreased less than the property’s value increased. Real estate taxes are calculated by multiplying the “Assessed Value” (or “Taxable Value” for Homesteads) by the “Millage Rate”. The “Millage Rate” is based on the amount of money local government needs from real estate assessments divided by the total “Assessed Values.” For example, if government needs $1,000,000 to operate and the total “Assessed Value” is $50,000,000 the millage rate is 20 mills or more simply 2.0% of “Assessed Value”. If government needs $1,000,000 and the total “Assessed Value” declines to $45,000,000 then the Millage rate will increase to 22 mills or 2.2%. Therefore, when “Assessed Values” decline and government needs remain the same the Millage rate will increase
Although the “Millage Rate” for all classes and types of properties in a government area are the same, the limitation on the increase in assessments under “Homestead Exemption” does not apply to non-homestead properties, for those properties there is now a 10% increase cap for the portions of your tax bill that are paid to the City/County/Region, but the cap does not apply to the School Board portion of which for the Taxable Value always equals Market Value, and is taxed on that amount. I know it’s confusing but at least you don’t need a CPA to calculate it for you just yet.
What can you do to make sure you are only paying your fair share of real estate taxes? If you believe your property assessment (value) is too high you can have us appeal on your behalf. We will review the county’s assessed values and compare against sales and income information to determine if a reduction is warranted and present this evidence to the Value Adjustment Board. Last year alone we saved our clients on average about 20% off their taxes.
However if you believe the millage rate is still too high you should attend the City and County Budget Hearing Meeting to express your feelings and demand sensible government spending. Our government needs to be held accountable for how they spend our tax dollars, and no one can do that but it citizens.
In addition a few things have changed for folks petitioning their real estate assessments. First, the state is now requiring that at least 75% of the taxes be paid before hearing the case. No more waiting until after the hearing to receive a revised tax bill. Second, refunds issued as a result of a Value Adjustment Board hearing after April 1st, will have accrued interest of 1% per month between April and the date of the refund.
The good news for 2011 is that we expect less people will be dissatisfied with their assessments as the Property Appraiser appears to be catching up with the market and drastically lowering values. However, times are still tough for commercial property owners, and with few arms-length transactions to base values off of, now more than ever, is the right time to review your assessed values based on income potential. Call us to setup a petition before the Sept. 15th deadline, and we’ll handle it from there. Alternatively you can CLICK HERE to apply online.
-Andrew Dixon
By the end of June, I will no longer occupy an office at Madison Circle, 3191 Coral Way. The first of July, I will set up my new home office at Kings Creek South, near Dadeland. This same contact information will be valid, since I will receive my mail at the office on Coral Way and the telephone, fax and e-mail address will not change.
What will change however, is that I will no longer be an office mate of Tom Dixon (17 years), Andrew Dixon (6 years), Gary Sisler (8 years) and Roger Lopez (3 years). I shall miss the fellowship, camaraderie and synergism of being together on a daily basis.
It is time to reflect past events and remember its lessons, as well as look to the future. To reflect on my lifetime, I was born 18 months before the stock market crash of October 1929, that led to the Great Depression, grew up in the Northeast during this time. My recollection of the Depression years is one of a normal childhood, without financial concerns. My father worked for a large Wall Street commercial bank, collecting a paycheck each week. He even bought a new Pontiac for only $285. I do remember when Pearl Harbor was bombed, (I was playing roller hockey at Victory Field in Queens N.Y.). I spent the war years of WW II attending high school and attended college and law school at the University of Virginia. Then served two years in the US Army in the Far East, in the counter intelligence agency (CIC) during the Korean War. With my new bride Dawn we moved to South Florida in September 1955.
My first encounter with a recession was in 1958-59 while working as a young traveling lawyer for a title company. The recession was caused by the tight money controls imposed on an overheated real estate economy by the Federal Reserve. The next downturn occurred during in 1966, when I was running the asset side of the balance sheet of the first mortgage real estate investment trust (REIT) in the US, First Mortgage Investors. We were making construction and development loans in 18 states. This downturn was moderate to severe, again caused by a restrictive monetary policy by the Federal Reserve to slow down the overbuilding in single family homes. This caused many defaults and foreclosures in the housing industry. Up to this point in the US economic history, inflation was not the factor it became in later downturns.
By the early 1970’s, the economy was booming again, with an over-supply of easy money from commercial banks and REIT’s formed by financial intermediaries with little experience in making construction and development loan to unqualified builder/developers in unfeasible locations. This led to a severe downturn caused by tight money at high costs, inflation and the Watergate scandals of the Nixon administration. Many REITS failed or were absorbed by their parent banks. This led to a period of workouts and restructuring of both construction and development loans.
The 1980’s was a period of recovery and prosperity, led by the Savings and Loan Industry fed by jumbo Certificates of Deposit and excess funds to invest in real estate projects that were not feasible. Also, real estate tax syndications created false values for investment real estate. The excess of this market, plus the Tax Reform Act of 1986, brought the house of cards crashing down in the early 1990’s. This led to government intervention in the market place by the formation of the Resolution Trust Corporation (RTC), as a vehicle to work out these problems. Scandals surfaced and several S&L executives went to jail.
By the late 1990’s and the dawn of the new century, things were booming again. Only this time Wall Street got involved in the real estate finance area with exotic debt and equity vehicles such as Commercial Mortgage Backed Securities (CMBS) and subprime mortgages. They created credit default swaps to securitize and protect themselves from the inevitable defaults. This arrangement not only did not protect the Wall Street house from default, it placed them all in the same boat. When it sprung a leak by default, they all began to sink.
The event that ushered in the Great Recession was the bankruptcy filing of Lehman Brothers in the fall of 2007. Other houses (Morgan Stanley, Goldman Sachs, Morgan Chase, Merrill Lynch and etc, were rescued by mergers engineered by the US Treasury with more solvent commercial banks. The US congress was convinced to provide stimulus monies to rescue the financial houses, General Motors and Chrysler Motors also received “bailout” loans to save those “too big to fail’.
At the present time we are still feeling the pain of financial excesses, fraud and lack of controls and experience in financial/loan management. I once had a Texas banker (who we owed over 6 million dollars) say “remember too much ice cream will make you sick”.
Many pundits and forecasters predict it will be several more years until the housing and commercial markets correct themselves. If that proves true, it will be 2015 or 2018 before a return to “normal” is evident. Next time around let us hope we have more wisdom and experience at the financial controls of our recovery.
Belonging to that elite group of males know as Octogenarians , I celebrate the naming of Jack McKeon (age 80) as the new skipper of the Florida Marlins. He will right the team and may instill the magic of the 2003 team which won the World Series.
Call me, I still function as a commercial real estate broker.
STEVE MAGENHEIMER – (305) 445-0916
Did anyone notice that in November 2010 they received a real estate tax bill that showed that they were being assessed for less but being taxed for more? What’s up with that?
Example 1 – Using North Bay Village Actual Millage Rates
2009 Market Value $500,000 x Millage Rate .0209155 = Taxes $10,458
2010 Market Value $475,000 x Millage Rate .0231724 = Taxes $11,007
What’s up; is that your tax bill conveniently excludes the real problem THE COUNTY BUDGET. What happened in this case is while your property values have decreased by $25,000 the county’s budget did not, or at least did not decrease by the same amount. So in order to collect the taxes needed to pay for the government, some of us were greeted with a MILLAGE RATE (TAX RATE) increase greater than our property value decrease. A problem which is only further exasperated by Florida’s overcomplicated and misguided real estate policies. [Link to Law]
Example 2 – Property with Homestead Exemption Benefit – Using North Bay Village Actual Millage Rates
2009 Market Value $500,000
2009 Assessed Value $330,000 x Millage Rate .0209155 = Taxes $6,902
2010 Assessed Value $339,900 x Millage Rate .0231724 = Taxes $7,786
Policies proposed and supported by people who seem to forget that every real estate transaction includes both a buyer and seller. And these policies only marginally encourage buyers but heavily discourage sellers. Some relief for this unequal reward/punishment system for homeowners was achieved with enacting of the homestead portability laws [Link to Law] But what did this ultimately achieve?
We now have a system that requires an enormous database (880,000+ individual folios in Miami-Dade County alone) for each county that not only needs to properly assess each property (Market Value), but in addition it must track and calculate each properties Assessable Values, as well as the $25,000 Homestead Exemption for the School Board portion and $50,000 exemption for the City/County/Region portions of the tax bill and now must track the amount that must be transferred upon the sale of the property and how much needs to be applied to the new property. (Good luck figuring out the formula used to calculate this amount.) But evidentily did nothing to spur real estate sales or price recovery, so now in 2011 they have a new plan.
With the equalization effect of the portability laws, the incentive of buying has been neutralized, our wonderful politicians have proposed new laws to once again encourage buying and discourage selling. [Link to Law) (Did we not learn anything the last go around?) This new law will on one side lower the assessment increases of ALL properties residential and commercial regardless of ownership to a maximum of 3%, thus creating the exact same disparity that caused the uproar and subsequent creation of the above portability law, but this time every piece of property will be affected instead of just homesteaded homes. In addition it will give buyers who have had no had a homestead exemption in the last 3 years a 50% reduction in their property assessment (up to $200,000) that decreases by 20% each year until it disappears in 5 years. After which they will still retain the 3% increase cap and $25k/$50k homestead exemption. So go ahead and add those new elements to the data that needs to be properly tracked for each property in the State of Florida to the database described above, that will likely need to be completely recreated to handle the calculations. And in case you aren’t aware a database this complex is not cheap to create or maintain. And the cost will be passed directly on to the tax base through high millage rates and or fee’s that won’t be based on value.
On the surface these changes may sound good, but again what will they actually achieve? Will potentially lower taxes for 5 years truly inspire people to start buying like crazy again? Or is it the extremely high un-employment, still declining home prices, or near impossible borrowing standards that are discouraging home buyers. Take your pick, all though for some reason I think the property taxes are a bit low on the list of reasons NOT to buy a home right now.
I say potentially above because this new law says absolute ZERO about reigning in County Budgets or Millage Rates! So regardless of how much of a discount you think you might get from these assessment discounts, the county will still need to collect the same amount of money (or more) and will just raise the Millage Rate in order to collect it. Furthermore we will have created a system that no longer taxes owners based on the values of their properties on a yearly basis, so why not just simplify the system instead of making it more complex and just dissolve the Property Appraiser’s office and base all Real Estate Taxes on the price paid at purchase and standard yearly increase for the CPI.
Maybe in our political climate this is impossibly straight forward, but it sure makes things a lot simpler for all involved and would be a starting point for a taxation system that would be predictable, manageable and easy to understand.
If you have the opportunity to alter this new law to actually address the real problem of endlessly millage rates and county budgets, and not the assessed values, please take these into consideration.
For more help navigating the murky world of Florida’s Real Estate tax system, call us. Or maybe not, this s..t is really confusing and makes my brain hurt.
Andrew Dixon
*My apologies to those in the PA’s office that would lose their jobs, but in fairness so would we.
In today’s office market in South Florida vacancy rates for most submarkets average 20% and over. This is especially true in “C” Class Buildings or below. Class “A” buildings are enjoying lower vacancies and less willingness by landlords to give excessive concessions to lure tenants. Concessions can take several forms; free rent, free parking, generous tenant improvement allowances, moving allowances and the like. Also there is less flexibility in the published rental rate and the actual effective rent finally agreed to by the landlord and tenant.
The classification of “B” buildings, plus or minus (B+ or B-) is often in the eyes of the beholder/owner/landlords/leasing agents. Most landlords will want the newer buildings, less than ten years old, to remain in the “A” class category. These landlords or lender/receivers want their properties to remain Class “B” when they are by reason of financial condition, deferred maintenance, poor leasing and marketing efforts, are clearly about to fall into the dreaded “C” category.
The classification of “A”, “B” or “C” buildings should be determined by the age, location, leasing/marketing efforts by the leasing agent and maintenance of the property. Because there is no industry wide criteria established, the classifications float, the “B” buildings tend to be the most flexible. The plus (+) classification may include some buildings fallen from the “A” by reason of age and maintenance/condition. The minus (-) classification in this category will include some properties that are clearly headed to become “C”.
In today’s recession period, several building have fallen into the “sour” category. This is by reason of the negative factors set out above, they are about to fall into a lower category. This is particularly true of “B” properties about to become “C” quality. Many of these properties are “fractured” condominium offices which were good solid “B” building when they were leased. After they were purchased at an inflated price by a condo converter, over financed by a unknowledgeable lender and failed after selling only a small fraction of the office units. After foreclosure and judicial sale, tenants in these buildings are quick to recognize the changes in the maintenance, functioning of elevators/AC/ and poor marketing/leasing efforts by the owner. Using the services of a tenant representative/broker, tenants can find out quickly what other properties in the submarket are offering. They may discover they can improve their surroundings, lower their rent and gain the advantage of new quarters at an improved economic level.
“Sour” buildings tend to have this new designation spread faster through the market. “Good” buildings and the office brokers representing tenants determine rapidly that new opportunities have presented themselves and they are quick to take advantage of the situation. “Sour” buildings usually get worse before they get better, ultimately falling into the hands of a rogue buyer, who has purchased the building at a steep discount. This buyer or his next in line can now afford to reposition the property and enter into a new leasing program which will ultimately create a healthy Net Operating Income (NOI) and a sale at a substantial gain the owner.
“Good” buildings usually get better and “Sour” buildings worse. Office brokers know the territory. If you are in a “Sour” building, hire a good office broker, he can negotiate good terms for you in a “Sweeter” building. Remember the tenant representative is paid by the new landlord, so essentially you receive the services of this trusted, experienced and established professional at no cost to you or your company.
By: Office Broker and Tenant Representative Steve Magenheimer -305-445-0916
NOW AVAILABLE:
The official CIASF 2011 Industrial Market Report as presented by Tom Dixon for CIASF on Jan 14th at the Sofitel Hotel in Miami.
In Florida this is the time of year when property owners are notified of the amount of the real estate taxes to expect on the tax bill which will be sent the first of November. This notice know as a TRIM or “Truth in Millage” notice. In some cases, for the year of 2010 it is showing an increase in the real estate taxes, even though values have declined.
This increase is because of one of two possibilities. Although the Market Value may have declined the “Assessed Value” (the amount used to calculate your taxes) increased because of the provisions Florida’s “Save or Homes” or Homestead Exemption legislation. Homestead Exemption provides that the assessment for residential properties, with Homestead Exemption, cannot increase by more than 3% or the Cost of Living, whichever is less. For the year of 2010 the Cost of Living increase is calculated at 2.7%. Therefore, for residential “Homestead Exempt” properties the assessment increased by 2.7%, This can happen up until the Assessed Values and Market Values meet. But under no circumstances can your Assessed Value exceed your Market Value.
The other possibility is that the Millage Rate increased more than the property’s value decreased. Real estate taxes are calculated by multiplying the “Assessed Value” by the “Millage Rate”. The “Millage Rate” is based on the amount of money local government needs from real estate assessments divided by the total “Assessed Values.” For example, if government needs $1,000,000 to operate and the total “Assessed Value” is $50,000,000 the millage rate is 20 mills or more simply 2.0% of “Assessed Value”. If government needs $1,000,000 and the total “Assessed Value” declines to $45,000,000 then the Millage rate will increase to 22 mills or 2.2%. Therefore, when “Assessed Values” decline and government needs remain the same the Millage rate will increase. For properties in the City of Miami, the Millage rate from 2009 to 2010 increased by 14.27%.
For example, if your property is in the City of Miami, unless the “Assessed Value” decreased from 2009 to 2010 by more than 14.27% your real estate taxes will be the same or higher. This increase in taxes is a result of the millage rate increase because of the decline in “Total Assessed Values” without a equal decline in the Governments budget for the year.
Although the “Millage Rate” for all classes and types of properties in a government area are the same, the limitation on the increase in assessments under “Homestead Exemption” does not apply to non-homestead properties, for those properties there is now a 10% increase cap for the portions of your tax bill that are paid to the City/County/Region, but the cap does not apply to the School Board portion of which for the Assessed Value always equals Market Value, and is taxed on that amount.
In reviewing the assessment for commercial properties of our tax appeal clients, we have found moderate increases in the assessments but with the increase in the millage rates the real estate taxes have increased. For example, if your property is in the County and the “Assessed Value” remained the same, the increase in the “Millage Rate” of 8.6% means your real estate taxes are 8.6% greater.
What can you do to make sure you are only paying your fair share of real estate taxes? If you believe your assessment is too high you can file an appeal petition or have us appeal on your behalf. If you believe the millage rate is too high you should attend the City and County Budget Hearing Meeting to express your feelings and demand a reduction in government spending. One solution I have suggested is that every government expenditure, every payment and every expense should be easily available for public review online. Our government needs to be held accountable for how they spend our tax dollars.
By Tom Dixon
Hopefully, now that we have passed through the dark time of not knowing what the financial future holds for us, it is time to consider how things can be better in the future. It seems to me that not too many years ago the belief was that if you have more, spend more and live in a bigger house you will be happier. Maybe it is now time to re-think what all this “more” has created.
My guess is that this came about because we were not content with what we had and thought more would be better. In terms of houses, this was financially possible but had a hidden trap. If you could buy a home for $100,000 with a down payment of $10,000 and a loan of $90,000 and the price of the home increased by only 10% then it would have a value of $110,000. With a $90,000 mortgage you had made $20,000, a 100% return on your $10,000 investment. If you can keep refinancing your home loan at 90% of its value will continue to double your money. Why not? The why not or risk is that if the value of your home declines then your equity is wiped out. Yes it was fun while it lasted but eventually more homes and condos were built than there were people able to afford to purchase without fraud or even to live in them. Prices declined and equity was wiped out.
The second problem became the cost for mortgage payments, upkeep, insurance, and real estate taxes. As long as values were going up it made sense. But when home prices stopped rising couples with no children began to question their need for 8,000 SF 6 bedroom 6 bath home with real estate tax bills of $4,000 to $6,000 per month. An excessive home is like a Hummer, yes to looks cool and seemed like a good idea, but do we really need to live in a monster home and drive around in such a massive vehicle.
How did all this happen? The combination of a belief that good times will continue, incomes will rise, home prices will never decline and more and more and bigger and bigger are better. This is not to say that there may be reasons for big homes and big cars, but just because we can borrow money to buy them is not a good reason.
So how do we overcome the “Hummer Dilemma”? A realization that perhaps the answer is in these quotes :
“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” -Will Smith
“Wealth consists not in having great possessions but in having few wants.” -Epicurus
Or this great truism my wife Linda gave us when we moved to our new office. “The best things in life are not things”.
On Thursday June 17,th we presented the 2010 South Florida Office Market Report. If you missed the presentation or want a copy of the printed report you can find it and all the previous report under the CIASF tab of our website.