fbpx
8030 La Mesa Blvd Ste # 608, La Mesa, CA 91942

Real Estate Taxes & Consulting

Property Tax Abatements: The New Hampshire Circumstance

It’s been a year since the coronavirus has come to light, hence, the name COVID-19—coronavirus disease 2019. In just a few months, the world will be celebrating the anniversary of the coronavirus pandemic. Perhaps celebrating is the wrong word for it. The point is, it’s been almost a year when the entire world has experienced the disease that affected everybody.

Not a single person was immune to the ill effects of the virus. If they weren’t affected health-wise, they certainly felt its ramifications in terms of economics and relationships. A lot of people lost their jobs while some have to adjust to working fewer hours. Work had to shift to the home environment as well.

There were so many adjustments that people had to cope with without fair warning. One of those adjustments was on a person’s buying practices. Instead of going to the store and buying products—essentials or not—they just shop online. Whether they are afraid or go out or constrained by the stay-at-home rules at the start of the pandemic, it’s a fact that buying habits had to shift.

So, what happens to commercial spaces?

New Hampshire property taxation

With companies shifting to work-from-home format, it leaves a lot of unused office space. Malls are no longer densely occupied. Plus, it’s not a great time to buy properties because a lot of people are financially struggling.

The coronavirus pandemic has shone a spotlight on the need to rethink the use of commercial spaces. With that much space and a definite decrease in earnings for fiscal year 2020—for most companies that is—there was a need for rent deferrals.

In the case of New Hampshire, property taxation is based on ad valorem. This means that taxing a property will be determined through a percentage of the fair market value of the land or building (or both) that is subject to taxation. Every town is mandated to appraise the real properties within the boundaries.

In New Hampshire, taxation should be proportionate. It takes a more complex turn when one taxpayer owns multiple properties in the same town. Appraisal doesn’t just look at one property’s fair market value but also its comparison to other properties in the same community.

Before COVID-19, the calculation is determined every year by the New Hampshire Department of Revenue Administration. The determinant is called the median equalization ratios. To be more specific about it, if the median equalization ratio is 95%, this means that all real estate in a particular community will be assessed at 95% of its fair market value. For a taxpayer with multiple properties in the same town, this means that they will get an aggregate assessment of fair market value.

Abatement

Knowing that everybody is having a hard time—financially and otherwise—during the pandemic, taxpayers can make a legal plea in terms of property taxation. New Hampshire has a Revised Statutes Annotated 76:16, which provides for a brief period of time where one can challenge the property assessment after having received the year-end tax bills for the specific fiscal year.

Taking this into consideration, taxpayers can request for abatement on or before March 1, 2021. The request will be filed before selectmen and other authorized representatives of the area.

On the part of the selectmen, they should respond to the abatement request not later than July 1. If the selectmen deny the request or even if they don’t respond to it, the taxpayer can make an appeal. The said appeal should be filed before the Superior Court of the county where the property lies, or before the Board of Tax and Land Appeals. The appeal should be filed not later than Sept. 1.

The process should be properly documented. The New Hampshire Assessing Standards Board has put it as responsibilities of the selectmen and retained assessors to make the procedures accurate, credible, fair, and transparent. Those should not be n the way of the selectmen’s autonomous legal and credible responsibilities to make sure that assessments are reflective of the fair market value or that these are proportional.

It has to be noted, though, that the burden of proof to show that there was over assessment of properties lies with the taxpayer.

Valuation

This means that the taxpayer should know how to determine the fair market value. This way, they can appropriately conclude they the assessment of their tax is greater than the actual valuation.

There are three ways to identify the fair market value: income / income capitalization approach, cost approach, and sales comparison approach.

The income approach is used to determine the fair market value of income-generating properties. This means that the expected income will be the basis to look at the anticipated benefits that the property may accomplish.

The cost approach, on the other hand, will make an estimated value by checking the cost required to reproduce the property when depreciation is taken into consideration.

Lastly, the sales comparison approach puts side by side the subject property and other recent sales, including adjustments.

The New Hampshire Supreme Court doesn’t favor one particular approach in its decisions. The appropriate valuation type or approach will depend on the kind of property that is being discussed. As the burden of proof lies on the taxpayer, there should be prudence in looking at the assessment of the property.

Abatement is necessary especially as people are grappling with the economic effects of the pandemic.

Real estate investment

One of the known economic consequences of COVID-19 is the drop in real estate investment. Commercial office space recorded the sharpest drop in economic returns. Obviously, it is not the right time to invest in office spaces when people are still working from home. Unless the majority of the population have been vaccinated, it is still best to just stay at home.

Retail, too, has seen a large drop in returns and investments. A lot of stores, particularly those selling non-essentials, were forced to close since they couldn’t keep up with fiscal responsibilities. Hospitality, too, is in the same vain as people are discouraged from going on vacations.

These matters affect valuation methods as the drop in real estate investment and returns affect the fair market value.

Is There Light in Condominium Investments Amid COVID-19?

President Donald Trump once described New York as a ghost town amidst the COVID-19 pandemic. While it’s not necessarily true, one can see that New York is no longer as densely populated as before.

New York is the ninth most densely populated states in the country. However, during the pandemic it didn’t seem that way anymore.

Many people work in New York because of the opportunities that abound. Some of the people who work in New York don’t necessarily live there. It makes for a viable region for condominium investment.

With COVID-19, though, almost every segment of the society was affected. People’s health is under threat, thousands of people lost their jobs, hundreds of businesses had to fold.

Such economic turmoil resulted in many distressed condominiums. Homeowners who lost their jobs or business could no longer afford paying for their mortgage or other real property-related dues. They might have to give up their homes.

Distressed condominiums

Not only that, real estate developers who have already erected their condominium buildings need to consider another strategy. With families financially affected by the economic effects of COVID-19, the target for the condominium units will surely be reduced.

For people with money, though, this is a good opportunity to make even more money in the future. Real estate investors can surely take stock with distressed condominiums.

One investment opportunity is to buy multiple distressed condominium units in a bulk sale. In numbers, it can be considered a bulk sale when it is a minimum of 10 units or 20% of the units in a condominium building.

Another investment opportunity is putting money in the recapitalization of a project.

There were some condominium buildings that failed to finish due to the fallout from COVID-19. These buildings could be refinanced with new investors coming in. The process is referred to as purchasing an equity interest in a developer-sponsor program.

This means that the investor will be a part owner of the condominium building or all the unsold units but in an indirect capacity.

Successor-sponsor

When it comes to bulk sale, it should be noted in the offering plan that the investor is the successor-sponsor. This means that they are afforded the rights and liabilities, plus obligations, of a sponsor related to the units sold.

Also indicated in the offering plan is the closing date of the bulk sale. It also states that the original sponsor still has rights over the properties until the closing date.

Usually, there is more than one investor to a bulk sale. If this is the case, a principal among the successor-sponsors should be elected. The principal is the director and shareholder. They will be directly involved in planning the offering.

It is also the principal that signs a certification on the accuracy and honesty of inputs in the offering plan.

On the other hand, the recapitalization process already holds a document detailing the transaction. If the group wants to have a principal, then that will be part of the amendment.

The principal has an important role in bulk sale or even in recapitalization. It is important that the successor-sponsors find someone they trust and someone who knows the trade.

Making future decisions

Does an investor even have a hand in making decisions? In the case of bulk sale, the investor will acquire the rights of the sponsor as well as have the authority to control the offering.

This means that the investor will have the power to modify prices and dictate the market release of the units. They will also have the authority to transform the layout of the units or even resize them. Of course, these would be subject to the regulations of the building and zoning body.

For recapitalization, the investor’s power over the subject property or properties will be subjected to a negotiation. The investor’s rights or obligations in this case are largely dependent on their role as operator or investor.

The rights and power are all stipulated in the transaction details. The rights could be related to setting prices or modifying condominium units.

New York Situation

When the bulk sale closes, there will be transfer taxes that need to be taken care of. The dues will be to both New York City and New York State. Since it’s a bulk sale, transfer tax rate is commercial in nature. This means it’s higher than if one pays for the transfer tax of just one unit.

The State also collects a Mansion Tax. This is a property tax levied upon the closing of residential properties that have a value of more than $1 million.

Taxes for recapitalization are indicated in the transaction document.

There is no right or wrong answer as to how one should invest in distressed condominiums. Should they do the bulk sale or recapitalization? It’s all a matter of preference. There is also no saying which one earns more. What is clear is that both are really great real estate investments.

Scroll to top