Deadline approaching to appeal Michigan commercial property valuations

A recent case upheld a lower property valuation for several big box stores. For retailers who question the valuation of their real estate, the deadline to file an appeal is quickly approaching.

The Michigan Tax Tribunal recently sent out a reminder that the deadline to file commercial and industrial real property valuations is May 31, which this year falls on a Saturday. What this means is the Tribunal will accept petitions postmarked or electronically filed on or before June 2, 2014.

The deadline is July 31st for valuation appeals of property classified agricultural, timber-cut or residential. Since that happens to be a Thursday there is no change to this deadline in 2014.

Recent appellate decision looks at valuation of big box properties

Michigan multi-property businesses and retail chains can appeal the assessed value of their properties based on the "true cash value" (TCV). How is this defined and who determines this value? The TCV is the fair market value or the price that a buyer and seller would arrive at in an arm's length negotiation. Reaching the TCV includes looking at the advantages and disadvantages of:

  • Location
  • Zoning
  • Present economic income of structures
  • Economic income of land if put to income producing use
  • Timber, water power and minerals or other valuable deposits

A township appraiser usually determines this value, but a property owner has the right to appeal the valuation.

In the recent case, a Home Depot and a Lowe's home improvement store in the Upper Peninsula appealed the valuations of their properties. The township appraisers used a valuation approach assuming that highest and best use was the continued use as the same type of home improvement store. Various sale-leaseback or sales of leased property from one investor to another were used as comparables.

Home Depot and Lowe's hired their own appraiser who argued that the highest and best use was as a retail store. Their appraiser used three valuation approaches - sales-comparison, direct capitalization and income - to arrive at lower valuations. The "free-standing" big box stores are not typical commercial properties constructed to sell or lease repeatedly. These types of stores are built to suit and a company often takes a loss upon sale of the real estate, because a buyer incurs significant modification costs.

The Michigan Tax Tribunal valued the properties as if they were vacant and available for sale rather than occupied or sold with a lease in place. On appeal, the Michigan Court of Appeals agreed with the approach and the lower valuation suggested by the appraiser hired by the stores. While retailers have obtained favorable rulings at the tax tribunal, this is the first case affirmed by the Michigan Court of Appeals.

As this case demonstrates, the opinions of appraisers often differ. A property tax appeals lawyer can help navigate the appeals process and ensure the assessed value of your property is accurate.

Keywords: commercial property tax, appeals deadline