John R. Lloyd is a member of Chiesa Shahinian & Giantomasi PC in West Orange and the leader of its property taxation group. — Courtesy: CSG
By Joshua Burd
There was no shortage of property tax appeals ahead of last year’s filing deadline in New Jersey, but it was far from the avalanche that often comes in a time of economic turmoil.
John Lloyd, an attorney with Chiesa Shahinian & Giantomasi PC, said many property owners were simply focused on navigating the COVID-19 crisis that emerged only weeks before the April 1 deadline. Couple that with multiple extensions of the filing window by state officials — ultimately, to July 1 — which created “a moving target” in the months that followed.
“Everybody was in such a transition mode in ’20,” said Lloyd, who leads the property taxation group for West Orange-based CSG. “You put that along with the deadline uncertainty — (and) there was a frenzy of activity before the deadline, but not like what you would expect.”
With this year’s deadline upon us, the pandemic’s broader impact on commercial real estate valuations is still far from clear. Lloyd noted that owners of “clearly injured properties” such as hotels and many types of retail have, understandably, moved to lower their assessments, but operators in other asset classes are taking a more measured approach.
For instance, he said, federal rental assistance and mortgage forbearance have allowed many apartment owners to weather the storm over the past year. That has limited tax appeal volume in an asset class that was relatively healthy before the pandemic, he said, speaking anecdotally.
The office sector, on the other hand, “is a real wildcard.” Lloyd said “the data is just not in yet” with respect to how the workplace will look in a post-COVID world.
“In my personal opinion, so much of what’s going to happen in the office market is going to be driven by: What does the new normal look like? What exactly happens?” he said. “Even with health and safety being taken care of, do we go back to the way we worked before? … I think it’s evolving and that it’s going to be different, but how different?”
Broadly speaking, Lloyd said valuations at the start of the crisis had been established more than five months earlier — in fall 2019, on the statutory date of Oct. 1 — meaning that, “technically the COVID experience wasn’t going to be directly relevant for the 2020 tax year.” That contributed to an inherent delay in filings in the early stages of the pandemic, he said.
This year, owners in hospitality and retail were far more likely to appeal. Those in the surging industrial sector are on the opposite end of the spectrum, Lloyd added, given its ongoing strength and the additional growth of e-commerce during the pandemic.
“The market was on fire before COVID and, realistically, anybody who’s looking at it has got to say it certainly has not slowed down as a result of that,” he said. “It is still extremely active. There’s an appetite for product up and down the main corridors and even expanding out a little bit beyond. It’s getting to a point where there’s really a paucity of available area.”
To that end, industrial owners whose valuations have been enhanced by the pandemic may be susceptible to reverse tax appeals by municipalities seeking to increase their assessments. As of early March, however, Lloyd said many towns have held off on taking such action, hoping to gain more clarity after a year of uncertainty.
He added that New Jersey’s tax court is deliberate by design when it comes to setting precedents during an economic downturn. That means many COVID-era cases won’t be resolved until after judges have had a chance to gauge how property owners have fared over the long term.
“The tax assessment system is supposed to move more like an ocean liner than a speedboat,” Lloyd said. “It is designed not to be whipsawed by severe market forces, so … the court will look for stabilization, and the way they accomplish that is that they’ll look for two to three years of economic performance to judge where the market is for purposes of tax assessment.”