Texas Real Estate Business

MAY 2016

Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.

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www.REBusinessOnline.com Texas Real Estate Business • May 2016 • 35 A s researchers continue to debate how market conditions afect the value of commercial real estate, one thing is certain: Appraisal districts across Texas are recalculat- ing taxable property values. To ensure fair tax assessments, it is crucial for retail property owners to monitor de- mographic and technological changes that can disrupt retailers' sales and a shopping center's overall income po- tential. Here are a few points for taxpay- ers to broach when helping assessors determine correct taxable property value. Consumers spent more on dining out than at the grocery store last year, a historical frst, according to Mar- cus and Millichap's 2016 U.S. Retail Investment Forecast. With millenni- als dining out more than other age groups, this trend will likely continue. Some landlords are shifting the bal- ance of stores, restaurants and bars at their properties to lure millennial shoppers. Conversely, changing consumer de- mand is weighing on outdated shop- ping centers that require signifcant renovation to remain relevant. Even with the right updates, a center could sufer from external obsolescence, or conditions outside the property that reduce its value. Millennial Impact The growing infuence of millenni- als has also increased demand for con- venience commerce. Businesses such as Instacart now enable consumers in some markets to order groceries and goods direct- ly from major grocery chains using smartphones, to be delivered to their home in as little as one hour. E-commerce companies are adapt- ing services that were once accessible only in a retail space and delivering those conveniences to the consumer. Entrepreneurs have already begun to experiment with mobile services ranging from dog grooming, mani- cures, hair styling and even massage therapy. As the availability of services grows in step with millennials' disposable income, owners of shopping centers ofering similar services may see a decrease in foot trafc within their de- velopments. Shopping centers with tenants that cannot adapt to this service delivery model may be exposed to signifcant vacancy risk. Adapting to the Market Many national retailers adapting to e-commerce growth have announced store closures in 2016. Many of these retailers are invest- ing signifcant capi- tal into their omni- channel platform, suggesting that additional store closures are still to come. With the con- tinued growth of e-commerce, some industry observers believe that retail- ers will reduce the size of their show- rooms or sales foors to allow more square footage for warehouse fulfll- ment space. More warehouse space would allow retailers to process merchandise for pickup or delivery without interfering with the shopping space for customer foot trafc. In this scenario, market rental rates that represent part showroom and part warehouse space would be appropri- ate for assessors to use when applying the income approach to value. Adapting to Change Taxpayers must always ensure that assessors use correct rates and values as comparables, otherwise the asses- sor could reach an improper value. Additionally, as retailers across the nation continue to experiment with smaller store footprints, assessors must consider the potential for that trend to reduce the market value of large boxes and inline spaces, with a corresponding impact on property values. Shifting demographics, the evolu- tion of convenience commerce and retailers' adaptation to e-commerce can profoundly increase or decrease a retail property's value. These trends demand that asses- sors carefully analyze a property's individual characteristics as well as the market area in which the subject is located. Apparel tenants may be the most at risk of losing sales, but landlords must also consider the viability of other ten- ants that could occupy the retail space at market rents. The assessor should consider this uncertainty when selecting capitaliza- tion rates. Also discuss with the asses- sor year-over-year changes in income and expenses, and in tenant health, within the subject property. By protesting property taxes, land- lords can pass any tax savings onto their tenants, who typically reimburse the landlord for taxes, depending on the terms of the lease. In addition, a successful tax protest may enable the landlord to quote lower operating ex- penses, which can help attract and re- tain retailers. Correct analysis can identify any obsolescence that may exist, enabling the assessor to adjust taxable value ac- cordingly. And with a more accurate picture of the property's marketability, the asses- sor will be in a better position to judge proper market rents, vacancy and col- lection loss, and capitalization rates. Only with all these essential pieces can the assessor correctly determine a retail property's taxable value. n Kirk Garza is an MAI and licensed Texas Property Tax Consultant with the Texas law frm Popp Hutcheson, PLLC. The frm devotes its practice to the representation of taxpay- ers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affliation of property tax attorneys. Garza can be reached at kirk. garza@property-tax.com. PROPERTY TAXES AND THE GROWING MILLENNIAL IMPACT ON THE RETAIL SECTOR By Kirk Garza Kirk Garza Popp Hutcheson PLLC • Direct access to I-10, 35 miles to Downtown Houston, 2 miles of frontage. Superb access to Austin, San Antonio, and the Rio Grande Valley. • Proximity to Port of Houston turning basin (44 miles); International Airports (Bush and Hobby, 45 miles); and Houston Executive Airport (2 miles). • All utilities and draining on site, including natural gas 35 kv electrical line. • Access to great labor draw within 30 minutes. Work-force: 266,858 Distribution employment: 8,213 Manufacturing employment: 43,788. • Great corporate neighbors: Rooms-to-Go, Medline, Weatherford, Cameron and Igloo located in the energy corridor. • Potential incentives: property tax abatement, reduction of assessed value, Freeport exemptions, and employee transit benefits. Fulshear Texas Where Opportunity Abounds www.fulsheartexas.gov Contact: CJ Snipes 281.346-8803 cjsnipes@fulsheartexas.gov PointWest 1,015 Acres of Prime Real Estate Designated For Commercial Development

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