Commercial Real Estate Solutions: Franchise Sector
In these uncertain times, commercial real estate owners face complex challenges. Data intelligence and analytics can provide asset analysis, both local and nationwide, to understand valuation positions and comparables to identify opportunities for tax appeals.
COVID19 has presented a serious challenge to the franchise industry, along with many other economic uncertainties as we have entered 2021. Many metropolitan statistical areas (MSAs) such as Chicago, New York City, Los Angeles, and San Francisco will see large variances in RE and BPP (property tax amounts) parcels from 2019, as there are now so many factors that will adjust CRE values. It is an opportunity for many industry professionals to reassess where they can save significant monetary amounts, and RE appeals can be a great place to start.
Commercial Property Taxes: Effect on Small Business
The economic uncertainty presented by the current pandemic has undoubtedly created the need for all franchise business models to reflect on current strategy utilized in the industry. Many firms will need to enhance or reconstruct a strategy that can keep business operations afloat, and reevaluate how to remain not only open, but profitable for the future.
Creativity and flexibility are the champions of innovation within all business types and models. One significant expense that all franchises have in common is related to the property taxes associated with the physical assets of their business. Although it may seem common knowledge, we at CoreLogic recognize that firms rarely explore some cost saving opportunities within this realm (as it relates to the taxes and values associated with such assets).
Analyzing the tax data can provide a snapshot of where opportunities or gaps exist within a certain franchisor/franchisee portfolio. Establishing or outsourcing relationships with taxing authorities can provide tremendous benefits in cost savings (related to valuations and property taxes as a whole). Financially examining how appeals, attestations, automation, and other opportunities that exist from a tax and personal property scope should be utilized whenever possible to maximize cost savings during times of current economic hardships.
How Does It Work?
Understanding the appeal deadlines and various analyses to present to the tax assessor is an important preparation in deciding to file an appeal. Property owners may want to consider filing appeals in 2021 requesting relief in current values which in turn will reduce the overall tax liability. Below is a step by step process to conduct this analysis:
- Review upcoming appeal deadlines and appeal process by visiting your local tax assessor’s website.
- Monitor the assessor’s website for initial values published to understand what the assessor is setting as your current assessment (market value and assessed value).
- Review your asset valuation based on the following criteria:
- Comparable property assessments
- Market sales
- Income and expense
- All tax assessors are required to assess “like” property in a uniform manor. Identifying those “like” assets in your communities that may have lower assessments is one area to contest. This basis for appeal is called uniformity.
There are national companies that offer services assisting on the analysis for property for basis of appeal, as well as managing the appeal process.
We recognize the innate complexity franchise real estate parcels can cause for holding companies or like entities that manage the tax and finances for extensive RE portfolios. In a post-COVID19 environment, the IFA and lobbying organizations have been relentlessly trying to save and assist as many businesses as possible within the franchise sector. CoreLogic has available a breadth of data which could assist the IFA in identifying potential tax savings for each individual franchisee/franchisor.
How Franchise Suppliers Utilize RE Valuation Data
By nature of CoreLogic being a RE data analytics company, we recognize that this information is also valuable to many franchise suppliers—especially those that help firms either manage property data OR have solutions that provide KPI financial elements (i.e., accounting, balance sheet management, etc.). The initial tax roll data can be delivered to these franchise suppliers as a value-add to their current customers and allow their platforms to give more insight than they currently provide.
Property characteristics, comparables, and historical tax amounts are just a few examples of other data that is commonly demanded from suppliers and firms that manage large proprietary platforms.
Other Tax Legislation with Large Impacts to the US Franchise Industry on 2020 Ballot
Cook County | Illinois
Although property owners are seeing slight reductions in the overall market values assessed for 2020 (payable 2021) taxes, property owners should continue to move through the appeal process based on economics and overall income and expense analysis. As long as appeals are filed at the assessor’s level during the township filing timelines, property owners can move to the Board of Review process after final decisioning at the assessor level. If an appeal was not filed for year 2020 during the open appeal deadline, property owners should focus on 2021 values that will start to come out as early as February 1, 2021 and continue throughout the summer.
New York | Illinois | New Jersey | California: Migration from MSAs
Migration patterns have been a major topic during COVID19, in which the United States has seen significant relocation activity. This will also have a significant impact on the value of the urban areas and surrounding areas of some of the most populated cities in our country. Businesses that are restricted from operations may have an opportunity to get reductions in property tax based on the government-imposed restrictions and recoup some of what has been lost in business operations.
For more information on International Franchise Association (IFA) supplier member CoreLogic, click here.