H&LA’s David Sangree provided a quote for a recent Crain’s Cleveland Business article on the rise of commercial property owners seeking tax over pandemic related losses.
Published by: Michelle Jarobe/Crain’s Cleveland Business
Published date: September 2021
During a special filing window that closed early this month, the Cuyahoga County Board of Revision received almost 200 complaints on properties hard-hit by the coronavirus crisis and government health orders. Most of the value-reduction requests came from owners and operators of hotels, parking facilities, shopping centers and nursing homes.
The complaints, some with appraisals and financial statements attached, illuminate how sharply income dropped last year for certain landlords and businesses.
Losing $581 million in value might not seem like much for a county that is home to $97 billion worth of real estate. But the proposed cuts could lead to upward of $20 million in tax refunds, based on an average tax rate of 3.5% for commercial properties.
“Certainly, we expect the school districts to oppose these COVID complaints, just as they do ordinary complaints,” said Robert “Kip” Danzinger, a property-tax attorney in Cleveland.
His firm, Sleggs, Danzinger & Gill, filed 70 pandemic-related complaints in Cuyahoga County alone. Danzinger’s clients include the publicly owned Hilton Cleveland Downtown hotel, the Vue apartments in Beachwood and the 1111 Superior office tower and garage.
He would not discuss specific cases.
Filings show that the operator of the Hilton, a 600-room convention hotel developed by Cuyahoga County, is asking to reduce the property’s value from $83.9 million to $65 million. At the Vue, the owner is claiming an 18.2% decline in value, citing increased vacancy, unpaid rent and higher sanitizing costs.
“I can’t tell you the hundreds of calls that we received where we had to explain to property owners that this new statute was not a guaranteed tax relief,” he said. “I think a lot of property owners, they read about the new law, and they thought it was a government handout, similar to other government handouts.”
Senate Bill 57 set a valuation date of Oct. 1 for pandemic-based complaints.
It opened the door for boards of revision to consider the fallout from COVID-19 in real time, and to adjust values for 2020 accordingly. Without the law, property owners would have been forced to wait until early 2022 to file such claims, based on 2021 values.
The law also allows owners of virus-stricken properties to file more frequent appeals. Ohio counties conduct mass reappraisals every six years and update values at the three-year mark. In normal times, most taxpayers can appeal only once during a three-year period.
In Franklin County, the most populous county in the state, landlords and businesses filed 334 pandemic-related complaints. Hamilton County, home to Cincinnati, received 82 filings. The Summit County Board of Revision is vetting 41 complaints, 16 of them involving hotels.
David Seed, a Cleveland lawyer who represents school districts, expected the volume of complaints to be even higher. Now, he said, the challenge for attorneys and boards of revision across the state will be parsing the relationship between revenue losses and real estate values.
It’s obvious that hotels were hurt by the pandemic, for example. But even at the worst point, the brick-and-mortar they occupy had some merit, Seed said.
“Imagine if you own a stock, and they told you that your dividend’s going to get slashed for the next year or two,” he said. “The stock price goes down. That doesn’t mean that it’s worthless.”
Hotel buyers, like other commercial real estate investors, don’t look at a single year in deciding what to pay for real estate. They evaluate long-term performance, and projections.
Yet the Kimpton Schofield’s owner, an affiliate of Cleveland-based CRM Companies, is asking the board of revision to reduce the hotel’s value to zero. CRM filed a similar complaint on its 777 Rockwell parking garage, another downtown property that bled cash last year.
“That is just ridiculous,” hotel consultant David Sangree said of claiming a $0 value.
The president of Hotel & Leisure Advisors, a Lakewood-based consulting firm, Sangree has been working on pandemic-related appraisals for properties across the state. Hoteliers are reporting value declines of anywhere from 10% to 50%, he said.
“Each property is a unique assignment,” Sangree said, noting that downtown real estate fared worse than suburban hotels, and resort lodging was relatively unscathed.
The state lockdowns that stymied hotels also forced a shutdown at the I-X Center, the massive, city-owned venue on Cleveland’s West Side.
The private operator of the 2.2 million-square-foot complex filed a complaint seeking a 90% reduction in the property’s value, to just over $2.5 million. The building was empty from mid-March 2020 until late last year, when Purell maker GOJO Industries leased part of it for storage.
Cleveland attorney Kenneth Fisher filed the pandemic-related complaint on behalf of I-X Center Corp.’s previous owner, the family-owned Park Corp. business conglomerate.
“The I-X Center is probably the best example of how the pandemic impacted a property owner,” he said.
Fisher also filed complaints on SouthPark Mall and Great Northern Mall. The properties collectively account for $189 million of the $581 million in real estate value at stake.
Starwood Capital Group, which sold SouthPark in April for $57.7 million, says the Strongsville retail center was worth $58 million last year. The county values it at $181.9 million.
The proposed value for Great Northern, in North Olmsted, is $39.5 million — a 62% drop.
Nursing homes generated a dozen filings, based on occupancy decreases of 10% to 32%. Attorneys said that many facilities struggled as residents died, family members pulled relatives out and prospective tenants decided not to move in.
Industrial and residential properties — both hot real estate sectors — accounted for only a few complaints. Almost all of the industrial filings related to a group of buildings in Brooklyn leased to Areway Metal Finishing and related companies, which sought bankruptcy protection in early 2020.
Only one homeowner filed on a personal residence. An East Fourth Street condo owner claims that his property value fell by 54% last year due to business closures and scuttled events in the downtown dining and entertainment district. The other residential filings involve rental homes and fallow farmland.