Posted on Monday, 17th January 2011 by Robert Domini

File Property Tax Appeal Now


Attention Commercial Real Estate Owners, the time has come to take a hard look at your commercial real estate value as it compares to your tax value.  Many, if not most, properties have experienced a decline in value the last two to three years.  For most properties nationwide, the decline was at least 18% combined for 2008 and 2009.  For prime properties there was a slight improvement during 2010, but for tax-appeal purposes the appraised value must be as of January 1, 2010.  Most counties will mail out the appeal forms to you or they are available on their website.  The county auditor’s offices throughout NW Ohio I have called on the phone are most helpful without exception.  The property owner or an “interested” party such as the president of a company can fill out the form, or your lawyer can do it.  It’s a simple one-page form, but be prepared; they ask you to state your opinion of value for the property. 


Question, 1:  Do I need to file an appraisal at the time I file for the appeal?  No, but the county auditors do prefer that your appraisal accompany the appeal form.  Question, 2:  Will I need an appraisal when I have my hearing before the Board of Revision?  Not really, but having an appraisal done by a professional appraiser is highly recommended, especially for commercial property.  Question 3:  Do I need to appear in front of the Board of Revision?  Yes, either you or your lawyer needs to be there to argue your case.  It’s also very beneficial to have your appraiser there as well. 


Conclusion:  Give Bob Domini a call at (419) 873-0412, or send an email to so we can give you an idea if you have a case worth pursuing. 



Financial and Economic News as of mid-January


Let’s start with the good news.  The Dow Jones is now at 11755 which is pretty good since it was at about 11000 last October.  At a recent meeting of the National Association of Home Builders, as reported in the WSJ, the consensus opinion was that the market was still extremely weak and prices were still falling.  Still, optimism among builders is starting to grow as they see gains in retail sales and the sale of cars.  Employment is holding pat for now.  Yet, the builders will start construction on 575,000 single-family homes this year, up 21% from last year.  The 2005 peak for housing starts was 1.7 million, so we have a ways to go to reach that level.  It’s the same with the Dow.  It was 14164 in October 2007. 


Meanwhile, oil prices have reached a two-year high at $90 a barrel, the highest level since the October 2008 crash.  Meanwhile, gold is selling near $1,400 an ounce.  The 10-year Treasury bill is at 3.35%, up from about 2.4% last October.  The 15-year mortgage rate is 4.2%, also up from a low last November of 3.71%.  Some brokers were quoting as low at 3.5% at the time.  Yet, the CPI change since November 2009, is only 1.1%.  Am I missing something here?  Is it fair to say that skyrocketing oil prices can wreck havoc with a nascent economic recovery?  Just asking. 


Oh, and I don’t mean to be negative, but what’s this news about food prices?  Global harvests are down.  Prices of corn and soybeans were up 4% yesterday.  Corn futures are up a mere 94% from their June lows and our government continues to mandate that we use corn for our auto fuel.  It isn’t like we didn’t see that one coming.  Prices for finished goods are holding pat while prices of industrial materials are up 12% for 2010.  Hmm, so why are consumer prices flat while manufacturing costs are skyrocketing?  Because the sellers of consumer goods simply can’t sell their goods if they raise prices, that’s why.  Tame inflation can’t possibly last forever. 


Here’s one for you.  Illinois is raising their state income taxes 67% and their corporate taxes 45%.  Now, that makes a lot of sense.  Wisconsin is licking their chops.  The U.S. continues to buy its own Treasuries with IOUs, flooding the system in liquidity.  Always remember, when the Fed floods the system with liquidity, stocks will go up.  Lesson Number 482.  In the face of all this, many “experts” such as those at Goldman Sacs, believe that we will have a year or two of recovery with tame inflation.   I hope they’re right. 



What’s Happening in Commercial Real Estate?


In this section I will be “borrowing” liberally off the web.  According to those who track CRE (commercial real estate) sales, the third and fourth quarter deal volume had returned to pre-recession levels.  CRE sales volume rose from $22 b. the first quarter to $36 b. the fourth quarter.  Sales for 2011 are expected to rise another $9 b.  Total volume was 80% greater in 2010 than it was in 2009.  CMBS (commercial mortgage-backed securities) sales for 2009 had nearly disappeared, but did reappear in 2010.  CMBS volume for 2010 reached $16.1 b. after a paltry $5 b. in 2009.  We thought those had died and weren’t coming back.  Those are the bugaboos that helped take the housing market down, only they were the commercial version.  For $16 billion of those to be sold after the losses sustained during 2008-09, the market must have a renewed appetite for risk.  Either that or the securities were being loaded with a much better quality of properties. 


Bloomberg is reporting that  the U.S. office market has logged in its first gain in occupied space since 2007.  Office buildings added 2.5 million square feet of occupied space during the fourth quarter.  According to Reuters, office rents rose and vacancies fell during the fourth quarter.  This represents the first improvements in these categories since 2008. 


I read somewhere that the sale of resort properties is on the rise.  The locations mentioned included both northern and southern locales.  The article was about houses on the water for the most part, although there was a mention of the Poconos.  Also mentioned was Hilton Head and West Palm Beach.  There was no mention of Fort Myers Beach or Bonita Springs, FL, and particularly no mention was made of condo properties.  A great many baby boomers now set to retire and begin collecting on Social Security will soon be scrambling for their place in the sun, or so we would presume. 


Here’s one for you.  What’s happening in the Chicago industrial market, the land of the astoundingly increasing taxes?  The word in the industrial leasing market is that during the last six weeks deals are actually getting done, whereas during 2009 and most of 2010, there was a lot of tire kicking and not much on the substance side.  Deals actually getting signed are in the 200,000 sf+ range.  And what about Detroit, the land of Kwame Kilpatrick?  Let me just say that the last time I worked north of the city in the suburban industrial market, I think I was out on 23-Mile Rd. at SR 53 in Shelby Township.  This was an area where upscale warehouse-distribution and light manufacturing with great highway access was booming during the good times.  It was absolutely dead about 18 months ago.  We don’t have any specifics, but word is that the Big Three are on the move.  We’ve been hearing this in the Toledo, OH market area as well.  Chrysler is throwing out more than hints that there will be some major manufacturing initiatives in Toledo which will begin very soon.  We can only imagine what the impact of a recovering auto industry will have on Detroit.  This time the gains will be consolidated for the good of the overall community under the leadership of Dave Bing. 


Dr. George Mokrzan, Senior Economist with Huntington Bank


Dr. Mokrzan spoke to a group of appraisers back in December, and he was expecting a big dose of inflation this year from the QE2 move of the Fed back then.  He was also afraid of the sovereign debt crisis, the expiration of the Bush tax cuts, higher taxes and continuing deficit spending.  Sounds like one of those uncivil conservative Republicans.  He was also afraid of Medicare, Medicaid and Social Security, not necessarily in that order.  By 2035, he believes that the two Meds will swamp us under.  Back then he said the industrial Midwest was having an industrial recovery.  Total payrolls in the Midwest took a big dive about equal to the early 1970s and 80s.  There was a double-dip in the early 1980s.   2010 was a good year for employment growth in Indiana and for Ohio to a lesser extent.  Exports for the region had a V-shaped recovery.  Exports from January 2009 to September 2010 were up 57% in the Midwest region.  Ohio is the #4 exporting state of machinery and #7 overall.  Most of Ohio’s exporting business goes to S.E. Asia, the Middle East and South America.  Commercial construction has hit bottom.  The three Cs manufacturing level has recovered to pre-recession levels.  Cleveland and Cincinnati have had the strongest manufacturing growth.  Columbus is more of a service economy. 


Bob Bach, Chief Economist with Grubb & Ellis


Bob said he thought rates would stay low for a while.  We still have excess capacity which should keep inflation low.  Someone asked if we could possibly go the way of Greece, and Bob said we possibly could, but the U.S. debt was still in demand worldwide.  The Fed says long term unemployment will remain in the 5%-6% range.  Low interest rates should stimulate sales of commercial real estate.  The last economic recovery in 2005-6 was in housing.  In 2000 it was technology.  What will it be this time?  Ohio is down 423,000 jobs or 8% since the recession began.  We have had a nice rebound, but it’s up only about 10% of the loss.  National office vacancy peaked in the second quarter of 2010 at 17.9%.  It was 18% in 1992.  It would be 22% if you count all the shadow space, which is space under lease but not being used.  We will have a half-speed recovery in the office market.  In 2011 the recovery will be mostly absorption of shadow space.  Offices close to mass transit will do the best.  Some cities have light rail throughout their business district.  Class A rents will be very slow to increase.  The Midwest office market depends upon employment growth.  Big cities have greater demand.  Examples are San Francisco, Austin and New York.  Supply dictates vacancy rates right now. 


Medical office demand should be on the upswing considering the increasing demand by baby boomers.  Industrial vacancy peaked at 10.9%, and this rate is coming down gradually as rents increase gradually as well.  Retail sales are starting to come back.  The savings rate is now 6%.  Retail vacancy is about 11% right now.  REIS says it is not coming down while CoStar says it is.   Apartments are doing well.  Home ownership peaked at 69%.  It’s down to 66% now.  Vacancy is way down from 7.8% to 5%.  For industrial, global trade is very strong right now.  Commercial real estate volume has almost doubled in absolute dollars from recession lows.  Class A properties are up 30% in some markets.  For commercial real estate, we need CMBS, commercial mortgage-backed securities, to come back and they are.  Good companies can’t get financing.  Private equity coffers are full with $300 billion sitting on the sidelines.  One borrower recently had a $2.4 million apartment deal he wanted to get financed.  He had a $60 million net worth and $40 million in liquid assets and it was very difficult to get him financed.  Bob said CMBS sales were going very well for the seven big investment banks like Citi, Goldman, JP, Chase, Morgan Stanley and UBS.  Freddie Mac sold 4 securitizations this past year and they’ve all been oversubscribed.  There’s lots of money out there which is a big change since the beginning of 2010. 


Kevin Blakely, Chief Risk Officer, Huntington  National Bank


Investment banks got started in 1998.  They do not take deposits.  They borrow money and make deals for a quick profit.  They do not keep debt or assets on their books.  In 2003-04 the Fed raised interest rates, but 10-30 year Treasuries would not go up.  Why?  China bought up our debt and kept them up.  Commercial banks offered teaser rates.  Lots of liquidity was out there with low rates.  Values went up, up, up.  In 2007 subprime mortgages began to go south.  The question is, “how do you create AAA securities with junk?”  How do you make chicken salad out of chicken shit?  In May 2007 at the first signs of cracks in the foundation, the subprime market was dead.  The banks got caught with lots of the junk they were waiting to sell off as securities.  Banks were holding securities in their investment portfolios.  When we say “securities” we’re referring to MBS, mortgage-backed securities.  Rotten loans were packaged as securities and received AAA Moody’s ratings and were sold off throughout  the world.  Problem is our banks were holding the rotten securities when they crashed.  Money market funds were also holding the securities. 


In May-June 2008, investment bankers convened for a meeting in Frankfurt, Germany.  It was then that the banks realized what was happening and they lost trust in one another.  They immediately froze up lending, hoarded liquidity.  The economy seized up.  Then on September 15, 2008, Lehman collapsed.  At first the Government was going to buy debt, but they couldn’t price it.  they just handed money out to the banks.  National City collapsed.  They were big players in the subprime.  There was a run on the banks.  Corporations were calling their money.  TARP said “NO” to Nat City.  Wachovia had too much subprime as well.  They were also cut off. 


The Treasury and the Government “gave” money to the banks.  TARP did work.  TARP money is being repaid.  The Government is getting repaid and they have warrants they are selling.  Thank God, Barney Frank and Congress rode in on their white horses to the rescue. 


Dodd-Frank is the national full-employment act for Federal Government employees who usually join certain organizations who usually vote a certain way.  Get it?  (Some of the foregoing thoughts were those of the author, not Mr. Blakely) 


Dodd-Frank will generate 243 new regulations in the next two years, all directed at the banking industry.  80 new regulations per year for three years will be a big drain on the banking industry.  It will be a tremendous expense to the lending industry forcing them to hold 9-10% in reserves, up from 6%.  This will really crimp bank earnings.  “How are banks ever going sell stock?”, Blakely asked. 


There are now four mega-banks.  The government is trying to keep them from growing, to force them to hold more capital.  They hold $2-$3 trillion in assets.  They will take the economy down if they fail.  Dodd-Frank might be right.


The Ireland banks got bigger than the country.  Ireland can not bail them out, so the EU has to. 


Blakely feels commercial banks should be split from investment banks. 


Cyber attacks on banks could take them down.  Bank failures are now the small banks.  The FDIC problem bank list was 180 as of mid-December.  Barney received $106,000 from the banks and real estate firms.  He received $265,000 from the securities industry.  Small mortgage brokers are being swamped under by regulation. They are beginning to fear for their survival. 


The home ownership decline has contributed to a rise in apartment demand.  Employment growth should also stimulate apartment demand.  Unemployment among the college educated is only 4%.  There is a big demand right now for student housing.  The U.S. population is growing, but the rate is slowing.  China is about 75% of our rate.  China’s birth rate will slow greatly in the future.  The populations in Europe and Japan are shrinking mightily.  We are the only country which is holding its own.   Our birth rate is two per couple.  Japan’s is 1.37. 


This update was brought to you by Robert D. Domini, MBA, MAI, Continental Valuations, Inc., state certified appraiser in OH, MI, FL and IN.     



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