After hearing appeals and getting new information, Madison is reducing assessments by millions of dollars for several big apartment buildings that saw huge rises in property values this year.
Dozens of hotel and big apartment owners are contesting dramatic increases in new property values — some of which rose more than 100 percent. The city is now moving through its appeal process, with initial decisions softening increases for large apartment buildings and adjustments for hotels to be made in coming weeks.
It's unclear if property owners will accept the revised values or pursue their appeals further.
Earlier this year, city officials had said such properties had been undervalued and that increases were appropriate and warranted.
But the city's Board of Assessors this week decided to follow staff recommendations to reduce assessments for 24 apartment buildings valued at more than $1 million, including some sizable cuts for four properties initially valued at more than $30 million.
"The biggest reason (for revisions) is that we had to make a lot of assumptions when we made the initial values," city assessor Mark Hanson said. "We didn't have access to actual income and expense information."
Such information allows assessors to be far more precise, but commercial property owners do not have to provide it unless they pursue an appeal, he said.
All told, 46 large apartment buildings began the appeal process, with the 24 — and six more to be decided — moving to the Board of Assessors.
Once the board makes decisions, apartment owners have 15 days to continue the appeal process to the citizen Board of Review.
Thirty hotels have challenged assessments — triple the highest number in the past decade. City commercial property appraiser Scott West said he'll make recommendations for any changes to hotel assessments to the Board of Assessors in coming weeks. Some hotels, but not all, will see recommendations for significant decreases, he said.
The revisions can be worth millions of dollars in property value for owners.
On Wednesday, for example, the Board of Assessors recommended that the assessment for the Hub Madison apartments, 437 N. Frances St., be reduced 16 percent from $115.9 million to $97.3 million. In April, when new assessments were announced, Hub received the city's highest dollar jump with a whopping $64 million increase, or 123 percent, to $115.9 million.
Officials at Core Campus of Chicago, which built Hub Madison, could not be reached for comment.
All told, for the 24 apartment properties, the Board of Assessors recommended lowering values by a total $79.7 million, or 20.3 percent, from the original $392 million to $312.2 million.
The $79.7 million, however, is a small slice of the city's overall tax base and means the projected tax rate will tick up slightly with a slight shift in the tax burden from commercial to residential taxpayers, city finance director David Schmiedicke said. Depending on location, revisions could also mean a small reduction in revenue for tax incremental financing (TIF) districts, he said.
The same will apply if hotel assessments are reduced, he said.
After new values were released in April, Hanson said steep increases resulted from many factors, including undervalued properties, improving real estate markets, limited information in the assessor's office to keep up with changes, and a surge of hotel construction and a new type of luxury apartments that triggered a sharper look at those properties.
Assessing values of commercial properties is more challenging and complicated than for single-family homes, which is based on comparable sales in a property class where there's usually a large sample, Hanson said.
For commercial properties, including hotels and apartments, assessors can consider cost of construction, which often doesn't align with value; income, the most common method; and comparable sales, which is attractive but offers a relatively small sample size.
The income approach is tricky because state law lets commercial owners withhold information unless challenging a new value. The city sometimes asks for the information but usually doesn't get it and must set values based on estimates using multiple factors, including number of rooms or units, room or rental rates, quality, location, expenses and more.
In the appeal process, assessors have been able to look at better information to produce more accurate values, West said, adding that it's rare to see so many significant adjustments in a class of property.
"You'd hope there would not be these wild swings," Hanson said. "This is a bit extreme. We usually don't have this big a change this late in the process."