Adaptive reuse is a technique used by developers to convert an existing building into a new use with the goal of maximizing its usefulness and projected income. This can be achieved by transforming an office property into a multi-family dwelling, for example. However, when the project is complete, it can result in a valuation problem with the assessor's office, especially in California where property tax laws can be complex.
The Valuation Problem
Due to property tax laws in California, the completion of an adaptive reuse project can often result in an over assessment. This is because the assessor may consider the project as completely new construction, rather than a repurposing of an existing building. This can result in an over-assessed base year assessment, which can be a significant financial burden for the developer.
Preventing Over Assessment
To prevent over assessment, it is crucial to engage the county assessor's office early on in the process. AOPTA The Property Tax Experts have qualified cost experts who can provide a pre-development analysis to give developers an estimate of the potential tax burden after completion. This analysis can also provide a strategy for contesting the assessment if necessary.
The Benefits of a Pre-Development Analysis
A pre-development analysis provides peace of mind for developers and helps in proforma projections. It takes into account the unique characteristics of the property, including the portions of the older improvements that remain intact, such as the main shell structure. The analysis provides an estimate of the potential tax burden after completion, which can help developers make informed decisions about the project.
Stabilization and Peace of Mind
Most developers who look at the project through completion and then stabilize find that a pre-development analysis provides peace of mind. It helps to accurately project the potential tax burden and helps developers make informed decisions about the project. With this information, developers can ensure that their projects are financially viable and sustainable in the long term.
In conclusion, adaptive reuse is a valuable technique for developers looking to maximize the potential of a property. However, it can result in a valuation problem with the assessor's office, especially in California where property tax laws can be complex. Engaging the county assessor's office early on and obtaining a pre-development analysis can help prevent over assessment and provide peace of mind for developers.
If you have an upcoming adaptive reuse project, feel free to schedule a free evaluation and to ask any questions.