April 15 is months away, but that hasn’t kept Al Campbell from thinking about taxes.
Campbell, CFO of Mid-America Apartment Communities in Memphis, Tenn., spent last fall meeting with the company’s tax consultants from its different regions to determine where each asset’s tax assessments will fall in 2010. If the numbers are troubling, his team then decides whether to begin a dialogue with the city.
“We try to act early in the year before the valuation assessments come out,” Campbell says. “We do it on a fee basis instead of a contingency. We come up with the ones we want to challenge and hire the consultants on a fee basis.”
The strategy was successful for Mid-America in 2009. The company entered the year thinking property taxes would be up 3 percent or 4 percent; instead, they went down a couple of percentage points.
“We were pretty successful in 2009’s assessments for a couple of key states,” Campbell says. “In a couple of states—Texas and Florida—we saw that values quickly came down. Where we challenged, we were pretty successful in bringing valuations down. We saw some come down that we didn’t really challenge that hard. That was unexpected.”
Mid-America is not alone. Many REITs, including Houston-based Camden Property Trust and Chicago-based Equity Residential, reported savings from successfully-challenged tax assessments.
“We’ll be anxious to work through the 2010 tax appeals,” said Paul Earle, COO of Birmingham, Ala.-based Colonial Properties Trust, in the company’s third-quarter conference call.
Property tax savings can play a major role, especially when times are tight, says Jeff Adler, CEO of Multifamily Indexed Equity in Englewood, Colo. “Taxes represent something like 10 percent of the entire cost structure,” he says. “You can’t put a plan together around it; it’s more like a windfall.”