Data Center Dynamics has published Altus Group’s most recent article on the unfavorable side effects of data center sale leasebacks on property taxes. The article explains why the prevalence of this type of transaction is part of the aggressive upward trend in data center property tax assessments. Author Nicholas Carter, MAI, educates the reader on how this issue came about, the unintended consequences, and why property owners need to pay attention.

“In most basic terms, a sale leaseback occurs when a prospective landlord writes an owner/user a check, receives the deed to the property, and begins collecting rent as a landlord.” As the author unravels the relationship between this type of financing mechanism and the assessment value placed on a property for local taxing purposes, it becomes clear why this is a unique property tax issue, and why both tax assessors and taxpayers require new guidelines and levels of understanding. “Survival in the data center industry depends on staying well “ahead of the curve.” Unfortunately, one of the greatest business expenses, property tax, is markedly “behind the curve”.”

To demonstrate the explosion of data center valuation, the article draws upon data from the Dallas-Fort Worth market. “Many of Collin County’s data center assessments have increased as much as 300% in 3 years and some of those locations now exceed $1,000/sf which equates to over $25/sf for property tax passthroughs to owners/tenants. In some cases the tax passthroughs now exceed the rent.”

Altus Group has emerged as a leader in this specialized asset type, and will continue to educate all parties to mitigate such situations in other parts of the country.

Read the full article here.