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By Altus Group | July 17, 2018

It is widely known that Mecklenburg County, North Carolina, which includes the city of Charlotte, is in the middle of revaluing all commercial and residential real estate for Tax Year 2019. The last revaluation was a historically error filled assessment period that saw droves of appeals as it appeared the Assessor’s Office was remiss on the effect of the recession in 2009, especially as it related to commercial real estate. State lawmakers forced Mecklenburg County to re-do the reassessment, which ended up lasting from 2011-2013, at a cost of $7 million paid to an outside firm. The revaluation period led to 69% of property values remaining the same. Still, 23% of properties were reduced, resulting in $100 million in refunds to taxpayers and 8% of properties were increased, totaling $20 million in additional tax revenue.

Hopefully, this year’s revaluation will go more smoothly. However, the County has changed immensely in the last eight years. Charlotte has seen economic growth, particularly in its banking and STEM industries, that has driven a surge in population which has outpaced construction, driving up property values. Mecklenburg will face a challenging balancing act between recognizing rising assessments and imposing a heavy new tax burden on property owners.

The Eight Year Change in Real Estate

In the last eight years, Charlotte has witnessed tremendous growth in commercial real estate with new multi-family and retail properties popping up across the county. This has not gone unnoticed by the County Assessment Office, which has indicated an overall commercial value increase of 75%. This is primarily due to burgeoning industries in Charlotte, which have led to an influx of millennials, highly skilled laborers, and foreign investors.

Since 2011, Charlotte has frequently been the target of investment firms from all over the world. Charlotte’s reputation as a banking power and a surge in highly-educated workers over the past decade has made the Queen City a prominent choice for investors. Along with this attention comes increased competition for real estate. The largest transaction in Mecklenburg County history occurred in 2017, when Ballantyne Corporate Park in South Charlotte was purchased for $1.2 billion by Northwood Investors LLC, eclipsing the previous largest individual sale in county history when the 42-story skyscraper, One Wells Fargo Center, was bought by Nevada businessman Dennis Troesh for $284 million in 2016. These two transactions are just a couple examples of non-Mecklenburg based investors capitalizing on Mecklenburg County’s thriving economy since 2011.

Mecklenburg County’s economy, workforce demographics, and uptown are completely different than in 2011. This is leading many to wonder, how will the Assessment Office handle property valuation this go around?

The Eight Year Change in the Economy

Although it has historically been known for banking, the region’s growth in the fields of energy and technology has attracted many professionals in STEM-related fields. Since 2011, the top driver of office leasing in the U.S. has been tech talent growth and from 2011 to 2015 the Charlotte-Concord-Gastonia Metropolitan Area added 20,220 tech jobs. In 2016 CBRE named Charlotte its top “momentum market” based on the tech-talent growth rate of 74.7% from 2010-2015. Charlotte outpaced other prospering markets such as Nashville at 68% and the Bay Area at 62%.

Charlotte’s STEM market has become a catalyst for the prospering commercial real estate scene. The aforementioned purchase of Ballantyne Corporate Park in South Charlotte for $1.2 billion is a perfect example of this. Charlotte’s current demand for office space has driven the market for commercial leasing to unexpected heights. It has led to increased lending for development and redevelopment of office space to meet demand and the construction of a lightrail system connecting the southern portion of the City as well as, most recently, the University City Area, to the North.

Issues With the Eight Year Assessment Gap

The Charlotte Metropolitan Area’s prosperous economy over the past decade has been a driving force in Mecklenburg County’s rapid population increase. However, it may also cause many residential and commercial property owners to be over-assessed like in 2011. A major issue with assessing property values every eight years instead of annually is the difficulty in identifying and allocating the level of growth in the market.

For an eight-year period, property assessments are fixed while there is an exponential increase in home sales and rent prices to accommodate the population surge. Average apartment rent in Charlotte increased from $733 in February 2011 to $1,011 in February 2016When revaluation only occurs once every eight years, changes such as these are not considered until the next revaluation.

Mecklenburg County has come to realize that an 8-year cycle is hurting the City more than helping property owners. In many ways, they are losing out on revenue but also penalizing homeowners who are affected by a dynamic commercial real estate industry.

Per conversations with Cecil Jackson, the Real Property Appraisal Manager for Mecklenburg County, going forward the next cycle will be in 2023 (4 years) and then move to a 2-year cycle.

Precautions being taken

Owners are bracing not only for value increases but also tax rate increases for TY 2019. The city and the county managers have indicated increases of 1.00 and 2.35 cents per $100 of value for the City and County rates respectively.

The Schedule of Values is to be posted by late summer, with 2019 Assessment Notices going out by mid-December. Property owners will be able to file a Request for Review through the County’s Modria database 30 days after notices have been issued. Pertinent information for commercial property appeals will be the last 3 years of operating data, as well as sales that have taken place within that same time frame. After the Assessor’s response, owners can file to the Board of Equalization for a hearing.

Hired in 2013, Mecklenburg County Assessor Ken Joyner believes that the lack of transparency with property information, sales, and opportunities for citizens to speak up led to the Re-Do. Joyner is adamant that Mecklenburg County has taken the necessary steps to prevent a repeat of 2011. The Mecklenburg County Assessor’s office now has 120 employees, instead of the 75 they had back in 2011. The office has improved their online database, which allows owners to track the accuracy of property records.

It has been 8 years since the last revaluation and the realities of the market are not reflected in the Assessor’s assumptions based on Mr. Joyner’s 2019 Mecklenburg County Revaluation Update that was presented to County property owners over the last year. In the 2011 Assessor Appraisal Guidelines, Class A market rents were between $12-$20/sf, vacancy rates ranged from 3-14%, OPEX ratio of 35% and a 7% cap rate.

In 2018, these market assumptions are now ranging $16-$30/sf rents, vacancy hasn’t changed at 3%-14%, and expense ratios also haven’t changed. As for capitalization rates, sales are certainly indicating compression with sales averaging a 6% cap rate for Class A office.

Changes in the market do not equate to over 100% increase in value, which is what Mr. Joyner has implied.

After 2011, are these precautions enough?

Mecklenburg’s population of 1.1 million by the end of 2017 is up 17% since 2010, one year prior to the last revaluation. The area’s banking district has seen a resurgence in the past eight years and the Queen City’s real estate market has benefited from an emerging STEM sector. This means there has been a rapid increase in the amount of buildings bought and leased since the last revaluation.

Despite all the lengths, the assessor’s office has gone to, property owners are still going to be subject to inflated assessments this period. Joyner’s recent statements relay a similar message; “With real estate prices rising steadily since 2011, values for the county’s 320,000 residential properties could be up an average of 30 percent”. It is easy to see why Mecklenburg residents are heavily anticipating the release of property assessment values this fall.

Mecklenburg County 2019 Revaluation Schedule

County Assessor Final Values: Mid-October 2018 – Tax Year 2019

Mailing of 2019 Assessment Notices: Mid-December – Tax Year 2019

Date of Value: January 1, 2019

First Level Assessor Appeal Deadline: 30-days after the Assessment Notice Date

Board of Equalization Appeal Deadline: Early Spring 2019

Mailing of Tax Bills: Mid-July 2019

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