Property Tax Delinquencies Threaten Commercial Real Estate Owners

If you own a residential property in most areas of the country right now, you are receiving some sort of grace period on your property tax whether you need it or not.

However, if you own a commercial building, most cities say you are on your own. Commercial businesses like hotels and strip malls are hurting particularly badly, and this could be bad news for city revenues as well as the property owners themselves.

According to Cook County treasurer Maria Pappas, for example, delinquent property tax totals are already about $30 million higher than the county usually experiences. “You’ve got this shopping strip, two stores that are open and two stores that are closed. The two that are closed aren’t paying rent to the landlord so the $30 million we are short on is because daddy isn’t getting any money from the kids,” she said bluntly. “The kid is the little restaurant, the little boutique; they are closing, it’s over.” Pappas said residential deadline extensions have helped more than 50,000 homeowners in her county alone, but the situation is much bleaker (and harder to manage) for large commercial property owners.

The issue is particularly serious in larger cities. Pappas hails from Chicago, and Crain’s recently reported New York City is facing similar delinquency issues. As of October, the number of properties with delinquent property taxes was nearly 4 percent, up 0.4 percentage points just since July 2020. Crain’s analysts said, “Experts are closely watching the January 1 tax deadline to gauge the health of the commercial property market” since properties with an assessed value of more than $250,000 must pay taxes every January and July in NYC. If the taxes are past due for three years, the properties can be sold at auction. However, in New York, the tax lien sale has been rescheduled three times already due to the COVID-19 pandemic.

“A drop in property tax collections could strain the city’s budget, which has already been battered by the pandemic,” warned The Real Deal contributor Keith Larson. Mandated closures in cities like New York could finish off many struggling businesses and hoteliers, which could also affect property owners’ decisions to pay or not pay their property taxes.

“Industry revenues is down, on average, by 80 percent year-on-year since March 25 [Governor Andrew Cuomo’s] New York ‘pause’ order date,” noted president and CEO of the Hotel Association of New York City, Vijay Dandapani. He added, “Occupancy is at or below 10 percent, not the 40 percent number seen in some publications.” Dandapani explained many reports of higher occupancies do not factor in more than 200 hotels that have closed temporarily or permanently. “Secondly, nearly 200 hotels are catering to mostly homeless individuals who have been moved from shelters to comply with social distancing requirements.” Although the homeless-support programs are funded by FEMA, they do not bring in the same types of revenue that conventions, conferences, and group business gatherings do. “The industry will not and cannot recover rapidly,” he concluded.

 

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About the Author

Charles Sells is the founder and CEO of The PIP Group, a turnkey service provider that focuses on investments in distressed real estate assets including tax liens, tax deeds, traditional foreclosures, fix-and-flips and long-term cash flow acquisitions. He has been involved in tax lien investing for over 20 years, during which time The PIP Group has grown to become one of the largest agencies of its kind with nearly 1,000 individual and institutional investors worldwide.

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