Commercial Property Owners Anxious About Tax Reform
Written by Risa Polansky on June 21, 2007
By Risa Polansky
While there is an end in sight to months of uncertainty on the part of homeowners, the recently approved statewide property-tax relief measures leave a big question mark for the future of commercial property owners, experts say.
The legislation, passed by state lawmakers last week, does grant about a 7% tax cut to all property owners.
But a proposed constitutional amendment, which would allow owners to keep their current tax caps and levels or receive a super property-tax exemption, applies only to homestead properties.
Local governments are to face 3% to 9% spending cuts as a result of the reform.
Because raising the sales tax is unlikely to be the solution to revenues lost, said House Minority Leader Dan Gelber, D-Miami Beach, commercial property owners could be an inviting target for governments seeking new revenue sources.
"I think they should be very concerned," he said.
Shifting more of the burden to commercial owners was a concern of House Speaker Marco Rubio when the West Miami Republican was pushing for replacing homestead property taxes with sales taxes months ago.
Part of the legislation called for rolling back property taxes immediately and later letting voters decide whether to keep residential property taxes or replace them with a sales tax. Rep. Rubio inserted a measure in that failed plan that governing bodies would have to vote unanimously to exceed rollback levels.
This was to ensure, Rep. Rubio said, that local elected officials wouldn’t increase commercial property taxes as a way to offset losses.
Hank Klein, chairman of the Greater Miami Chamber of Commerce and executive director of business development for Cushman & Wakefield, said he hasn’t "heard that expressed. It is something we (the chamber) are going to track."
But the chamber does have "concerns about the potential cutbacks in revenue for government" and the consequential effects on basic services, he said.
Oscar Rivera, vice president of the Florida Shopping Center Political Action Committee, said commercial property will be an inviting target.
"Counties and cities will figure out ways to make up the money. It usually gets tagged on the business community, which is grossly unfair," he said. "Once again commercial property owners bear the brunt of the shifting of taxes."
Rep. Gelber also warned that apartment renters and business tenants could find tax increases on owners of apartment, shopping and office complexes passed through to them in the form of higher rents.
"I wouldn’t doubt that there’s a backlash, and that would affect lease rates," said José Manuel Diaz, vice chairman of the Greater Miami Chamber of Commerce’s Small Business Committee and principal of Compass Office Solutions.
If commercial property taxes are hiked, landlords could take it out on their tenants, agreed Alfredo Gonzalez, partner in law firm Adorno & Yoss’ real estate practice.
"I have to think this is a hard enough pill to swallow that people will come back and look at the commercial side, which has the same problems as everyone else," he said. "Some of the costs of insurance and taxes can be passed on, but the market dictates how much someone will pay."
Mr. Diaz said he is confident the local office market could absorb potential increases.
"The economy is strong — there’s a demand for growth in the small business sector," he said. "Whatever additional costs might be levied, I’m optimistic they won’t offset the demand, because the demand is so strong."
He points to low vacancy and high lease rates in the current market — CB Richard Ellis reports the lowest vacancy in Miami-Dade County in five years, at 6.9%, and record-high asking rents at an average of $27.40 a square foot — and is optimistic that, "Despite costs, I think the demand for space will continue to grow. I think we’re in the upswing."
The reform package won’t have much of an effect on recruiting business to the area, said Pete Pizarro, incoming chairman of the Beacon Council, Miami-Dade County’s economic arm, and CEO of Telefónica.
"I don’t think there’s a significant impact on new businesses coming in," he said. "Yes, a tax decrease is going to help the situation because there are some companies who have looked and their employees found it too expensive to live in Miami-Dade County. But it’s not just property tax."
Insurance and affordable housing also come into play, he said, but "despite all of these increases in costs, we still continue to see strong interest from companies to relocate here."
Future action on the part of local governments remains hazy, Mr. Pizarro said.
"Once you do have a tax cut, there’s pros and cons — there will be some unintended consequences that some of these cuts and reforms will have on the community," he said. "We (the Beacon Council) are concerned that these are handled very carefully."
(Staff writers Eric Kalis and Wayne Tompkins contributed to this report.)