Property Tax Update
Spring 2001

Seniors Housing:  Real Estate Tax Challenges
Continuing Care Retirement Communities (CCRC) are becoming a common part of the senior housing mix. This sector poses interesting valuation and real estate taxation challenges for owners, appraisers and real estate tax practitioners.

Fisk Kart Katz and Regan, Ltd. has recently been engaged to assist with tax projections of a Lake County, Illinois CCRC which includes residential and non-residential areas. The residential component is comprised of 13 villas, 282 independent living units, 60 assisted living units and 60 skilled nursing care units, 7 hospice beds and 3 respite suites. The non-residential area consists of the grounds and dining, recreational and healthcare facilities.

For real estate tax purposes, only the fee simple interest in the real estate may be valued. Furniture, trade fixtures and equipment cannot be included in the valuation. Most importantly, the revenues derived from the services offered at the CCRC cannot be taken into account. Medical services will be offered to the residences as will meal services, recreational and transportation opportunities. Although these services are offered on-site, they are extrinsic to the real estate and may not be factored into a real estate tax valuation.

An interesting twist in the entry options available to the residences at our CCRC has complicated our assignment. It is a classic instance of where form can affect substance and create a horrendous real estate tax situation. One of the entry options allows residents to purchase their unit for their lifetime and when the unit is resold their estate will receive a percentage of the sale price. This option requires the county to assign a separate tax parcel to the purchaser’s unit. The purchaser will also have to file a declaration disclosing the total purchase price of the unit. The purchase price ensures access to the services offered at the CCRC including entry to the assisted living and nursing facilities when and if that becomes necessary and, thus, includes payment for a significant amount of non-real estate services. Our task is to provide a valuation model that enables us to go beyond a valuation of the individual units to a valuation of the entire CCRC. This is the only way to arrive at an equitable tax structure for the community.  FKK&R’s final assessment of the tax projections will be shared with our readers in the next newsletter.

2001 Reassessment Schedule
Cook County’s North and Northwest suburbs are being reassessed in 2001. Reassessment notices should begin to appear in your mail by early summer. The following townships will be included in the reassessment:  Barrington, Elk Grove, Evanston, Hanover, Leyden, Maine, New Trier, Niles, Northfield, Norwood Park, Palatine, Schaumburg, Wheeling.  We have recently forwarded Fee Agreements to clients who own properties in the 2001 reassessment area. We urge those who have received agreements to sign them and return them as soon as possible. If you own a property in any of the listed townships and have not received correspondence from us, we would welcome the opportunity to review the property’s value with you.

Firm News

• FKK&R welcomes Kenneth J. Rogers to our firm as Director of Real Estate Analysis. Ken brings seventeen years experience in matters involving the operation, financing, valuation and tax assessment of shopping centers and regional malls. Most recently, Ken was with a Big Five accounting firm, where he served as national practice leader for purchase price allocation services. He was also designated as its firm wide resource for shopping center issues. Prior to that, Ken was Director of Property Taxes for Simon Property Group, the country’s largest regional mall REIT. He also served as Director of Financial Analysis for Simon. Ken’s tax appeal experience extends to over a dozen states and includes such notable properties as the Mall of America.  Ken can be reached at 312-726-1833 or krogers@proptax.com
• Martin S. Katz National Service Award
  The Real Estate Investment Association (REIA) announced the establishment of the annual Martin S. Katz National Service Award at its annual summit, which was held at the Palmer House Hilton on January 18, 2001. Marty passed away on May 15, 2000 after a long and heroic struggle with cancer. REIA instituted the award to honor Marty’s memory and to recognize his countless contributions to the real estate community throughout the United States. Marty had served as a director of REIA for many years and was the founder and first president of American Property Tax Counsel.  Jim Keledgian, the president of REIA, presented the 2001 Award to Congressman Jerry Weller, of the 11^th District of Illinois which includes Grundy County and portions of LaSalle, Will, Cook and Kankakee Counties. Congressman Weller has worked to extend the Section 42 Income Tax Credits program, the single most important government program in fostering affordable rental housing.
• FKK&R hosted a special meeting on regional mall property tax assessment and valuation on March 20 at the Union League Club in Chicago. The subject matter included:

1. Updates on major mall tax appeals
2. An analysis of the past 10 years of regional mall transfers by Dr. Mark Eppli of the Finance Department of The George Washington University
3. An annual regional mall survey will be launched in conjunction with Dr. Eppli following the meeting

• Jeff Brown recently lectured at the Chicago Bar Association’s Continuing Legal Education Seminar on Real Estate Taxation. Topics covered in the Seminar included legal procedures for appealing and reducing property taxes, the availability of property tax incentive and abatement programs as well as methods for minimizing the property tax burden on new acquisitions.
• Jim Regan has been invited to participate in a panel at the NAREIT Law and Accounting Conference to be held in Washington D.C. on May 2 – 4. The panel will address new developments affecting the valuation of REIT owned real estate.

American Property Tax Counsel News

• Jim Regan chaired APTC’s 2000 annual seminar which took place on November 10-12 in Phoenix. Centering on industrial properties, the seminar participants presented new strategies and revised methodologies to analyze the effects of advancing technologies on the valuation of properties. Specific attention was given to the acceleration of functional and economic obsolescence, the economics of domestic industrial facilities in a global economy, environmental penalties and assessor practices which incorporate unsound valuation principles.
• Jim Regan has been asked to chair the 2001 Seminar which will be devoted to developing principles to identify, analyze and value the presence of intangibles which are incorrectly attributed to the real estate value of varied properties including hotels, comprehensive retirement communities, regional and super regional shopping centers, and electric generation plants.