B.C. Assessment is doing its job with one hand tied behind its back when it comes to larger industrial, commercial and investment property valuations, according to a recently retired assessor.
Derek Holloway said with no teeth in the legislation governing the assessment process, the authority is flying a little blind when it comes to assessing those properties, leading to catch-up years when commercial property values rise significantly and, in some instances, tax shifts to other classes of property.
Holloway, a 28-year B.C. Assessment veteran, said there is nothing in the Assessment Act that compels companies to provide B.C. Assessment with information such as income, vacancy rates, expenses and capitalization rates (the return a property is expected to generate before owners service any debt).
B.C. Assessment staff have told local commercial real estate agents they expect a 60 to 70 per cent rate of compliance from commercial firms when they ask for information. “Sometimes they get the information, sometimes they don’t,” Holloway said. He added when you take that into account, along with the fact there are significantly fewer commercial sales each year to establish market value, it becomes difficult to put an accurate value on commercial property.
“If the system worked properly and the big guys paid their fair share and B.C. Assessment got it right every year there wouldn’t be this annual year-to-year value consternation,” he said.
This year, B.C. Assessment says commercial and light industrial properties in Greater Victoria could see a 25 per cent increase in assessed value.
Holloway said when assessors have limited information to go on, commercial properties can go under-assessed for years. “And what they should have paid [in property taxes] gets shifted to all other taxpayers,” he said. “If B.C. Assessment can’t get access to the information they need to do the job right for everybody, then taxes do shift to other classes, from big players to mom-and-pop commercial properties to residential.”
Tina Ireland, assessor for Vancouver Island, agreed the determination of market value for commercial property can be difficult, but she said they have several sources of information they can access.
She said they analyze sales, interview sellers and buyers, review market studies and ask for income and expense reports.
“We try to get as much information as we can,” she said. “We get a fairly decent return rate on our requests, though some may be less forthcoming than others.
“Under the Act, we are entitled to the information, so we do ask for it and we do follow up.”
The problem is there is no penalty for those who don’t comply.
Holloway is advocating for more teeth in the Assessment Act, making it compulsory for companies to submit income reports, appraisals and the like. He suggests if those companies do not comply, they should not, for example, be able to avail themselves of the appeal process.
“There should be some consequences if you don’t provide information to B.C. Assessment when they ask you for it,” he said. “Because what you get is compliance from the little player who doesn’t want to get in trouble while big players hide behind their appeal agents.”
Holloway said if B.C. Assessment had been getting the right information there wouldn’t be commercial properties jumping 25, 50 or 100 per cent in assessed value. “I think those properties have probably been going up steadily [perhaps 10-15 per cent] the last three or four years,” Holloway said. He said a sale in that category can trigger “sale chasing” as the assessment authority then has a comparative benchmark price and assessed values jump to meet it.
Randy Holt, partner at commercial real estate firm Devencore Victoria, said values for commercial real estate in Greater Victoria have increased with expectation they will go higher, especially in the downtown core.
“Property values are as high as they have ever been,” Holt said, noting B.C. Assessment has studied downtown and concluded some “catchup” is required.
Holt said agents have been told by B.C. Assessment that commercial building sales are now reflecting development potential under a official community plan that calls for density.
“The result, according to B.C. Assessment, is the assessed value is no longer strictly income based or related to what zoning is in place, but it now broadly reflects the vision articulated in the OCP,” he said. That means higher sale prices and as a result higher property assessments.
Holt said B.C. Assessment is still undershooting the value of downtown Victoria buildings, but he warns if there is a big catch-up and values increase more than 25 per cent it can hurt the vibrancy of downtown. He points to the experience in Vancouver where values started to reflect development potential of buildings. That tended to lead to a massive increase in assessed values and a jump in property taxes. That trickled down to retailers, who signed leases where they are responsible for taxes, building insurance and maintenance.
The result saw retailers having to leave premises they had for years. “We haven’t seen that so much here, but that’s the danger.”