San Fran is having an economic collapse. The School District is over $400 million in deficit. The city is at $768 million—and growing. Less sales tax and other revenues. And property taxes are about to totally tank.
“With record vacancies in San Francisco office buildings and home prices down, the number of property owners appealing to lower their property taxes has skyrocketed to the highest level since at least the Great Recession year of 2009.
The number of appeals challenging city property assessments — the dollar amount a city says a property is worth and the basis for calculating taxes owed — shot up more than two and half times in the recent initial filing period for fiscal 2023-2024 compared to all of last year.
The total amount people requested to be shaved from their property valuations hit $52.3 billion. If all appeals were granted, more than $600 million would be wiped from The City’s property tax roll, though that is very unlikely.
Even $200 million would be a financial disaster.
Downtown slump prompts property owners to appeal for lower taxes
By Patrick Hoge | SF Examiner, 12/18/23 https://www.sfexaminer.com/news/planning/sf-vacancies-prompt-record-appeals-to-lower-property-taxes/article_0ee98224-9db5-11ee-86a6-bf7ae02f6087.html
With record vacancies in San Francisco office buildings and home prices down, the number of property owners appealing to lower their property taxes has skyrocketed to the highest level since at least the Great Recession year of 2009.
The number of appeals challenging city property assessments — the dollar amount a city says a property is worth and the basis for calculating taxes owed — shot up more than two and half times in the recent initial filing period for fiscal 2023-2024 compared to all of last year.
The total amount people requested to be shaved from their property valuations hit $52.3 billion. If all appeals were granted, more than $600 million would be wiped from The City’s property tax roll, though that is very unlikely.
The number of appeals received for the filing period ending Sept. 15 ballooned to 7,508, up from 2,873 for the entire 2022-2023 fiscal year, according to Alistair Gibson, administrator of the Assessment Appeals Board.
That is the highest number lodged since the end of 2008 in the midst of the Great Recession; a total of 6,620 appeals were filed for the 2009-2010 fiscal year, Gibson said in an email. More could still be coming, as it is typical for The City to get as many as 350 additional applications during the rest of the year, he said. The City has two years to decide appeals under state law.
Many times, cases are rejected or withdrawn. The Assessor-Recorder’s Office said in a 2021 annual report that more than 1,000 cases were closed with 97% of values maintained.
Assessor-Recorder Joaquín Torres said homeowners can consult informally with his office from Jan. 2 until March 31 to prepare for next year. He said he was not surprised by the bump in appeals and has been adding staff to handle the workload.
The volume of recent requests, nevertheless, posed a risk to The City’s finances, according to a budget document posted online by the Mayor’s Office Thursday that identified an array of potential threats looming amid a projected deficit of nearly $800 million over the next two fiscal years.
A June report from The City Controller said the 2023-24 budget already assumed $2.5 billion of reductions in current year local assessment values over the course of the two budget years, translating to approximately $14 million in general fund property tax revenues refunded annually.
It assumed refunds of $64 million in general fund revenue from appeals filed this fiscal year and $103 million from appeals filed in the next fiscal year to be paid when the Assessment Appeals Board determines reductions.
The recently filed appeals concerned some of The City’s most iconic properties.
Entities affiliated with the Golden State Warriors, reportedly the most valuable franchise in the National Basketball League, are seeking to get more than $1 billion shaved off the assessed value of the Chase Center arena where the team plays and surrounding properties, records show.
The team has made similar appeals for the past several years, portions of which have been rejected, according to city records.
Asked about the latest appeal, a team spokeswoman said via email that the assessor pegged the value of the land at more than twice the actual $150 million purchase price, “which is unreasonable and unsupported by any facts.” She did not address a follow-up question about the rest of the team’s request.
Were the team granted its entire ask, it would save the owners nearly $12.3 million in annual taxes.
The owners of the Transbay Tower, also known as Salesforce Tower, asked for $564 million to be taken off that building’s assessed valuation of $1.87 billion, records show, for a savings of $6.6 million in taxes.
It is perhaps not surprising, given the devastation wrought on downtown commerce and real estate by the pandemic and its aftermath, that office building owners’ appeals totalled $17.9 billion.
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The vacancy rate in San Francisco’s office market was at a record high of 34 percent in the third quarter, according to the real estate firm CBRE.
Office workers who got used to working from home haven’t been coming to the office regularly or at all and companies have dropped leases. Retail establishments downtown, in turn, have suffered from low foot traffic and shut down in significant numbers.
Hans Hansson, owner of Starboard Commercial Real Estate and a veteran of 35 years in the San Francisco market, said vacancy rates are higher than they appear because companies’ leases have not run out. He predicted the impact on The City’s finances from adjustments to commercial property values would be serious.
Hansson cited recent sales of large office buildings at steep discounts from prior purchase prices.
“It’s a disaster,” he said.
Going forward, as owners turn office buildings back to lenders, which he predicted will happen, lenders will sell at lower prices, and assessments will have to be lowered, he said.
The number of appeals concerning multi-family residential properties was 1,169, with the reductions requested above $7.1 billion, which would reduce taxes by $83.6 million. Meanwhile, the number of applications for assessment adjustments on single-family homes increased to 4,586, with the total reductions requested at about $2.26 billion, which would reduce taxes by $26.6 million.
Patrick Carlisle, chief market analyst at Compass Real Estate, said many requests could be coming from the greater downtown SOMA, Civic Center area where condominium prices have declined sharply, from an average high of about $1.05 million per condo in 2022 to around $830,000 on average at the end of summer, according to a report he published this month.
“The values in that particular area of The City for condos have been hit very hard,” he said, putting prices about where they were in early 2014.
The greater downtown, SOMA, Civic Center area is where most new condominium towers were built in the last 30 years, and prices have suffered more than other places due to empty office buildings, closed businesses and “social issues” like homelessness, open drug use and crime, he said.
Prices for condos in the rest of The City, most of them in smaller buildings, were also down, but have consistently been higher and have fallen less to about an average of under $1.25 million.
Prices for all condos in The City were much lower in 2012 in the Great Recession foreclosure crisis, and Carlisle was certain values would recover eventually, but he said San Francisco’s condominium market is probably the weakest in the country.
More hotel owners were also seeking tax breaks: A total of 127 applications were lodged requesting $6.29 billion in reductions, which would cut taxes due by about $74 million.
Strategic Hotels & Resorts asked for $524 million to be cut from the assessed valuation of $1.04 billion assigned to the Westin St. Francis Hotel on Union Square.
A severe drop in tourism hurt hotels due to the pandemic, but tourism has bounced back and their revenues were hovering at about 70 percent of normal in October, according to a report from The City Controller.
Commercial retail property owners, who have been particularly hard hit downtown by the rise of remote work and the resulting lack of foot traffic, filed appeals for $6.61 billion in tax relief, which would translate to almost $78 million less in taxes due.
Many shops went out of business and vacancies have persisted in the Financial District and Union Square.
