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January 11, 2021 Deal Watch

Revals to shed light on pandemic’s impact on commercial property values

An aerial view of the Queen Street commercial corridor in Southington, which will soon publish its Oct. 2020 grand list.

The ultimate scope and scale of the COVID-19 pandemic’s impact on the commercial real estate market remains to be seen, but Connecticut is about to get some clues.

More than 30 municipalities across the state, including Greater Hartford communities like Newington and Southington, have just completed their five-year property revaluations, a rebalancing of taxable property that effectively locks in who pays what between now and 2025.

The recent appraisals, based on market conditions as of Oct. 1, 2020, are the first in Connecticut to consider the pandemic’s impact on key real estate valuation metrics like recent comparable sales and property income.

Any significant declines in value or shifts between property types should become clearer once those municipalities publish their grand lists, which are due by the end of this month.

The pandemic’s impact on businesses has varied widely across sectors, with hospitality and retail companies among those that have experienced the most pain. Meanwhile, pharmacies and Class A multifamily properties have in many cases held up just fine.

“The question is how to manage all of these [pandemic-related] factors in determining property values,” said Elliot B. Pollack, a commercial property attorney at Pullman & Comley.

Elliott B. Pollack

Pollack, who represents property owners in assessment appeals, said many of his clients have already received notice of higher valuations, which, barring successful appeals or mill-rate reductions, will almost certainly mean higher taxes.

Challenges to local assessments, particularly from owners of large commercial properties with five- or six-figure annual tax bills, are routine in Connecticut.

For appeals that reach Superior Court, settlements between assessors and property owners that reduce initial valuations are not uncommon, Pollack said. However, it remains to be seen how receptive judges will be to property owners who argue their buildings are worth less as a result of pandemic-induced circumstances.

He expects appellants to emphasize reduced rental incomes in their arguments.

Arriving at a property value requires a complex, technical analysis, and unlike the real-time prices of stocks or commodities that are bought and sold frequently and in high volumes, pricing real estate can be a bit more imprecise.

“Teasing out what the impact of various market forces has on the value of real estate can be a challenge even in the best of times,” Pollack said.

With appeals on the 2020 revaluations set to begin in the next few months, a number of other large communities are facing revaluations this October, including Hartford, West Hartford, East Hartford, Manchester, New Haven and Greenwich.

With COVID-19 vaccinations now underway, market conditions later this year, which will factor into the Oct. 2021 revals, could look more favorable than they did last October. That could bolster values, but nothing is certain, Pollack said.

“It’s very difficult to guess,” he said. “There are a lot of moving parts.”

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