Altus Group Limited (“Altus Group”) has released the Altus Group Property Tax Report, Tax as the New Strategic Driver, revealing that only 25 per cent of surveyed senior industry executives in the U.S. and Canada said their firms incorporate property tax management directly into their investment strategy and decision-making. With real estate taxes being the single largest operating expense, the result is an increased risk of portfolio and asset-level underperformance.
According to the Report, which is based on a survey of over 200 C-level and senior CRE property tax and finance executives, almost one-third (32 per cent) of respondents indicate that property tax exposure has very little impact on their firm’s underwriting assumptions. With $515 billion USD of asset investment sales last year in the U.S. and Canada, this translates into $165 billion USD of CRE assets that are at risk of underperformance due to the lack of strategic property tax planning.
“With hundreds of billions of dollars in CRE asset value transacted each year, the Report’s findings indicate the risk is real. At the same time, the upside from the potential to enhance leasing capabilities, lessen recovery shortfalls and increase earnings is substantial,” said Jim Derbyshire, Global President, Property Tax at Altus Group. “The good news is that the majority of executives see a significant opportunity for property tax to play a more strategic role in driving investment decision-making.”
“Property tax planning is critical and the dollars involved are significant. Approaching tax management strategically is crucial to proactively managing risk and aggressively driving shareholder value,” said Anthony Chang, Vice President, Asset Management at Washington REIT. “One of the biggest impacts of having good tax intelligence when we underwrite new opportunities is the strength it brings to our negotiating position.”
Other key highlights of the Report include:
- 75 per cent of respondents describe their property tax management as reactive and purely or largely operational and cost reduction oriented
- 56 per cent do not incorporate property tax refunds into their ongoing valuations, 32 per cent said that property tax exposure has very little impact on their underwriting assumptions, and only 21 per cent indicated their firms use enhanced tax analysis including tax benchmarking to identify exposure of portfolios to the market
- 83 per cent believe their firm has enough property tax information, but 52 per cent said they lack the tools to analyze this data, and 44 per cent said they lack the expertise and resources to identify property tax data sources
The survey results clearly indicate a growing recognition of the critical role property tax must play in asset management and portfolio strategy. Seventy-three percent (73 per cent) of respondents said improvements to their tax planning and analysis would help with better decision-making. Firms realize the strategic and operational benefit, but the investment in solutions and processes to harness the industry’s valuable real estate tax data is not being leveraged to its potential. With the right investments in process and technology to provide better visibility into tax growth, risk and savings, there is a significant opportunity for owner and investor firms to incorporate property tax more extensively into their investment strategy.
The findings of the Report are based on a quantitative survey of over 200 C-level and senior CRE executives in property tax and finance roles who deal with real estate tax matters at owner-operator and owner-investor firms in the United States and Canada. All firms that participated had assets under management (AUM) of at least $200 million USD at the time of being surveyed, representing an approximate total AUM of over $350 billion USD. Altus Group commissioned leading international research firm IDC to conduct the survey, which was fielded in spring 2017.
A copy of the Altus Group Property Tax Report can be downloaded at http://www.altusgroup.com/news_insights/altus-group-property-tax-report.