Commercial Property Values Fall After Two Years of Growth

Columns

by Katie Pyzyk — January 18, 2013 at 1:15 pm 79 Comments

Following two years of double digit growth, Arlington’s commercial property values have fallen.

Commercial property values decreased by 0.1 percent in Calendar Year (CY) 2012, coming in at $30.4 billion. Although multi-family rental properties fall into that category and increased by almost 1 percent, the rest of the commercial property types (office, retail, hotel) declined by 0.5 percent. Commercial properties still account for 49 percent of the county’s tax base.

A county press release suggests the drop in commercial property values is due to impacts from the Base Realignment and Closure (BRAC) in Crystal City and concerns about federal budget issues. The budget concerns are expected to have an impact for the next few years. While state and federal grant funding remains uncertain, real estate tax revenues represent approximately 56 percent of the county’s total revenues.

“These assessments reflect the impact that BRAC, and the slow economic recovery, continues to have on Arlington,” said Arlington County Manager Barbara Donnellan in a statement. “While our balance of commercial and residential development continues to keep Arlington’s economic outlook fundamentally sound, we are not immune from the larger economic forces that continue to buffet the nation. As we projected late last year, there will be about a $50 million gap between the County’s revenues and expenses, and both County government and Schools will need to make some tough choices to close that gap.”

Overall, Arlington’s 2013 real estate assessments remained unchanged. The average assessment for existing single-family properties, including condominiums, townhouses and detached homes, increased by about 1 percent, to $524,700.

Real estate assessments will be mailed to all Arlington property owners starting today, and will be available online after 5:00 p.m. Of all residential property owners, 47 percent will see no change in their assessment, 22 percent will see declines of varying amounts and 31 will see increases of varying amounts.

Wayne Kubicki

Following the budget guidance the County Board gave to the County Manager, all this should mean that her proposed FY14 budget will contain both tax rate increases and spending cuts.

Real estate tax rate up for sure – and the personal property tax (car tax) rate may go up as well.
- BBMS
  
  It would be nice to have someone on the board who would do a little more than wring their hands and lament the need to do both. How about someone stand up and say “we can cut $50 million from the budget and not raise your taxes”
  
  Are any of them up for election this fall? I guess it does not matter, these tough fiscal decisions get worked out in the spring, the county manager gets to be the goat that breaks the bad news, and the election ends up being devoid of any hot issue.
  
  That is broken.
Tejada

And my favorite. TIFs.
The Wolfe

Quote: “Overall, Arlington’s 2013 real estate assessments remained unchanged. The average assessment for existing single-family properties, including condominiums, townhouses and detached homes, increased by about 1 percent, to $524,700.”

When I first bought in this ‘burg, in 1993, my real property tax was $1700/year.

It’s currently @ $5400.. I just can’t wait to see my new assessment. The only changes in my HP-OK neighborhood were tear downs replaced by McMansions,

There very few comparables in my six-block radius. Most of the houses that have been sold in the vicinity were knocked down and replaced by huge monstrosities.

I look forward to the new assessment – I’m guessing, if the Board holds to current tax levels, I’ll owe an extra $1K this year.

Thanks a bunch folks. I’d like to see a snowplow when we eventually get snow. Last time around it took FIVE days. And I live on a school bus street.
- J
  
  I bet you’ll cry about all the monstrosities when you go to sell for some absurd amount compared to your initial investment too right? Taxes too high because of appreciation is a thorn in your side. Wow. My heart is breaking for you.
  - R. Griffon
    
    Exactly. 3x the value = 3x the taxes. When the County raises tax rates by 300%, then we’ll talk.
    - BB
      
      Higher taxes are acceptable when services provided are on par. He makes a great point about the lack of snow plow service, among other things. I have grown tired of power outages after every storm that take days to recover.
      
      Tax me higher, fine. Just provided the services promised with the taxes collected.
      - Huh?
        
        I have grown tired of power outages after every storm that take days to recover.
        
        You think the county provides electricity?
      - Quoth the Raven
        
        No offense, but I wonder if you’ve lived in other places. The services in Arlington are outstanding compared to every other place I’ve lived (RI, CT, WA, CA, FL). So they didn’t plow your street right away – I get it. They didn’t plow mine either, and that was a pain. But the power? Dominion is great, at least to me. No need to compare it to far-away places, either – would you rather have Pepco? Didn’t think so.
        Compared to all the good the county does for citizens (libraries, trash, etc), the bad things are pretty minor.
      - CW
        
        QTR and R Griffon for the win. Sell your house for a 300% profit, then move to Florida where there are no taxes and you have to burn your trash in your back yard.
      - drax
        
        Does the government provide electrical power in Florida too? LOL.
      - R. Griffon
        
        I always find it funny when people in VA bemoan the scarcity of snow plows, when the alternative is to purchase and maintain a much larger fleet of them at incredible expense for an area that scarcely sees more than a few inches a year. And last year hardly even that. Then people would complain about taxpayer money misspent on snowplows that collect dust, or at best get used two or three times a year for minor snowfall.
        
        And power? Not even the County’s responsibility. But let’s talk about it anyway. Firstly, I very much doubt you’re loosing power after EVERY storm. And secondly, the area had significant outages exactly twice this year – the derecho and Sandy. Both of which were nearly unprecedented storms. Are you really going to blame the government and/or the power company being inconvenienced by natural forces of historic proportions? Really?
  - ACDC Hack
    
    You county apologists all seem to regard where you hang your hat as an investment and not a home to be lived in and grow old in…..yep, that is the Arlington Way alright.
    - drax
      
      No, I just understand the difference between tax increases and growth in value, and don’t go mixing them up.
      
      It definitely is a problem that taxes, which must be paid now, in cash, go up as value of homes go up though that value won’t be realized until they are sold. That concerns me alot. I’d like to see the tax rates go down to compensate.
      
      But they aren’t the same thing.
    - R. Griffon
      
      Wait – so if my house gains in value then I can’t keep living in it? That’s some pretty sound logic right there.
      - ACDC Hack
        
        I can’t really tell if you are serious. but of course you can keep living in it… that is my point.
        You should be able to live in your house till you sell or die….you should not be taxed out of a house.
        The taxes can be settled at the time that you sell it.
      - Taxes
        
        But, in RE taxes your are taxed on invisible increases in wealth. You can’t sell the increase value in your house and use that to buy food unlike every other asset that increases in wealth. You are not wealthier because the county says the value of your house has increased.
      - CW
        
        On the subject of not being able to tell if people are being serious…do you think that Warren Buffett is only worth the cash in his pockets, that the stock he has is only a number of no consequence? Because that is the argument you people are making. Do you understand the concept of “worth”? Cash in hand is not the only thing that has worth. If you believe otherwise, i will give an address you can mail all of your worthless jewelry and watches to since those obviously arent worth anything, just a number someone assigns to them…
      - Taxes
        
        You examples of watches and jewelry are inapposite…i.e. not relevant to this discussion. Those items are not annually assessed and tax revenue derived from the increase or decrease of said items. They only time they “might” generate tax revenue is if I sell them and there is a transfer on ownership.
- occasionally a fact
  
  And what were the assessed value and market value of your home when you bought it? And what are they now?
  - CW
    
    But the TAXES man, the TAXES!! What’s a half-million dollar gain in equity when you have to pay $2k more in TAXES! The humanity!
    - ACDC Hack
      
      And that gain will be realized when ???
      
      While the taxes are now.
      - drax
        
        Yes, and that’s a problem. It’s ultimately a reason to stop taxing property.
        
        But those who moan about “tax increases” as if the county were raising rates are really whining about getting rich, for doing little more than sit in their house, and that’s over the top.
      - R. Griffon
        
        Your gains are realized every day that your net worth increases. So pretty much all the time.
  - The Wolfe
    
    $200K. At present $560K
    
    Leaving out the divorce, which cost me $200K in equity, and the payments made between then and now, roughly $400K.
    
    Yer the math wizard, tell me ‘zackly how much I will make when I sell?
    
    Anyone? Anyone? Bueller……?
    
    I showed you mine. You gonna pony up?
    
    I realize it costs to live.
    
    The above costs do not include water/sewer/trash, about $700/year. Nor any of the other fine line items to which I pay the county.
    
    The local branch library has a paucity of books and the hours are pathetic.
    
    Other than that, no complaints.
    - R. Griffon
      
      $200,000 is approximately $318,000 in present day dollars. Divorce is a red herring, so we’ll toss that right out. 20% down = $160,000 principal. The HIGHEST average mortgage rate in 1993 for a 15-yr. mortgage was 7.5%. $160,000 at 7.5% for 15 yrs = $67,000 in interest payments.
      
      560K present value
      -318K original purchase price
      – 67K interest payments
      ———————————
      175K gains
      
      I’d say $175,000 added to your bottom line isn’t really that terrible of a thing. But that’s just me.
      
      And that’s being pretty conservative. If you were prudent you almost certainly would’ve refinanced at some point (heck, even by the end of ’93 it was a whole point lower), and I didn’t even back out the money saved on mortgage interest deductions, which gets you back a non-trivial chunk of those interest payments.
      
      And I didn’t even have to put on my wizard hat.
      
      I’m not quite sure what your point is regarding water, sewer, trash, and the other sundry fees that the County extorts from you as you’d pay those anywhere you live, unless you live in your car or a cardboard box in a back alley. So they’re not really a part of the equation, are they?
      - darsasx
        
        Not so fast there, bucko – you DO know how interest works, right? You pay about five times as much more up front (in the first 20 years) than you do in the last 10 years. You also made some other incredible assumptions (he had already tossed out the divorce $ in his statement). If it were his first house, he might only have put down 10%. He also might have paid a higher interest rate – you said the AVERAGE was 7.5%, meaning (roughly) half were above and half were below.
        
        So re-doing your math with numbers just as likely:
        $200k purchase price with 10% down means financing $180k
        For comparison purposed, I kept your conversion to current $$ of 318k
        8% interest rate – interest payments alone for the first 20 years are $246k since 1993 (he only owes ~$50k in interest for the last 10 years of a 30-year loan)
        
        560k present value
        – 318k original purchase price
        – 246k interest payments
        
        = -4k gains (yep – he LOST $4k – I think this is the point he was trying to make – he was just trying to make somebody do the real math to realize that he might just be breaking even).
        
        I have no idea what his income was to figure out what the mortage interest deduction savings he would have had, but for simplicity sake, at a 20% effective tax rate, he would have paid ~$49k less over this time period because of the interest deduction difference. At the same time, he has paid over $53k in taxes to the county.
        
        So, in 20 years, his net worth improvement is $45k. For all you “this is an investment” people, if he chose instead to invest his $20k down into a CD he would have had $36k during the same period (average CD interest rate during the period was ~4%).
        
        And I didn’t even have to add in all the $$ he had to spend to replace things that broke
      - J
        
        Darsasx… You factor inflation into the $318, but omit it from the $20k cd. C’mon man. And you forget that the $53k he gave to Arlington he got to claim. So we can lop another 20% off that. But hey who’s counting, right?
      - darsasx
        
        Yes, I made a few assumptions/simplifications. The Wolfe’s main point was that he is being taxed (currently at 3 times what he bought it for) for “vapor wealth”. I merely laid out a scenario that refutes Griffon’s assertion that The Wolfe as amassed 175k in gains when it is entire possible that he hasn’t, and it didn’t take a whole lot of calculations or research to do it.
        It is ALSO entirely possible that The Wolfe had much of his income as capital gains and his effective tax rate is lower than 20%, which is an issue of a different sort.
        You’re right I didn’t choose to inflate the 20k – it’s an order of magnitude less in the equation – so his 20k could have inflated to 31.8k (and compound interest on top of that) – which only helps prove my point that it’s a crappy investment in his case, since his savings would surpass the equity he would realize. The 53k is also paid over 20 years, so it would only reduce his tax liability about 500 a year. And in checking my math, he’s paid $71k in taxes (so averages ~3500 a year paid and ~700 in tax savings)
      - R. Griffon
        
        Yes darsasx, I know EXACTLY how interest works. That’s how I know that $160K at 7.5% for 15 years costs ~$67K in interest. Do you need to see a complete amortization schedule?
        
        And I fail to see how using average interest rates (and the highest of the year at that) qualifies as an “incredible assumption.” The only real assumption that I made was that he was smart enough not to throw his money away on a 30 year mortgage, and would at least know enough to get a 15 (or failing that, to make advanced payments on a 30). But if he isn’t then that’s his problem. My goal is to show what the homeowner SHOULD’VE made under fairly normal circumstances. And that’s about $200K after mortgage interest and County RE deductions.
        
        But it doesn’t even matter – even under your worst-case scenario, the guy STILL manages to make nearly 50 grand over 20 years by living in a single family home in North Arlington. Think about that for a moment. If someone offered to pay you $50K to live in a single family home in NARL for 20 years, during which time you would have to put $1,300/mo. into a savings account, and at the end of which you would have hundreds of thousands of dollars in the bank, would you take it? Who in their right mind WOULDN’T?!
        
        And you’re actually expecting us to feel sorry for this guy? Please.
        
        You think a CD’s better? I hope you can live in it. B/c if not then you’re still paying for housing somewhere. If paying County taxes is too much for either of you, then maybe you’d be better off living in an apartment and having nothing to show for it 20 years from now. Different strokes.
      - J
        
        Darsasx…if your level of understanding allows you to write a sentence referring to his effective tax rate this is obviously an exercise in futility, for you are far far less learned than you try to appear. Seeing as the u.s. tax code is tiered all deductions benefit you at your highest tax bracket possibly Helping to lower your effective tax rate. But to suppose that his bill would only be reduced at that rate is poor analysis. Even bringing that up is a joke. We could also discuss his potential tax savings on his “vapor worth” that is afforded in our tax code to real assets transactions only. But we will let you live in your world of great cd’s, and dooms day amortization schedules. I’m going to guess he makes more than 35k a year. So his deductions are at 25% MINIMUM.
- JohnB
  
  I can only find as far by as 1997 but the Real Property Tax Rate that year was $00.986/$100 of assessed value and today it is $0.971/$100 of assessed value. Sorry your land is worth so much more now even though your tax rate has fallen.
  - JohnB
    
    …as far back…
Gosh…never saw that coming

RutRow.

You’d have thought the County Board would realize that prices do not always go up but instead, the Board and many of the more liberal posters on here, continued to defend spending (actually most use the imprecise word “investment”) as par for the course. The one thing that you can’t avoid is simple economics and the old proverb “at some point you run out of other people’s money.”
- fuzzy
  
  Exactly. It didn’t take a genius to realize that our Federal budget mess was going to affect defense spending and gov’t contractors sometime in the future and take a bite out of Northern Virginia/Arlington’s economy. That future is now, but our County Board (and my fellow idiot citizens who keep electing them and passing every spending referendum) fail to understand basic economics and keep spending as if there is no slow down at all.
  - Paul Krugman
    
    The budget deficit isn’t our biggest problem, by a long shot. Furthermore, it’s a problem that is already, to a large degree, solved. The medium-term budget outlook isn’t great, but it’s not terrible either — and the long-term outlook gets much more attention than it should. The deficit will come down as the economy recovers: Revenue will rise while some categories of spending, such as unemployment benefits, will fall. Indeed, that’s already happening.
- Josh S
  
  Where is the implication in this story that the County Board does not realize that prices do not always go up?
  - fuzzy
    
    Then why do they keep spending like prices will always go up?
    - Josh S
      
      ?
      They spend what they have. (Actually, I’m not entirely sure, but isn’t there an Arl Co rainy day fund? So they don’t always spend all of it.) It’s an annual budget. So the budget is only based on revenue projections for one year at a time.
      I don’t understand your question.
      - Fuzzy
        
        Arlington has it backward — they spend what they want each year and adjust their revenue (i.e. raise real estate rates) so their revenue is high enough to cover costs. They should do the opposite — hold rates flat and adjust spending accordingly (i.e. cut spending).
        If assessments go up in a given year, our real estate rates should go down by an equal amount.
      - drax
        
        So you want them to lay off staff each year that revenue drops and then rehire the following year?
        
        You have to have some stability. There’s only so much room for cuts year to year.
      - Hollywood
        
        Yes, they should lay them off each year revenue drops and not rehire.
      - Spending
        
        It is pretty easy. They continue to outlay long term capital projects that continue to have annual outlays via – bond payments or maintenance costs. I fully admit some of those projects are necessary and important but many are not. Given the fact that revenue increases are likely to come through increase taxed rates (fake assessment increases) and not real value increases, you have to wonder what the county is thinking about spending 25 million for a new office building, at least 250 million on a street car, 80+ million on a gold plated aquatics center, 2+ million a year lost funding the Artisphere, millions for what ever Tejada’s pet “affordable” housing project, the millions in the “energy” plan the county has cooked up.
        
        This is all money on the “books” that taxes need to pay for and this doesn’t include just the everyday schools, police and judges. All that money has to come from somewhere.
- DPGadfly
  
  They knew this was coming. This is not just a one year blip, it is another point on the downward trend. 2010 they had a carryover of almost $100 million into the next budget. It has kept getting smaller until now 2014 will have a $50 million deficit. The overspending and ignoring revenue decline has to stop.
- drax
  
  No, you don’t run out of other people’s money. They keep earning more.
  - Hollywood
    
    This is funny. You might have heard about a few countries – the USSR, Cuba, Mao’s China. They thought the same thing, how did they turn out?
    - drax
      
      No surprise at all that you completely missed the point.
Rambo

Reference “As we projected late last year, there will be about a $50 million gap between the County’s revenues and expenses, and both County government and Schools will need to make some tough choices to close that gap.” Not too difficult to close most of that by not going forward with a Pike Streetcar. With all the water main breaks going on right now I could not imagine the problems if they were happening on the Pike with a Streetcar infrastructure….Come on Zimmerman, just because you disclose your conflict of interest doesn’t mean it still isn’t a conflict of interest!
- Haha, another Garvey brainwash zombie
  
  From arlnow December 8, 2012:
  Hynes, Fisette and Tejada say that Zimmerman properly disclosed his work, and that Garvey’s “allegation that Mr. Zimmerman has a conflict of interest… has no basis in Virginia law.”
- Wayne Kubicki
  
  While I’m not a Pike streetcar supporter, stopping that project would have next to no effect on that $50M budget gap projected for FY14. To my knowledge, the only dollars in the FY14 budget related to the streetcar will be the allocated staff time for those working on getting the outside funding (Fed & VA) for it.
  - JohnB
    
    Wayne! I hardly ever agree with you but it’s nice to see you sticking to the facts. Maybe you should be writing the weekly Republican opinion column instead of Mr. Kelly.
    - Spending
      
      Well, those staff members not spending time on the streetcar could be working on other planning issues. Time dedicated to the streetcar is time that is not spent on solving other traffic/planning issues. Someone needs to still do that type of work.
      
      Second, starting the streetcar and other capital projects means those projects need to be paid for (at least the interest payments need to be paid) that money, again, needs to come from somewhere. The county board can’t just blink there eyes and make it appear. Thus, the 50 million deficit in 2014 (approximate 5% of the annual budget) is a red flag when other spending is being proposed and will make the budget issue more serious down the road.
      - drax
        
        How much would that save?
        
        Let’s focus on savings, not agendas.
      - IG candidate
        
        Yes, we should focus on “savings”. I assume you mean spending cuts. Where do you suggest we start?
      - Spending
        
        I am not the one asking for millions of dollars…the onus is on you to put forth reasons to spend millions of dollars when the county is facing at least a 5% shortfall in their annual budget.
- Terminator
  
  When this year’s budget includes $0.00 for the Pike Streetcar its pretty hard to save $50 million by cutting it.
  - Kneejerk right winger
    
    Oh, uh, then, hmmm… I know! Cut some WASTE! Yeah, waste!
    - kneejerk nitwit
      
      So when the streetcar comes on line the county won’t still have a deficit.
      
      And the waste argument is the argument of a liberal – see Obama (ACA)
      - drax
        
        Yeah, right, liberals are always ranting about waste in government spending, not conservatives.
Becoming Indifferent

I blame all those damn Fro Yo places.
JimPB

What specific cuts for what dollar savings would you make in the annual ARLCo and ALPS operating budgets? (I exclude capital projects such as the aquatic center and new schools because the voters approved the bond issuances for these — if you don’t like the tax cost(s) for one or more of these, blame your fellow citizens who voted for them.)
- fuzzy
  
  Hiring freeze and elimination of 2-5% of the county workforce (much of which could come through attrition, early retirement). Just don’t hire replacements.
  
  We also need to cut back on the pension packages for county employees.
  
  I’m sure there are county owned buildings that are sitting empty and idle that could be sold off as well as county owned land not being used that could be sold to developers.
  
  Another change that should happen is reducing the mandate for subsidized/low income housing in the county. The mandates do is reduce the tax base and increase the school enrollments and ESL costs.
  - Wayne Kubicki
    
    Other possibilities:
    
    County-side: Close Artisphere. Higher user fees in Parks/Rec. Stop runaway growth in Housing Grants program.
    
    School-side: small increase in class size (which Supt. Murphy proposed in this FY13 budget, but the School Board rejected it).
    
    Both sides: Limit employee step increases. Increase employee contribution for health coverage.
- Quoth the Raven
  
  For one thing, they could stop dumping tons of salt on the road when it hadn’t even snowed yet!
  - CW
    
    Now we’re talking! Some of these side streets look like the bonneville salt flats!
- BBMS
  
  5% across-the-board spending cut ought to do it, according to my math.
- Joan Fountain
  
  Arlington County should start taxing church property. That’d bring in a boatload of cash.
  - Quoth the Raven
    
    And then the charities that those churches support would suffer, but who cares about that, right?
    - JimPB
      
      What percents of church budgets — and what dollar amounts — do churches
      give” to charities?
      - Benedict
        
        Probably around 0.05%.
    - Republican
      
      And then the charities that those churches support would suffer, but who cares about that, right?
      
      As long as my taxes go down, who cares.
JimPB

Proposal above: Cut spending across the board by 5%. That almost certainly means reducing the number of employees. Which employees: Police officers? Fire fighters/EMR staff? Classroom teachers?

ANd, no $
- BBMS
  
  OK, I’ll play.
  
  Fire + Police budget is still less than the Human Services budget (@ $121,402,920)
  
  So to ease your concern, we can leave Fire and Police alone, and make the Human Services cut ~ 9.5%. That cuts over $11 million, almost 25% of the goal, in one department. It leaves them with still over $100 million to spend on human services.
  
  And to leave schools out of it, they can shoot for 7.5% cuts from the county operating budget instead of 5%. If Schools can find some money to save without layoffs, that would be a benefit to the process.
  
  Sounds like some pretty severe measures, but that’s the point. It opens eyes to the large amount of money we are having to deal with. Without meaningful spending cuts, the other option is that money comes out of our pockets with higher taxes. That’s much easier for the county to do than make the really tough decisions that they should be making.
  
  Oh, and another figure that kind of skews the math is debt service, since you can’t propose a cut to that. It’s over $50 million a year, what a coincidence that’s what the gap is.
  - drax
    
    Human services is too low now, as it is in pretty much every budget everywhere all the time.
    - IG candidate
      
      I wonder where all that Human Services money goes. What does it pay for? $330,000 a day, every day of the year, seems a lot. How much more do you think they should pay, and what is not being done that you think more money is needed?
- Wayne Kubicki
  
  Ah, yes – the “Holy Trinity” of the local level “Washington Monument” category of spending reductions – public safety and teachers. Very nice.
ACDC Hack

Ever notice how when cuts are suggested the stake holders trot out the people who provide the “legitimate services” that the county provides ??

They never threaten to cut funding for Artisphere !!
- drax
  
  “Ever notice how when cuts are suggested the stake holders trot out the people who provide the “legitimate services” that the county provides ??”
  
  Ooooh, you’re onto them.
- R. Griffon
  
  On this we can agree. The thing has run it’s course, and it’s neither self-sustaining nor really appreciated by the community. Pull the plug already.

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