Will Steel City Reassessments Cause CRE Meltdown?
Commercial building owners in Downtown Pittsburgh and across Pennsylvania’s Allegheny County fear the possible loss of tenants to neighboring counties because of higher real estate assessments. Higher assessments will increase rental rates because they’ll hinder owners’ ability to refinance mortgages. Steel City owners and elected officials have expressed concern that the increase in commercial rents due to the reassessments will make it harder for small tenants to afford space downtown and will prompt larger tenants to save money on already high rents. Owners, tenants, and real estate investors have said they hope that Pittsburgh Common Pleas Court Judge R. Stanton Wettick will delay the higher assessments, which have not been made yet.
Building owners who have invested heavily in the county’s commercial properties are questioning whether they should continue to buy, improve, and rent retail and office space. Property assessments on Downtown properties ranged from increases of as much as five times their former value. The assessment on the well-known Frick Building jumped to $37.2 million from $17 million, county records showed. For now, there is some good news: Several Downtown restaurants will escape heavy increases.
Many tenants have been openly making plans to relocate to space outside of Downtown, where rents won’t be affected. However, buildings in the South Side, the North Shore, and throughout the county could also be hit hard by the reassessments, said real estate experts, who pointed out that tenants must consider what impact the reassessment will mean to their business, not only now but in the future. In the meantime, investors sitting on property that they bought to improve and attract tenants are fearful that they won’t be able to find tenants willing to pay higher prices than before the change--and will have to sell their buildings if that’s the case.
Note: Rather than raising rents to cover tax hikes due to property reassessments, some owners pass property taxes directly on to tenants through CAM charges. To limit your exposure to unexpected increases in tax-related CAM charges, look up “Exclude Certain Special Assessments from ‘Taxes’” on our Web site.