The Law

Ailing Mall Wins Tax Break by Ron Davis Property taxes on an aging Texas shopping center have dropped drastically, thanks to a court ruling that supports a controversial appraisal of the center’s value. The shopping center is Kempwood Plaza in Houston, and the reduction in the tax liability results from an independent appraisal that greatly lowered the estimated value of the property. The center’s owners paid for the appraisal after their objections to the city’s valuation of the property seemed to fall on deaf ears. Kempwood Plaza is more than 30 years old and has a number of problems besides age. Its owners argued that it should be classified as a property suffering from “low rent, inferior maintenance, poor and unstable occupancy, poor signage, poor design, no quality tenants, poor tenant mix, a weak anchor tenant, and/or failure to attract customer traffic.” The appraiser hired by the center’s owners agreed. In conducting a comparative analysis of similar properties, he began by looking for properties in the area surrounding Kempwood Plaza. That produced a list of 24 properties. From that list, he restricted his selections to properties close to the size of Kempwood Plaza. That left him with nine properties. He then made adjustments in value according to the properties’ location, age, and size. Finally, he calculated the median per-square-foot value of the properties and applied those values to Kempwood Plaza. The resulting calculations showed a significant disparity between his median value estimate of Kempwood Plaza and the value assessed by the county. The county objected, contending that the appraiser, in his analysis, had failed to consider Kempwood Plaza’s market value–that is, how much the property would be worth if sold. For tax-valuation purposes, however, Texas law requires only an analysis comparing the appraised value of a property and the median adjusted appraised value of a reasonable number of similar properties. A Texas court therefore accepted the appraiser’s calculations. The county appealed. A Texas appellate court agreed with the lower court, explaining, “The problems that the county points out do not rise to the level as to make the ruling favoring the taxpayer arbitrary, unreasonable, or made without reference to any guiding rules or legal principles.” (Harris County Appraisal District v. Kempwood Plaza Ltd, 2006 WL 23322 [Tax.App.-Hous. 1 Dist]) Decision: January 2006 Published: February 2006