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SMARTER OPERATIONS NOVEMBER/DECEMBER 2015 STUDENT HOUSING BUSINESS .COM 100 PROPERTY TAX 101 Tips from the experts to control property taxes — before and after an acquisition. By Lindsey Walker Marcec A Ask a student housing owner to name the most diffcult elements of the acquisition process, and, invariably, property taxes will be among the frst on the list. Property taxes are hard to predict for a number of reasons, such as assessment practices that vary from jurisdiction to jurisdiction (and from assessor to assessor). As a result, the property taxes on a new property, or an older property that's undergone capital improvements, can often leave owners confounded. Student Housing Business spoke with proper- ty tax experts and experienced owners to learn what owners can do in advance to better miti- gate the blow of that property tax bill — and what options they have after the fact to fght it. Do Your Due Diligence First and foremost, owners should always do their due diligence before acquiring or investing in a property. That means research- ing the assessment of comparable rentals in the area, including deals that may have sold recently, and the historical tax rate. It means understanding the local assessment offce's valuation methodology and reassessment cycle. And, most importantly, according to Scott Duckett, chief operating offcer at Austin- based Campus Advantage, it means engaging a property tax expert. "Property taxes are the largest variable in an acquisition, and it's tricky for underwriting the asset," he says. "Our investment group does a tremendous amount of research on its own on the front-end to understand the assessment process, historic changes in millage rates and potential bond proposals, among other things, that will have an impact. Then, we work with an advisor to get their opinion." Gilbert Davila, attorney/principal at Popp Hutcheson PLLC in Austin, agrees that research and education are key, especially if working in a new market. "Educate yourself about the property tax system in your state, and then educate yourself about how that tax system is implemented in the jurisdiction where your property is locat- ed," Davila says. "A lot of that you can fnd online. But, when you start a dialogue with a consultant or an attorney who does property tax, you have the beneft of a professional who already has an established relationship with these appraisers and assessors. They not only know how the system works in terms of the statutes, laws and methodologies, but they also know the personalities and psychology of the specifc assessor's offce." Being able to engage with these assessors, create a dialogue, and earn their trust, Davila asserts, is just as important as understanding their valuation process. "Odds are, you're going to come back year after year talking to the same people and fght- ing the same arguments," Davila says. "So it really benefts your property, in the end, if you establish good professional relationships with your assessors. It's not only important to the initial property tax analysis, but also to the successful appeal and protest." Know Your Timing Timing plays an important role in property tax calculation, and understanding a jurisdic- tion's date of valuation and reassessment cycle can help owners better predict their property tax bills. Property taxes are based on property value, and, in the current student housing market, values continue to be driven up. Understanding the local reassessment cycle — many take place annually, while some can be every three, four or even eight years — can have a very large tax impact on a property. "What we try to do is estimate where the assessor will place the value on that property as of the date of valuation, which is usually January 1," says Brad Gorski, senior director, state & local tax and advisory, with the Altus Group in Atlanta. "The key things for owners to be aware of are that each jurisdiction has its own set of rules and nuances for how they value property, the information they look at, and the timing of when they can reassess that property based upon the sale." Unfortunately for owners, there's not one single database available where they can go online to fnd out every jurisdiction's reassess- ment cycle. But that's where a property tax pro- fessional can once again be benefcial, as many know the ins and outs of each jurisdiction. "We have 750 people across North America," says Kevin McCune, manager, property tax, at Dallas-based Ryan LLC. "We have people in nearly every market and have local relation- ships with the assessors, so we know how they work." Monitor Property Values and Data Even with extensive research and due dili- gence on the front end, owners should always look for appeal opportunities. "Owners don't need to assume that because the assessors valued their property at its pur- chase price that it's necessarily fair," Gorski says. "It may not be fair relative to other facts about the property, and it may not be fair rela- tive to how other similar properties are being assessed. Jurisdictions have the authority to set the assessment where they want to based on how they see the evidence, which is usually different from how we see the evidence." Davila agrees. "That analysis of what an owner does it is very different from what the appraiser does," he says. Knowing this discrepancy exists in how assessors value student housing properties, owners can proactively set themselves up for a successful appeal by constantly monitoring their property's values and data — and that means more than simply looking at the value and how it increased percentage-wise from the previous year. "Owners get so much traction with regards to a property tax appeal just by looking at the basic property information," Davila says. "A lot of times, assessors have the net rentable area of the student housing project wrong, or they might have the incorrect classifcation of the property. It's the basic data about the prop- erty that is the starting point for any review of what a value looks like, so it's essential to make sure it's correct." " Assessors commonly apply conventional apartment data when assessing student housing values, but there are huge differences between the asset types. — Scott Duckett, Campus Advantage