Summit owners: We paid too much for shopping center
Several owners of multi-million dollar properties in Louisville are challenging the fair value of that real estate in an effort to save money on property taxes. In some cases, owners claim they overpaid for the property only a year or two ago.
Friday, July 25th 2014, 3:32 pm EDT by
Friday, July 25th 2014, 6:19 pm EDT
LOUISVILLE, Ky. (WDRB) -- Describing itself as “one of the world’s leading real estate advisors,” AEW Capital Management, L.P. manages an almost $50 billion portfolio spanning three continents.
Yet, the Boston-based investment company is trying to convince Louisville officials that it vastly overpaid when
buying the shopping center formerly known as the Summit in northeastern Jefferson County for $111.5 million last year
The 365-acre outdoor mall off Brownsboro Road is actually worth only $92 million, AEW says.
Rather than an academic argument, it’s one that means real money: AEW’s annual property tax bill would be reduced by about $206,000 if officials accept its opinion of the property’s fair market value, according a
analysis based on last year’s tax rates.
Jefferson County Public Schools gets the biggest share of Louisville property taxes, with some also going to Louisville Metro, state government and, depending on location, a suburban city or fire district.
The Summit – now called the Paddock Shops – is the single most valuable of about 3,000 properties in Jefferson County whose 2014 taxable assessment is in dispute.
Other high-value properties include the former Aegon Center office tower now called 400 W. Market, Ford’s Kentucky Truck Plant in eastern Jefferson County, Westport Village and 4th Street Live.
Here are the ten most valuable properties whose owners are disputing assessments, according to information from the county clerk’s office.
4001 Summit Plaza Dr. (Paddock Shops); PVA, $111.5 million; owner, $92 million
200 S. Fourth St. (400 W Market office tower); PVA, $83.2 million; owner, $55 million
100 E. Jefferson St. (Springhill Suites by Marriott); PVA, $59.5 million; owner, $41.8 million
11200 Westport Road (Ford Kentucky Truck Plant); PVA, $44.7 million; owner, $35 million
403 Steeplecrest Ct. (Camden Oxmoor apartments); PVA, $42.1 million; owner, $39.4 million
7601 National Turnpike (industrial warehouses); PVA, $35.5 million; owner, $27 million
1321 Herr Lane (Westport Village); PVA, $33.5 million; owner, $28 million
2000 Nelson Miller Parkway (commercial warehouse); PVA, $30.4 million; owner, $24 million
446 S. Fourth St. (4
Street Live); PVA, $16.9 million; owner, $4.5 million (Baltimore-based Cordish Co. is also challenging the value of the other 4
Street Live parcel, 411 S. Fourth St., which it also contends is worth $4.5 million)
800 S. Fourth St. (The 800 Building); PVA value, $16.7 million; owner, $8.2 million
For big businesses sitting on millions of dollars in property, even a modest reduction in an assessment can mean hundreds of thousands of dollars saved on taxes annually.
factory in southeastern Jefferson County, saying it’s worth only about $23 million. The case went to the Kentucky Board of Tax Appeals in Frankfort before Jefferson County Property Valuation Administrator Tony Lindauer – who sets local assessments – settled with GE on a $31 million value.
Ford Motor Co. has disputed the value of its Kentucky Truck Plant off Westport Road off-and-on since 2005, and it’s now challenging the PVA’s value once again.
Lindauer’s office raised the value of the 400+ acre property from $35 million to $44.7 million for the 2014 tax year. In 2010, an appraiser hired by Lindauer said the plant was worth more than $67 million, but the state tax appeal board sided with Ford’s $35 million value.
AEW’s case about the fair value of the former Summit landed Friday at the Local Board of Assessment Appeals, the mayor-appointed body that makes an initial ruling on disputes between property owners and the PVA.
One member of the board, retired appraiser Ed Allgeier, seemed skeptical of AEW’s claim that the property is worth almost $20 million less than it paid only a little more than a year ago.
Allgeier said an arms-length sale negotiated between two parties is usually the best indication of a property’s real value.
“‘Sales price’ usually means a buyer and a seller were sophisticated enough to handle that transaction,” he said during Friday’s hearing.
Mike Maple, a Louisville attorney representing AEW, said in an interview that the main reason his client paid too much for the shopping center has to do with changes in interest rates – particularly, the price of Treasury bills -- between the sale in May 2013 and Jan. 1, 2014, the date that matters for tax assessments.
In May 2013, pension funds that invest in AEW were in a rush to invest money and AEW “overpaid” for the property, he said.
“At the time, if they looked at it, they (AEW) made what they believed to be a commercially reasonable decision,” he said.
Todd Underhill, head broker at Underhill Associates, a Louisville real estate development company, appeared before the board on behalf of AEW on Friday.
Underhill told the board his family company, which developed and sold Westport Village, was “very, very interested” in buying the Summit last year, but was outbid by AEW.
Underhill said he put a value of $82 million to $85 million on the property in spring 2013 – and would pay no more than $90 million.
“Looking back today I am glad we didn’t pay $90 million for this property… I don’t think the market is strong enough,” he said.
George Chapman, the professional appraiser who came up with the $92 million value for AEW, mentioned a number of factors in his presentation to the local board.
Chapman said “some” retail lease rates are now lower than they were more than a decade ago when the Summit was built and signing up its initial tenants.
“We haven’t gotten out of the recession yet,” he told the board.
He also mentioned the dependency of smaller stores on bigger-draw outlets and the “risk” associated with losing “anchor” tenants like Barnes & Noble.
Just before the sale last May, the Summit’s previous owner was “desperate” to get big tenant into an empty spot and offered a cut-rate rent of $9.92 per square foot to Earth Fare, an organic food supermarket, Chapman said.
Still, Earth Fare “is not doing well,” Chapman said. Asked by a board member if he had the store’s sales figures, Chapman said the assertion is based on his perception of foot traffic to the store.
Chapman said the assumption that Earth Fare would succeed was a factor in the inflated purchase price AEW paid for the center.
But Allgeier said that seems like a risk an informed real estate investor would take into account when deciding the right purchase price.
“It is amazing that the purchaser (AEW) – as sophisticated as that purchaser is – would not have flagged that,” he said.
Correction: an earlier version of this story gave the wrong name for Mike Maple.
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