While not the first time I’ve addressed tax assessments, the market is such that there’s constant evolution resulting in a variety of issues that are relevant to managing your club’s real estate tax assessment. This discussion will focus on renovations and deferred maintenance, both of which are on the minds of many clubs and operators these days.
Real estate tax assessments are not “static”. They can change. In some jurisdictions, property is re-assessed each year. In most, it’s not that frequent and not only do reassessments occur, but equalization rates/ratios/factors evolve to the point that the implied market value of an unchanged assessment can change significantly over a relatively short period of time. It’s important to monitor these changes.
Many clubs and golf courses have undergone or are considering capital investment with the surge in golf activity since COVID energized participation. Key to the consideration of tax assessments in all this are two major points:
- Timing – When improvements are planned
- Nature of the Improvement – Are they “required” or “desired”?
Timing is critical for several reasons. The relevant date of valuation, and the property’s condition at that point determine what is being appraised. If there is deferred maintenance (“required”) existing as of that date, the property’s value will be impacted directly and prospective purchasers (remember, market value presumes a sale) will evaluate accordingly based on their anticipated necessary expenditures. If renovations (“desired”) are planned or being considered, their potential impact on the property’s value (hopefully positive) must also be considered upon completion, but recognizing that it may take time for that value to be realized and applying appropriate discounts for same.
Recently, we served as valuation expert in a case that, while ultimately satisfactorily settled included contention on the part of one of the taxing authorities that deferred maintenance was not appropriate to consider because the property’s income alone suggested a higher value than after allowance for deferred maintenance. Of course, that theory fails to acknowledge that certain infrastructure elements (irrigation, cart paths, bunkers, etc.) require periodic replacement. If they’re at the end of their useful life (we often use the ASCGCA guidelines on this) the value adjustment can, and often should be dollar for dollar based on cost. Buyers consider these issues and evaluate purchases accordingly. Remember that the concept of market value presumes a sale.
Renovations (“desired” improvements) in most cases are not likely to have the same dollar for dollar impact as deferred maintenance, and it’s up to the appraiser in a tax assessment valuation to appropriately measure the real impact on value regardless of cost. Often this value to be realized is future value and takes time and often the contributory value of the improvement may not equal the cost.
The bottom line is that many clubs are considering either finally addressing items of deferred maintenance or making enhancements to their facilities in light of the strong recovery and performance of many golf courses and clubs during the COVID era. There are many intrinsic and extrinsic factors that impact golf property value. These include the intrinsic issues like property condition, income history and a club’s management. There are also extrinsic influences on value such as fluctuating interest rates, market competition and in the case of the COVID golf surge, how sustainable the gains are. The impact on real estate tax assessments should not be left out of the evaluation for capital improvement plans for a wide variety of reasons.