Property valuation hikes shock downtown Duluth
The value of real estate in downtown Duluth has skyrocketed, to judge by recent property statements from the St. Louis County Assessor's Office.
Sandy Hoff, president of F.I. Salter Real Estate Services, has fielded many questions from distraught clients in recent days.
"My phone's been ringing off the hook," he said.
In many cases, he said it's tough to square the assessed values with the actual prices downtown buildings have commanded.
He pointed to the Board of Trade Building, a historic structure in the 300 block of West First Street.
"It sold last year for $850,000, and now, if you click on the county website, it's being valued at $2.9 million. And it hasn't had any major reinvestment," Hoff said.
The county will look into individual cases that are brought to its attention — such as that of the Board of Trade Building — and consider adjustments, said Mary Garness, St. Louis County public records and property valuation director.
As for the number of property owners who have raised concerns about increased valuations, Garness said the "large volume" was expected: "We do realize market conditions have changed quite substantially, and a lot of properties haven't been visited for a five- to eight-year span."
Further up the block, the Missabe Building, at 227 W. First St., appears to have quadrupled in value, climbing from about $2 million in 2017 to $8.2 million in its 2018 assessment.
The New Garrick Building at 138 W. First St. — which is home to Bella Flora in addition to other tenants — saw more than a six-fold increase in its latest assessed value.
"We've been at $174,000 or so for years," said Hoff, whose firm, F.I. Salter, owns and manages the property.
"Has that been undervalued? Yes it has. Should that value probably be closer to $300,000? Yes, it probably should. But now they have it on the rolls for $1.1 million," he said.
Many commercial properties were long overdue for increased valuations, Garness said. Yet her office continues to welcome questions.
"Of course, we're always grateful for citizen feedback, because it does give us an opportunity to review what has been sent out and then take any corrective action, if necessary," she said. "And we are able to correct some things if we do find either errors or inconsistencies or legitimate concerns that are brought up by property owners."
Garness said the county's assessment team is working to respond to property owner concerns. She noted that a batch of amended property valuation notices were to be mailed Friday in response to some of the issues already raised. People should begin to receive those revised valuations in coming days.
Assistant County assessor Terry Johnson said letters are going out to more than 125 owners of downtown commercial properties.
Hoff said he wished the New Garrick was worth as much as the county assessor's office says.
"Our attorney, Bill Burns, sent them a note, saying we will sell that building tomorrow to anyone at City Hall or in the county assessor's office for half of your assessed value," Hoff said, adding that the offer is no joke.
Steve LaFlamme, president and CEO of Oneida Commercial Real Estate Services, said plenty of downtown properties have seen the value of their assessments double from 2017 to 2018, prompting widespread concern and an outreach effort on the part of the Duluth Building Owners and Managers Association, representing more than 6 million square feet of commercial space.
"We've always had a very good relationship with the assessor's office. They've been very good to work with. So we're going to try to set up a meeting with a number of the building owners to make sure their methodology matches up with what ours is," LaFlamme said.
Garness said those conversations will continue.
Further evidence of a possible disconnect between the realities of the local real estate market and the latest assessment values can be found under the Duluth News Tribune's own roof.
The DNT building, at 424 W. First St., has been on the market for several months, at an asking price of $2.9 million for the entire property. But that listing looks like quite a bargain, to judge by the combined assessed value of the properties — nearly $3.9 million, according to St. Louis County officials. That's one-third more money than any prospective buyer has been willing to pay so far.
Hoff said the timing of assessment hikes also stings.
"They are tripling or quadrupling the assessed values on many downtown properties at a time when the downtown is seeing diminishing occupancy, struggling rents and a major construction project that's creating disruption," he said, referring to the ongoing reconstruction of Superior Street — a project that's expected to take three years to complete.
Hoff said he understands that some of the valuations for commercial properties were out of date, but suggested the county could have softened the blow by putting together "a strategic plan where we catch up over a number of years."
But further delaying increased valuations could be problematic, too, Garness said.
"Our values have to be fair and equitable, and if we determine ... something supports an increase — market conditions, sales etc. — that typically is not done incrementally," she said.
Garness noted that while assessments can affect the amount of taxes paid by a property owner, rising values should not be conflated with an automatic tax increase. Rather, valuation adjustments should ensure the tax burden is spread appropriately across a growing property base.
"When property values increase for the whole, that doesn't necessitate an increase in property taxes, it just results in a more equitable distribution of taxes," she said.
LaFlamme and Hoff noted that any large increase in taxes could be tough for many commercial property owners to shoulder. Some lease agreements allow landlords to pass along the cost, but other multi-year agreements don't.
"If it's a substantial increase, even though you have the ability to pass it on, it's not a very wise thing to try to pass it all on," LaFlamme said, because it could force out tenants.
"Many of the buildings downtown don't generate a lot of positive cash flow," Hoff said. "They barely squeak by. So where does the revenue come from?"
To get help:
Anyone with questions about their valuation may contact the county assessor's office at (218) 726-2304.
Duluthians who still take issue with their proposed property valuations can still bring forward concerns and should make an appointment before 4 p.m. May 16 by calling 730-5350. Cases will be heard that same evening or on a yet-to-be-scheduled overflow evening if the slots fill up, with the hearings to occur inside City Council chambers on the third floor of City Hall, 411. W. First St.
People unable to make their case in person also may appeal in writing by sending materials to the Duluth City Treasurer's Office, 411 W. First St.. W., Room 105, Duluth, MN 55802.
If a local appeal fails to resolve the matter, residents can make their cases directly to the county between 10 a.m. and 7 p.m. June 19. Appointments for that day may be made by calling 726-2385.