For investors, the property tax assessment of 2017 was like getting the hotel bill after a week of fun at a luxury hotel. The growing market values were great. The resulting property taxes that, in some cases, were almost double their previous amount were…less great. 2019 brings another assessment year to local investors who, once again, have experienced sizable gains in value since the last tax assessment. Will taxes again jump and, if so, how will the market react to these higher expenses?

The 2017 tax increases were substantial. But our multifamily market bulldozed right through them. Average rent rates growing north of 7% per annum gave owners an easy path to offsetting the higher expense. Additionally, with market cap rates in the low 6% range for Central Denver class C assets, Buyers had some extra income to pay those higher taxes. Today, however, rent growth is modest (below 3% in most cases) and cap rates are a full point or more lower than the last time property taxes were assessed.  In other words, buyers will have less income to pay additional taxes and they won’t be able to raise rents as easily to offset higher expenses.

Without a doubt, assessed values around Denver will be up once again. But, it’s possible local mill levies will be down from where they were in 2017. The actual mill levy will be set in December this year, so it’s impossible to say what it will actually be. However, Denver voters have voted down several initiatives that would have raised our mills, like Amendment 73, so optimism that taxes don’t jump like they did after 2017 isn’t unreasonable.

Like all things that impact value, our crystal ball is no clearer than anyone else’s. Will our taxes go up? We don’t know for certain. It’s logical to think they will increase, but likely not in line with the increases we saw after the last assessment. Still, with low cap rates and weaker rent growth, any increase in expenses will carry real changes in property value. As always, our team stands ready to point out areas where values can be maximized for our clients as we approach another tax assessment. As cap rates remain low, every dollar added to a building’s net income is significant.