Many tax assessors improperly argue or dismiss a property's market value, relying instead on the cost or income approach, however flawed. The thinking here is there is no market for food facilities; or that even if one can identify a transaction or two, the properties are too nuanced with machinery, equipment, and customized use to apply to the subject assessment. Further complexities, if even recognized, include forecasting the impacts of evolving FMSA food-safety mandates on future use and value, and the property consequences of high-throughput production as the antidote to razor thin margins.
So into this fog wades the tax assessor, armed with non-food comparable sales, often in primary markets where data is more transparent; income producing properties that traded as investment sales; or institutional-grade bulk warehouses whose only similarities may be size and a tertiary location. A call to the brokerage community yields little more than a commoditized Co-Star search, and the bias towards the cost and income approaches becomes immediately clear. Resort to Marshall’s index, plug in a few rents and insert a cap rate, and presto, you get a value. A high value, clearly- perhaps egregiously high- but a value nonetheless.
Forecasting rents for highly nuanced food production facilities can be dicey at best; the vagaries of temperature, cube height, audit conformity, and utility infrastructure are extraordinary, and beyond the comprehension of generalist brokers and assessors.
Global Food Properties has a vast library of process-specific rents and cap rates, because we operate on the front lines of those transactions.
Tax assessors generally rely on three methods to triangulate a taxable value.
- Replacement Cost - The cost approach considers simple replacement cost, which is then depreciated based on the age of the facility. Intuitively, even with aging facilities, this valuation will skew high, as replacement cost for a high-finish plant can run upwards of $500.00 SF.
- Market Return - This second approach estimates value by applying a per square foot market rent, and against that net operating income, applying a cap rate reflecting the expected market return.
- Market Value - The third point of triangulation considers market value, which is that body of data confirming what similar properties have traded for within a relevant time frame. Comparable sales are the most instructive in forecasting true market value for tax valuation purposes.
Structuring the Outcome
Global Food Properties has a rare fluency in these issues, and serves routinely in high-profile property tax litigation, working alongside the best attorneys in this field. Serving as expert or rebuttal witness, we articulate the existence of a robust market for food facilities, and with a library of hard data confirming pricing, terms, time-on-market, and ancillary factors.
The result, for clients such as Hormel Foods, General Mills, Treehouse Foods, and the Minnesota Sugar Beet Cooperative, has been consistent cost containment or reduction, either across a building or an entire portfolio.
Little to No Out of Pocket Expense
Perhaps the best news for corporate occupiers is the appeals are generally funded out of the savings, with little or no out-of-pocket expenses; additionally, in many jurisdictions, one can repeal retroactively, reclaiming overpaid funds for a period of years.
Who You Choose Matters
Who you choose matters, and ours is not a commodity expertise. Global Food Properties has a rare expertise in the dynamics that drive occupancy, from acquisitions and dispositions to tax and M&A valuations; we are uniquely positioned to assist.