Beginning in 2014, Central Market parent HEB began snapping up parcels on the city block bounded by Lemmon and Bowser Avenues between Reagan and Throckmorton Streets. Their intent was to open a Central Market. That plan has been abandoned for what I last heard was a Central Market planned for the old Albertson’s location on Lemmon and McKinney Avenues.
The main reason the deal failed was zoning. The parcels facing Lemmon Avenue are zoned for commercial operations while the Bowser-facing lots were zoned for residential use. The Oak Lawn Committee told HEB there was no way they’d support a commercial encroachment into a residential area. I’m sure the fear was that if they’d said “yes” here, other Lemmon Avenue businesses would want to convert the residential backs of their blocks to commercial too.
Imagine if you lived across Bowser and the buffer of buildings between you and Lemmon Avenue were removed and replaced with a parking lot. Not only would the feel of living on an interior neighborhood street be gone, but along with it would be the visual and noise pollution from Lemmon and the blaring lighting and traffic of a grocery store parking lot open until 10 p.m. every night.
Even though those plans were abandoned some time ago, that block is still owned by HEB. In fact, last November, HEB transferred their ownership from the affiliated OGM Group to HEB Grocery itself. To me, this signals HEB isn’t giving up the land anytime soon.
During this process, many of the buildings on the block were demolished. Gone is the first Taco Bueno I ever visited and the original home next door. On Bowser, apartments were similarly town down.
But not everything is gone.
Four Townhouses
On Throckmorton and Bowser there are four townhomes built in 1997 that still stand and are being rented by HEB. As is often the case, prior to redevelopment DCAD (Dallas Central Appraisal District) reduces the assessed value of structures to near zero. Once redevelopment has occurred, values are reassessed. But redevelopment hasn’t happened and these four townhomes, now on their third year, are valued at $1,000 each and rated as either “very good” or “excellent.”
One of the units, 3512 Throckmorton, was valued in 2015 for $256,720, however, for the past three years, its value has been $107,300 ($106,300 for land, $1,000 for the building). Without even factoring in the 19 percent appreciation properties across the street have faced during the same period, Dallas devalued the four properties by $713,990 per year or $2,141,970 since 2015.
Factoring in a similar 19 percent market-driven increase and the number jumps to about $2.5 million, or about $71,000 in taxes lost. Of course, when redevelopment happens, it’s assumed the new structure’s taxes will eclipse any losses while the deal is getting done. But no deal has been done in three years.
Also heaping on the gall is that these townhomes are occupied, meaning HEB is deriving benefit from properties that DCAD has impaired on the tax rolls. This all reminds me of when a developer was renting out units in a new midrise because the Recession killed unit sales. Fine. But DCAD still had those units at half tax because they were categorized as model units. I pointed out they were being rented (a no-no), but nothing changed.
I reached out to DCAD for comment or explanation on the townhouse situation and received no reply.
Le Madeleine
The other remaining building on the block, built in 1985, houses Le Madeleine restaurant and assorted offices. It has an even stranger tax story to tell. Prior to 2005, the building’s assessed value was never below $507,240. Then in 2006 it dropped from $534,630 to $166,880 and has been on a seesaw ever since, hitting $1,000 four times, with DCAD’s proposed 2018 assessed value at $66,610.
This has gone on during a period of huge land appreciation. The parcel nearly tripled in value from 2004-2005 and jumped another ~50 percent in 2006 and another third in 2013. For this commercial property, DCAD’s strategy seems to be to push all valuations towards the land while the building is undervalued.
But the $1,000 building valuations are, like the townhouses above, based on the building being redeveloped. That’s not happening, so the building’s valuation should return to whatever is normal for this property.
For comparison, Le Madeleine’s 17,360 square foot building (2018 proposed value of $66,610) is across Lemmon Avenue from the 7,032 square foot Pet Supermarket built in 1971. At 10,000 square foot smaller than Le Madeleine’s building, Pet Supermarket’s assessed building value is slated to jump from $969,850 to $1,258,700 in 2018. That makes Pet Supermarket’s building 19 times more valuable than a property 14-years newer that’s more than double its size right across the street.
But there is light in 2018’s proposed values. As I said, the Le Madeleine building’s value is slated to increase from $1,000 to $66,610 (still a joke to me). However, the land may gallop from $1,694,120 (since 2016) to $2,214,080. I’m going to guess that even at a combined proposed assessed value of $2,280,690, it’s still less than half what HEB probably paid for the nearly two-thirds of an acre on Lemmon Avenue.
But every silver lining is surrounded by a black cloud. HEB is challenging their valuations on every parcel on the block (as are their commercial neighbors). One assumes HEB won’t be arguing for DCAD to raise the $1,000 building values for the four Throckmorton townhouses, but to lower the land values.
While to this novice challenging the values of nearly all the parcels is a (bit shameful) fool’s errand, they do have one likely win.
Lemmon Avenue properties nearby appear to be generally assessed at $65 per square foot of land. Two of the HEB Lemmon properties, Le Madeleine and the Reagan-Lemmon corner lot, were raised in 2018 to $85 per square foot. No adjacent properties are that high. Even the new Verizon store on the busy corner of Lemmon and Oak Lawn Avenue is only assessed at $80 per square foot. I think DCAD will have to cave here.
Now had DCAD been smart, they should have completely reassessed the townhouses’ and Le Madeleine’s building valuations and left the land alone. OR they should have reassessed the $/sft of land for all Lemmon Avenue properties and not seemingly just those two.
The loophole Republicans refuse to close
Twenty years ago a loophole in the Texas property tax code was discovered by commercial property owners. The loophole allows those with deep enough pockets to take their tax protest beyond a (typically fruitless) sit-down with DCAD. If you have the cash, you can pay an attorney to take your tax protest to court. In fact, all the way to the Texas Supreme Court if need be. If at any point along the way the court sides with the landowner, not only is the assessed value reduced, but the local CAD (Central Appraisal District) has to pay the landowner’s legal fees.
In a legal twist of fate, if the CAD wins, the property owner doesn’t pay their legal fees, the CAD is just out the cash … taxpayer cash. The first test case won an appraisal one-third less than was paid for the property. More recently, a case involving the Austin Renaissance hotel cost the CAD $62,000 in legal fees to win. Another filed by Circuit of Americas F1 racetrack got their assessed value knocked down over several years to $91.2 million in 2016 after crowing during construction that it would be a $400 million complex.
This makes CADs very wary of reassessing large commercial property owners.
The loophole also allows for crazy comparisons. A building owner in a swanky area of town may use the valuation of a similar property in a poor area as evidence to lower the swanky property’s valuation. Even if that property is in another city or even state. In a Travis County case, JC Penny’s used comparable properties from Wisconsin, Iowa and Michigan even though there were many JC Penny’s in Travis County. Insanity.
How does all this now spell D-E-M-O-C-R-A-T?
According to former PriceWaterhouseCoopers partner Mike Collier, this loophole is costing Texas $5 billion a year in uncollected taxes from large commercial interests. Certainly an additional $5 billion could help fix our schools and potentially lower regular folks’ taxes.
Former Republican turned Democrat, Collier is running in November against Dan Patrick for Lt. Governor. Collier claims legislation that closes the loophole has been proposed in committee but has never been allowed onto the state senate floor under Patrick’s leadership. It should be no surprise that large property owners have the money to pay lobbyists and fund campaign contributions to stifle the loophole’s closure.
So if you want a snowball’s chance of closing a loophole that’s costing the state $5 billion a year, vote for the guy who will measure his success as Lt. Governor by closing the loophole.
I’m not at all saying HEB is an organization that utilizes this loophole (I don’t know) or that it’s contesting of its 2018 valuations on these properties will result in lawsuits. However, these lots do offer a tiny peek at how nonsensical commercial valuations appear.
Is DCAD (and every other Texas CAD) pussyfooting around commercial real estate out of fear of lawsuits they will ultimately lose and pay for (even if they win)? I think “yes”. So taxpayers owe it to themselves to vote for the guy who will close the loophole and embolden CADs to properly assess commercial real estate.
“Fairness” should be apolitical. Greed is the only reason it’s not.
Remember: High-rises, HOAs and renovation are my beat. But I also appreciate modern and historical architecture balanced against the YIMBY movement. In 2016 and 2017, the National Association of Real Estate Editors recognized my writing with two Bronze (2016, 2017) and two Silver (2016, 2017) awards. Have a story to tell or a marriage proposal to make? Shoot me an email [email protected]. Be sure to look for me on Facebook and Twitter. You won’t find me, but you’re welcome to look.
