California "split roll" property tax measure qualifies for Nov 2020 Ballot.
[{"id": "fyj84oh", "text": "This sounds like it\u2019s going to cause a serious shift in the market.", "replies": [], "depth": 1}, {"id": "fyj8z96", "text": "someone ELI5?", "replies": [{"id": "fyjahcz", "text": "Currently property tax rates in California are locked when you buy a property (with only small increases allowed).\n\nIf you buy a home for 500k you pay property taxes on the 500k value as long as you own it, even if that home has appreciated over the 15 years you\u2019ve owned it to 700k market value. (This is because of prop 13, a law passed in California in the late 70\u2019s)\n\nThis new prop would reverse prop 13 for commercial and industrial properties (not residential) meaning their value would be assessed every couple of years and you would pay property tax on their current market value, not what you purchased it for. \n\nFYI I\u2019m pretty sure CA is unique with prop 13. Majority of places do increase property values every couple of years based on current market value.", "replies": [{"id": "fyjalga", "text": "rip long term appreciation", "replies": [{"id": "fyk2w3o", "text": "Long term appreciation still happens in every other state, what do you mean?", "replies": [], "depth": 4}, {"id": "fylurjm", "text": "What? Value is determined by how much market will pay for it. Normally property tax is based on value, however, Prop 13 limits increases to value from what you bought it at to 2% per year. Theoretically, if your property doesn\u2019t appreciate, split roll wouldn\u2019t affect you since it\u2019s value isn\u2019t increasing anyway, so it wouldn\u2019t hit the cap.\nI do agree however that California RE could be fucked by a lot of retail tenants who\u2019ve been at the same space owned by the same landlord for decades who barely survived COVID get wiped out by the increase in tax burden if they\u2019re on NNN or Gross/BY leases", "replies": [], "depth": 4}], "depth": 3}, {"id": "fyjf0sq", "text": "So I can buy that warehouse next year", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fyje3t8", "text": "oof", "replies": [], "depth": 1}, {"id": "fyjv9j2", "text": "This happens in Texas all the time. Difference is that we have a slightly higher tax rate for property too, but don't have a state income tax. Sounds like they want to have their cake and eat it too. Any tenant or owner-occupier in California should be very concerned by this. This is not going to hurt Landlords much, as Opex are passed through in most cases, but will have a big effect on real estate costs for companies already being heavily taxed in that state. California seems to have no issue being unfriendly to companies, which is a shame.", "replies": [{"id": "fykbpc3", "text": "It\u2019s only going to impact medium and large businesses that have had their rates essentially frozen for years or decades. New businesses pay market rate, and old businesses should too. No need to grandfather prpoperty taxes by how long you\u2019ve been there. \n\nTexas doesn\u2019t do it and neither should we. It\u2019s resulted in some horrificly unfair situations.", "replies": [{"id": "fyknpia", "text": "I disagree with this. It will affect small to medium businesses the most. It all matters how long their landlord has held the building, not the time that they have leased it. Newer businesses almost always lease. That being said, If a small business is a tenant in a building that has stayed in the same hands for a very long time, then they would be wrecked. Small to medium would be affected more heavily because real estate is a larger line item for them than the large ones. How many large businesses do you know that have held the same real estate for a very very long time without moving, upgrading, etc. Since Opex are passed through to Tenants, this will most definitely have greater effects on them, and they will be powerless because they aren't the owner. Don't confuse new business/old business/large business/small business with the owners of their real estate. This will affect some owner-users, but will be felt the most by Tenants of property. It's a bit naive to think that it could only affect medium to large businesses.", "replies": [{"id": "fyl8buc", "text": "It literally only applies to medium and large businesses. From the Prop 15 website:\n\nProp 15\u2019s specifically exempts all businesses operated out of the home, which accounts for more than half of all small businesses (source: California Department of Industrial Relations).\n\nProp 15 also exempts small businesses owning nonresidential commercial property worth $3 million or less.\n\nProp 15 cuts small business taxes by completely eliminating the business personal property tax small businesses pay on their equipment, computers and fixtures.\n\nProp 15 is phased in over three or more years so small businesses potentially threatened with rent increases will have time to pursue better alternatives.", "replies": [{"id": "fyobpri", "text": "You are confusing business size of the Landlord/Owner with the size of a Tenant's business. In the case of property ownership, a owner-user would not be exempted if their assets in Cali were over $3m. With high property and asset values, that means that far less would be exempted than you would think. That being said, the majority of places of business, for small business, are leased from the owners of the real estate. With respect to Prop 15, the Landlord is the business, not the Tenants there. If a small group/company leases from a project, or ownership, with more than $3m in assets/property, then that small business is paying their proportionate share of that increase due to Prop 15. Real Estate taxes, a component of operating expenses, are passed through to the Tenants already. That isn't gonna change, so that would mean that your small businesses will actually shoulder the burden too, in many many cases.\n\n50% of businesses being based in the home isnt a great stat to use, as that might be a very very small percentage of total revenue in the state. That business may be based in the home, but may also rent space somewhere. If they rent space somewhere, then they would likely still be affected heavily by prop 15.\n\nIt exempts businesses owning under $3m of nonresidential property. For a lease option, the business is the entity of ownership of the building, not a small tenant occupying it. Prop 15 completely ignores this fact. Most small businesses I've worked with lease from groups with over $3m in value. Those tenants pay the operating expenses, based on their share of the project. The owner is charged the taxes, and the tenant ends up paying them as part of their operating expenses for the year. \n\nPersonal property tax is a small number for most businesses. They pay a lot of other taxes that won't be exempted. It does not cut them completely, or even a good portion of their expenses.\n\nI do agree with that structure, but it's naive to think that the 3-5 year period will provide flexibility to come up with cheaper options in already tight markets. Moving is expensive too. The state is very expensive in general. \n\nIt does not literally only apply to medium or large businesses. Your interpretation is completely missing how office or retail space works for most Tenants. They end up paying their portion of the taxes, and any and all increases thereafter. Most small businesses do not own their own real estate, in fact I would venture to guess that it is a massively low number of ownership of real estate for small businesses. The places they lease space from, though, are almost always far bigger in value than they are. That being said, if the project ownership is over that value, then guess who solely bears the burden? Prop 15 was built to try to squeeze out medium to large companies for more taxes, but it will end up affecting the small businesses far more. Bad logic, and even worse execution. I feel bad for people trying to start up in Cali, I really do.", "replies": [{"id": "fypw970", "text": "Your sense of market dynamics is very strange. Landlords don\u2019t set rents based on what property tax they pay. They set rents based on what the market will bear. \n\nSo if there are two buildings, the exact same, it\u2019s extremely rare that one would charge lower rents to its tenants just because they have lower assessed values. \n\nTherefore, prop 15 isn\u2019t going to hurt small businesses in the form of higher rents. As rents are based on supply and demand, not what line item costs the landlord pays.", "replies": [{"id": "fyqjkuk", "text": "Taxes, as part of building operating expenses in a lease, are not part of those market rental numbers for Triple Net properties. Most California offices and almost all California retail leases are structured as NNN leases. You should look up what those are before attempting to use terms like \"market dynamics\" from your microeconomics textbook.  Tenants do look at the all-in cost when finding new locations, but if a Tenant is in an existing location with 5-10 years left on their lease, this could greatly affect them. If they have less term, it could cause issues with their near future plans and cause additional costs for them. It is very obvious that you do not know how leases work, or understand how real estate ownership works.  Yes, for a tenant finding a new location, this could make that previously lower assessed building be less marketable, due to the rise in all-in cost to a tenant. For an existing tenant with a lot of time left on their lease, this would be very scary to those small business tenants. I read Prop 15. You are wrong.\n\nYour \"therefore\" argument is not based in fact, and wholly misses how real estate is practically transacted, whether sale or especially lease. These are not widgets from a textbook. Read up on commercial lease structures in California and you will see what I mean here. It comes across as ignorant when you throw examples and then use \"therefore\" with an absolute like \"isn't going to hurt\", when your only support is an example of a situation. Look it up, take a look at what I'm saying in all these dumb reddit comments, and you may actually learn something about how property taxes work with companies of all size. With that info, it would give you the best lens to evaluate the effect of Prop 15. It just sounds like you just want it to work, not that you know how it works.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fykddx6", "text": "I don\u2019t know about slightly higher, I\u2019m in Collin County Tx and I\u2019m paying aprox 2.7% vs my cousin in Orange County Ca paying .67%.  Thats $20,000.00 a year on a million dollar valuation.", "replies": [{"id": "fykn3jp", "text": ".67+ the school prop taxes, etc. I believe a family member in San Fran pays about half of what we pay here, so yeah more than slightly higher in TX. That being said, much higher rental rates in Cali, which would mean much higher valuations in the end. Higher values would eat up a lot of that cost differential between the states, currently, if re-assessed.", "replies": [], "depth": 3}], "depth": 2}, {"id": "fyq5ejc", "text": "I think it will hurt landlords because a tenant looks at all in costs including base rent and cam when making a decision. If they can\u2019t make money, something has to give.", "replies": [{"id": "fyqjsnx", "text": "Could not agree more.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fyk2xkk", "text": "Good, prop 13 is still the stupidest thing I've ever heard", "replies": [], "depth": 1}, {"id": "fyk71qx", "text": "So what happens when the value significantly decreases in a economic downswing? Surely the taxes will go down as well! /s", "replies": [{"id": "fyky16z", "text": "Depends on the property type, but yeah property taxes can drop significantly in a downturn. My city has had office vacancy jump from 5% to 30% in like 5 years while retail and industrial have remained pretty steady. Those offices have had massive reductions in the taxes they are paying, the other sectors some increases.", "replies": [], "depth": 2}, {"id": "fykzfnz", "text": "You can file for a temporary reassessment that will base your taxes on that value.  This is done yearly until the value reaches the assessed value it would be at purchase plus up to 2% per year increases,  During the GFC some counties did cookie cutter assessments and reduced assessed values without homeowners filing an appeal.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fyvztst", "text": "Long time CRE lender / investor in CA. I am 100% behind this. In fact, I would vote to repeal Prop 13 altogether, but they will never touch homeowners. I personally like Colorado's system - keep residential and commercial taxes in a static proportion (say for example 35/65%), reassess values every couple of years, and change millage rates to effectuate the correct ratio. It's fair and reasonable.\n\nWhat California has now is an abomination that favors long time owners at the expense of new investors, old folks vs young families (in the case of residential), and results in unnecessarily strained budgets and constant bond measure fights just to maintain infrastructure and civil services.", "replies": [], "depth": 1}]