The subject property was a 175,128 square foot four-story suburban office building built in 2007 that served as the headquarters for a publicly traded steel company.
The subject property transferred from the original developer to a national REIT. Before the sale occurred, the subject property was leased to the steel company tenant that carried a credit rating that effectively de-risked the subject property and lowered the corresponding capitalization rate that was used to value the property (lease) at the time of transfer. Because the subject property transferred with a leased-fee interest from a high-quality credit tenant as opposed to transferring fee-simple, the assessed market value was unreasonably high compared to comparable executed sales and leases in the area. Additionally, as a large office HQ building that was not set up for multi-tenancy, the property is much harder to re-lease if the tenant vacates, detracting from the true fair market value.
Peak 5 Advisors was able to achieve a moderate valuation decrease by proving that the subject property benefited from a lease with a high-quality credit tenant that effectively lowered the cap rate associated with the original sale and was not commensurate to current regional market conditions. Peak 5 Advisors further illustrated that current market conditions were not favorable for large office buildings set up for single tenancy. Post-appeal, Peak 5 Advisors saved the client over $37,000 in tax payments annually.
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