DCAD’s Free Pass on HEB’s Throckmorton Townhouses: Twists, Turns, a Loophole and a Democrat

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.

$1,000 worth of building to you?

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’s odd tax history (no wonder why commercial valuations seem nuts).

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 sharewithjon@candysdirt.com. Be sure to look for me on Facebook and Twitter. You won’t find me, but you’re welcome to look.

26 Comment

  • This DEMOCRAT finds your article very partisan and certainly not what I expected to read in your usually interesting site. Bye, Felicia

    • mm

      Who is Felicia? Your email has a different name. Sorry if you were offended, but the gouging of citizens via property taxes is very much a real estate story in this state where we are supposed to be so “business friendly”. Move here, no state income tax. Business friendly indeed. Now that my party, the “Republicans” have put a limit on the deductibility of property taxes, I intend to pull back the shower curtain on how residential property owners are being raped by this process. It is NOT DCAD’s fault, or the commercial property owner’s fault — heck I’d do the same thing if I were in their shoes. It is our legislature’s fault. #metoopropertytaxes

    • I recommend that you read the article a second time. I didn’t see anything partisan.

    • mm

      Are you sure you read the article? Clicked on all the links?

    • mm

      It’s always a little nuts when someone comments and shows they got a completely different takeaway on a piece than everyone else has.
      I am hoping to clarify this for Mr. Day.
      Mr. Day said he was a Democrat, and he is mad about Jon’s story about how residential property owners get hosed by commercial property owners when it comes to property taxes (paraphrasing here). Jon even talks about Mike Collier (Democratic candidate for Lt. Gov) and his desire to close the loopholes that allow this to happen, and says (and this is a direct quote): “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.”
      That guy would be Mike Collier, the Democratic
      candidate.
      I’ve emailed Mr. Day (to what I believe to be a correct email address since the one he provided had a misspelling of his last name) to clarify, because somehow he took the exact opposite away from this story.

  • Thanks Jon for bringing a big bright sun in a clear concise way to what’s happening on Dallas and in my own neighborhood.

  • Brilliant article Jon – agree completely !
    As a self employed Realtor I have never understood why Texas Residential property owners haven’t revolted over this – Residential property owners are in essence “subsidizing” Commercial property owners in this State because Commercial property isn’t being assessed at true market values !

    Mike Collier is an impressive and highly competent candidate and has my vote for Lt. Governor.

    • mm

      Jay I actually think the Repubs gave us the ammunition needed: limiting the tax deduction on property taxes. Let the revolt begin!

    • Jay, I think the reason is until recently it’s not been talked about in a way that ordinary people could really relate to. Jon putting it in simple terms in this piece is a great way to show what’s happening. Bowser is two blocks from me. Me, and all around me, were re-evaluated this year and our taxes increased 41% over the last 5 years. I walk by these occupied town homes almost every day. Makes my blood boil.

      • Exactly Brenda. It isn’t fair to you and surrounding property owners whose assessments and taxes have skyrocketed.

      • I agree with Jay, Brenda, etc… and what Jon has done especially well is bring this whole issue into easier focus for people like me: “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.” Just crazy.

  • Thanks, Jon – always good to bring to light what really happens. I went for a tax hearing on my
    personal property in Ellis County yesterday. Ha – they did not even look at the information I brought – they
    only listened to the Appraiser (who they say they do not work for – that they are appointed). It was
    a real joke. And in 10 minutes voted for what the appraiser said. Yes, It costs money to fight the government.

  • Amazing how this reads as an attack on a Democrat. What about the current and past Republican Governors why were they never approached on this loophole. I tell you why the Republicans were abusing it in as many places they could.

    And just how do you know that on a Democrat found that loophole, they would all know about it if they followed the paper trails through these documents.

    This article is just one of the first I assume we will see as Republicans try to figure out how they gave away the country to a dictator and now they must follow trump or be threatened with their political positions.

    • mm

      It’s not an attack on the Democrat. It’s saying he’s the only one running on a platform to close that loophole…for which all residential homeowners should applaud (and vote).
      .
      The loophole has been known since the first case 20 years ago. Austin legislators have tried to repeal for many years, but don’t. Those that benefit don’t want it closed, and being wealthy, it remains open.

    • mm

      Considering that there is an entire paragraph telling you that if you want to see the loophole closed you should probably vote for the Democrat, I think you might want to read this piece again.

  • (1) The loophole is a great thing. Otherwise, you would have the same local idiots who made Dallas the laughingstock of the world with their botch of the oversight of the police&fire pension fund (a real multi-billion dollar loss that is gone forever) smearing their incompetence on our property values. (2) Don’t see how you write the values back up after you have written them down as long as the developer is acting in good faith with short-notice termination clauses in the leases for example; how much is a building that is going to be torn down in the immediate future really worth anyway? (3) Allowing filers to deduct state and local taxes (or mortgage interest for that matter) on their federal returns is crazy to start with and should have been done away with entirely. Why should I have to subsidize either people in states that I would never live in because of the taxes or people that choose to live in expensive homes. (4) Based on my experience, the property tax increases are more due to local political failure than to anything to do with state government. I received a nearly 20% property tax cut last year in another state that is at the same time cutting other taxes at the state level.

    • These four town homes aren’t going to be torn down. And nothing in your comment relates to the post.

      • At least you are consistent. I suppose HEB assembling the parcel, seeking zoning, and tearing everything else down so that it could disguise its primary intent to invest in the townhomes and the restaurant building is a lot like the lees providing half the initial funding for Lee Park in furtherance of their overriding objective of oppressing black people in Texas during the Depression. Great that we have discerning people like you around to figure these things out.

        More seriously, you and your radical politics are a perfect reflection of everything that is wrong with city politics from the down-zoning idiocy to the statue removal to the insanity going on with the Diplomat condos and surrounding properties to the ultimate fiasco of the gutting of the police and firefighters retirement savings. Again, great that the so-called loophole helps prevent people like you from taxing business to death and discouraging development. Would probably have been much better to have let HEB go ahead as part of a broader effort to broaden the tax base in hopes of producing conditions that might lead to the referenced tax cut that I received on an out-of-state property last year. But then that would obviate a lot of the radical pettiness in which you appear to specialize.

        My comments about the recent federal tax reform effort are by definition as relevant as Candy’s.

        • It is not a case of down zoning rather up zoning on Bowser and Throckmorton. Taking an entire streets zoning from residential to commercial is up zoning and opens up the same for other parts of the street in the future. If you lived in the neighborhood and would not mind having retail go in with all the things it brings (noise, lighting, trash trucks, customer traffic, after hours semis deliveries and employee parking on streets etc) then so be it. But I am guessing you don’t live in that neighborhood. Just because HEB screwed up and bought property first and then checked on zoning is no ones fault but their own. Companies like Lincoln who has an entire block on Carlisle under contract will only close on it if their desired up zoning is approved by the city. And to equate the issue to a liberal or conservative lean is a joke. It is neither.

          • Your ignorance is a joke. (1) If you knew anything about the neighborhood you would recognize that my downzoning reference related to the recent effort to rezone the area surrounding and including the Congress at Welborn and Dickason at Hood development sites. (2) Taking a business risk to assemble a parcel pursuant to offering the under-stored neighborhood an attractive grocery alternative is not screwing up. And HEB certainly doesn’t need any advice from scoundrels like Lincoln on how to conduct its business. (3) The whole thread is political by definition given the candidate endorsement contained in the lead post. I believe that Dallas has a failed city government based on the examples I provided above and that engaging in the politics of envy as it relates to property taxes is just digging the hole deeper.

  • I see what Jon was trying to say, how he meant that the person wanting to close the loophole is a Democrat. However, I can also see how it could initially read as blaming Democrats for the loophole problem because of the subheading “Why does all this spell D-E-M-O-C-R-A-T” which immediately follows the explanation of the loophole problem. It can be interpreted as “Problem: This is because of Democrats.”

    Regardless, I do hope this loophole gets closed! We can use that commercial property tax income for so many things we need to get done around Dallas. Starting with potholes!

  • mm

    Story headings tweaked to fix confusion.

  • The article’s central thesis is right on in the sense that commercial properties are largely undervalued because of the attorney’s fee provision and several quirks in the ways they are valued if an appraisal is challenged in court.

    But I think your focus on structure values is a little misplaced (or maybe I’m confused about which values you were describing?). Ultimately the total value is what matters. This is important because at certain points the dirt is worth more on the assumption that the structure will be torn down. In that case, DCAD should assess the highest value rather than the value that assumes the structures will remain (even if the structures are still in use and the owner has no intention of tearing them down). It’s the highest value a hypothetical buyer would place on the property that matters, not the value of the use of the property by the present owner. If the highest value a hypothetical buyer would place on the property is based on the assumption of redevelopment, then the structures have no value (or negative value) regardless of the condition or use of those structures. At least this is how actual market values work, which is how DCAD is generally supposed to assess property. As this blog is fond of saying, sometimes “the value is in the dirt.”

    Again, none of this is to take away from the fact that commercial properties are routinely undervalued by DCAD. They are. I’m just not sure this particular line of analysis shows it. But I definitely could be misreading (apologies in advance if this is so).