Jamil Kadoura paid $55,759 in property taxes last year on Mediterranean Deli and four other parcels, including two undeveloped lots on West Rosemary Street.
This year, he learned Orange County’s 2017 revaluation had doubled the value of three lots. The combined value of Kadoura’s deli and market – two separate parcels – rose 50 percent.
Although the county and towns will reset their tax rates to revenue-neutral amounts – to bring in the same overall amount of money, as required by state law – Kadoura is concerned how a higher tax bill could affect his business.
The county released its revenue-neutral tax rate and that for the Chapel Hill-Carrboro City Schools tax district last week. The rates are 3 percent to 5 percent lower than existing rates, but Kadoura will still pay about 66 percent more than last year because his property is now worth a lot more.
Chapel Hill has not released its revenue neutral rate yet, but Kadoura will likely pay more to the town as well.
“At the end of the day, honestly, it’s very hard to open a business nowdays,” Kadoura said. “We are lucky we’re established. Otherwise, we wouldn’t be able to afford it. And we’re lucky we’re very busy.”
“Up the street, people are paying triple rent on (space). Right there, you’re already in a hole before you open your doors,” he said.
Other commercial property owners in downtown Chapel Hill and Carrboro are concerned and angry about a property revaluation they think was unjustified and arbitrarily applied.
The state requires counties to reassess residential and commercial property every eight years to reflect market changes. Orange County was on a four-year cycle until the recession hit during the 2009 revaluation. The revaluation scheduled for 2013 was delayed.
This year’s revaluation affected 55,729 commercial and residential lots countywide. County Tax Director Dwane Brinson warned that commercial tax values were rising across the board by 39 percent.
But a random study of properties from Franklin Street to downtown Carrboro shows 60 percent to 100 percent spikes in some places, while the values for neighboring lots went down or rose by less than 35 percent.
The East Franklin Street building housing Sutton’s Drug Store, for instance, hasn’t changed much, but the property now is worth $4.1 million – 95 percent more than in 2016. Adjacent stores grew by 1 percent to 4 percent in value, county data shows. The next largest increase was 74 percent for the CVS Plaza, where a major facelift was just completed.
John Morris, with Morris Commercial, noted they sold Sutton’s last year for $4.5 million. The county’s revaluation process may have taken that into account, he said, adding new construction downtown may also have had any effect.
“I don’t think there’s any question that they’re looking at these new projects, and again they see, they’ve got fresh costs, they can look at building permits, and so they’ve got fresh numbers, so they’re reaching down into these older properties, racheting up the values as much as they can,” he said.
Brinson’s tax office hired two companies to analyze the local commercial property and real estate sales data. Their considerations included the land, square footage, potential income (highest and best use), and market sales, he said. Zoning could make a big difference between neighboring lots, he noted.
The results were double-digit increases countywide, driven primarily by apartment sales but also by industrial and hotel values. The increases ranged from 37 percent to 41 percent in the county and the towns of Hillsborough, Carrboro and Chapel Hill. In Mebane, values increased 31 percent.
That was compared with no increase in the overall value of rural homes, a 2 percent increase in Chapel Hill, 6 percent in Carrboro and Mebane, and 22 percent in Hillsborough.
“We had a lot of really good eyes looking at this commercial market, even though it’s only 2,000 parcels. We spent a lot of time, a lot of research, and ... we feel comfortable with them, even though it was a big increase,” Brinson said.
Property owners who disagree with their assessment can appeal to the Board of Equalization and Review before June 29. Morris said he might appeal; his team found seemingly inconsistent results when they looked into the new property values.
Glasshalfull in Carrboro, for instance, rose 66 percent over last year’s value to $2.1 million. Morris Commercial bought the building in 2005, according to tax records, and Morris said they did renovations before the last revaluation in 2008, when the value grew by roughly 35 percent.
Morris compared it with another lot – the former McAlister’s Deli building at 205 E. Franklin St. in Chapel Hill – where the property value rose 13 percent this year. Next door, at Linda’s Bar and Grill, the property fell 2 percent in value, while the Time-Out Restaurant building two doors down rose by 35 percent.
Franklin Street Realty owner Sammy Martin saw four lots jump in value on the western end of Franklin Street: The Al’s Burger Shack lot rose 60 percent; the storefront housing Local 506 and Mint Indian restaurant rose 66 percent; and 108 N. Graham St. rose 80 percent. That lot is home to The Baxter Arcade, Rumors, Syd’s Hair Shop and Beer Study.
Those are all small-business people trying to make a living, Martin said. Substantially higher tax values could make some of them leave and take Franklin Street’s unique character with them, he said.
“I don’t know how to fix health care, I don’t know how to fix the affordable housing crisis in Chapel Hill, but you want stable businesses downtown and you don’t want them all to be businesses that operate somewhere else – you would like to keep some local flavor in Chapel Hill and Carrboro – the way you do that is not to jack their tax bill up 40 or 50 percent,” he said.
Martin questioned whether the county was trying to get as much commercial value as possible from existing businesses to compensate for slow growth and to reduce the high residential tax burden.
That’s not true, Brinson said. State law requires him to estimate a fair market value for all real property.
“People are buying properties close to the values that we’re setting on them, so I don’t see that as inflating the values on any one class of property,” Brinson said. “We’re just interpreting and reflecting what happened in the market in ’16 and ’15, and that’s why we put our entire sales bank out on the website, to gain that trust in people and assure them that we’re trying to find the value.”
Orange County Tax Director Dwane Brinson said the results of the 2017 revaluation shifted more of the county’s tax burden to commercial properties. The commercial share, which had been 16 percent, is now 20 percent, he said, and the residential share has fallen to 80 percent.
Local governments will set initial “revenue neutral” tax rates before finalizing their budgets, final tax rates and sending out new tax bills.
County Manager Bonnie Hammersley will present a recommended budget Tuesday, May 2, that reduces the county’s current tax rate of 87.80 cents to 83.77 cents per $100 in tax value. The revaluation reduced the Chapel Hill-Carrboro City Schools district tax from 20.84 cents to 20.18 cents per $100 in tax value.
Hammersley noted in her proposed $251.36 million operating budget that the local tax base grew by over $1 billion to $16.8 billion.