Welcome to location cube, a Weaver beyond the numbers podcast. I'm Howard Altchiller, Weaver's real estate and construction leader, And I'm here, as always, with my co host, Aaron Griss. Weaver's real estate tax leader. Aaron? Thanks, Howard. We've got a guest today. His name's Steven Erdondo. He's our property tax leader for the firm. Steven, thanks for joining us today. Yeah. Thank you. Pleasure is all mine. Thanks for being here. So so tell us a little bit about yourself and your practice. Yeah. So I I've been with Weaver a little bit over a year. And, really just it's it's been great. It's We've transformed a lot of things. We've put in a lot of new places and pieces in order, and it it's really becoming, you know, the gold standard for property tax. My career has been, you know, almost I'm almost up to twenty years now. Think I'm coming up on that nineteenth year. And it's exciting because there's just been so many shifts throughout my career from the real estate market to how things are done to how businesses have changed over that time. So it's a really exciting time to kind of be in the property world. But to say there's never a dull moment, well, there's never a dull moment, Howard. That's always a good thing. So let's talk about the, you know, the biggest non doll moment is here in Texas. We've had, new legislation that the voters approved. I think it was propositioned for. For some property tax rollback. So can you give a little bit of background on that? Which most people know about, but what's more practical implications from that. Yeah. I think practically is you're gonna save money on your home. You know, one of the biggest changes of prop four was the increase of your homestead exemption from forty to one hundred thousand. That's really gonna drive savings for individual homeowners. Roughly, you know, nine nine hundred to two thousand five hundred, for a homeowner and a refund or or or the maybe not a refund, but a reduction in their taxes. But also compression in the tax school rate. Ten point seven percent or ten point seven cents, if I'm not mistaken. And both of those two things combined have really driven down tax bills. I know we were talking about it earlier today, And, you know, while my value went up by ten percent per the homestead, I may actually see a tax reduction this year. So I think that's really good because people vote with their pocketbooks. Right? And I think you wanna start seeing a little bit of that money coming back to the people Right? This was part of the historic surplus that Texas had roughly thirty billion or so, and they've allocated eighteen billion to property tax and franchise tax. So there's a multi pronged benefit here going on. And is this just for residential owners, or does this impact commercial owners as well? Yeah. So there is some commercial language in there, related to what they what everybody's terming the circuit breaker. Which is a twenty percent cap on commercial properties less than five million dollars. I think this is gonna have a lot of serious implications or input unintended consequences as somebody would say with mineral interests specifically. Maybe not so much with the typical commercial property because that that's what it was intended for. It was intended to help mitigate those big swings that we see on a year over year basis, especially for allowing these property owners to budget and to not lose their property in a, you know, higher interest rate environment, the things that are going on with the economy, coming out of COVID. There's just so many economic factors that we're facing right now that I think that this relief couldn't have come at a better time, right? So, Steven, I just have a basic understanding of property tax. What's the whole cycle look like for your clients? Yeah. Great question. I think to to simplify it for the viewers and for everybody that's listening, I really look at it as, you know, a spring, a summer, and a fall. And in the spring, you're doing a lot of your information gathering. You're doing more of the compliance function, which is like a personal property return. You know, think of an office building. And we turn that off as building upside down. Everything that falls out, that's personal property and stuff that you have to report to the state that you're operating in, in the production of income. Now, Keep in mind before you beat me over with a sledgehammer, not every state taxes personal property. There's thirty eight states that tax it. And so when we're thinking about that, we're constantly reporting all that stuff through that January, let's say, May thirty first, In between there, you start getting into the protesting of values and the appeals and receiving notices, whether that's residential commercial, the whole gambit applies at this point. And so we're going through the appeal process. And then as we get down to the the third and fourth quarters, we're in the reporting. We're in the filing lawsuits. We're into the due diligence reports. And then really just ramping back up, which is where we are, ramping back up into next year as we close out tax bills and things of that nature, for for a groundhog state. Right? So so come January one, we'll be right back on it, turning over a new leaf and seeing where we need to go to attack. Okay. So what value can you provide to our commercial real estate clients? Yeah. I think, you know, the value that or the value proposition is not only, you know, great customer service, which everybody says. But I think in the areas of due diligence, in the areas of protesting their property values, mitigating increases, giving them education. I think education is one of the biggest things. Right? You can hire somebody to do something, and you still not understand what they're doing. What I like to do is make sure that we're educating our clients along in the process, right? Because that's gonna give them a better foundation of what they're doing on a day to day. Nine times out of ten, property tax is not their main job or their main focus. In fact, I rarely I've I think I've only run into one or two people that have said they wanted to be a property tax because when they grew up. So if you think about it in that in that frame of of of thinking. This is a very important thing that as we start going through, a lot of people just see the tax bill They just see the aftermath. They see the value in the tax bill and they go that's too much. But what's really the right answer? Let's learn more about the story. Most appraisal district and assessing officials use a mass appraisal approach. Right? And so as you're going through this process, you're starting to see how you compare to others or what the sales in the market are or different factors that may be impacting the value. But every property has its own story and has its own background that could change what that actual value looks like. And really impacts the taxes. I mean, there could be a sale that was much lower than what it's on the tax rolls for or vice versa. They could be selling or transferring personal property. I think one of the things that is important is that our clients and everybody that, you know, kind of is in this world understands impacts of the transactions. It's the same thing that you guys do on the audit and the CPA side as it relates to you know, making sure that they advise if they do this, then this is what's going to happen. It's the same impact, but that most people don't ever think about it. They just think Well, I sold that, so it's not my problem anymore. Well, that that's that could be far from the facts, right? It could still be their problem. Until they take the necessary steps to close it out, or to make sure that whatever's happened is finalized. So if a property if a appraisal district's doing a valuation on an office building, what kind of cap rate do they usually use to value the property I mean, it would vary by the property type. Right? So you have class a, class b, class c, so on, etcetera. You know, on some of the premier grade a office space, you're looking at a four or five cap. I mean, these are, basically, as good as a treasury bill nowadays, we're going to have to start seeing some relief. And we're definitely seeing good office. Right? I mean, we we know that there's a vacancy issue. We know that that's one of the areas that have been impacted by, cap rates and and different things of vacancies and and and just what's going to happen into the future in the downtown, especially with remote work. But the opposite could be said about industrial, which you know, in some areas is blowing and going. And so the maybe a cap rate, you know, I'm an advocate here. So I'm not gonna say cap rates at the four or five rate are are right, but that's what people are paying. Now what we are seeing is because of the high higher interest rate environment, and different factors that are going into that, we're starting to see those cap rates push up. And those values lower a little bit because people, it's harder to get the cash. You know, typically when they do those jumbo loans for three to five years, you know, they see this kind of playing out. I mean, I I guess I would ask, you know, what's your perspective from the cheap seats, kind of looking at it and saying, you know, what are we seeing from our clients? You know, it's kind of the kind of the same thing. It's, you know, with, again, depending on where you are, depending on your product quality, but Office definitely rates going up. Across the board, I would say rates are going up. You know, if thinking about your traditional property types, offices struggling, multifamily. I keep hearing. I'm starting to hear more and more and more every day about distress and multifamily. A lot of that's being driven by the interest rates. Insurance costs. And then just rental rates not being able to increase like everyone thought. Industrial is kinda holding a little bit steady, and I think the real winner right now from the least of traditional property types is retail. Especially experiential retail is you know, where people still wanna still wanna be, and it's it's just kind of funny to think how many, you know, it wasn't that long ago where we were, like, retail's dead. Right. And, you know, like everything else in, you know, real estate, it's all cycle driven. And, you know, what's dead today is not tomorrow. Yeah. And and nobody Nobody has the crystal ball of where we're gonna be in three to five years. Everybody has a estimate, but when I read the, when I read the news this morning, one person said, it's doom and gloom in the next three or three to four months. And then the next one says this is gonna be the best bull market in the next three months. So I don't know who to believe. I mean, you just gotta you gotta see what you're seeing in the market. Yeah. And the market maybe is indicating something else. Just remember that typically in real estate and how how things evolve, there's a lag. And so there's a lag in property tax for them to pick up to the values there's a lag for them to go down in the values. Right. It's the same thing with the sales and the transaction. Although, I guess, there's more protesting going down during that going down in value lag than in the going up and value lag. Exactly. Yeah. So I was in anticipation of this interview. I was going through several of my clients' financials and sure enough property tax It's the biggest one. And talking to people at the, I mean, Howard went to the multifamily Conference a couple weeks ago, and they were all concerned about property tax, and that this can make or break a deal. I think that's the number one truth there. Right? A lot of people, don't realize that that property tax is is the largest line item. There's things that you can control, right, or that you can at least have a better ballpark, maybe insurance or some fixed expenses things that you can at least extrapolate over a period of time. Property tax could go from, you know, one of your largest expenses and then double people don't forecast a hundred percent growth in their property or that their value could go up or their tax could go up that significantly. You know, when they're doing these due diligence and these underwritings for these projects, there's such a slim margin of error. And, you know, make or break one percentage point in the in the interest rate, make or break, you know, a certain amount of expense load All these things are gonna impact, like you said, it teeters on that. Can we get it done? And then what ultimately happens? You know, they push and push because they say, well, we just wanna underwrite it. We really wanna own it. It doesn't matter. You know? And then, you know, the next year, it goes up and they go, well, you know, We weren't expecting this. I know you told us, but we weren't really expecting it, but they wanted that property. And sometimes when you want something, you just gotta buy it Yep. And that's what it is. So I think, you know, one of the the great things about our group is is bringing us in as you're starting that. You know, bringing us in on the due diligence side help letting us assist you through that transaction so that we can get a good understanding of where you are, help you kind of identify the blind spots before they happen And then we grow with you in that relationship. We grow with you not only on the on the CPA side, but on the the advocacy side for you. And we can help you go out and mitigate those increases and reduce those taxes so that hopefully, over that five year chart, it actually attains those numbers, or we can do better than that. But I think ultimately, that's what the goal of our practice is, And that's one of the main drivers of of kind of being out here today. So I really appreciate you guys taking time to just kind of have this conversation and and and put it there into the universe, especially for Weber. Well, thank you for coming. Thanks for joining us. Yeah. Awesome. Alright. Well, that's all the time we have for today. So thank you for watching this episode of location queued. A waiver beyond the numbers podcast. You can catch all of our episodes on Spotify, Apple, and on our website at w w w dot weaver dot com.
