Often a real estate transaction requires a prospective buyer, developer, or lender to request a Due Diligence Report to forecast a parcel’s future property taxes.

This is true for large new construction projects, especially phased developments.  Typically, a lender’s underwriting department wants to track the potential timing and impact of future property taxes as new construction is completed.  It assists the lender with planning, preparing, and collecting for property tax escrows.  Annual property tax increases follow the value of completed new construction.

Typically, there are several assumptions and intended use considerations when preparing new construction Due Diligence Reports:

  1. Type of New Construction Project:
    Apartments (Turn Key)
    Hotels (Turn-Key)
    Warehouses (Shell)
    Offices (Shell)
    Retail (Shell)
  2. Construction Period (Projected Start/Completion Dates):
    This entails establishing (bracketing) the years in which the project is scheduled to commence up and through the construction completion year. Moreover, this time period may extend past construction completion dates to account for delayed inventory absorption and economic stabilization.
  3. Absorption Rates:
    Commercial absorption rates usually refer to inventory lease up (rentals) or sell-out (condo units) periods. This is an economic concept that measures available supply (inventory) versus existing demand.  Growth of new inventory needs to accommodate projected market demand.  Inventory equilibrium is the goal – surplus inventory increases a project’s holding costs.
  4. Value Projections:
    This study reviews economic trends, market conditions, sales activity, appreciation rates and a jurisdiction’s assessment level.
  5. Property Tax Projections:
    An overall trend analysis of millage rates and non-ad valorem assessments is conducted. Based on historic data, growth projections and new construction completion dates; potential future property taxes are projected.

Champions Commercial Consulting offers these types of reports.  Familiarity with critical statutory dates, substantially complete requirements, case law, valuation considerations, millage rate trends and potential non-ad valorem assessments is our area of expertise.

If you or your lender need a Due Diligence Report, do not hesitate to contact Champions Commercial Consulting.