COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation FOUND MONEY IN HARD TIMES Why a Real Estate Tax Appeal May be in Order Cole, Schotz, Meisel, Forman & Leonard, P.A. Wendy M. Berger, Esq. Carl A. Rizzo, Esq. Integra Realty Resources, Inc. Raymond T. Cirz, MAI Matthew S. Krauser, CRE January 13, 2009

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation INTRODUCTION (Carl A. Rizzo, Esq.) Economic Troubles Abound (recent headlines)

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Opportunity Knocks (client story)

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Wendy M. Berger, Esq. - To discuss nuts and bolts of tax assessment process and the anatomy of and basis for tax appeals. Raymond T. Cirz and Matthew Krauser - To provide overview of market conditions and specific marketplace sector data. - Discussion of recognized methods of real property valuation. - Offer overall opinion on values Carl A. Rizzo, Esq. -To discuss how to prevail before the Tax Court or the County Tax Board. Outline of Today’s Itinerary

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation THE ANATOMY OF A TAX APPEAL Why file a tax appeal? (Wendy M. Berger, Esq.) Good Management Practices Dictate an Annual Review of Real Property Tax Assessments. Enhance Value of Property and Increase Viability for Sale/Rental Opportunity for Real Tax Savings

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation IS A TAX APPEAL WARRANTED? Preliminary Determination of Property Value Tax Nuts and Bolts (tax assessments, bills, rates and average ratios) Compare Assessed Value to True Value (“AV” = “TV” x “AR”) Chapter 123 (common level range, a safe harbor for municipalities)

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation As Of: October 1, 2008 __________________________________________________________________________ CHAPTER 123 ANALYSIS ASSESSED VALUE:$2,550,200 TRUE VALUE:$1,959,000 RatioAssessed Value =130% True Value The above ratio exceeds the upper limit of 93.67% therefore, Chapter 123 applies: True Value-$1,959,000 Municipal Tax Ratio % Taxable Value-$1,595,605 - say - $1,595,600 BREAKDOWN Land-$ 481,300 Buildings-$1,114,300 Total-$1,

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation FILING A TAX APPEAL? Time for Filing Appeal (April 1, 2009) Prerequisite for Filing Appeals - payment of taxes and municipal charges, jurisdictional prerequisite - compliance with Chapter 91 requests (must produce income and expense information to assessor) - payment of filing fees ($5-150 County Board of Taxation) ($200 State Tax Court)

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Where to File Appeal - if assessment is $750, or greater, choice of either County Tax Board or State Tax Court - if assessment is less than $750, must file at County Board of Taxation initially - if dissatisfied with decision of County Board, may file appeal to State Tax Court or to Appellate Division if initial filing was with Tax Court

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Judgments/Settlements - Freeze Act (N.J.S.A. 54:51A-8) (“Where a judgment not subject to further appeal has been rendered by the Tax Court involving real property, the judgment shall be conclusive and binding upon the municipal assessor and the taxing district, parties to the proceedings, for the assessment year and for the two assessment years succeeding the assessment year by the final judgment, except as to changes in the value of the property occurring after the assessment date.”)

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation - Tax Refunds (N.J.S.A. 54:3-27.2) Entitled to interest at rate of 5% per annum on any excess taxes paid and calculated from the date of payment of the excess taxes Municipality obligated to make refund within 60 days of entry of judgment

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation MARKETPLACE CONDITIONS FAVOR THE FILING OF AN APPEAL (By Raymond T. Cirz and Matthew S. Krauser) Introduction to Integra Realty Resources, Inc.

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Integra Realty Resources, Inc. Local Expertise…Nationally.

Integra Realty Resources The Nation's Largest Commercial Real Estate Valuation and Counseling Firm

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation - Nation’s largest commercial real estate valuation and counseling firm - Providing services in the following area: Condemnation Litigation Support Market studies Estate Tax and Estate Planning Due Diligence Damage Studies Tax Appeals

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation What’s happening in the Commercial Market?

What’s Happening in the Commercial Market?

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation - Decline in deal volumes

Decline in deal volume driving pricing down, cap rates up

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation - Decline in value?

Decline in Value?

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation - Adjustment to “safest” investment class

Adjustment to “Safest” Investment Class

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation - Wall Street job losses

Wall Street Job Losses Twelve Months to June 2008

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation SPECIFIC MARKETPLACE SECTORS Office Sector - General and specific submarket example

Office Sector

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation SPECIFIC MARKETPLACE SECTORS (Continued) Industrial Sector - General and specific submarket example

Industrial Sector

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation SPECIFIC MARKETPLACE SECTORS (Continued) Retail Sector - General and specific submarket example

Retail Sector a

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Summary of Current Values in Main Market Sectors -office -retail -industrial -multi-family

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation REAL ESTATE VALUATION METHODOLOGIES Sales Comparison Approach - like-kind buildings Cost Approach - land value plus depreciated replacement cost Income Approach - Market rent (not contract rent) - Less vacancy (stabilized) - Less expenses = Net Operating Income (NOI) - Convert to value by applying capitalization rate (derived from market)

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation HOW TO PREVAIL BEFORE THE TAX COURT? (by Carl A. Rizzo, Esq.) Standard of Review - municipal assessments afforded “presumption of correctness” Overcoming the Presumption of Correctness with Sufficient Evidence of Property’s True Value “must present evidence of true value of property sufficient to demonstrate that the appeal is based upon sound appraisal theory and objective data and not mere wishful thinking.”

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Tax Court/County Board will Focus on the Strengths of the Analysis Presented and Application of Appropriate Recognized Valuation Methods. (“Battle of the Experts”) Determining “Highest and Best Use” (Compare Apples to Apples - legally permissible - physically possible - financially feasible; and - maximally productive (presumption in favor of existing use)

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Sales Approach (“comparability”) - location/access - Condition/construction - Physical/legal constraints (slopes, property configurations, environmental restrictions, wetlands, highlands regulations) - Size (economies of scale) - Timing of sales (market appreciation/ depreciation)

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Income Approach (Stabilized-hypothetical approach) - actual rent vs. market rent - vacancy factor (typically utilizing 10%) - capitalization rate (risk factors, investor expectation)

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Cost Approach (obsolescence considerations) - physical obsolescence (age/remaining life) - functional obsolescence (efficiencies/conditions: inadequate parking, ceiling heights; building configuration) - economic obsolescence (marketplace conditions which undermine viability of improvement) (automobile manufacturing plants)

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation Treatment of Property as Taxable Real Property/Fixtures vs. as Non-Taxable Personal Property - legal test (“a and b” part tests) - (Material Injury Test and “Ordinary” treatment of improvement) - (Business Apparatus and Machinery used in production process and which is not a fixture itself) Examples: - Processing machinery and equipment. - Refrigeration equipment - Piping for bottling plants and dairies

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation THE NEXT STEP IN DECIDING WHETHER TO PROCEED WITH AN APPEAL Complete Confidential Property Tax Information Sheet and schedule an appointment for a consultation

COLE SCHOTZ Cole, Schotz, Meisel, Forman & Leonard, P.A. A Professional Corporation THANK YOU Wendy M. Berger, Esq. Cole, Schotz, Meisel, Forman & Leonard, P.A. (201) Carl A. Rizzo, Esq. Cole, Schotz, Meisel, Forman & Leonard, P.A. (201) Raymond T. Cirz, MAI, CRE, FRICS Integra Realty Resources, Inc. (973) , ext. 109 Matthew S. Krauser, CRE Integra Realty Resources, Inc. (973) , ext. 107