There could be a 20 percent to 25 percent increase in disputes over commercial real estate property taxes this year in Massachusetts, particularly the city of Boston, according to one industry observer.

One industry watcher is expecting a Massachusetts-wide 20 percent to 25 percent increase in disputes over commercial real estate property taxes this year as owners continue the battle with high vacancy and lower rent rates.

That theory will ring true particularly for Boston, home to the state’s highest concentration of commercial real estate property, according to John M. Lynch, an attorney at Lynch, DeSimone & Nylen in downtown Boston.

“There’s a lot of concern out there. It’s not a happy time when you’re running buildings that are partially empty and you still have to pay the utility bills and other operating expenses,” Lynch said. “It’s a wonderful business in an ‘up’ market – there’s nothing as good as real estate in an up market, but it’s like the stock market; when it turns against you, it can be painful.”

There’s a bit of a storm brewing in parts of the state with large pockets of commercial real estate, Lynch said. In corporate center parking lots across the suburbs, people are no longer fighting for parking spaces, and “for rent” and “for lease” signs pepper the highways that encircle Boston.

With job contraction, a slumped economy and a slow commercial real estate market, some industry watchers worry that their taxes will stay the same regardless of rent rate drops that continued into 2003.

But Boston Commissioner of Assessing Ronald W. Rakow said that his office recognizes the current market fluctuations and has a duty to ensure that the property tax rates reflect that.

“The whole notion that the market is down, and that abatements are increasing, is way overblown,” Rakow said.

But with the city’s results of its major three-year evaluation pending, some property owners are anxious to see if the new assessment reflects the current market conditions.

“The thing they have to look at is income and expense because in this environment, occupancy and rental rates have both fallen,” said Mark Schuster, president and founder of Bluestone Holdings in Newton. Bluestone owns and operates five buildings in the Wells Avenue Office Park, also in Newton. “Therefore, owners are anxious to see reduced values.”

‘Like a Seesaw’

Some industry watchers say that unfavorable assessments not only affect the property owner but also trickle down to tenants.

“If taxes and operating expenses are running $13 to $15 per square foot and a landlord has a $20-per-square-foot deal, where’s the profit?” said Mark Browne, principal of Browne Realty Advisors in Boston. “It’s pretty thin.”

Rakow said that it’s too early to say exactly what property owners can expect on their December bill, the first to show the results of the Jan. 1 reassessment, based on information compiled by the assessor’s office last year. However, while Jan. 1 marked the traditional, three-year reevaluation, Rakow said that his office examines property values annually. Therefore, there should not be any surprises.

The notion that a down market automatically means an increase in abatement relief filings is the “old way of thinking,” noted Rakow, who said that may have been the case 20 years ago but not today.

“We’re constantly out there talking to property owners,” he said. “We’re not sitting there with our heads in the sand. We’re trying to keep careful track of the market and the tax rates will reflect that.”

Each year the assessor’s office bases its property tax formula on the building’s income-producing ability, including how much it captures in rent, the vacancy rate and operating expenses. It reviews 12,000 commercial properties in Boston.

Rakow said that the city had the lowest number of commercial abatement filings in 2003 that it’s had in years.

“We’re at historically low levels for abatement requests,” he said.

In 1992, the city received 12,000 applications for relief; last year, that number stood at 3,000. Those requests are either approved or denied by the city, leaving property owners the option to appeal through the state tax board. Rakow said that the number of appeals is also down, from approximately 8,000 or 9,000 cases about five years ago to 2,200 last year.

Rakow said that the whole issue raises the question: If an assessment accurately reflects the market, why would anyone need to appeal?

But Lynch says that the reassessment process doesn’t easily lend itself to mathematical precision and often ends in opinion.

“It’s like a seesaw,” he said. “When all the cakes come out of the oven, you want to see uniformity and consistency. It’s important to get it right because there are so many variances.”

And those variances can be exaggerated in a down market, Lynch said.

“Cities and towns try hard to do a good job but with so many moving pieces it’s hard to be 100 percent accurate on every building,” he said.

Lynch recalls the peak of the downtown office market, which at one time commanded asking rents of $70 per square foot. It was starting to have a feel similar to that in Manhattan, he said. But while the values will drop, Lynch predicts that the tax levy per square foot will remain the same on average.

Property owners seeking a reduction of the property tax can file an application with the city. If approved, the assessing department reimburses the owner if the tax has been paid. If it’s denied, the property owner can appeal to the Massachusetts Appellate Tax Board within three months of a decision.

Kristie DiSalvo may be reached at kdisalvo@thewarrengroup.com.