Scott Van Voorhis
Sky-high tax bills are shaping up as a major downside of all those soaring Boston tower prices, which have been shattering records right and left.
The taxman is hardly haunting the dreams of all the deep-pocketed investors who have been snapping up the city’s office towers, one after another, at ever more unbelievable prices. After all, they can pop the cork and offer a toast to some killer resale values down the line. There’s money to spare and then some.
But for the companies that rent space in downtown Boston and power the region’s economy, the picture isn’t so celebratory. All those soaring tower prices simply mean a big fat tax headache, with tower and building tenants on the hook for their share of the increases, the amount depending on how much space they rent.
The assessed value of Boston’s most prominent office addresses has shot up a hefty 15 percent, according to figures provided by the Boston Municipal Research Bureau, with city tax officials start to catch up with the sizzling market. In fact, the increases are already here, with city property tax bills having gone out Jan. 1. And that’s just the average, with some towers seeing far bigger jumps.
With rents escalating as well, it’s a one-two punch.
John Lynch, a prominent downtown Boston commercial tax attorney and expert, notes chatting with one not-exactly-thrilled executive whose company is now on the hook to cough up an additional $100,000.
“It can be a hardship,” Lynch said. “It comes about pretty quickly and can be substantial.”
The Research Bureau’s data certainly lays out the story, covering the assessed values of 63 different office towers and buildings in downtown Boston.
Now assessed values are significantly different than market value, with the taxable value of office building and towers typically lagging what they would sell for in a private transaction. Not that much different, really, than your house or condo.
The big rise in assessed value at Boston of 15 percent was mitigated somewhat by a 9 percent decline in the commercial tax rate itself, to $26.81 per thousand in assessed value.
The end result, though, was nothing to shrug off, though: An average 4 percent jump in actual tower and office building tax bills across the board, with a few seeing much larger increases, according to the Boston Municipal Research Bureau.
Just take 500 Boylston St. in the Back Bay, which saw its value in the city’s tax books jump by nearly a quarter to $373 million. There are likely some unhappy campers there, with the tax bill having risen a hefty 11.8 percent.
The Old John Hancock Building, or 200 Berkeley St., also in the Back Bay, saw its tax bill rise 11.7 percent, driven in part by a 24 percent jump in its assessed value, to $220 million. Down on the waterfront by Rowes Wharf, the sea green Independence Wharf office high-rise saw its tax bill go up 10 percent, following a 22 percent gain in assessed value to more than $111 million.
More typical, though, was Rowes Wharf, which will pay the taxman an extra 4.5 percent this year after its assessed value rose 13 percent, to $203 million.
Of course, all that is before we even get to classification – state rules that allow cities and towns across the state to shift a big chunk of the tax burden off local condo and homeowners and onto the backs of local businesses. In Boston, that amounts to more than half a billion in taxes paid by the commercial sector that would have otherwise hit city residents.
No Suburban Flight Yet
Despite the hefty increases, and the role, fair or not, that businesses pay in underwriting city government, it’s unlikely we will see a mass exodus of companies from downtown Boston to the suburbs.
There are obviously lots of advantages to doing business in Boston, a city that is clearly on the rise and amid an historic boom, with a steady stream of tech firms now joining the banks and law firms that have long made downtown their home.
But that doesn’t mean those rising costs – of taxes, escalating office rents, and for that matter, parking and T passes – don’t also play a part when companies decide how much space to rent in Boston. There has been long-standing pattern of companies keeping their top brass in Boston but shifting their back office workers to cheaper locales in the suburbs.
Maybe it doesn’t matter so much now with the office market ever tighter by the month. Yet it certainly mattered in the Great Recession, when the lower floors of the big towers emptied out, giving the Financial District a ghost town feel.
If you think your taxes are bad now, though, just wait a year.
By that time, Boston’s redoubtable taxman Ron Rakow will have caught up with all the crazy prices in 2016 – including that $1,000-a-square foot, $1.3 billion sale of 500 Boylston and 222 Berkeley.
When it comes to the red-hot commercial real estate market, good times can be very expensive times as well, especially if you are renting space in a tower, not owning it.
