The new commercial property values could have a trickle down effect on Mower County’s business community.

That’s according to many commercial property owners who are unhappy with new property valuations set by Vanguard Appraisals, the company hired by the county board to redo the values.

Mark Nagle, who’s been a supporter of downtown revitalization, said the higher values — which in turn means higher property taxes — are going to discourage investing.

“It makes it so people like me don’t want to buy property,” said Nagle, co-owner of South Central Athlete and other downtown properties.

The county board is paying Vanguard Appraisals more than $250,000 to complete the reassessments after noticing many discrepancies and inaccurately-assessed commercial property values. By hiring Vanguard, the board could complete the new assessments in about a year, rather than completing them in house over multiple years.

Overall, commercial property values increased by 29 percent, but the increase includes new construction.

“When I first looked at the 29 percent, I thought it was a little on the high side,” Assessor Rich Peterson said. “Then when I took into consideration that there was new construction and there were buildings that hadn’t been on the property tax roles included in that, it made much more sense.”

Peterson noted that not all properties saw increases.

“Keep in mind we did have values that went down,” Peterson said. “Not everything went up.”

Because of the discrepancies in the old values, Peterson said Vanguard started from scratch.

Comparing a property to its prior value is like comparing apples and oranges, Peterson said, because many of the old valuations were incorrect.

“It’s really not even a comparison because we went into this saying, ‘We’re not even going to look at last year’s,’” Peterson said.

More than 100 properties were represented at recent city board of equalization meetings, where owners could question the values. The county board of equalization is scheduled for June 11, but the board has set June 12 and 14 as extra days because they’re expecting a high number of business owners to attend. Property owners may need to attend the initial June 11 meeting, even if they’re scheduled for an overflow day.

Cash flow

For many, the higher values will likely mean higher taxes, but that’s not the only problem property owners see with these new values.

Nagle said the new assessments are going to hurt the cash flow capabilities of downtown properties.

In order to get a loan to invest in a property, Nagle said, banks need to see that owners can produce a profit. If a property’s tax value is too high, Nagle said, he and other property owners wouldn’t be able to get loans.

Nagle is just one of many property owners with values increasing.

Vanguard appraised South Central at $256,200 — up from the current value of $206,200. Even though he’s not looking to sell, Nagle spoke with a real estate agent, and learned the agent would list the South Central building at $199,000.

“It’s not even at listing price,” he said of the assessed value.

Other downtown properties Nagle owns increased in value by about 65 and 85 percent, he said.

Tony Warmka, owner of Pyramid Transportation in Racine, said a group of property owners has been investing in the Racine community and supporting business, but he said Vanguard’s new assessments will hurt the chances for businesses.

“There’ll be no businesses coming to this community,” he said.

Warmka said he saw hefty increases at his properties in Racine. He owns the former gas station, and said the canopies over the pumps were valued at more than $20,000. He offered to take them out rather than pay added taxes, but didn’t get an answer on how that would affect his value.

Warmka said he doesn’t know how buildings would sell with such high tax liability.

“It’s really going to affect re-sales,” he said.

Trickle down

Nagle said the assessments have a trickle down effect on many businesses. To match the anticipated higher property taxes, Nagle said, he’s looking at raising the price of rent.

“I have to raise the rent,” he said.

Nagle said he wants the businesses that rent from him to succeed, but he has to raise the price to cover his added expenses.

“It’s very painful to have to do it,” he said.

He said the properties are already priced comparable to other properties downtown.

Property owner Patrick Bradley also said he may have to increase rent costs for his tenants.

Bradley questioned how the county will implement the new values, if they pass.

“You can’t just all of a sudden drop those increases on the property owners and the tenants because where are they going to come up with those extra dollars,” said Bradley, an Edina lawyer who owns the Town Center building and the downtown section that includes an old bank, The Bakery Lounge and the Philomathean Book Store.

The new values are slated to take effect in 2013 if the board passes them.

The Town Center building’s value increase by about 26 percent, according to Bradley. His other downtown properties increased by an average of about 23.5 percent.

Questioned values

Bradley voiced concerns about what Vanguard used as the basis for the values.

Bradley said that to pursue change, it’s important to know how Vanguard came up with the values.

Warmka also questioned how Vanguard completed the valuations, saying they didn’t use enough local sales comparisons when making the new values and instead used sales from around the area. Those comparisons, Warmka argued, aren’t viable for a town like Racine.

To set the values, Vanguard used recent sales in the county, but they also used sales from other communities in Minnesota and Vanguard’s business range, according to Peterson. Part of the reason is there just weren’t enough sales for comparisons in the county on certain types of properties.

“Is it a concern for me?” Peterson asked of using sales outside the county. “No, because we have to go to where we find sales.”

On the other hand, Warmka said the sales of the old Wind Mill Hotel in Dexter and the Lansing Corners properties would be more accurate indicators of the local market.

Property taxes

But it’s not just old properties seeing new values. Even properties with more recent values saw sizable changes. Steve Davis has owned the current Steve’s Pizza location since 2009, when the property was valued at $164,000. The value increased to $214,300 this year, and the proposed Vanguard reassessment has the property valued at $378,500.

Davis voiced his concerns at a recent Coffee with Council meeting, where he said he mentioned selling the property and renting it back — something he says he has no intention of doing and was just a hypothetical.

For Davis, it’s the unknown effects that have him looking for answers. A key concern is that a higher value will mean higher property taxes. He said he’s asked county officials what to expect on his property taxes if the value holds true, but he hasn’t gotten a firm answer. He estimated his taxes could double.

“I’m sure it’s going to be a substantial increase,” Davis said.

If he knew roughly what impact the change would have on his taxes, Davis said, he could prepare for a potential increase. The uncertainty, Davis said, has been frustrating and nerve-wracking.

“I have mental indigestion,” he said.

Davis is holding out hope the increase won’t be too steep.

“Maybe it won’t be as bad as I think,” he said.

Fair values

Nagle said he has no problem with paying property taxes if they’re based on what a building would realistically sell for.

“I’m willing to pay taxes on what the building is worth,” he said.

While Nagle has been attending county meetings, he said he’s also willing to fight the matter in tax court if he has to.

In a way, Nagle said, higher values may look nice to owners because of the potential financial impact on a businessman’s net worth. However, Nagle said the real worth is what a property will sell for.

“I don’t have a customer for the building at that price — I have a customer at a real price,” Nagle said.

Nagle described Vanguard’s approach as systematic calculations, and said they’re missing the community’s atmosphere.

“They don’t really look at what’s going on in the market place,” he said.

However, Davis said he and other property owners are looking at options to lower their values. A series of meetings have been held for property owners to discuss the values with Vanguard officials and the assessor’s office staff.

“We’re going to do whatever we can to get these assessments changed if we can,” he said.