Office playbook
Office property tax appeals built on real vacancy, leasing costs and rollover
Office is the asset class where mass appraisal models have drifted furthest from the market. CAMA models calibrated on older sales still apply stabilized vacancy and quoted full-service rents to buildings that carry sublease overhang, shorter lease terms and tenant improvement packages that absorb a large share of first-term rent. When the assessor's income model treats a 71% leased Class B building like a stabilized one, the value conclusion lands well above what a buyer would pay for it.
ATALI ELECTRIC rebuilds the office pro forma the way a hearing officer expects to read it: rent roll by suite, effective rent after free rent and concessions, vacancy tied to the building's actual leasing position, and below-the-line treatment of tenant improvements and leasing commissions. The income evidence is paired with adjusted office sales and an equity grid of competing buildings in the same class and submarket, so the binder answers all three questions a board asks.
Where assessors get office wrong
- 01Stabilized vacancy on a building that is not stabilizedMass appraisal applies one submarket vacancy factor to every building in a class. A building with heavy near-term rollover or a large block of vacant space carries lost rent, downtime and lease-up costs that a stabilized factor never captures.
- 02Leasing costs left out of the income modelTenant improvement allowances, leasing commissions and free rent are the price of holding occupancy in office. County models often deduct operating expenses and a thin reserve but nothing for the capital it takes to sign the next lease.
- 03Asking rents instead of net effective rentsQuoted full-service asking rents overstate what landlords collect once abatement months and above-standard TI packages are netted out. Capitalizing asking rent inflates income before the cap rate is even applied.
- 04Class and vintage driftOlder Class B and C buildings get valued off sales of renovated or trophy assets. Small floor plates, dated mechanical systems, limited amenities and parking ratios below current tenant demand are functional obsolescence that the sales grid has to adjust for.
- 05Expense recoveries counted as profitUnder full-service gross leases with base-year stops, recoveries only offset expense growth above the base year. Capitalizing recovery income without the matching expenses overstates NOI dollar for dollar.
How the three approaches weigh in
Income
PrimaryDirect capitalization of normalized NOI, with a discounted cash flow cross-check when large rollover or a lease-up period makes one year of income unrepresentative.
Sales Comparison
SupportingOffice trades are thin and often involve distressed sellers or note sales. The grid screens for arms-length transfers and adjusts for occupancy at sale, class, condition and market conditions.
Equity Uniformity
SupportingAssessed value per sq ft of competing buildings in the same class and submarket. Decisive where statute allows unequal appraisal relief, such as Texas Tax Code §41.43(b)(3) and §42.26(a)(3).
Cost
Rarely usedDepreciated replacement cost overstates older office because functional and external obsolescence are hard to measure from cost data. Relevant mainly for new construction.
How the income engine normalizes a office P&L
| P&L line | Treatment |
|---|---|
| Base rent | Rebuilt from the rent roll at contract rent for leases in place and market rent for vacant suites, with free rent and abatements deducted to reach effective rent. |
| Expense recoveries | Recognized only as billed under base-year stops or pro rata reimbursement clauses, and matched against the recoverable expenses so they cannot inflate NOI. |
| Vacancy and credit loss | Set to the building's actual leasing position with a lease-up allowance when occupancy sits below the submarket, instead of a blanket stabilized rate. |
| Tenant improvements and leasing commissions | Removed from operating expenses where the P&L books them, then reserved below the line on an annual per sq ft basis tied to the lease expiration schedule. |
| Depreciation and capital projects | Depreciation, amortization and one-time capital projects removed; a replacement reserve per sq ft added in their place. |
| Debt service and entity costs | Mortgage interest, principal, asset management fees and partnership administration removed as non-operating. |
| Real estate taxes | Removed from expenses and recognized through a loaded cap rate (base rate plus effective tax rate) so the appealed tax does not reduce the value it is levied on. |
The January 1 assessment of $52.8 million ($213 per sq ft) assumed 12% stabilized vacancy and reserved nothing for the improvements and commissions needed to re-lease 61,000 sq ft expiring over the next two years. Rebuilding income at effective rents, carrying the actual 29% vacancy through a lease-up period and reserving leasing costs below the line yields about $3.90 million of NOI before real estate taxes, which at an 8.75% loaded rate (7.35% base plus the roughly 1.40% combined rate for commercial property in Tysons) indicates $44.6 million. The $8.2 million reduction saves about $114,800 a year.
Evidence checklist
- Certified rent roll as of the valuation date with expirations, free rent and unfunded TI obligations
- Operating statements for the trailing three years and the current-year budget
- Lease abstracts for the top tenants and any leases signed but not yet commenced
- Broker leasing activity report with proposals showing effective rents offered
- Schedule of TI allowances and leasing commissions paid over the last three years
- Capital expenditure history and the most recent property condition report
- Sublease availability in the building and competing buildings
- Assessment notice and the county property record card
Office appeal questions
Should tenant improvements and leasing commissions be deducted in an office tax appeal?
They are real costs of holding occupancy, and most commercial appraisers treat them as a below-the-line reserve rather than an operating expense. ATALI ELECTRIC removes them from the P&L where they were booked and replaces them with a normalized annual reserve tied to the expiration schedule, so one heavy leasing year does not distort the deduction. Attach the lease rollover schedule so the board can see what the reserve is based on.
How do you handle a building that is well below stabilized occupancy?
The engine values the building as if stabilized and then deducts the cost of getting there: lost rent during lease-up, free rent, tenant improvements and commissions on the vacant space. That below-stabilized adjustment is the standard appraisal treatment and is easier for a hearing officer to follow than a single high vacancy factor.
Is sublease space useful evidence?
Yes. Sublease availability competes directly with landlord space, usually at a discount, and it shows how much tenant demand is actually left in the submarket. The binder lists sublease blocks in competing buildings next to the direct vacancy figures.
What if the building sold recently?
A recent arms-length sale of the subject is strong evidence of value in most jurisdictions. If the sale was distressed, a note sale or part of a portfolio allocation, the binder documents those conditions so the board can weigh the price correctly.
Stop overpaying commercial property tax on a flawed mass appraisal.
Upload an assessment notice. ATALI ELECTRIC returns a valuation audit and comp analysis in about two minutes.