Financial thoughts ? Owner of AT&T tower gets property tax cut

The city of St. Louis is giving a $4.7 million property tax break to the owner of one of downtown?s tallest office towers, One AT&T Center.

The local holding company, affiliated with one of the nation?s largest real estate trusts, convinced the city assessor that the building is worth far less than its purchase price in 2006 because AT&T, its lone tenant, now fills only half its office space.

MB St. Louis LLC is the owner of record for the property, which was acquired for $204.9 million by Minto Holdings Inc., of Florida and Inland American Real Estate Trust, of Oak Brook, Ill.

Inland American, according to its most recent annual report, posted annual revenues last year of $1.3 billion and holds interests in nearly 1,000 properties, including hotels, office towers and retail complexes across the country. Inland reported last month that a subsidiary paid $22.6 million for the Hilton hotel at 400 Olive Street in downtown St. Louis as part of a $393.1 million deal for five hotels in Atlanta, San Francisco, Austin, and Lexington, Ky.

Inland?s affiliate, MB St. Louis, convinced St. Louis assessor Ed Bushmeyer that the AT&T tower is now worth just $135 million ? about $70 million less than what it sold for in 2006.

Jerome Wallach, an attorney for MB St. Louis, argues that the building?s value plummeted because AT&T has slashed the size of its workforce there, and low occupancy cuts the building?s market value. The owner would have difficulty selling the half-full building for an attractive price when AT&T?s lease expires in 2017, he added.

But the building is not for sale now, Wallach acknowledged, nor has MB St. Louis given AT&T any rent breaks on the property because of its diminished presence. Wallach argues the rent shouldn?t factor into assessed value, which should be based on what it might sell for now in its half-full state.

Bushmeyer initially contended that occupancy levels have no effect on the structure?s value ? because AT&T leases the entire 1.2 million-square-foot building, regardless of the space filled. But Bushmeyer ultimately bought the landlord?s argument that the relatively short period left on the lease, along with potential renovations needed to accommodate multiple tenants, justified the lower assessment.

The matter was resolved in a settlement approved by the State Tax Commission on March 27. The owner first appealed the assessor?s valuation to the city?s Board of Equalization, which lowered the building?s 2010 assessment to match its December 2006 purchase price, $204.9 million. MB St. Louis then appealed that ruling to the State Tax Commission on line pay day loans.

Before the state commission could issue a decision, the owner and the city assessor reached an agreement that dropped the building?s 2010 value to $155 million. The agreement also lowers the 2011 and 2012 values to $135 million from the city?s original assessment of $191.5 million.

The result is three years of tax cuts, totaling $4.7 million.

Since 2007, the annual property tax bill has been about $5.5 million, city records show. The portion of taxes MB St. Louis paid under protest in previous years will be refunded from an escrow account, Bushmeyer said.

Completed in 1986, the 44-story tower is downtown?s third-tallest structure, trailing only the 630-foot Arch and ? by five feet ? the 593-foot Metropolitan Square building on Broadway.

An AT&T spokesman said employment at the company?s three-building downtown complex, including the tower, is slightly less than 4,500. As recently as 2009, the complex had nearly 5,700 workers.

Another factor in the building?s lowered value is its design as a single-tenant headquarters, the owner argued. Most downtown office towers were built for multiple tenants. A new owner of the AT&T tower would likely face an expensive and time-consuming renovation to accommodate multiple tenants.

?The assessor?s office relied on sales and rental transactions involving multi-tenant buildings downtown, such as Met Square,? in its initial property assessment, Wallach said. ?AT&T is used as a single-tenant building. It was, in my opinion, an apples and oranges comparison.?

The tower?s lowered assessment will mean that city public schools and other tax-supported entities will take a slight hit, Bushmeyer acknowledged. But he noted that while citywide reassessments in 2009 and 2011 produced generally lower property values ? and lower tax bills ? state law allows some taxing districts to raise rates to make up lost revenue.

The AT&T case illustrates the nationwide decline of real estate values during the recession, Bushmeyer said.

?I expect that, as the economy improves, we will see valuations increase,? he said.

Jim Mosby, senior managing director in St. Louis of Cassidy Turley, said Thursday that challenges to assessed valuations have been widespread over the past four years because of general declines in the value of commercial real estate.

?At some time, the market takes over, no matter what you have in your building,? he said.

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