Commercial Property Won't Sell

Commercial Property Won’t Sell

Owner doesn’t know if he can give it away or simply abandon his building

Q: I own a commercial property that I no longer want to own. The market value of this property is zero as there are many abandoned properties nearby. The real estate taxes are astronomically high for a property with zero market value.

I was advised by my financial planner and CPA to stop paying the taxes and just abandon it. I have kept up the insurance on the building, especially liability to protect myself from any trespassers who might injure themselves on my property. I’ve researched my situation and have found little information on the process to gift or give the property to the county.

My question is, am I doing the right thing by not paying the real estate taxes or am I setting myself up for a huge legal nightmare in the future? I have tried talking to multiple attorneys on this topic and no one seems to know what to do. I feel like I’m reinventing the wheel as I’m sure my situation has come up in the past.

Determining Value of Commercial Property

I want to reiterate: The building has zero market value and can’t be sold or rented.

A: We’re sorry you’re in such a difficult situation. We know that many forms of commercial real estate have been struggling. Many office developments nationwide have been impacted by the work-from-home trend since the pandemic. Retail strip malls have seen big department stores and small chains close. There have been so many changes in how businesses operate and use their spaces in rural, suburban and urban areas.

The pandemic hit some areas of the country quite hard and some types of commercial real estate haven’t recovered. It appears that your building is in an area where business activity has gone down and has not seen an economic uptick. That’s quite unfortunate.

In some real estate markets, taxes on commercial property are the backbone of the community. Often, most of the budget for municipal services comes from commercial properties rather than real estate property taxes paid by homeowners. When you don’t have a balanced market, where residential and commercial properties contribute equally to those municipal services, the commercial property may bear the brunt of it.

Tips on How to Find a Commercial Real Estate Lender

Sam is familiar with some properties that pay upwards of 10 percent of their value in annual property taxes. Those commercial properties are pretty much unsaleable and frequently the owners of those properties can’t afford to keep the buildings. Rentals rates have to be so high that tenants couldn’t afford them and buyers couldn’t make the economics work to buy them.

All of this leads us to your question. What do you do with a building that’s located in an area that is suffering economically where real estate taxes are high and there is no hope for a sale of the property?

We don’t have a good answer. Start by looking for local religious organizations or other tax-exempt organizations that might want or need a building in the area to use to expand their presence in the community. In many locations, religious organizations can apply for a full exemption from real estate taxes. If you can’t find anyone that wants to buy the property, you can stop paying the real estate taxes. But you can’t be sure the taxing body will end up taking title to the property.

Tax Sales Don’t Mean Owner is Off the Hook for Commercial Property

We’ve written about tax sales in the past. Tax sales are undertaken by the local real estate taxing body to sell properties with unpaid real estate taxes. Eager buyers look to pick up properties at a below market price (typically the amount of back taxes owed) or to expect the owner to redeem the unpaid taxes and earn a hefty fee in the process.

When properties don’t sell at the tax sale, the local taxing body may simply leave the property as it is and the ownership of the property can remain with its current owner. We suspect this may happen to you. Let’s say your real estate taxes are $25,000 per year and you stop paying those taxes. The delinquent tax amount will incur interest at a high rate. And year after year, the amount owed will increase.

Vacant Homes and Empty Storefronts: Why so many?

After a couple of years, the unpaid amount will exceed $100,000. At some point the property will go to auction by the local taxing body. Tax buyers won’t be inclined to buy the property because they’ll have to pay those high property taxes going forward. Likewise, the municipality may not want the responsibility for the property, so they’ll simply leave the property on the tax rolls with its unpaid taxes. You will remain the owner of record.

Unfortunately, there’s no easy button that gets you out of this situation. You’ve talked to attorneys and have received conflicting information. Your advisors tell you to abandon the property, but there’s an ongoing liability risk so you need to continue to carry insurance on it.

Please make sure that you talk to an attorney and make sure that the property is titled in the name of a company that shields you from personal liability. You might want that in addition to the insurance you carry on the building — whether or not you stop paying the real estate taxes on the property.

One final option is to demolish the building. If the property is vacant, the tax bill should be reduced significantly. And, someday, the land might be worth something. Outside of finding a not-for-profit to take title to the building, finding a buyer in the area that would take the property for free, demolishing would help you protect yourself and limit your financial downside and liability risks.

Siblings Inherit Commercial Property

You might want to talk to a real estate attorney that works in the city or town where your property is located to see if they have any other information that’s useful. You can also stop by the town or city hall and inquire about your issue and see if the town has any solutions for building owners like yourself.

Good luck and let us know what happens.