REAL ESTATE NEWS

OC Assessor Bills Developers for Tax-Exempt Projects

Invokes 1939 law to collect millions in taxes on public housing projects.

A legal battle is brewing between Orange County's tax assessor and developers over millions of dollars in project administration fees for tax-exempt public housing projects.

Municipalities throughout California have created a tax-exempt joint powers authority (JPA), which allows them to team up with housing developers—known as project administrators—on affordable workforce housing projects funded with long-term municipal bonds.

When the 30-year-bonds are paid, ownership of the properties reverts to the cities, who can refinance or sell the projects. Until then, JPAs don't pay taxes on these projects.

Orange County Assessor Claude Parrish now is invoking a law dating to 1939—it's known as the possessory interest law—that he says requires project administrators to pay possessory taxes because they receive a private benefit from public property, the Orange County Register reported.

Parrish has issued possessory interest tax bills to 10 workforce housing complexes owned by JPAs in Orange County. The projects offer units to households earning 60% to 120% of the average median income in the area.

Five of the projects are administered by Newport Beach developer Waterford Property Co. Waterford's possessory tax assessment totals $22M for the past three years and about $5M annually, the report said.

Waterford is suing the county, seeking a court order to rescind the assessments. The company says it has no possessory interest in the properties, which encompass 1,370 apartments in Orange and Anaheim that are owned by the California Statewide Communities Development Authority, a JPA formed in 1988.

Waterford is not located on any of the properties, doesn't own the structures and is basically acting as a financial consultant to the projects, the firm said. Sean Rawson, Waterford's co-founder, told the Register that the company would run a deficit of $3.8M a year administering the Orange County properties if it has to pay the taxes.

If the possessory assessments are allowed to stand, the properties would have to charge market rates, eliminating the benefit to middle-class renters, he said.

Waterford reported that it made $9M in one-time brokerage fees when the Orange County properties were acquired and collects $2.2M a year on supplemental bonds for the projects. The firm also earns $970K a year in asset management fees for the properties.

According to figures provided by Waterford, Orange County governments are deferring $172M in property taxes from the projects but will gain $809M in saved rents. Equity from the properties is estimated to total $1.4B when they are eventually turned over to the cities.

Tax assessors throughout the state are closely watching the legal dispute in Orange County to see if the collection of possessory taxes from developers working with JPAs is upheld. San Diego County has started to bill for possessory taxes, the Register reported.


Source: GlobeSt/ALM