When it comes to property values, everybody’s got an opinion. And when millions of tax dollars are at stake, many are willing to fight over it.
That’s why the city of Providence has seen a steady stream of tax challenges from big-property owners who argue that the valuations assigned to their buildings are too high, and now the appeals may come in greater numbers amid a shakeup in commercial real estate that has dampened market values since the COVID-19 pandemic.
City Solicitor Jeffrey Dana says there are 97 active civil cases against Providence filed by property owners fighting their annual tax assessments, most involving commercial assets with enough value to justify extensive litigation.
Some of those lawsuits have languished for years as negotiations over property values have stalled, with tens of millions of dollars in tax revenue in the balance.
In March alone, the Providence Board of Tax Assessment Review heard dozens of appeals, some involving prominent properties such as the 23-floor Textron Building, whose owner – industrial giant Textron Inc. – says the $37.5 million valuation of its global headquarters is exorbitant.
The board denied most of the appeals, including Textron’s, setting the stage for those property owners to go to court if they choose.
Commercial real estate values – particularly for office buildings – have been in a free fall since the onset of the pandemic as more people worked remotely. Occupancy rates declined and haven’t fully recovered after the pandemic passed.
On top of that, higher interest rates have added to the financial difficulties, according to Leeds Mitchell, executive vice president of MG Commercial Real Estate Services Inc. in Providence.
“All of this has a compounding effect on building value and that’s the struggle that building owners are having as their loans come due,” Mitchell said.
Joseph Paolino Jr. is one of those feeling the pain.
Paolino is the managing partner of Paolino Properties LP, which controls hundreds of thousands of square feet of office space downtown, and he has had major tenants such as Bank of America Corp. vacate his buildings in recent years, causing the values to plummet.
So the former mayor is fighting the city’s valuation of several of his buildings and other properties with the ultimate goal of lowering his tax bills. Paolino says he doesn’t enjoy challenging the city, but he has seen continual gaps between what he believes are the depressed market values of his buildings and the city’s assessments.
“Commercial property is taking a tremendous hit,” Paolino said. “It’s not good.”
CHANGES AHEAD
The issues surrounding property valuations are crucial to the city.
Property tax is by far the biggest source of municipal revenue, projected to bring in $364.3 million in fiscal 2024 to pay for Providence’s $583 million budget, and the valuations are among the levers that can alter how much is collected.
In fact, a former tax assessor sued the city in 2020, claiming he was fired in 2019 for investigating what he said were officials’ attempts to falsely inflate the assessment of hundreds of millions of dollars of National Grid property. Thaddeus “Ted” Jankowski’s whistleblower lawsuit contends it was an attempt to make it appear Providence’s budget was balanced. The lawsuit remains unresolved.
Big-property owners are sure to be on guard this spring when the city launches its once-every-three-years revaluation of Providence’s approximately 44,000 taxable parcels and 5,600 tangible tax accounts.
At the same time, there is a movement afoot to lower the city’s commercial tax rate, which city leaders reduced to $35.10 per $1,000 of assessed valuation last year, a 30-cent cut.
Even so, Providence’s commercial tax rates remain among the highest within the state and country, according to recent analyses. Now key city leaders, including Mayor Brett P. Smiley, have backed a special commission’s recommendation for a five-year, phased-in reduction of the rate to be “less punishing” to businesses.
Smiley spokesperson Josh Estrella says it’s hoped that lowering the commercial tax rate could attract new businesses to the city and lessen the financial burdens on existing ones.
MAKING A CASE
Still, many of those existing business owners with high-value properties such as Paolino see the legal fees from tax appeals as a worthwhile investment, as their tax bills can quickly add up.
It’s not an easy process to fight City Hall.
Dissatisfied taxpayers begin the process by filing an administrative appeal with the tax assessor’s office. Then if the assessor’s value is maintained, or if the taxpayer is still not happy, another administrative review can be filed with the Board of Tax Assessment Review.
The next step is filing a lawsuit against the tax assessor.
R.I. Superior Court Associate Justice Richard A. Licht says it’s rare for a case to make it to trial. He’s only tried five cases since 2019.
The vast majority of cases have been resolved through a settlement. In fact, he’s closed more than 900 appeals involving municipalities across the state, and more than half of those originated in Providence.
Licht and attorneys who represent property owners acknowledge the process is inefficient. Challenging a single assessment could mean filing three appeals because when a municipality revalues properties, it is usually set for three years. But taxpayers are required to file appeals for each individual tax year.
And while the appeals continue, the taxes are still owed to the municipality. But if a court rules in favor of the taxpayer, state law requires the city to shell out the overpayment, along with 12% interest.
That’s what happened when the owners of the Omni Providence Hotel appealed the city’s 2013, 2014 and 2015 valuation of the city’s largest hotel and the land beneath the hotel and the adjacent luxury condo tower.
At the time, the city put a value of $74.3 million on the property, but Licht ruled that the city had overvalued the hotel and ordered a refund of $2.4 million, not including court costs and interest, to property owner Omni Rhode Island LLC.
The hotel owner and the city have settled cases from following tax years, but others remain active.
Those appealing assessments often say the assessors are too aggressive, but Dana disagrees.
“Ensuring that all properties are properly assessed is critical for ensuring that the city remains financially sound and is able to continue funding high-quality city services,” Dana said, noting the city’s assessment process has not changed in recent years.
Thomas O. Sweeney, owner of Sweeney Real Estate & Appraisal, says the revaluation companies conducting assessments for municipalities often use the cost approach, setting the value at the cost to construct an equivalent building.
This method is generally preferred for buildings constructed in the last 10 to 15 years, Sweeney says, because there is less guessing on the property’s depreciation and the sales comparison approach is the most common method.
But given the fact that revaluation companies often assess thousands of properties at a time, Sweeney says that approach is fairly accurate.
“It’s a process – sometimes assessments are spot on, sometimes they’re not,” Sweeney said. “But overall, they do a good job.”
THE TOP OF THE LIST
These are the outstanding appeals of tax assessments in Providence, listed in descending order.
1. National Grid | $255 million National Grid may have sold its Rhode Island utility business to PPL Corp. for $3.8 billion in 2022, but the company is still fighting city assessments of real estate and tangible property taxes dating as far back as 2014.
In a series of lawsuits, National Grid has accused Providence of “illegally and intentionally” inflating by as much as $50 million the assessment of the electric grid infrastructure, a liquid natural gas facility along the Providence River and a 140,000-square-foot warehouse at 266 Melrose St.
The reason? National Grid says it was to “create additional tax revenue … to make it appear that the city’s budget was balanced.”
That accusation may be based on the whistleblower lawsuit by Thaddeus “Ted” Jankowski, who claims he was fired as the city tax assessor in 2019 for attempting to audit the National Grid assessments. Jankowski’s case has not been settled.
With various appeals dating back to 2014, there’s a lot of tax money at stake.
For instance, in tax year 2020 alone, National Grid’s tax bill would have amounted to about $8.9 million, based on the city’s tangible property valuation for the electric grid equipment ($206 million) and for the LNG facility ($35.6 million).
But the utility argues the tangible property value should have been set at $195 million and the LNG facility at $19.2 million, which would lower the tax bill by about $1 million for that year alone.
National Grid’s lawyer, Thomas Carter, declined a request for comment.
2. Omni Rhode Island LLC | $61.7 million The city’s largest hotel has been challenging the city’s assessment for more than a decade.
Beginning in 2013, lawsuits filed by the owner of the Omni Providence Hotel objected to the values the city assigned to the 560-room hotel and land under the adjacent luxury condo tower.
In 2017, when the city’s valuation of the property sat at $74.3 million, the cases went to trial. Superior Court Associate Justice Richard A. Licht found the city overvalued the hotel for tax years 2013 through 2015 and the property owner received a $2.4 million refund. After that, cases between 2018 and 2021 have been settled through mediation.
In 2022, the city assessed the property at $61.7 million, which touched off another court challenge from the hotel owner. Mark Pogue, a partner at Pierce Atwood LP who is representing Omni Rhode Island, says he estimates the property value to be closer to $20 million, and he plans to argue in court that the hotel’s value deteriorated in part because it was closed for long portions of 2020 and 2021 because of the COVID-19 pandemic.
3. 100 Westminster Partners LLC | $51.5 million Owned by Joseph Paolino Jr.’s real estate investment firm, 100 Westminster Partners LLC, the 20-story skyscraper at 50 Kennedy Plaza is home to notable companies such as Nortek Inc. and Providence Private Equity Partners.
But in a lawsuit filed in 2022 after the Board of Tax Assessment Review rejected the company’s appeal, Paolino’s lawyer Mark Pogue argues the property taxes for 2021 – which amounted to $1.8 million – were based on “an unlawful, inequitable, palpably exorbitant assessment.”
Pogue notes that the building has lost valuable tenants over the years as more companies have been reducing office space since the COVID-19 pandemic, which has caused its net operating income to decline.
In 2022 and 2023, the city valued the property at approximately $51.2 million. Pogue says 100 Westminster Partners LLC hasn’t yet submitted its formal opinion of what the property is worth, but an administrative appeal for the assessment that applies to tax year 2023 is in front of the Board of Tax Assessment Review.
4. Capital Cove Development LLC | $41.1 million This case involves a dispute over the value of an apartment complex located at 10 Park Row West, also known as “Station Row.”
There are currently three active lawsuits challenging the city’s assessment of the property filed from 2021 to 2023 when the city assessed the building’s value at approximately $38.3 million in 2021 and $41.1 million in 2023. However, Jennifer Sylvia, principal at Moses Ryan Ltd. who is representing the Braintree, Mass.-based real estate firm, says the building’s value “is significantly less” than the city’s assessment.
5. Promenade Street Owner LLC | $38.6 million The value of one of the two properties that comprise the luxury apartment complex known as The Halstead Apartments is at the center of this case.
In October 2021, Promenade Street Owner LLC purchased the properties – once home to powerhouse manufacturer Brown & Sharpe – that now feature 433 luxury apartment units at 255 Promenade St. and 25 Holden St. for a total of $77.8 million. The Boston-based company spent about $40.6 million on the Promenade Street building, which houses 237 units.
As of 2022, the city’s tax assessor valued the property at $38.6 million, marking a dramatic increase from the previous year’s assessment of around $18.9 million.
Michael T. Eskey, a principal at Moses Ryan Ltd. who is representing the Promenade Street owner, did not have an appraisal ready on the property. But in court filings, he says the city’s assessment is “excessive, inequitable and illegal.”
6. Blue Bell Citizens Plaza | $28.1 million The owner of a 13-story triangular office building that serves as Citizens Financial Group Inc.’s headquarters is contesting the city’s valuation.
Property records show the city valued the building located at 1 Citizens Plaza at around $28.1 million in December 2021 – just months after Citizens Bank closed a branch within the building. Before that, the city valued the property at around $33.1 million.
The property owner plans to argue the net operating income generated by the building’s tenants – which include high-end restaurant Cafe Nuovo – did not justify the city’s most recent assessments.
The company has not received a finalized expert appraisal of its property yet and an administrative appeal for tax year 2023 was denied in March by the Board of Tax Assessment Review, potentially setting up another lawsuit.
7. PRI I LP | $27.8 million The owner of the 270-room Hilton Downtown Providence has filed lawsuits challenging the city’s assessment of the prominent hotel and adjacent parking garage for the tax years 2020 through 2022.
Most-recent assessments place the total value at approximately $27.8 million; however, Michael T. Eskey, atttorney for PRI I, says the company’s appraiser concluded that the property was worth around $18.2 million in the 2020 tax year, $13.4 million in the 2021 tax year and $14.4 million in the 2022 tax year.
Eskey says the city’s assessments are excessive because, like many others in the hospitality industry, the hotel’s business took a hit during the COVID-19 pandemic.
Also, Eskey says the assessments don’t account for the hotel’s plans for a $16 million renovation. This is because valuations are meant to be based on the fair market value, or what someone would pay to buy the property at the time. So, if the property is due for a costly renovation, it’s likely a prospective buyer would offer less, Eskey says.
An administrative appeal for tax year 2023 was denied in March by the Board of Tax Assessment Review.
8. 261 LLC | $23.3 million This case involves the valuation of an apartment complex known as Park Row West owned by Andover, Mass.-based company 261 LLC.
The city valued the property at approximately $23.3 million for tax years 2022 and 2023, both of which the owner is challenging. Eskey and Sylvia, who are both representing the owner, did not have an exact appraisal for the property ready but said they are arguing the value is “significantly less” than the city’s assessment.
In court filings, the lawyers say a tax stabilization agreement reached with the city encompasses three parcels owned by 261 LLC. But when two of the parcels were sold off, the TSA should have been revised, 261 LLC contends. “The city has failed to make changes and correct the TSA,” the lawsuit said.
An administrative appeal for tax year 2023 was denied in March by the Board of Tax Assessment Review.
9. 15 Park Row West Holdings LLC | $18.1 million The owner of a commercial building known as the Gateway Building, or the American Express Building, located at 15 Finance Way, next to the train station, is challenging the city’s assessment of its property.
Court records show the city assessed the building at approximately $18.1 million for tax years 2022 and 2023. The Board of Tax Assessment Review reduced it to about $16.8 million after an administrative review.
But the property owner, NR NC Providence LLC, contends this is still much higher than what the property is worth because it purchased the property from 15 Park Row West Holdings LLC for around $11 million just months before the valuation.
NR NC Providence LLC’s administrative appeal for tax year 2023 was denied in March by the Board of Tax Assessment Review.
10. 10 Dorrance Street LLC | $11.3 million Joseph Paolino Jr.’s real estate investment firm, 100 Westminster Partners LLC, controls the entity that owns the 11-story Westminster Square building, also known as the Howard Building, at 10 Dorrance St.
Paolino purchased the property for $6.55 million in March 2022 at a public auction, according to Providence Business News reports. The building was in receivership before it was put up for auction and was last owned by Robert Day LLC.
Paolino has said that drug dealing and homelessness in the area contributed to tenants relocating from the building and ultimately causing Robert Day LLC to struggle to pay the mortgage.
The city assessed the property’s value at around $11.3 million for the tax year 2022. Paolino’s lawyer says the value of the property should be closer to what Paolino paid for it, as that represents its fair market value.