El Paso County Assessor Mark Lowderman leaned back in his chair and chuckled.
“We get a lot of people coming in here to complain that their assessment is too high,” he said. “I don’t think that we’ve ever had anyone complain that it was too low.”
Lowderman and his chief appraiser, Mark Blucher, were addressing the appraised value of a 105.13 acre tract in southeastern Colorado Springs. The property has a current appraised market value of $105,130 — exactly $1,000 an acre. Its assessed value: $30,490. Annual property taxes: $2,546. They’d be lower, but a vacant clubhouse on the property has an appraised market value of $46,299.
Except for the building, it’s vacant land, annexed into the city in 2008. Zoned PIP 2 (planned industrial park), it looks like any other pre-development parcel. Bounded by El Pomar Youth Sports Center, Fountain Creek and Interstate 25, it appears reasonably well-located.
It sold in 2008, together with several smaller parcels totaling about 4 acres, to Vineyard LLC, headed by developer Vince Colarelli. The price: $5.5 million.
So why is the property’s market value appraised at less than 3 percent of the most recent sale price? The answer has to do with the property’s history, its past and current use, and most of all the complexities of Colorado tax law.
For many years, the property was part of family-owned Sinton Dairy. In the late 1980s, the family tried to convert some of it into a vineyard. That didn’t work, so they opened a nine-hole golf course in 1999.
That didn’t pan out either.
“Colorado is a ‘value in use’ state,” explained Lowderman. “You’re left with something less than a golf course. It has no other present use. It produces no income. The law does not allow us to consider the price a speculative developer might pay, or has paid.”
No income, no value
Value in use is usually defined as the net present value of a cash flow that an asset generates under a specific use. Presently, the property generates no income — and may be less valuable than properties that have had no development.
“There’s a lot of subsurface drainage structure there that’s peculiar to golf courses,” said Lowderman. “That infrastructure will have to be removed by a developer, so that’s a factor.”
Colarelli hopes to develop the site into a data center complex worth hundreds of millions.
“That’s the trigger point,” said Lowderman, “when he breaks ground. That’s when the use changes, and that’s when it ceases to be an abandoned golf course.”
“That’s ridiculous,” said real estate broker/developer Tim Leigh. “That parcel’s value was set when a willing buyer paid a willing seller $5.5 million. It’s not Mark’s fault — he’s a good guy. The state law is crazy.”
Crazy or not, the low assessment makes it easier for Colarelli to finance his projected development.
Quirks in state law can reward property owners — or penalize them.
“Take someone who owns a house on West Colorado Avenue,” said Lowderman. “Those houses are zoned C-5. That’s a very desirable zone — it allows lots of different commercial uses, and you don’t have to jump through a lot of hoops. But if the house is in residential use, that’s what you’re taxed on.”
Commercial property is assessed at 29 percent of market value, while residential property is assessed at slightly less than 8 percent.
Low assessment values enable developers to hold land in inventory more cheaply. Had the assessment of Colarelli’s property been based on the 2008 sale, annual property taxes would have amounted to $92,867.88. That would have both reduced the value and made the sale for development less likely.
Colarelli isn’t the only Colorado developer to benefit from low assessments. Agricultural land is assessed according to a complicated formula that’s meant to support agriculture, but also has benefitted residential developers who own pre-development land on the urban periphery.
As the Denver Post reported in 2011, three builders in Douglas County shared more than 800 acres, cut into 1,600 lots. Their total tax bill was $1,160 because it was agricultural. Otherwise that bill would’ve been $1.4 million.
Colorado Springs Urban Renewal Authority will decide Aug. 22 whether to issue more than $50 million in bonds to fund infrastructure on the Vineyard site. Those bonds would be supported by tax-increment financing, requiring that all property tax revenues from the development that exceed those now being collected be used to pay off the bonds. A low base means that more revenues will be available to bondholders, reducing the project’s total cost.
CSURA declared the land “blighted” in December 2010, a decision ratified by City Council in March 2011, qualifying the property for TIF financing.
“(In such a deal) the taxing entities like the school districts are stakeholders in the deal,” said Lowderman. “When there’s a change in the assessed value, they will all benefit.”
But the benefits may not be equally distributed.
“The state backfills the school districts to a certain extent,” said County Commissioner Sallie Clark, “but the city and the county may incur costs — public safety, fire protection — yet not get any revenue for a long time.”
But as Vince Colarelli often has pointed out since he began the project three years ago, replacing a defunct golf course with a national-level data center development will create jobs, increase sales tax collections and help revitalize the city’s southeast quadrant.
Those are powerful arguments — and we’ll see whether CSURA agrees with him on Aug. 22.