Q2 2020
Gallagher Amendment: Property Tax Burdens
The Colorado Senate recently passed a bill to repeal the Gallagher Amendment. The Gallagher Amendment was passed in 1982 as a way to keep residential property tax rates lower than rates paid by commercial property owners. Currently under this amendment, residential properties pay 45% of the share of taxes and commercial properties pay 55% of the share. The Gallagher Amendment set the assessment rate for all commercial properties at 29% and originally set residential assessment rates at 21%. As of 2020, the assessment rate for residential properties has dropped to 7.15% due to increasing home values and more supply, whereas the assessment rate on businesses has remained at 29%.

With many businesses struggling to remain open during COVID-19, the 29% assessment rate has businesses concerned. Commercial properties are valued based on the income of the business and the shutdowns due to COVID-19 have resulted in significant loss of income. Colorado has one of the highest property tax rates for non-residential property owners and one of the lowest rates for residential properties.

Supporters of the appeal argue that by “freezing” assessment rates this will provide stability for taxing jurisdictions such as schools and emergency services. Those against the repeal of the Gallagher Amendment state that by freezing the rates, this will result in higher taxes for residential properties over time and businesses will not see a break in taxes. The bill will head to the House for debate this summer and if approved, Colorado voters would see this on the ballot in November.

Realtec is here to help navigate the changing market
Retail Hit Hardest by COVID-19
COVID-19 has become one of the biggest stories of our lifetime. Every facet of life has been interrupted, although the true outcome will not be fully realized for years to come. Three months after the pandemic began, many areas of commercial real estate are feeling the affects. One area immediately hit the hardest is the retail sector. It’s estimated that 45% of retail tenants nationwide have recently missed a rent payment.

Restaurants Struggling to Survive
Restaurants are struggling to re-open and survive in an environment where seating capacity is down and many patrons aren’t comfortable with dinning in. While restrictions are still in place, business owners and landlords are considering changes to leases such as rent payments based solely on income or revenue sharing. Permanent restaurant closings will leave landlords with space that is tough to fill. Restaurants in the U.S. occupy 1.4 billion square feet, according to CoStar. In April, it was reported that 15% of the country’s restaurants have either closed permanently or were at risk of closing, which would leave 200 million square feet of empty retail space. The National Bureau of Economic Research estimates that independent restaurants have just a 30% chance of staying solvent if the pandemic continues through July.

Fitness Sector Weakening
Restaurants are not the only retail suffering; gyms are among a long list of experiential retailers struggling to stay afloat. Gold’s Gym filed for Chapter 11 bankruptcy protection at the beginning May and will permanently close 30 of its corporate-owned gyms, including a location in Colorado Springs. 24 Hour Fitness also filed for Chapter 11 bankruptcy protection in June and will close 13 Colorado locations, including gyms in Fort Collins and Greeley. Both companies sited the affects of COVID-19 as their reason for closing facilities. BRIX REIT stated, “Gyms are purpose-built properties with footprints that are really only suitable for similar tenants, because of this, the prospect of finding a new tenant remains difficult.”

Sources: BizWest , CoStar News
CoStar Market Reports - Larimer and Weld County