Owners find fast way to tax breaks
While the real estate market was driving property taxes through the roof for many, some of Miami-Dade's real estate insiders received millions of dollars in tax breaks through an appeals process that can be cloaked in secrecy, susceptible to staggering errors and punctuated by public hearings that take just seconds.
For example, it took three minutes for a special magistrate to lop $34.2 million from the assessed worth of the Intracoastal Yacht Club in Sunny Isles Beach in March 2003. The reduction, from an initial assessment of $81.2 million, saved developer Jose Milton $778,512 in property taxes.
''What?'' magistrate Jack Katsikos asked during the hearing, which was recorded on videotape. ``How come such a reduction?''
'That's what I said: `Whoa!' '' offered a county appraiser's aide, the only other person in the room. He explained the deal had been worked out by his supervisor -- in negotiations that took place out of view of the camera and the public. ''It pays to have a good lawyer,'' the aide quipped, tossing his head back and laughing.
''I can't believe this,'' Katsikos said. Then he signed the deal and moved on with his busy caseload. A magistrate in Miami-Dade may be assigned as many as 60 cases per day. In Broward and Palm Beach counties, the typical docket is about a dozen.
The Intracoastal tax break was the biggest handed out during South Florida's real-estate boom by the Miami-Dade Value Adjustment Board, but 40 others topped $10 million, records show.
Every Florida county has a VAB -- they act as a kind of appellate court for property owners who aren't happy with their assessments.
MOST ACTIVE IN STATE
WERE IN MIAMI-DADE
But no VAB is more active than Miami-Dade's. In 2005, Miami-Dade's board accounted for 80 percent of all the reductions in assessed value ordered by Florida's VABs -- even though Miami-Dade County has only 14 percent of the state's total property value. Reports to the state Department of Revenue showed $3.5 billion in reductions statewide, with $2.8 billion of that number in Miami-Dade.
A portion of that difference is explained because the Miami-Dade's appraiser sends cases to the VAB for approval even after negotiating reductions directly with the property owners. All Florida appraisers have authority to reduce assessments on their own without involving their VABs.
But the high number of successful appeals in Miami-Dade raises a question: Does the property appraiser set values too high in the first place, or is the VAB too generous with reductions?
''All I can say is we interpret the statutes the best we can and value the property at fair market value,'' said Assistant Appraiser Lazaro Solis. ``Is the VAB too soft? You'd have to ask them.''
VAB Director Robert Alfaro: ''It may appear that our VAB is too soft due to the success petitioners have.'' But he added that the case load is increased tremendously because the appraiser's office settles very few appeals without sending them on to the board. ``They don't have the resources, I guess.''
Sixty cases a day, per magistrate, means the average hearing lasts eight minutes, Alfaro said.
''Wow, 60 cases? That sounds irresponsible,'' said Miami-Dade Commissioner Joe Martinez, the chairman of the Value Adjustment Board. Two other commissioners and two School Board members also sit on the board, which appoints the special magistrates but does not hear individual cases. ``They definitely may be overworked. That's something that has come up before.''
Experts agree that property appraisal is as much art as science. Commercial buildings often are not assessed solely on their market value; their condition and their income-generating potential are also factors. It can be a subjective process.
But this much is certain: The net effect of $2.8 billion worth of reductions in assessed value cost the county $64.8 million, according to the state Department of Revenue. That's 8 percent of Miami-Dade's total property tax revenue for 2005.
And the appeals keep coming. There were 23,705 hearings scheduled by the VAB in 2002. That number rose to 40,577 in 2006.
A list of the biggest beneficiaries includes:
• Jose Milton, one of Miami-Dade's largest owners of rental property, has been awarded more than $225 million in reductions, county records show. From 2001 through 2006, he filed 131 appeals on 52 separate properties. In an interview, Katsikos, the official who signed off on the $34.2 million reduction for Milton's Intracoastal Yacht Club, called him a ''chronic and habitual petitioner.'' In 2004, Intracoastal got a $18.5 million reduction.
''I have been doing this for 30 years,'' Milton said. ``I have found the procedure is very simple.''
If you supply the VAB with accurate information, he said, ``most of the time they work for you.''
• Real estate attorney Jeffrey Mandler has won more than $1.2 billion in reductions for his clients over the past six years, records show. That equates to roughly $30 million in tax savings. Mandler's client list includes American Investment and Management, the largest apartment management firm in the country.
Mandler could not be reached for comment.
$31.3M IN REDUCTIONS
BUILDING JUST DONE
• Condo developer Ugo Colombo won $31.3 million worth of reductions from 2002 to 2003 for The Collection, an office complex in Coral Gables best known for the exotic car dealership of the same name. ''Our belief was that the assessment was too high because the building had just been finished,'' said Art Murphy, Colombo's chief financial officer.
• The Fisher Island Club got $15.4 million in three separate reductions in 2003, 2004 and 2005 for the old Vanderbilt mansion built in the 1920s, 16 guest cottages and its 22,000-square-foot Spa Internazionale. The club's website boasts that the spa is ``one of America's favorite exclusive vacation spots.''
The club's lawyer, Gary A. Appel, said the reductions were justified because designation of the mansion as a historical site in 1987 means it cannot be demolished and put to more profitable use. More broadly, he said, ``the economics of clubs is not good.''
Appel said he has nothing but admiration for the VAB's efforts to promote tax relief. ``This is the fairest system of appeal in the state; there are no giveaways.''
The appeals process for property assessments is pretty simple on its face: pay $15 for a chance to convince one of the board's special magistrates that the property appraiser made a mistake. For single-family houses, that usually means proving the county significantly overestimated the market value.
But since most residences are protected already from large yearly tax increases by the Save Our Homes act, changes are usually minor, and have little effect on the ultimate tax bill.
MUCH OF THE EVIDENCE
HIDDEN FROM PUBLIC
The big changes come for commercial properties, which have absorbed much of the property tax burden since Save Our Homes went into effect in 1995. And in Miami-Dade, for cases involving big commercial properties, it can be impossible for the public to examine the evidence that results in such whopping reductions as the Intracoastal Yacht Club's $34 million.
Here's why: While state rules encourage county appraisers to calculate commercial taxes based on the property's market value, they're also allowed to consider the income properties generate. The idea is to prevent taxes from skyrocketing on small rental units when, say, a luxury condo goes up next door and makes the neighborhood more pricey.
New construction is taxed only on the portion of the building that is ''substantially complete'' and ready to be used for the developer's intended purpose.
Those income and ''substantially complete'' provisions are where savvy property owners find big rebates.
When the 795-unit Intracoastal Yacht Club first came on the tax roll in 2002, the appraiser initially assessed it at $81.2 million, based on what luxury buildings of similar size were selling for in the region.
In a recent interview, Tyrone Hoskins, Miami-Dade's director of commercial assessments and the supervisor who negotiated the settlement behind the scenes, said he knocked the value down to $47 million because the units were not all filled yet. He also factored developer Jose Milton's initial ''start-up costs'' into the equation.
''Typically it's in those first few years that you see the most volatility,'' Hoskins said. ``That's when you're projecting how fast those properties are going to lease out, are you going to give a month's free rent, that kind of thing.''
But there's a catch for anyone who'd like to review the federal tax statements and other documents a developer shows the appraiser during a closed-door negotiation: They are regarded as trade secrets under state law.
''If I showed them to you the Department of Revenue could shut us down,'' Solis said. They become public only if the property owner introduces them as evidence during a VAB hearing.
And even though the Intracoastal case wound up at the VAB for final approval, there's no real debate and no need to introduce evidence in a public file, Alfaro said.
About 20 magistrates work for the VAB. They are private real estate appraisers who serve as hearing masters about once a week for $700 per day.
The workload is ''unbelievable,'' said Katsikos, the magistrate from the Intracoastal Yacht Club hearing. He served the VAB for five years, ending in 2003. ``They overwhelm you with data that's unverified, often inaccurate. They know they're going to get at least 10 or 15 percent reductions just because you don't know what else to do.''
ARE MANY FEWER
Joseph Miller, a magistrate who spoke during his lunch break on a March day when he had 58 hearings on his schedule, said, ``In Broward, you might have 10 cases a day and you spend half an hour on each one.''
In Miami-Dade, things are much more brisk.
In August 2003, magistrate Ena Jane took 29 seconds to approve a $23.4 million reduction for The Collection -- a Ferrari and Maserati dealership in Coral Gables. In a recent interview Jane said she does not remember it.
In 2004, Milton received an $18.5 million reduction at the Intracoastal. It took 14 seconds to approve.
Katsikos said he doesn't remember details of the $34.2 million reduction he approved for Intracoastal in March 2003. But he vividly remembers Jose Milton. ``He was chauffeured to the VAB in his limo the first time I saw him. There's definitely an intimidation factor with him.''
He added: ``There is no assessment on any of his properties that is reasonable. That's his attitude.''
Milton is something of a legend in the offices of the appraiser, the tax collector and the VAB for his persistence and determination to win reductions for his properties. Unlike most large property owners, he generally shuns lawyers, preferring to show up and apply the personal touch.
''Well, that's me, I'm not going to argue with that,'' Milton said.
He appeals more than other well-known condo developers because he owns more rental properties than anyone else in the county, he said. ``You don't have a tax problem when you finish them and sell them off.''
For years, Milton's primary contact at the appraiser's office was Frank Jacobs, who rose from the commercial appraisal section to director before retiring in December.
''Milton is a smart man,'' Jacobs said, adding that his cases were challenging.
''Quite frankly, it could get pretty technical and people thought I was better equipped to handle them,'' he continued.
As director, a post he held for a year and a half, Jacobs said he was too busy to pay as much attention to Milton. But he still got involved sometimes.
John Falcone, who served as administrative director for the appraiser's office until he retired in 2005, remembers it differently.
''Through the whole process, Milton was in and out of the office. He dealt directly with Jacobs. It was constant and ongoing,'' Falcone said.
ONE PROPERTY OWNER
Milton's persistence has paid off immensely.
Beyond the Intracoastal Yacht Club's $34.2 million reduction, he has won at least four other reductions of more than $10 million in the last five years.
A database maintained by the Miami-Dade VAB also shows Milton winning two more enormous reductions: one for $47.7 million in 2005 for his Blue Lagoon Apartments near the airport, and a $19.5 million reduction in November 2006 for an apartment building in Hialeah. The VAB's paper records show the same thing.
But Solis insisted both are data-entry errors by VAB clerks.
Records provided by the county tax collector's office -- a separate county agency -- show there was no reduction for the Hialeah building. But if the VAB approved a change as recently as November, it might not appear in the records yet, said Tax Collector Manager Gerardo Gomez.
Milton's apparent $47.7 million reduction at Blue Lagoon was, in fact, only $4 million, the tax bill shows. ''To our knowledge, he hasn't challenged us on that,'' Solis said.