Hartford Business Journal

6 HARTFORDBUSINESS.COM | FEBRUARY 28, 2021 Deal Watch Major Hartford landlord Shelbourne warns higher property valuations could threaten its downtown holdings By Michael Puffer mpuffer@hartfordbusiness.com S helbourne Global Solutions, Hartford's largest downtown landlord, is warning of ruinous impacts from the city's recent revaluation. The city-wide property revaluation increased the market value of three of Shelbourne's four Class A office towers downtown by more than $12 million combined, which could translate into a sizable tax increase. The higher city appraisals came even as other commercial property values dropped, on average, by about 10%, led by declines in office space. City officials attributed Shelbourne's increases to the expiration of a 2018 tax-fixing agreement. "This is threatening literally to the existence of the company and to the city," said Ben Schlossberg, a managing member of Shelbourne. "The city has totally misunderstood the devastation of COVID and what's coming next, or has chosen to ignore it." Hartford is nearing completion of a property revaluation, required of every Connecticut municipality every five years. Most property owners have been alerted to changes in their assessments. For the most part, the revaluation saw office values drop, a reflection of the pandemic's grim impact on occupancy rates and use of large metropolitan office spaces. The assessed market value of Hartford's largest office tower City Place I, sank from $103.4 million to $82.3 million, down 20.4%. The assessed market value of the neighboring 301,000-square-foot City Place II office tower dropped from $20 million to $18.5 million, a 7.5% decrease. At the same time, some of Shelbourne's assessments shot up. The company's 281,189-square- foot office tower at 100 Pearl St., jumped in value by 14%, to $24.4 million. The fair market value of its 12-story tower at 350 Church St. — known as the Metro Center — gained $6.3 million, a 25.8% increase. Another Shelbourne office tower at 20 Church St. — the Stilts Building — is up 16.9% in value to $33.1 million. Shelbourne's fourth downtown office tower — the Gold Building at 755 Main St., which it owns in partnership with LAZ Parking CEO Alan Lazowski — saw its assessed fair market value drop to $62.3 million, down 2.6%. Shelbourne bought heavily in Hartford over the past eight years, acquiring — wholly or through a partial ownership stake — a portfolio of 20 city properties with more than 2.5 million square feet and values totaling more than $250 million, Schlossberg said. The real estate investment group has spent more than $30 million renovating and marketing its Hartford properties, he said. Hartford Assessor John Philip said several Shelbourne properties had assessments set years ago in a legal settlement that has since expired. That's why some of its properties have now shown market value increases, despite the overall office market taking a hit. "The assessments that were sitting on the books [prior to the recent reval] were half of what they otherwise would be," Philip said. "Now the [tax-fixing agreement Shelbourne had with the city] expired with the 2020 grand list. I don't get … why you would think an assessment based on fair market value would be lower than the tax deal you got that set the assessment at half fair market value." Tax disputes Shelbourne has been bullish on Hartford ever since its first $44 million purchase of the Stilts Building in 2014. But this isn't its first tax dispute with the city. Shelbourne ran into similar issues years ago, following the city's 2016 revaluation, which more than doubled the taxes on three of its Class A office towers: 20 and 350 Church St. and 100 Pearl St. The combined tax bill on all three properties at the time grew from $2.6 million to $5.4 million. Shelbourne sued the city over those new valuations, but eventually came to a settlement agreement in 2018. The deal provided Shelbourne property tax relief by fixing assessments for a set period on several of its downtown Hartford properties (100 Pearl St., 20 Church St., 1006 Main St., 30 Talcott St. and 36 Talcott St.). In return, Shelbourne dropped ongoing appeals of its 2016 assessments. It also agreed to acquire 36 Talcott St., pay off about $3 million in back taxes, demolish all structures on the Talcott properties and build a garage there with at least 400 spaces. Shelbourne pledged to spend $10 million on property improvements. The 2018 agreement set the market value of Shelbourne's 20 Church St. office building at $28.8 million. Without it, the tower would have been valued at $43 million, according to Philip. As a result of the recent revaluation, the city now appraises that property at $33 million, Philip said. Major Hartford landlord Shelbourne Global Solutions, which owns the Stilts Building at 20 Church St. (shown above), is warning the city's recent revaluation could negatively impact its center- city holdings. Downtown Hartford office market snapshot Buildings Total sq. ft. Available Vacant Sublease Avg. gross asking rent Central Business District 39 7,969,081 21.8% 18.8% 3% $22.42 Class A buildings CBD 15 5,824,753 25.4% 21.7% 4.1% $23.25 SOURCE: CBRE Ben Schlossberg John Philip PHOTO | COSTAR

• Cover