Hartford Business Journal

16 HARTFORDBUSINESS.COM | MARCH 18, 2024 Downtown Hartford's Class A office towers are facing financial pressure from higher vacancy rates as some employers trim their office footprints. PHOTO | COSTAR Market Reset Hartford landlords' successful property tax assessment appeals will cut millions from city tax rolls; more office sector storm clouds hover Arulampalam said the city is currently working with the Metro- Hartford Alliance to develop an inventory of available downtown office space. That will inform a renewed push to convert class B and C office buildings into apartments, with the aim of fueling downtown vibrancy and consolidating downtown office users into Class A buildings, Arulampalam said. The study will also explore and potentially recommend creative uses of downtown office space, like fitness centers and golf simulators, Arulampalam said. "I think we have to be really serious about filling up our downtown proper- ties and making sure that we are able to bounce back post-COVID with a downtown building ecosystem that is full and thriving," Arulampalam said. State House Square In November, the city settled a 2022 court tax appeal with the owners of two buildings in the State House Square office complex. Under the settlement, the "fair market value" of the 15-story, 437,508-square-foot office building at 10 State House Square was reduced from $59.41 million to $32.65 million. And the value of a neighboring seven-story, 91,457-square-foot office building, at 50-58 State House Square, was reduced from $7.81 million to $4.29 million. Based on the city's current 68.95 mill rate, the lower valuations will save State House Square's owners about $1.46 million in annual property taxes. The city also agreed to $2.9 million in property tax reimbursements, and not to adjust the value of the proper- ties until the next revaluation, barring any major changes to the buildings. The State House Square complex is owned by MAC-State Square LLC and FBE-State House Square LLC, two New York City-based entities. An attempt to reach Attorney By Michael Puffer mpuffer@hartfordbusiness.com T he city of Hartford is poised to lose millions of dollars in property tax revenues, after successful court challenges by two downtown landlords who accused the assessor's office of overestimating the values of their struggling office towers following a recent revaluation. And it could be just the start of a longer-term issue that plagues Hartford and other cities and towns that generate significant tax revenues from office buildings — a commercial real estate sector that has strug- gled significantly coming out of the pandemic as employers embrace more flexible work arrangements that require less office space. Leasing demand in Hartford has been slow since the 2020 pandemic, leading to historically high vacancy rates that have negatively impacted commercial real estate values. Amid those headwinds, the city of Hartford conducted a state-mandated revaluation in 2021, which prompted many downtown Class A office tower owners — who make up a significant portion of the city's tax base — to challenge their tax bills in court. A few cases recently came to fruition. In November, the city settled a lawsuit brought by the owners of the State House Square office complex. The city agreed to return $2.9 million in property taxes and lower future tax obligations. In January, a New Britain Superior Court judge agreed to nearly cut in half the city's assessed value of the 23-story "Stilts Building" office tower, at 20 Church St. Shelbourne Global Solutions, the property's owner, estimates that will result in a repay- ment of about $1.6 million in property taxes, as well as future savings. It's not clear exactly how many property assessment appeals were filed in the wake of the city's revalu- ation. City officials didn't provide that data as of press time. Hartford Mayor Arunan Arulam- palam, who took office at the start of this year, expressed faith in the city's 2021 revaluation process, and said he expects other assessed property values to hold up to court challenges. However, he also acknowledged that the declining value of major commercial office buildings downtown "could potentially have a really signifi- cant impact" on city tax revenues. "We are factoring it into the budget we are developing (and going) to submit to the City Council later this month," Arulampalam said. "I think this budget cycle will be tougher than some previous years, but, overall, our city is on much stronger fiscal footing than we were eight years ago," when Hartford was facing insolvency before the state legislature came through with a more than $530 million bailout. Downtown Hartford office vacancy rates Hartford's central business district has 39 office buildings with 7.97 million square feet; 15 of those properties are Class A, with a total of 5.82 million square feet. *Each year as of the fourth quarter. | Source: CBRE 35% 30% 25% 20% 15% 10% 5% 0 2019 2020 2021 2022 2023 Hartford central business district vacancy rate Hartford Class A office building vacancy rate

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