2013-09-12 / Front Page

Festival Field Under Fire

By Tom Shevlin

When a parcel of real estate sells for the first time in more than a decade, oftentimes the value that the city assigns to it might not align with what the market dictates. And when there’s been a seismic shift in the underlying real estate industry that directly affects those properties, the gap between market valuation and the assessed value assigned by the city can be amplified by a magnitude that far exceeds normal market fluctuations.

That’s exactly what happened with the Festival Field apartment complex, a large publicly-subsidized affordable housing complex located off Girard Avenue.

When the property sold last December for a whopping $31 million to a Newton, Mass.-based real estate investment firm, it was the largest single transaction recorded by the city for the year, though one that went mostly unnoticed outside of industry circles.

Now, at the request of the City Council, administration officials have begun to look into whether the property has been undervalued at its current $11 million assessment – and if so, how much more in taxes the city could stand to collect.

The idea first caught the eye of policy-makers earlier this spring, and formally became a topic of conversation during a May 22 meeting. It was then that council members directed city staff to take a second look at the property, which Councilor Michael T. Farley noted had only months before gone through a full re-evaluation process.

Farley’s contention – that the city stands to recoup significantly more from the new owners through increased property taxes – is now being discussed across City Hall.

On Wednesday, City Manager Jane Howington reported back to the council with an update to the process, which she acknowledged is still very much a work in progress.

After receiving direction from the council, Howington said that the city had begun to re-evaluate the property with the help of a pair of veteran real estate appraisers: Portsmouth’s James Houle and former Newport city tax assessor Alan Booth.

Houle, who also previously served as a deputy assessor for the city from 1990 until 1998, was charged with reviewing the property’s valuation and determining whether any adjustments need to be made.

His findings, which had not been made public prior to press time, had to take into account a number of factors – not least of which was the continued reverberations from the 2008 financial crisis and corresponding upheaval in investment class real estate.

Neither Howington nor Houle would provide any specifics related to the possible new assessment of the Festival Field complex; however, according to Howington, it appears, at least at first glance, that the property may well have been undervalued.

But as Houle notes, as an investment vehicle with obligations to various government-backed affordable housing programs, the property requires a much more complex assessment that could have implications for other similar properties across town.

“This is one of those properties that is very nuanced in trying to put a handle on what it's worth,” Houle said.

According to property tax records on file at City Hall, prior to being sold in December to Festival Field LLC, the 204-unit complex was last purchased in 2001 by Oklahoma Newport Limited Partnership for $7.2 million.

At that time, the market for single family homes was on the upswing, driven mostly by a relaxed lending environment that made it easier for middle- and low-income households to purchase homes. But following the economic downturn in 2008, as foreclosures increased and lending became more restrictive, many of those same homeowners were forced back into the rental market.

That’s made complexes such as Festival Field attractive investment opportunities for institutional investors. It’s also made for some difficult decisions for local officials.

Speaking only generally and addressing more procedural issues than actual property characteristics, Houle said that assessing a parcel such as Festival Field is significantly different than a simple, single family home.

“When you’re dealing with the appraisal of any real piece of property, you’re really not appraising the bricks and mortar,” he said, “You’re appraising the bundle of rights that constitute the entire property.”

When it comes to those more complex pieces of property, he said, “those bundles of rights become much more complicated” as appraisers begin looking at those properties for their ability to produce income and mitigate risk through available tax credits, rental rates, the type of financing involved, and the overall condition of the property.

Houle also pointed out that unlike single family homes, multiunit rental facilities such as Festival Field need to be viewed with a much broader lens.

“When you talk about the increase in housing starts, nationally, a lot have been large multifamily housing projects,” he said. “There’s been a huge demand for these kinds of housing complexes. It’s become the one more solid real estate investment for large scale investors.”

According to Houle, it’s contending with that dynamic national marketplace that makes assessing properties like Festival Field so challenging.

“It’s a very strong market at the moment,” Houle said. “People who buy into real estate investment trusts are not necessarily real estate investors; they’re investors who are looking for a solid rate of return.”

The issue becomes further complicated when one considers the impact that reassessing one particular complex could have on other similar properties around town.

In addition to Festival Field, Newport currently boasts a number of other large and smaller scale privately owned affordable housing complexes, most notably Bayside Village and Newport Green.

If the city were to apply a new assessment to one, then wouldn’t it also need to re-examine the others? If it does, on one hand, the city could potentially stand to collect hundreds of thousands of dollars in additional property taxes. However, on the other hand, doing so could also open the door to a flurry of tax appeals; private homeowners may seek relief once the city is empowered to collect more of its adopted levy from affordable housing operators.

Meanwhile, even if the property is given a higher assessment, it’s also possible that the city could run into problems in seeking to collect more in the form of property taxes as the new owners seek to do renovations to the property or take advantage of state and federal tax credits.

That’s something that Howington is acutely aware of.

“There’s still quite a bit more work to be done on this before we can give firm answers on some of these bigger questions,” she said.

Still, according to Farley, the council's decision to pursue at least an examination into the issue should be an encouraging sign for homeowners who have faced a steady uptick in both property values and taxes over the last few years.

For his part, Houle said that no matter the outcome of his report, there will likely still be more work to be done as the city adjusts to these new housing norms. “I think that this will just scratch the surface,” he said.

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