2017-01-19 / Around Town

Hotels Questioning Property Tax Assessments

By Barry Bridges

The City of Newport is facing tax assessment challenges from the owners of several local hotels.

The Newport Harbor Hotel and Marina at 49 America’s Cup Ave., OceanCliff at 65 Ridge Road, and the Vanderbilt Grace at 41 Mary St. are among the properties appealing their 2015 assessments.

“There are several things going on with hotels, where you can be talking of the value of the real estate, the tangible assets, and the business,” said Joseph Olaynack, an attorney representing the Newport Harbor Hotel and OceanCliff in their tax appeals. “Recognizing the value of the business itself is often at issue.”

Indeed, the attorney discussed various aspects of his clients’ businesses when he went before the three-member Newport Board of Tax Appeals on Wednesday, Jan. 18. Making up the board are Paul Bernard, Karen O’Brien, and Paul Tobak.

“All boutique hotels had big adjustments in their valuations at the last revaluation,” he told the board. “But these properties are unique. They’re not apples to apples. As a matter of fact, one’s a vegetable and one’s a fruit.”

The city’s 2015 assessment of the Newport Harbor Hotel stands at $32,033,500, which is a combination of the value of the building, land, outbuildings, and “extra features.” At the current commercial tax rate of $15.16 per $1,000 of assessed value, the annual tax bill would be $485,628. The previous 2013 valuation for the hotel was $22,970,000, meaning there was a 39 percent increase following the city’s 2014 statistical revaluation.

Olaynack argued that the value is closer to $21 million, which would result in an annual tax bill of around $320,000.

“To me, when compared with the city’s other full service hotels, this property is unique. For one thing, it is a lot smaller, with only 130 rooms, with no national chain affiliation. This makes a big difference from an investor’s perspective,” he said as the board reviewed information on the hotel’s income and expenses.

OceanCliff is also unhappy with its 2015 property assessment of $8,647,200, a 69 percent increase from the 2013 valuation of $5,123,600. The most recent valuation produces an annual bill of $131,092 at current tax rates.

The business’s financial statements dictate a lower value of $3,965,336, Olaynack maintained. That would mean a lower tax bill of $60,114.

In response to a hypothetical discussion of what OceanCliff might bring in the open market, perhaps from a buyer hoping to convert the property back to a single-family residence, Olaynack said, “This is not how we value these properties…. There’s all sorts of speculation you could make in this market, but that’s not what we base an assessment on.”

Taxpayers who disagree with their property’s assessment follow a specific procedure. An objection is first filed with the city’s tax assessor, who simply verifies that all of the relevant data is correct. An appeal is usually denied at that point, whereupon the taxpayer may proceed to the Board of Tax Appeals to present evidence on why he believes the assessment should be changed. If the taxpayer is still unsatisfied after the board’s decision, the next step is Superior Court.

Olaynack did not offer significant evidence pertaining to the net income of Newport Harbor or Ocean- Cliff at the board’s recent meeting, as that information was previously submitted and reviewed. In fact, the two appeals have already been denied by the board and have moved to Superior Court, a fairly common trajectory for large commercial businesses with significant economic incentives to question their assessments.

But even if cases are pending before a judge, parties are still required to appear before the Tax Board each year to re-file and preserve their right of appeal.

“By law you’re supposed to appeal every year, and you rely upon the information you submitted when you first filed and made your best case. Procedural missteps could get a case dismissed,” Olaynack told Newport This Week.

“There’s lots of room for interpretation in valuations for complex commercial properties,” he added. “The board may take objection to the income and expenses reported for the property. Sometimes people are arguing about the numbers, and other times they’re talking of market conditions.”

Vanderbilt Grace is at a different stage of the appeal process, and appeared before the board for the first time on Wednesday. Representing the hotel was Thomas Dolan of HVS, a company that specializes in hospitality assets and valuations. He argued that the Mary Street property has a value of around $5.2 million, a significant departure from the city’s 2015 assessment of $11,119,300.

Among other documentation, Dolan provided the board with evidence of the property’s purchase price in 2010, occupancy rates, and income statements from the last four years. “Our estimate is based on actual income and historical operating results, which have been relatively steady” he said. “So I ask you to consider anything you can to make adjustments for the Vanderbilt Grace.”

Pursuant to state law, the board must deliberate and render its opinion within 30 days.

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