ELLSWORTH — An appeal by Walgreens of its tax assessment found no traction with the city Board of Appeals and Assessment Review on May 24, with members unanimously denying the request. New Jersey attorney Bruce Stavitsky, representing the drug store and pharmacy at 226 High St., had argued that the city’s $3,307,300 assessment did not reflect the market value for similar free-standing commercial properties in that neighborhood and for “a very typical pharmacy.”
City Assessor Larry Gardner begged to differ.
Walgreens’ land is assessed at $1.322 million for its 2.2-acre plot. The building is assessed at $127 per square foot for a total of $1,892,100. The two figures, combined with other assessing factors, are how Gardner arrived at the retail chain store’s $3.3 million assessed value. The city property tax comes in at about $62,000 annually.
Gardner also pointed out that in 2017, when the owner of the Walgreens parcel, Hermany Realty Corp., requested a tax abatement, it also agreed to the city’s $1.322 million land assessment, leading board Chairman Jeffrey Toothaker to note, “They accepted it in the past.”
Stavitsky’s law firm specializes in property tax and is also currently representing Walmart’s property tax appeal to the State Board of Property Tax Review. The city in 2019 denied Walmart’s request to halve its $20.1 million assessment for the Myrick Street store. Walmart has taken its case to the State Board of Property Tax Review. Stavitsky said he had no problem doing the same for Walgreens.
Stavitsky found fault with Gardner’s approach to assessing the property. Gardner used three available methods — cost, market value and income — in his assessment. The cost approach is based on the cost of the land, plus costs of constructing the building minus depreciation. Gardner referenced the $1.7 million cost estimate used in Walgreens’ 2007 building permit as a base indicator of replacement cost in his assessment — not the $7,575,069 the property sold for in 2009 when Walgreens, acting as GP Ellsworth LLC, had sold the parcel to the Rye, N.Y.-based Hermany Realty Corp.
Toothaker asked if the assessed land value was equal to land values in the same neighborhood.
“Yes, for that location,” Gardner said, noting that while the average assessed land value for the area is $400,000 per acre, it comes in at $600,000 for the prime High Street spot because of “location, location, location.”
The income approach uses comparable commercial properties to come up with a lease price per square foot, minus expenses, to arrive at a net income, which is how Stavitsky arrived at his assessment of $1,717,000 for the property. Walgreens leases the property from Hermany Realty Corp. for $533,500 annual rent. This works out to $36 per square foot.
“What Walgreens pays for rent does not reflect the market, but is reflective of other factors,” Stavitsky told the board, circling back to his market value approach to the assessment.
Even though Walgreens’ actual contract rent is $36 per square foot, Stavitsky used $10 per square foot as an indicator of market rent for the property. Gardner noted that $21 per square foot is the appropriate market rent for this building, at this location.
Stavitsky was willing to compromise between his $1.7 million assessment and Gardner’s $3.3 million.
“If we could resolve this at a number below $3 million, I would take it back to Walgreens,” he said.
Toothaker turned to Gardner, who shook his head. “This value’s been on there since the beginning, for over 10 years now. And there’s been ample years for Walgreens to say, hey, cut this back.”