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‘Dark store’ lawsuits hit county appraiser

By Kenric Ward

Watchdog.org

A chain of big-box stores in Texas is suing for big property tax markdowns, asserting that its buildings are comparable to empty stores.

The “Dark Store Theory,” litigated successfully in several Midwestern states, has landed in the Lone Star State.

Lowe’s wants Bexar County to reduce the appraisals at its 10 San Antonio area stores, currently set at $82 per square foot. Lawsuits are pending or threatened in Houston and other jurisdictions, seeking to cut valuations by half.

“If we lose, where does it stop?” asked Bexar County Chief Appraiser Mike Amezquita. “All big box stores will do the same thing. Then it will be apartment buildings, hotels and offices — all the dominoes will fall.”

Big-box storeowners maintain their properties are so specific and unique that if they moved out, the structures would go vacant (“dark”).

Using the state’s “equal and uniform” property value guidance, Lowe’s rival Home Depot recently settled for $65 per square foot — less than appraisal districts’ median “market value.” Unofficially, Lowe’s indicated it would be accept a median value of around $50 per square foot.

“Even as local governments across the country continue to bend over backwards to attract and accommodate big-box development, these stores are consistently a terrible deal for the towns and cities where they locate,” argues Olivia LaVecchia, researcher at the nonpartisan Institute for Local Self-Reliance.

Lowe’s legal representatives did not respond to Watchdog.org’s request for comment.

Bexar County says it has expended $1.2 million in legal fees on the Lowe’s cases so far, and Amezquita is not optimistic about the outcome.

“The proliferating dark store theory,” he estimates, could cost Bexar County up to $39 billion in “lost” commercial value over the next five years. That’s 64 percent of the total estimated commercial market value.

With $22 billion to $25 billion in commercial property challenges through arbitration and the courts this year, Amezquita predicts the day is coming when local “bond ratings will be at risk.”

“They’re spending us into the poorhouse,” he said of the rising tide of commercial litigation.

Notably, Texas school districts — which account for roughly half of local property tax bills — are protected from any “dark store” discountsBy law, property tax shortfalls for schools must be compensated by the state.

Dean Stansel, research associate professor at Southern Methodist University’s O’Neil Center for Global Markets and Freedom, said, “ideally, the assessed value of a property accurately reflects the value of the highest bidder — the owner — not the value of the second highest bidder.”

Stansel countered the notion that vacated big boxes stay empty.

“There’s an increasing number of examples of old big-box stores being converted to alternative uses. I’ve seen them turned into churches and schools, or broken into multiple individual shops. Just recently a cinema drafthouse in Dallas announced it would be buying an old grocery store to house its next location. The argument that these properties could never be sold is incorrect,” he told Watchdog.

Additionally, Stansel noted the dark-store gambit “gives big corporations an advantage over small businesses, since the latter do not have the resources and political influence to get the same reductions in their taxes. Government should create a level playing field so all businesses are treated the same.”

Kenric Ward writes for the Texas Bureau of Watchdog.org. Contact him at kward@watchdog.org and follow him on Twitter @Kenricward.