The D.C. Council approved the COVID-19 Response Supplemental Emergency Amendment Act, which included a provision that prohibits residential landlords from raising rent during the public health emergency. This move brings much needed relief to the individuals suffering from job loss and reduced incomes, as a result of the pandemic. The council took it a step further, and on April 21, extended the proposal to protect commercial tenants from rent hikes during the crisis for the duration of 30 days after the state of the emergency has ended. While these concessions may help tenants short term, the experts at Ryan are exploring the effects this could have on the commercial real estate (CRE) market in D.C. when 2021 commercial property tax assessments are issued.
One concern of the CRE community is that the mayor and D.C. Council could enact a longer-term rent “freeze.” In this example, a one-year loss of the income tied to the lease escalator is further compounded by a rise in overall cap rates of 50 basis points (BP). Given the limited number of sales anticipated in 2020 and 2021, the Office of Tax and Revenue is likely to continue to use cap rates that are below the rates indicated by the band of investment, investor surveys, and market transactions. Real property tax assessments will need to be aggressively challenged to avoid overtaxation.
The experts at Ryan will continue to stay in touch and closely monitor these changes as we start to hear back from the various collectors, assessors, and other taxing entities as they open back up for business. In the meantime, please contact our D.C. team if you have any questions.
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