Are Providence’s luxury apartments ‘catastrophically’ under-assessed? What a report says.

PROVIDENCE – Luxury apartment buildings already granted tax-stabilization agreements with the city are routinely assessed at less than their fair-market value, which amounts to an additional “stealth subsidy,” according to a new report from Sen. Samuel W. Bell (D-Providence) and his intern, Albert Cho.

Through their analysis, Bell and Cho say, they found:

  • The average luxury residential property was assessed at just 42.1% of its sale price.
  • Undeveloped parcels were also undervalued. On average, they were assessed at just 11.7% of their sale price.

Why it matters: Property taxes are the main source of revenue that Providence uses to fund public services, Bell and Cho point out. Those taxes are a “significant burden” on homeowners as well as the owners of small-scale rental properties who pass those costs along to renters, raising fundamental questions about fairness.

If the same trend holds true for properties that did not receive a tax stabilization agreement, Providence could be losing out on “enormous” revenue, Bell and Cho suggest.

More:Providence moves to end the homestead exemption. Here’s what it means for property owners.

What undervaluing properties looks like

Exterior of River House apartments at 1 Point St. in Providence.

Bell and Cho’s report highlights more than a dozen examples of properties that they say were dramatically undervalued, including undeveloped lots in desirable neighborhoods. Among them:

  • River House, a newly built luxury apartment complex at 1 Point St. Brown University purchased the complex for $75 million in 2021 to use as student housing, the report notes. At the time, the property was valued at $23,698,400 – only 31.6% of its sale price.
  • 8 Hewitt St., off Atwells Avenue in Federal Hill. In 2021, the property was used as a parking lot and valued at $85,400. It sold that same year for $750,000 and now houses a newly constructed apartment building.
  • 466-469 West Fountain St., which formerly housed an auto repair shop. Back in 2019, it sold for $228,300 and was assessed at $270,000. Subsequently, the repair shop was replaced by a new 34-unit apartment building. That building sold for $10 million in 2022, but had an assessed value of only $4,353,200.

TSAs already “create a two-tier system, where the wealthiest developers get massive special breaks while many low-income and middle class families fall so far behind on their taxes that they lose their homes in tax sales,” Bell and Cho argue.

By routinely undervaluing properties, they contend, Providence is handing “a massive stealth subsidy” to those developers and forsaking revenue.

More:This is how easy it is to lose your home in Rhode Island to a tax sale

What the analysis does (and doesn’t) include

To conduct their analysis, Bell and Cho first identified all the properties in Providence that received TSAs, and homed in on examples of “high-end development.”

Most of the examples that the pair excluded were smaller residential properties owned by Roger Williams Hospital, they said. Due to data accuracy concerns, they also excluded properties like The Arcade that had been converted into condominiums.

Bell and Cho then compiled information from Northeast Revaluation Group’s database and other public records to determine how the sale price for specific properties compared to their assessed value.

Using that information, Bell and Cho identified 13 properties that were sold within the same year that they were assessed for tax purposes. Those properties became the basis for their analysis, and were cumulatively undervalued by over $189 million, the report says.

Are there broader implications?

Bell and Cho say that their findings are “emblematic of a broader problem in the city and potentially the state.”

Commercial properties in Providence are supposed to be taxed at $35.10 per $1,000 of assessed value, the report notes. That rate was “very real” for the auto repair shop on West Fountain, but is a “mirage” for luxury residential properties, Bell and Cho write.

By their calculations, luxury residential apartment complexes are effectively being taxed at a rate of $14.8 per $1,000 – less than the $18.35-per-$1,000 rate that would apply to a small rental property that doesn’t qualify for a homestead exemption.

Additionally, Bell and Cho contend, low tax assessments for vacant lots encourage developers to keep that land empty, since they can pay a small fraction of the usual taxes and have “minimal incentive to actually build.”

“Until now, this catastrophic volume of corporate welfare has remained secret, but secret it is no longer,” they write in the report’s conclusion. “With state law crystal clear that assessment must be at the open market value, this secret subsidy is flagrantly illegal.”

As of press time, neither the City of Providence nor Northeast Revaluation Group had responded to requests for comment on the report.

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