News

Insider

Tax Cut Chron-Style. Downtown's booming. So how does Hearst whack 40 percent off its property levy?

By Tim Fleck 

The offices and printing plant of the Houston Chronicle at 801 Texas lie smack in the middle of the booming west side of downtown, across the street from the reborn, glittering Rice Lofts and its stylish bars and eateries. Homeowners in similarly upgrading inner-city areas have learned the hard way that when tear-downs next door are replaced by spiffy new condos, the fallout is soaring property taxes.

For Houston's self-proclaimed leading information source and champion of downtown revitalization, the gentrification experience has been far less traumatic on its pocketbook.

Two years ago, the Harris County Appraisal District valued the Chronicle's block-long 12-lot property at $18.2 million. Last year, the appraised value slipped to $15.5 million, even as the surrounding blocks exploded with development. Two months ago, after the paper's agents argued their case before a three-person appraisal review board, that value was further lowered to $11.1 million, a more than 40 percent reduction over two years, which adds up to more than a quarter-million dollars in property tax savings.

At the rate things are going, the Hearst-owned paper may eventually get its appraisal down to where it claims it should be: a bargain-basement $6.4 million for a prime block of downtown real estate.

Harris County Chief Appraiser Jim Robinson believes the paper got an unjustified tax break. "We obviously think it's erroneous, and we will revisit it next year," says Robinson. "I think it's pretty likely we will be raising the value back up."

Stevan Bach, the expert appraiser hired by the paper to sway the HCAD review board, described the Chronicle headquarters in almost Dickensian sweatshop terms. According to Bach, the paper's employees labor in a ramshackle mishmash of four old buildings sheathed by cosmetic marble and connected by hallways that don't jibe. The interior is laced with calcified pipes, asbestos sealed in office walls, and nearly obsolete boilers and chillers. Listening to Bach, one might conclude that the workers deserve hardship duty pay and the owners are lucky that their shanty in the shadow of Chase Tower hasn't collapsed under its own weight.

While Bach estimated the land value of the Chronicle property at $100 to $150 a square foot, an HCAD contract appraiser, Austin-based Pritchard and Abbot, saw the dollar signs leaning in the other direction. P&A contended that square-foot property values in the area have soared to over $200. As proof, the appraisers pointed to last year's sale of a parcel at 914 Jefferson that went for $290 a square foot. At that rate, Hearst's 62,500 square feet would be worth more than $18 million, not counting the value of property improvements.

The Chronicle has succeeded over the past two years in forcing the appraisals downward by getting HCAD to evaluate the property based on its use as an office and an industrial facility, while discounting the rising land value. Chief district appraiser Robinson concedes that the district was outgunned by Bach, who produced reams of documentation for the review board that the HCAD appraisers were forced to rely upon to argue their own case.

The paper is a unique downtown fixture, combining office space and printing presses, where much of the Chronicle is produced and distributed.

Environmental considerations require that the printers' ink and toxic solvents at the plant be carefully monitored and disposed of safely. Bach estimated the environmental processing costs add up to $1 million a year. He argued that the industrial portion of the building, a little more than a third of the nearly half-million total square feet, should be valued at $3 a square foot, levels closer to a warehouse in east Houston than downtown. He also pointed out that extensive asbestos in the office portion of the buildings will eventually have to be removed.

Bach's approach seemed to catch HCAD appraisers by surprise. After he finished his presentation to the review board, the appraisers lowered their own estimate from $16.7 million to $11.8 million. The board then set the 1999 value at $11.1 million.

Robinson contends that Bach's analysis is flawed and that the value should be at least $16 million. He says he and his assistant Guy Griscom will have a different strategy next year. According to the chief appraiser, the approach will be similar to how HCAD evaluated ramshackle apartment complexes in the highly priced Galleria area. In that instance, appraisers ignored the improvements and simply pegged the value at what it would be worth as a vacant lot.

"Griscom tells me that if [the Chronicle building] were gone, that block is worth well over $200 a foot, which would bring the value up around the $16 million range," says Robinson. "For next year, what [Griscom] is going to do is look at completely writing the building down to a tear-down, and making an adjustment for the destruction, and loading most of the value onto the land."

Robinson's characterization of the Chronicle building as a tear-down may not be that far off the mark. Bach told the review board it doesn't make much sense to replace the building's aging cooling, heating and drainage infrastructure if it may be demolished within a few years.

However, the paper will be counting on a hefty tax write-off if demolition does occur. Bach told the review board it will cost a minimum of $2 million to flatten the building, plus $400,000 to get rid of that noxious asbestos in the office sections.

Perhaps Chronicle writers should think about that the next time they take a deep breath during a tough deadline.