Mass. Avenue Tax Freeze-Out

I couldn’t help but hear the tune of Bruce Springsteen’s Tenth Avenue Freeze-Out when news of D.C.’s latest effort to stymie increasing commercial vacancy rates in the downtown core, which are at historic highs.

At the end of June, 2024, the D.C. City Council passed legislation allowing for potential property tax assessment freezes (♫ Mass. Avenue freeze-out duh nuh nuh nuh nuh ♫) for downtown commercial assets being repositioned for other uses. Interestingly, assets being converted to residential are excluded from this incentive.

Instead, the initiative appears positioned to redevelopment of stagnant commercial assets, including hotels, medical facilities, and other commercial uses. Which, honestly, is probably for the best, as it is notoriously difficult to convert commercial space like offices into residential due to endemic structural and systems issues like HVAC and plumbing.

While D.C. isn’t alone in this predicament – or the only jurisdiction looking at ways to fix it – the city is unique thanks to the federal government’s presence and its desire to shrink its footprint. That factor makes this rate freeze particularly interesting. Here’s why.

The shrinking federal footprint, combined with disappearing ARPA funds and an exodus of professionals that occupy downtown office space are leading to a deterioration in the assessment base in D.C. With lower assessed values, a jurisdiction’s usual practice is to raise tax rates to fill budget gaps. From a taxpayer perspective, that’s scary. Why? Because an owner can take issue, and appeal, the assessed values assigned to their properties by the Office of Tax Revenue, but when tax rates increase likely relief begins and ends at the ballot box.

Historically, measures to reduce real estate taxes by elected officials aren’t often advanced. In fact, it’s rare in the Washington, D.C., area to see a net reduction in your real estate tax bill. And that’s what makes this legislation so interesting. City leaders clearly believe the FUTURE tax return on repositioned commercial assets outweighs the traditional choice of increasing revenue via yearly assessment jumps.

So, if you own or manage a commercial asset in the District that you’re considering redeveloping, applying for this incentive is a no-brainer. But as with all things real estate tax-related, it’s not that simple. In fact, this program highlights the importance of a sound long-term tax strategy. And with decades of experience in Washington, D.C., real estate and tax, the team at Cavalry is uniquely positioned to help you develop one. Reach out anytime – we would love to see how we can help.