The county's real estate appraisal appeal board last week lowered the Hot Springs Mall's property taxes for the third time since it came under new ownership in 2015.
The Garland County Board of Equalization reduced the main parcel's 2018 appraisal to $8,184,600 on the recommendation of the county's contract appraisal service, Arkansas CAMA Technology. The parcel's initial 2018 appraisal was more than $10.1 million. The new valuation reduces 2018 property taxes on the 6 acres from $97,623 to $79,063. The Hot Springs School District is the largest taxing entity in the mall's tax district.
A property's tax value is 20 percent of its appraised value.
The mall was appraised at over $19 million when RockStep Capital Opportunity Fund, a Houston-based commercial real estate acquisition and development company, purchased it for $5,775,000 at a foreclosure auction in August 2015. A mediated settlement reached by RockStep and the county established an $8.6 million valuation for 2015 and $9.1 million for 2016.
RockStep petitioned Garland County Circuit Court in December to lower the $10,013,685 appraisal for 2017 established in Garland County Court, which reduced the $11,013,065 value set by the equalization board. The lawsuit is pending.
The mall's tax representatives have argued the property is worth about $6 million.
"There is no better indicator of value than a sell at a competitive, nationally advertised auction where anyone with any corporation or any investor could've bought it," attorney Bryan Reis told the board. "No one likes to think that suddenly a mall that had been valued in the $15, $16, $17 million range is suddenly worth $5.5 million, but the owner that came before us went out of business. It was foreclosed because they couldn't support their debt. It's just a fact."
Arkansas CAMA said the previous owner's inability to service the $28 million debt secured by the property put it into foreclosure.
Reis asked the board for a reduction similar to what it granted the Arlington Resort Hotel & Spa on its 2017 appraisal, which the board reduced by 43 percent compared to Arkansas CAMA's almost $10 million valuation. The reduction lowered the hotel's property taxes by 33 percent, or to $48,000 for 2017.
"The board made a good decision by trying to help the Arlington get to the point that they could create more jobs and be something the city and county could be proud of," he said. "And we think we should have that consideration, as well."
Arkansas CAMA said the income generated by the mall does not justify a $6 million appraisal. It told the board that despite a 24-percent decrease in net-operating income from 2016 to 2017, the mall was profitable enough to warrant a higher appraisal.
RockStep declined to allow Arkansas CAMA to share the 2017 income statement with the board, requiring the board to determine 2017 cash flow using the $1.4 million figure reported for 2016. Reducing that amount by 24 percent leaves about $1 million in net income, which does not account for expenses such as income taxes, debt service and capital outlays.
A $1.4 million net-operating income "is not the amount of money we put in our pocket at the end of the day," Reis said. "Other things in a financial statement come off of (net-operating income). The biggest among them is debt service. What I don't want to leave is the impression with the board or the public that we're sticking $1.4 million in our pocket every year."
RockStep representatives have argued that restrictive, long-term leases held by Sears and JCPenney are encumbrances on the property, requiring the consent of the two retailers before any redevelopment can occur. Dillard's ownership of its space at the mall also complicates redevelopment efforts, they said.
"What we have is Dillard's, which owns space right in the middle of our space, and then we have two anchor tenants that have control over what we can do with the property," Reis said. "In other words, if we came up with a brilliant plan for another use of that property, we can't do it without the consent of Sears and Penney's."
Andy Weiner, RockStep president and CEO, told Hot Springs National Park Rotary Club in July the ever-growing migration of retail from brick-and-mortar outlets to the internet is forcing malls to pursue non-retail tenants, such as entertainment, educational, health care and recreational service providers.
He said 30 percent of mall tenants will be non-retail entities, but Scott Green, the Hot Springs Mall's general manager, told the board non-retail will have to assume an even larger share if the mall is to remain viable.
"I think it's going to be more like 50-percent retail and 50-percent other," he said. "It's a struggle to get tenants of any kind."
Oct. 15 is the deadline to pay 2017 real and personal property taxes.
Local on 10/04/2018