INSIGHT

How to appeal commercial property taxes when values decline 

Zac R. Blechman, Kemp Moyer • September 10, 2025

Services: Commercial real estate valuation

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Market volatility hits commercial real estate hard, and when your property values drop below assessed levels, you’re essentially paying taxes on phantom equity. California’s complex property tax framework offers relief mechanisms but navigating them requires strategic action and thorough understanding of both Proposition 13 protections and Proposition 8 opportunities. 

Commercial property owners face unique challenges in today’s market. Remote work has altered office valuations, e-commerce continues reshaping retail, and economic uncertainty affects cap rates across property types. When market conditions drive your property’s value below its assessed level, the tax burden severely impacts cash flow and returns.  

This article will examine the commercial property tax appeal process, explain how Propositions 13 and 8 apply to income-producing properties, and provide strategies to align tax obligations with market realities. 

California’s property tax framework for commercial assets 

Following an acquisition of a property, the county assessor determines the fair market value to establish a base year value. Following the initial base year value determination, Proposition 13 limits annual assessment increases to 2% or inflation, whichever is lower.  This creates a factored base year value that grows predictably over time and protects property owners from dramatic assessment spikes during market upswings. 

This system benefits long-term commercial property owners by providing predictable tax expenses for financial modeling. However, during market downturns or a property experiencing a typically high vacancy, you may pay taxes on assessed values significantly higher than current market values, directly impacting net operating income and property valuations. During this times, it is critical for owners to understand the current fair market values of their properties.  

Leveraging Proposition 8 for temporary relief 

Proposition 8 provides critical relief when market values fall below Proposition 13 factored base year values. This mechanism allows temporary reductions to current market value, offering immediate cash flow relief during market downturns. 

The temporary nature makes Proposition 8 particularly valuable for commercial properties. When markets recover and your property value exceeds the Proposition 13 protected level, your assessment returns to that baseline, preserving long-term benefits while providing current relief. 

Especially applicable to properties that are actively experiencing high vacancy rates such as larger multi-tenant office buildings or hospitality properties experiencing declines in occupancy and rates due to broader declines in travel. While office and hospitality markets experienced declines at a higher frequency, similar situations have occurred in larger multi-tenant retail and industrial properties as well.  

Commercial property owners must apply for Proposition 8 relief annually. Unlike residential properties where market conditions are often obvious, commercial valuations require sophisticated analysis of income streams, cap rates, and market conditions. 

Market indicators that trigger appeals 

Commercial properties show value declines through multiple indicators. Decreased rental rates, increased vacancy levels, rising cap rates, and reduced net operating income all signal potential assessment disparities. Office properties affected by remote work, retail spaces impacted by e-commerce, and hospitality properties facing demand shifts present clear appeal opportunities. 

Property-specific factors also justify appeals. Deferred capital improvements, tenant rollover costs, environmental issues, or functional obsolescence can significantly impact values. Market-wide factors like competing developments, infrastructure problems, or economic downturns create additional grounds for appeals. 

Analyze your property’s financial performance against assessment levels. Compare net operating income to what would be required to support your assessed value at current market cap rates. Significant disparities indicate strong appeal potential. 

Commercial appeal process strategies 

Commercial property tax appeals require sophisticated preparation. Start with informal discussions with your assessor’s office, presenting preliminary financial data and market analysis. Many commercial appeals resolve informally when assessors recognize legitimate valuation concerns supported by solid evidence.  

The process is typically a multi-stage process that includes an initial brief fair market value valuation for property owners to determine what differences from current year assessed values may exist. This valuation is based on a property’s determined value as of January 1 of the assessed year in question. Should there be a significant decline in value, a more formal, defendable and comprehensive valuation report follows for use during the formal appeal process.  

File appeals promptly after receiving assessment notices, typically between July and November depending on your county. Commercial properties often benefit from engaging professionals early to ensure thorough preparation. Thus, being prepared upon receiving an annual property assessment is critical to the process.  

Formal appeals demand comprehensive preparation. Commercial properties require detailed income and expense analysis, market rent studies, cap rate research, and comparable sales analysis. The complexity often necessitates professional representation by attorneys, appraisers, or tax consultants experienced in commercial property taxation. 

Building compelling commercial cases 

Professional appraisals form the foundation of successful commercial appeals. Commercial appraisers analyze income approaches, sales comparisons, and cost approaches to establish market value. Their reports provide detailed support for value conclusions and demonstrate a sophisticated understanding of commercial markets. 

To facilitate the process, it is recommended that property owners prepare comprehensive financial documentation including operating statements, lease rolls, market rent analyses, and capital expenditure requirements. Document factors negatively affecting your property’s income potential or market position. Present information clearly, focusing on objective financial data. 

Within the valuation process, comparable sales and market transactions are researched thoroughly. Commercial sales data requires careful analysis since properties rarely match exactly. Professional level focus on properties with similar income characteristics, locations, and market positions is critical to a successful appeal.  

Working with BPM  

Commercial property tax appeals demand sophisticated analysis, strategic positioning, and deep understanding of both real estate markets and California tax law. BPM’s commercial real estate valuation team combines extensive experience in commercial real estate with specialized knowledge of assessment appeals across all property types. 

Our professionals work strategically with commercial property owners to evaluate portfolio-wide appeal opportunities, develop cost-effective approaches, and maximize tax relief while preserving long-term assessment benefits. We understand the financial pressures facing commercial real estate investors and structure our services to deliver measurable returns. To discuss how we can help reduce your tax burden and improve your properties’ cash flow performance, contact us.