They're some of the priciest condos in the city, but they're taxed like empty lots.
At the Ritz-Carlton Residences along Baltimore's Inner Harbor — where a recent sale topped $1.5 million — the tax bill for most of the condos was $1,309 apiece this year. At Silo Point, an industrial conversion with gourmet kitchens, hardwood floors and sweeping views of the city, the bill for many of the units is $238 each.
Even though they were built years ago, and city inspectors declared them ready to live in, they are still valued for tax purposes as though construction never got off the ground.
All 200 are owned by the developers who built the properties. Some elected officials think it makes sense for the tax bill to be modest until the homes sell, but that's not how the state's property tax law works. The artificially low assessments have reduced the city's tax revenue by more than $10 million in the past few years, according to an analysis by The Baltimore Sun.
Developers who aren't getting this deal weren't happy to hear about it.
"I'm sitting there with units that won't sell, too — it's unconscionable," said Andrew Viola, a regional manager with Williamsburg-based Bush Construction Corp., which built the 414 Water Street condos in downtown Baltimore. "We're paying our fair share. Why shouldn't every other developer?"
RXR Realty, which developed the Ritz condos, declined to comment. Patrick Turner, Silo Point's developer, did not respond to multiple requests for comment.
The Baltimore Sun discovered the low assessments while analyzing a database of city property records it created using a computer program that copied the information off the city's website, one record at a time.
The state Department of Assessments and Taxation insists that the assessed values — $55,000 for each unsold Ritz condo and $10,000 for each of Silo Point's — are not the result of favoritism or mistakes. But after being asked by The Sun to explain, agency officials said they will be increasing the assessed values soon.
The issue, said Deputy Director Owen C. Charles, is that assessors have had questions about whether the condos are "substantially completed" — the point at which the state is supposed to determine the market value of the improvements and assess accordingly. The agency's manual defines the term as "buildings under roof with completed walls."
"This is not something where the office simply forgot to assess these properties," Charles said. "It's an ongoing process for us. We continue to look at these to make sure we pick them up as soon as we're aware they have been substantially completed or have been sold."
But the city's permits office has considered the Ritz and Silo Point condos complete for several years now. It issued certificates of occupancy on the units in 2008 and 2009.
Charles was surprised to learn of the discrepancy. "When the city says 'done,' did they clarify what 'done' meant?" he said.
Asked what it meant, Michael Braverman, the city's head of permits and code enforcement, said: "100 percent complete."
Last week, Charles said assessors do not agree that the condos are complete, because the developers make changes to the properties according to the buyers' specifications once contracts are signed. But he said the agency intends to increase the assessments to full-market value in the next couple of months.
Why now? Because so much time has passed since the developers' representatives applied for the occupancy permits, he said, adding that assessors had planned the change before The Sun inquired.
"We're talking three years after the fact," Charles said. "We'll just put the values on, and the developer will have to appeal if in fact those units are not substantially completed."
Charles said the condos' assessments have been low in part because staff members were guided by a decision involving HarborView's Pier Homes, a luxury townhouse development built on piers. When the unsold units were reassessed as high as $1.4 million in 2009, the developer appealed, arguing that many of the homes were shells that would be finished after buyers signed contracts. HarborView got values knocked down to $20,000 each.
But unlike the Ritz or Silo Point, Pier Homes did not have certificates of occupancy. Either way, the head of the independent panel that reduced the Pier Homes values said he cannot believe that the assessments agency would treat one of its decisions as a precedent for other properties.
"We don't tell SDAT what to do," said Herman Williams Jr., chairman of the Baltimore City Property Tax Assessment Appeals Board, which is made up of retired city residents and is not a court of record.
The decision to keep the assessed values of the unsold Ritz and Silo Point condos low has deprived the budget-strapped city of millions of dollars in taxes over the past few years.
To come up with a rough estimate, The Sun calculated median prices per square foot for sales at the two developments since last fall. If the currently unsold units had been assessed at those amounts, the city would have collected an added $10.3 million over the most recent three tax years. The state would have collected over $500,000 more.
Those figures account only for the units still owned by the developers. The reduced tax was paid in earlier years on dozens of condos that have since been sold and reassessed upward.
City Councilman Carl Stokes, hearing of the assessments at Silo Point, first assumed that the number referred to the amount of tax due on each unit in a year. "The whole condo is assessed at $10,000?" he asked.
"Properties should be assessed uniformly throughout the state to ensure tax fairness," Ryan O'Doherty, a spokesman for Mayor Stephanie Rawlings-Blake, said in an email. He added that local jurisdictions have "no say" in how those assessments are conducted.
Property taxes are a heated issue in Baltimore, which has a rate at least double that of any other jurisdiction in the state. But residents disagree about whether developers should be taxed like other property owners on homes they're trying to sell.
Matt Gonter, a property tax activist from Patterson Park, complained to the state when he noticed one of the assessments at Silo Point, where recent sale prices have been as high as $820,000.
"Why is it still being assessed at $10,000 when it's a finished product?" asked Gonter, whose more-modest home was valued by the state at over 20 times as much. "There's got to be a fairer way of spreading the tax burden across the city."
Peter Smith, an attorney who bought one of the Pier Homes a year and a half ago (and noticed the developer's comparatively low assessment on it), said it seems reasonable for assessors to wait on homes sitting unsold.
"The developer's not making any money off it," Smith said. "It's a negative asset — an unsold house is a negative asset. It's bad for everybody."
City Councilman William H. Cole IV, who represents the Inner Harbor area, said he worries about a "chilling effect" on development if builders are asked to carry the costs of high property taxes while they wait for buyers.
And he doesn't want to further pummel companies that launched projects in a difficult housing market. The Ritz in particular has struggled in the housing bust, with most of its luxury units still unsold.
"At the same time, you want to make sure it's fair and applied uniformly across the board," Cole said.
Other developments have been assessed differently. Both the sold and unsold townhouses in the Townes at Eager — in the city's challenged Middle East neighborhood — are assessed at $160,000 for the tax year that ends in June and were assessed at $180,000 the year before, even though some just got their occupancy certificates in March.
The 130 unsold condos at 414 Water Street, meanwhile, are assessed at $145,000 to $327,000 — consistent with assessments on the ones that have changed hands. Like the Ritz, they were built in 2007.
Viola, who oversees 414 Water Street, said he'd sure like the deal the Ritz and Silo Point are getting. He said he appealed his assessments in 2009, arguing that the values were too high. But he didn't contend that the units were not substantially complete, an argument he thinks would be "bunk" for any condo development in town.
He's upset that the state is treating what he assumes are condos just as complete as his in a very different way.
"My taxes are $800,000 a year," he said. "I'm getting hammered, and someone else is getting a [discount]? That's just not right."
The state's assessments office doesn't have to wait for developers to sell new homes in order to fully assess them, and doesn't even have to wait for occupancy certificates. The Maryland Court of Special Appeals ruled in 1986 that the state had acted reasonably in its decision to assess at full value Baltimore condos that did not yet have certificates — or toilets, sinks, kitchen appliances and carpeting.
The Maryland Assessment Procedures Manual refers to buildings with roofs and completed walls as — generally speaking — substantially complete. It doesn't get more specific. Robert E. Young, the state assessments director, said assessors need to make an independent determination about whether a project meets the test, including checking to make sure the developer isn't trying something "to keep it off the tax rolls."
But a 2004 report for the Abell Foundation said vagueness in that policy gave individual assessors so much "discretion and authority" about when to act that it was causing uniformity problems.
John J. Hentschel, a real estate valuation consultant who wrote the report, said in an interview that he feels for the state because "substantially complete" isn't easy to define. But he thinks defining it is critical, and not only so the city and other local jurisdictions do not lose out on a year or more of higher taxes. Uniform practices would ensure that developers are treated equally and can start projects knowing when the bill will come due, he said.
"It's not a matter of when is the correct point," Hentschel said. "It's a matter of, it should be the same point each time."
About this series
"Taxing Baltimore" is a series of occasional articles examining property taxes in Baltimore, which has the highest rate in Maryland. Previous stories have shed light on tax credit problems, assessment errors and the city's biggest taxpayers.
To see archived articles as well as a searchable database and photo galleries, go to baltimoresun.com.
They're some of the priciest condos in the city, but they're taxed like empty lots.