News
How Entitlement and Development Properties in Texas Can Benefit from Property Tax Forecasting
Texas is a hub for real estate development, offering vast opportunities for commercial property owners and developers to capitalize on the state’s pro-business climate, population growth, and thriving industries. However, managing property taxes during the entitlement and development phases can be a significant challenge—and a costly oversight if not handled properly.
Property tax forecasting can provide the clarity and strategic planning developers need to navigate the complexities of undeveloped and development-ready land, ensuring they minimize future tax liabilities while maximizing ROI.
The Challenges of Entitlement and Development Properties
Entitlement and development properties are unique because they often involve long-term projects, phased construction, and non-revenue-generating land. Yet, appraisal districts in Texas may assign inflated valuations based on assumptions about the property’s “highest and best use.”
Here’s where challenges arise:
- Premature Valuations Appraisal districts may value undeveloped or partially developed land as though it were fully operational or income-producing. For example, land zoned for a future commercial project might be taxed based on speculative future value rather than its current state (vacant or raw land).
- Phased Development Impact Large developments often occur in phases (e.g., multi-family units, retail centers, or industrial parks). Without accurate tax forecasting, property owners risk unexpected spikes in tax liabilities as new phases become operational and taxable improvements are added to the land.
- Entitlement Delays The entitlement process can take years to complete. While developers wait on zoning, permits, or infrastructure approvals, property taxes can still escalate if the property is assessed for its development potential rather than its current use.
- Carrying Costs for Developers Taxes on entitlement and development properties are often among the largest holding costs. Mismanaged tax forecasting can erode profit margins, delay projects, or impact financing terms.
Example: A developer in San Antonio acquired 150 acres for a planned industrial park. The appraisal district valued the land based on its “fully improved” future use, leading to an unexpected 25% increase in property taxes. Through proactive forecasting and appeal, the assessed value was corrected to reflect the land’s undeveloped state, saving over $100,000 annually.
How Property Tax Forecasting Helps Developers and Owners
Property tax forecasting is a proactive strategy that provides clarity around future tax liabilities, allowing developers and owners to make informed financial decisions. Here’s how it adds value:
1. Accurate Tax Projections for Budgeting and Proformas
- Forecasting allows developers to predict tax liabilities across each phase of development, aligning costs with project timelines.
- Projections consider variables such as: Zoning changes and entitlements. Infrastructure improvements (roads, utilities). Construction milestones and taxable improvements.
Benefit: Accurate forecasting strengthens financial proformas, helping developers secure financing and avoid budget overruns.
2. Tax Savings During the Entitlement Phase
- During the entitlement phase, property owners often face a disconnect between their land’s actual use and the appraisal district’s valuation.
- Tax forecasting can identify opportunities to challenge premature increases in valuations by demonstrating: The land is not yet income-producing. Infrastructure or zoning approvals are incomplete. Current use should dictate assessed value, not speculative “future use.”
Example: A retail developer in Austin challenged a valuation that assumed the land was fully entitled for a shopping center. By providing documentation of zoning delays and lack of infrastructure, they reduced the taxable value by 30%, resulting in substantial savings during pre-development.
3. Managing Tax Implications of Phased Development
Large-scale developments are typically built and leased in phases. Without proactive forecasting, owners can be blindsided by sudden tax increases as each phase is completed and appraised.
- Tax forecasting allows developers to anticipate phased tax liabilities and incorporate them into their project budgets.
- Consultants can also identify opportunities to appeal valuations as new phases come online, ensuring taxes align with actual performance (e.g., tenant leases, occupancy levels).
Benefit: A well-timed appeal can align tax liability with the property’s gradual revenue generation, improving cash flow during development.
4. Supporting Long-Term Development Strategies
Property tax forecasting doesn’t just look at the current year; it provides long-term projections that align with your project’s lifecycle. This helps developers:
- Plan for rising valuations as improvements are made and the property becomes income-producing.
- Identify opportunities to stagger development phases to minimize tax burdens.
- Maximize ROI by ensuring taxes align with actual value at every stage.
Key Steps to Leveraging Property Tax Forecasting
- Conduct an Initial Valuation Review Work with property tax consultants to assess the current state of the property and identify any premature or speculative valuation errors.
- Develop a Multi-Phase Tax Strategy Forecast tax liabilities based on entitlement timelines, infrastructure improvements, and phased construction schedules.
- Challenge Unfair Assessments Proactively Use property-specific data (zoning approvals, site plans, development delays) to challenge valuations that don’t reflect current conditions.
- Monitor Tax Impacts as Phases Come Online Track the impact of taxable improvements and appeal new valuations to ensure they align with actual project performance.
How FirstPointe Advisors Adds Value
At FirstPointe Advisors, we specialize in helping developers and property owners minimize property tax burdens during every stage of entitlement and development. Our property tax forecasting services include:
- Accurate Tax Projections: Tailored forecasts that align with your project’s timelines and financial goals.
- Valuation Reviews and Appeals: Identifying errors and challenging speculative or premature valuations.
- Strategic Planning for Phased Development: Ensuring taxes remain manageable as new improvements are appraised.
- Long-Term Cost Management: Providing clarity on future liabilities to support budgeting and ROI optimization.
Protect Your Project’s Profitability
Navigating property taxes on entitlement and development properties can be complex, but with proactive forecasting, you can avoid unexpected liabilities and protect your bottom line. By ensuring your property is assessed fairly and accurately throughout its lifecycle, you’ll save money, improve cash flow, and deliver stronger returns on your development projects.
Contact FirstPointe Advisors today for a complimentary property tax review and discover how much you could save.
James “Garrett” Cope
Senior Manager, Property Tax
FirstPointe Advisors, LLC
3201 Dallas Pkwy., Suite 200
Frisco, TX 75034
Main: 214.253.0056
