Dallas industrial was white hot; now it’s getting burned by property taxes

Asset class’ valuations are up 51% in Dallas County

Why did Dallas Industrial Property Tax Valuations Jump 53%?

A photo illustration of KE Andrews’ Tony Trahan (Getty, KE Andrews)

The Texas property tax appraisal system is like a box of chocolates. You never know what you’re going to get. 

Consequently, a new set of property owners is royally pissed every year. This spring, in Dallas-Fort Worth, it’s industrial operators’ turn. 

When Dallas County appraisal notices went out earlier this month, they showed a 51 percent jump in values for industrial properties, according to Tony Trahan, a consultant at property tax firm KE Andrews. 

“If these values hold, this will create circumstances where some tenants have to move out of their building,” Trahan said. 

That’s because, for triple-net leases, tenants foot the tax bill.  

But that doesn’t necessarily mean appraisal districts are wrong. They are required to appraise properties at market value, and in the last few years, industrial real estate has been piping hot. 

Industrial rents in DFW — which cover properties like warehouses, distribution centers and cold storage — rose 24 percent in the last two years, said Steve Triolet, Partners’ senior vice president of research and market forecasting. 

Up until this year, appraisal districts haven’t kept up with that exploding value. 

“We’ve been in a rising market for the last few years and largely, if you look at sales transactions relative to assessed values, appraisal districts are chasing,” Trahan said. 

That can translate to some remarkable jumps in values. 

In Dallas County’s case, Trahan attributes the huge rise to personnel changes at the appraisal district. The district hired someone to appraise industrial properties who appears to be “trying to do a catch-up,” Trahan said.

That may sound outlandish, but in Texas, the property tax appraisal process is a crapshoot. It’s a completely decentralized system that operates county by county. Resources and expertise vary accordingly. 

There’s almost no oversight of these government agencies, of which there are a few hundred. The Texas Comptroller audits the results of appraisals, but that’s about it for oversight.

There are about as many ways to get to the numbers as there are appraisal districts. 

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“You could work with a million different appraisers in Harris County,” Trahan said. “You go to Dallas County, if you work on an industrial building, there’s one person to work with. Apartments? Same story.”

There’s also the human element. 

“You’re dealing with personalities and people. Each one of them has their own kind of income method, and it’s totally different from another appraisal district,” Trahan said. 

On top of the inconsistency from county to county, Texas is a non-disclosure state, so sale prices aren’t publicly released. 

Without clear comps and sale records, appraisers have precious little information on which to base their valuations. 

Most appraisal districts use the MLS to ascertain the selling prices of comparable properties for residential sales, but guessing at the trades of apartment communities, office buildings and business complexes is more of an art than a science. Districts use mass appraisal systems that some say paint the tax rolls with too broad a brush. 

For example, one of the area’s largest industrial sales in 2023 was a Fort Worth logistics building that traded hands for almost $68 million. 

That same year, it was appraised at $29.6 million.

As a result, property tax appraisal notices can contain some frightening surprises. 

Last year’s property tax reform helped abate some of the shock, Trahan said. 

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The legislation put a temporary 20 percent appraisal cap on commercial and residential properties without a homestead exemption valued under $5 million, meaning appraisal districts can’t increase values on these properties more than 20 percent in a given year. This provision will end in 2026 without action by lawmakers and voters. 

Luckily, the values that appraisal districts release in April are just preliminary; property owners can and do protest their values. If they aren’t satisfied with the result of the protest, they can sue to the appraisal district to lower the value 

“They’re going to make you lean on them to get to that number,” Trahan said, about achieving what he perceives to be a reasonable final value. 

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