Last week I wrote about the looming budget battle in Minneapolis resulting from an increase in spending at the same time as declining commercial property values were dragging down commercial property tax payments. I noted that “Any city which has seen commercial property values hit like that will be faced with the same problem, in some degree.” St. Paul might be up next.

The Pioneer Press reports:

The largest private property owner in downtown St. Paul has put 10 of its commercial properties up for sale, including six office buildings, raising deep questions about the future of some of the city’s most storied commercial buildings, including some 1800s-era Lowertown structures neighboring Mears Park.

The buildings include the First National Bank building, the Park Square Court building, the Empire Building, the Alliance Center, and two parking ramps. Together, this totals more than 1.6 million square feet in commercial space.

However, the Pioneer Press reports:

…occupancy rates in those commercial buildings average 50% or less and dropping. In some cases, estimated market values calculated by the Ramsey County assessor’s office list building values at or even below where they were a decade ago, when the office market was still re-emerging from the Great Recession.

As in Minneapolis, lower commercial property prices will mean lower commercial property tax revenues:

“It could be good, it could be bad,” said Jason George, business manager with the International Union of Operating Engineers Local 49, which represents heavy equipment operators, mechanics and stationary engineers in the construction industry, in a social media post.

“Two things are certain,” George wrote. “When sold for far less than their current property tax valuation, it will drive down valuations all over downtown and hit (the city) budget hard. And it will take tremendous vision and leadership from (the) city to make a good outcome happen.”

Looking out longer term, [commercial real estate lender John] Rent and others in the industry are watching to see how much each individual building sells for. With office values already sinking, a major property devaluation could have chilling impact on the city budget, with repercussions for property taxpayers citywide.

“Every dollar that’s lost from reduced valuation on these towers is going to end up being made up for by either other commercial property owners or residential property owners in the city, if not Ramsey County,” Rent noted. “To the extent the tax value goes down, everyone else’s taxes go up.”

Budget battles could soon be flaring on both sides of the Mississippi.

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