Eden Prairie mall's tax appeal backfires

  • Article by: SUSAN FEYDER , Star Tribune
  • Updated: October 27, 2009 - 9:37 PM

Eden Prairie Center's owner asked the state Tax Court to cut its property tax valuation, but instead was ordered to pay more.

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Eden Prairie Center’s owner went to court to contest property valuations for 2005 and 2006, but ended up with a bill for an extra $1.8 million.

Photo: Glen Stubbe, Star Tribune

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Maybe it would have been better to just leave well enough alone.

The owner of Eden Prairie Center challenged property tax assessments for 2005 and 2006, claiming they were too high. But the maneuver backfired, and the company has been ordered to pay about $1.8 million more in taxes.

General Growth Properties, which has owned the shopping mall for 10 years, took its challenge to Minnesota Tax Court last summer after it was unable to resolve the dispute with the Hennepin County Assessor's office.

The Tax Court, which has been flooded with appeals during this recession, recently issued a judgment that not only disagreed with General Growth's assessment, but also said the county's valuation was too low. Judge Sheryl Ramstad raised the assessments for both years, boosting the tax bill about $1.1 million to a total of almost $4.5 million for $2005 and increasing it almost $700,000 to a total of about $4.2 million for 2006. The judge ruled the property, which includes the 395,000-square-foot mall and the Von Maur store that is part of the center, were worth $132.7 million in 2005 and $130.6 million in 2006, both significantly above General Growth's estimates of $72.7 million in 2005 and $65.3 million in 2006. The judge's valuations also were higher than those proposed by the county.

Representatives of Chicago-based General Growth declined to discuss the ruling Tuesday except to say they are evaluating all their options. The company has the option of appealing the judgment to the Minnesota Supreme Court.

General Growth is among the country's largest mall owners, with properties that also include Knollwood Mall and Ridgedale Center in the Twin Cities. Earlier this year the company filed for Chapter 11 bankruptcy in one of the biggest real estate failures in history.

Herb Tousley, a senior vice president of Coldwell Banker Commercial Griffin Companies, said it's very unusual for a taxpayer to have an assessment increased as a result of a challenge. "It's a risk you take, but I have never had that happen to any of the clients I have worked with," he said. Part of the reason could be that few challenges wind up in Tax Court but instead are settled at the city or county level, he said.

County Attorney Mike Freeman described Ramstad's ruling as "extremely thorough and well-reasoned." The judgment considered three valuation methods -- one that considers a property's income-producing capacity, another that considers recent sale prices of comparable properties and another that considers what a buyer would pay for an identical property.

Tousley noted that the commercial real estate market was considerably stronger in 2005 and 2006, before the economy and credit markets collapsed. Since then, owners of retail properties as well as office and industrial buildings have seen their properties' market values fall.

As a result, more property owners have begun challenging assessments they believe don't reflect the depressed commercial real estate market. In an interview earlier this year Chief Judge George Perez said appeals in Tax Court are about double those of last year.

The Tax Court ruling is the latest in a series of setbacks in the Twin Cities for General Growth. Earlier this year Nordstrom Inc. called off plans to open a store at Ridgedale in 2011. Last fall Trader Joe's canceled plans to put a store on a parking lot at Ridgedale after General Growth had difficulty getting financing needed to get the site ready for construction. The grocery retailer subsequently found another store site in Minnetonka.

Susan Feyder • 612-673-1723

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