Commercial property owners in the District of Columbia are crawling out of a post-pandemic fog and into a new, harsh reality where office building values have plummeted, but property tax assessments remain perplexingly high.
Realization comes slowly
Immediately following the pandemic, many office property owners adopted a wait-and-see attitude toward the volatility permeating the sector, clinging to hopes that the rising popularity of remote work and similar office worker practices would prove temporary. Once the Federal Reserve began raising interest rates to combat generational inflation in 2022, however, hopes for a “return to normal” vanished and a grim reality set in.
Recent transactions involving office properties in the District clearly indicate that investors recognize the negative impact these market forces have exerted on office building valuations and are now pricing those changes into the amounts they are willing to bid for acquisitions. These recent sales show office building values have declined by more than 50 percent from pre-pandemic levels.
The other shoe began to drop on office market pricing in early 2023 with a rise in distress transactions, in which the office owner sells or forfeits the property to resolve some form of trouble, typically financial. These turnovers in ownership have continued to increase and now exert a growing influence on office pricing and valuations. Although properties have continued to transfer by traditional, arm’s length transactions, the occurrence of foreclosures, deed-in-lieu arrangements, and lender takebacks is increasing. The proliferation of these non-standard transfer mechanisms is irrefutable and has a direct effect on the overall office market.
Denying reality
So, how has the District of Columbia adjusted its methodology to properly value office assets in this new and more challenging environment? In short, it hasn’t.
A quick look at the 2025 tax year’s assessment values (valued as of Jan. 1, 2024) shows the District largely ignored any change to the market. Among properties that traded in 2023 and 2024, the District’s assessment-to-sale-price ratio is close to 200 percent! In other words, the District’s methodology is producing assessments that are twice the values those properties are trading for.
This divergence from market evidence is perplexing, given that District of Columbia Courts have ruled that a recent purchase price provides the best indication of a property’s value. In its 1992 decision in Levy vs. District of Columbia, the D.C. Superior Court observed that “a recent arms-length sale of the property is evidence of the ‘highest rank’ to determine the true value of the property at that time.”
How does the District get around this decision when valuing office properties today? By ignoring any sales that it finds inconvenient and disqualifying them from inclusion in its assessment model.
Setting aside the impropriety of disqualifying these marketed, arm’s-length transactions, the District has also excluded distressed transfers from its model. These exchanges of property, which may involve a lender’s sale of real estate obtained through foreclosure, may not involve a sale between a conventional buyer and seller but they nevertheless establish value for the transferred real estate.
When non-standard transfers have become standard, as they have in the post-pandemic office market, assessors should include these transfers in their valuation models. That’s according to the International Association of Assessing Officers (IAAO), which provides guidance on the topic in its Standards on Verification and Adjustment of Sales (2020 edition).
The publication states that when non-standard sales become more common, sales “in which a financial institution is the seller typically should be considered as potentially valid for model calibration and ratio studies if they account for more than 20 percent of sales in a specific market area.”
The IAAO’s Standards echo this qualification when addressing short sales. In that section, the IAAO states, “these sales should be treated like other foreclosure-related sales and considered for model calibration and ratio studies when, in combination with other foreclosure-related sales, they represent more than 20 percent of all sales in the market area, but only after a thorough verification process for each sale.”
This 20 percent threshold is the IAAO’s acknowledgement that when the market evolves, mass appraisal models must reflect the market’s change. That means the District of Columbia can no longer ignore distressed transfers and should recalibrate the mass appraisal model used to value commercial properties in the District to include these types of transactions.
Despite these non-standard transfers representing well over 20 percent of DC’s office market, the District has failed to adjust its model in accordance with IAAO guidance. As a result, assessors overwhelmingly base assessments on years-old data that does not reflect current market conditions.
Next steps
Moving forward, the most effective avenue for change will be aggressive advocacy by office market participants. Owners of commercial properties in the District must continue to engage with elected officials and actively appeal their assessments.
Fortunately, independent third parties administer the Real Property Tax Appeals Commission and D.C. Superior Court – two of the three levels of real property tax appeals in the District. If the District is unable or unwilling to change with times, the tax appeal process gives taxpayers the opportunity to force its hand.
— Sydney Bardouil is an associate at the law firm Wilkes Artis, the Washington, D.C., member of American Property Tax Counsel, the national affiliation of property tax attorneys. Reach her at sbardouil@wilkesartis.com.