A few weeks ago, a story in the Hartford Business Journal discussed 11 northeastern Connecticut towns using an appraisal service for regional evaluation. Working with Tyler Technologies, an outside service, the Northeast Connecticut Council of Governments will have 43,000 properties in Ashford, Brooklyn, Canterbury, Eastford, Killingly, Plainfield, Pomfret, Putnam, Sterling, Thompson, and Woodstock revaluated. All Connecticut towns must have properties revaluated every five years in order to set tax levies. Every 10 years, on-site inspections are needed, and working with an outside appraisal company will cut down costs in all towns.

If you are unfamiliar with the process or necessity of revaluating Connecticut real estate, all towns in the state are required to have all properties within their municipality assessed every five years. In these assessments, values of related properties are compared. Residential properties are compared to residential properties, and commercial real estate is compared with other commercial real estate in town. Once all properties are assessed, a Grand List is compiled. This list serves as the basis of all values within the town and is used to develop a tax rate for generating revenue for town government and education.

This latter effect concerns citizens of most towns, especially when property prices are up. While a revaluation may not affect the overall amount of taxes, it does affect how taxes are distributed in the town. A tax burden, for instance, can shift between residential and commercial real estate categories; if the value of commercial real estate increases during a five year period, for instance, this burden may shift to the taxpayers to handle.

As far as this recent revaluation in northeastern Connecticut is concerned, it is the first done with an outside party. If it goes well, such a practice may be used by other towns in the future.

For the past market, the recovery of the commercial real estate market, particularly the retail sector, has been deemed the factor that can pull the nation out of the recession and get the real estate market in general back into good shape. Once jobs are available – and a greater need for jobs often translates to a greater need for office or retail space – more people can purchase homes. A recent article from Reuters, however, indicates that this hope riding on commercial real estate is just a bunch of hype. While retail in major cities is showing promise, prices are 44.6 percent lower than 2007 levels.

Aside from creating a stagnant job market, failing commercial real estate can significantly hurt banks, according to Reuters. Essentially, the cycle goes like this: When values per square foot do not increase, buyers need to default, which can cause community banks – one of the largest holders of commercial properties – to fail. How big of an impact is commercial real estate having? Presently, 446 banks are in danger of failing.

According to Reuters, most community banks are only in business because of the “extend and pretend policy”:

Many banks with big commercial real estate portfolios are hanging on by a lifeline the FDIC threw in October 2009. It allowed banks to extend the maturity date of loans, as long as the borrower was current with the interest payment. The policy is widely known as “extend and pretend,” and has allowed banks to avoid writing down many of their commercial mortgages.

Failure is imminent for many banks, particularly as delinquency rates are 7.7 percent for commercial real estate, land, and apartments. At the same time, if commercial properties cannot help the real estate market recover, then what can? Buying power, as we have mentioned, is necessary for the housing market to improve, and buying power correlates with more and higher-paying jobs.