New BRT numbers don't add up, review shows

There's nothing glamorous about Joseph Zenobi's property near 54th and Master Streets - a broken-down warehouse next to a vacant lot fenced in with razor wire against the hazards of a hard West Philadelphia neighborhood.

For a dozen years, Zenobi, 73, has used it only as a place to park trucks and machinery for his small paving company.

Suddenly, this humble slice of land looks like a gold mine to the city's Board of Revision of Taxes.

In its new project to overhaul property assessments, the BRT suggests the land's value has soared from $216,600 to $3.9 million - more, per square foot, than lots surrounding fashionable Rittenhouse Square.

"It's crazy," Zenobi said. "You want to buy it?"

Four years in the making, the so-called Actual Value Initiative is supposed to be the solution to the BRT's unfair and confusing assessments, long considered among the least accurate in the nation. The idea is simple: Every property's assessment would be the same as its value in the marketplace.

But on its first try to correctly assess the city's 25,000 commercial parcels - properties responsible for nearly 30 percent of Philadelphia's property-tax revenue - the BRT fell far short, an Inquirer review shows.

Scores of properties, such as Zenobi's yard, would be incredibly overvalued. Others are so low that even the owners say they're absurd.

The attempt to repair the values suffers from the same failings that have plagued the agency for decades: mistakes in property records, sloppiness in computer calculations, and assessors who used crude shortcuts instead of standard reappraisal methods, the review shows.

Among the findings:

Hundreds of the new commercial numbers were thrown off by mistakes littering the BRT's property records, including incorrectly sized lots and buildings that don't exist. At Seventh and Arch Streets, for example, the BRT calculated a new value of $5.2 million on what the agency thought was a huge, 200-space parking lot. But there is no such lot, just a narrow walkway next to the Federal Detention Center.

Instead of trying to figure out a property's real worth, the BRT's assessors slapped the same percentage increases on thousands of parcels across the city. More than 500 would get the same 40 percent increase - properties as different as a $6 million shopping center on Castor Avenue and a long-empty hoagie shop in North Philadelphia.

More than 6,000 commercial properties - a quarter of the total - are missing entirely, left undone as the BRT rushed to send the AVI numbers to impatient city officials last spring.

Apparent glitches in the BRT's computer models produced some bizarre results. Parking lots in a drug-ravaged section of Frankford, for example, were valued at a steep $140 per square foot - more pricey than many lots in Center City.

City Finance Director Rob Dubow said that if the BRT didn't produce accurate numbers, it risked blowing the credibility of the overhaul.

"This is our one time to get this right," Dubow said Friday. "So we have to make sure this is done correctly."

Mayor Nutter, through a spokeswoman, declined to comment.

Barry Mescolotto, the BRT's acting chief assessor, acknowledged some flaws but said the new numbers were only "a starting point" and bound to include some mistakes. The earliest they could go into effect would be the 2011 tax year.

"Are there some data errors in there? Yes," said Mescolotto, who said he had been supervising the process from home while on family medical leave. "We are in the process of correcting all of them."

But one BRT member, former Pennsylvania Supreme Court Justice Russell M. Nigro, said the new numbers never should have been sent to City Hall if they weren't ready.

"Clearly, nobody told me there were a bunch of errors," he said in an interview. "Anyone can make a mistake. But you don't make a series of errors unless you're asleep at the switch."

In Port Richmond, on the Delaware River, a Houston company called Kinder Morgan runs a 35-acre tank terminal with 100 tanks, a dock, and rail lines. Now the BRT sets the market value at $4.2 million.

Lurking in the records, though, is a problem: A 29-acre section is described as two-thirds of an acre. As a result, the proposed new value would plummet 64 percent, to $1.5 million.

That's a mistake, Mescolotto admitted, probably caused by a data-entry error.

Hundreds of other missteps litter the AVI numbers, the Inquirer review shows. Some of them, such as the tank terminal, are off by millions of dollars.

"There still appears to be a serious uniformity problem," said Reaves C. "Trip" Lukens III, a private real estate appraiser who has reviewed some of the AVI numbers. "They've got a long way to go."

Compared with residential, the number of commercial properties is fairly small - just 4 percent of the 577,000 total - but since these properties account for so much revenue, the stakes in getting them right are high.

If the BRT gets them wrong, it will shift more of the tax burden onto homeowners - many of whom already will pay more when the city revises its assessments.

When assessments are too high, Lukens said, the process will correct itself. People will appeal. But no one is likely to complain if the BRT sets values millions of dollars lower than they should be.

The rowhouses and offices that make up the national headquarters of Kappa Alpha Psi, for example, are worth "easily close to $2 million," said Richard Snow, the fraternity's executive director.

The BRT now values the property near Temple University at $900,000. The new AVI number: $178,600.

"It would be totally incorrect," Snow said. "It couldn't be."

Just the same, he said, "I don't know that we would fight it."

Current and former assessors say that they knew the AVI values were flawed, but that there wasn't time to fix them before sending them to city officials eager to get the change under way.

Some errors caught by The Inquirer took Mescolotto by surprise. "Thank you for pointing this out," he said of the phantom lot at Seventh and Arch Streets.

In a number of cases, he was able to pinpoint the cause of the problem. Other errors seem to defy explanation.

Jodi Moshen is the third generation of her family to run Trenton China Pottery, a restaurant-supply business at Second and Arch Streets in Old City's now-fading "Restaurant Row." She has been trying to sell the building for years, and the asking price, once around $6 million, is now about half that.

Under the new system, the BRT's current market value, $2 million, would drop to just $295,200. Mescolotto can't figure that one out.

Neither can Moshen.

"That number's wrong - I'll tell you that now," she said. "No one here understands how they come up with the assessments."

After an Inquirer series in May detailed widespread mismanagement and cronyism at the BRT, Nutter and City Council promised to reform or abolish the agency.

But BRT members have vowed to stay on to fix the system, which they admit is a mess: Virtually identical properties on the same blocks can have dramatically different taxes.

The agency's consultants say their new values for homes are a vast improvement - accurate to about 15 percent, an acceptable margin of error.

By contrast, the preliminary commercial values were produced by the BRT's own assessors.

"We don't have the same confidence on the commercial side," Nigro said.

Many of the AVI slipups can be traced to a simple source: records that are outdated or just plain wrong. In some cases, BRT employees entered bad information. In others, they failed to track changes or made mistakes in figuring out complicated real estate documents.

"Garbage in, garbage out," said Bruce W. Sauter, an instructor with the Institute of Assessing Officers.

"If they're working off of bad data," he said, "the conclusions probably will be wrong."

Other cities that have undertaken mass reappraisals have hired firms to inspect all properties.

"When you do not do these things for a long period of time . . . then you start having errors," said Kenneth Voss, an appraiser and board member of the International Association of Assessing Officers.

But neither the BRT nor city officials plan a massive reinspection, which could cost $5 million - and take years.

Mescolotto said, though, that computer analysis could identify many of the mistakes that showed up on the first AVI run.

That's why the new numbers don't include thousands of properties, he said. The computer kicked them out because the data were incomplete.

But that will all be fixed, Mescolotto said.

"It's a checking and rechecking and reviewing all the data on these properties," he said. "We're not going to get it 100 percent right on every property. It's not possible."

With the help of an appraisal consultant, the BRT is writing new computer models that should be more accurate, he said.

Mescolotto, who was criticized in May by the city inspector general for failure to pay taxes and report his work for a family business, has been out on leave for a month but said that hadn't caused delays.

He said final AVI numbers should be ready and posted on the BRT Web site "no later than Nov. 1."

"We're in the home stretch," he said.

One way to test computer-driven appraisals is by comparing values of undeveloped land. If the formulas are working correctly, experts say, parking lots in poor neighborhoods should be valued lower than those in posh parts of town.

Under that standard, AVI fails.

The Philadelphia Business and Technology Center, at 50th Street and Parkside Avenue, is an incubator for start-up companies in West Philadelphia. Its two parking lots are now valued at $30,000.

Under AVI, their tax value would leap to $4.8 million, or $175 a square foot.

"That's downright silly," said Marjorie Ogilvie, the center's general partner. "They're recognizing that these are vacant lots? That's scary."

On Frankford Avenue, Rudolph Betz has seen drugs and crime hollow out the neighborhood near his plumbing-supply business, run by his family since 1914.

"You can buy any kind of heroin you want across the street," Betz said.

His seven lots for parking and storage are valued at $5,000 each. Under AVI, they would zoom to $1.3 million - $140 per square foot.

Compare that with 417-19 S. Broad St., a parking lot near the Kimmel Center. Its AVI value amounts to $125 a square foot - 11 percent lower than the Betz properties and 29 percent lower than Ogilvie's.

One of the biggest-dollar AVI mistakes landed on a costly piece of real estate along the Delaware River waterfront.

Two years ago, developers paid $20 million for the gravel lot, just down the street from the proposed SugarHouse Casino. They drew up plans for a luxury 66-story glass condo tower - before the real estate market tanked and they lost the property in foreclosure.

The new owners, a Connecticut hedge fund called Old Hill Partners, came to the BRT this summer arguing for a tax break. The BRT stood firm, refusing to lower the $12 million value. Lawyers for the owners said they would sue.

Under AVI, the owners would be getting a bigger cut than they could have dreamed: a 97 percent plunge, to $359,200. That, too, was an error, Mescolotto said; that valuable lot was mistakenly grouped with smaller and cheaper ones nearby.

Not all the problems are caused by records glitches. An analysis shows the BRT evaluators simply hiked values on many commercial properties by a fixed percentage - regardless of location, or even recent sales prices.

In their first try at actual value, the BRT decided about 500 businesses merited an identical 40 percent hike.

According to the BRT, the market for corner stores and fast-food joints in tough Southwest Philadelphia went up 40 percent, the same as trendy shops in Chestnut Hill and restaurants in the Northeast.

Almost all did have one thing in common: Their assessments hadn't been changed since 1989, records show.

An additional 840 commercial properties went up by exactly 20 percent; nearly all of these had last been changed between 1999 and 2002.

Mescolotto said BRT assessors tried to group similar properties. There was no connection, he said, between the increases and the last time a property had been assessed.

Experts say that kind of blunt approach isn't acceptable. "I probably would not want to go there, personally or professionally," said Voss, the real estate expert.

Peter Davis, a real estate consultant in Kansas, said the BRT's method didn't qualify as an "appraisal."

"If property values haven't been changed in 20 years, you just have to go out and revalue them. You can't just guess what the increase would be," he said.

Not surprisingly, the BRT's 20 and 40 percent estimates fall short of reality.

Axelrod-Giannascoli Realty is a storefront at 410-12 South St. The partners paid $2.65 million for it last year, but the BRT now says it's worth $350,000, unchanged for at least 20 years.

Under AVI, the tax value would be $490,000 - still less than a fifth of the purchase price.

Owner Stephen Giannascoli, a developer and property manager, said the BRT's assessments didn't seem to follow any rational pattern.

"It's a roll of the dice," he said.

In some cases, the new proposed numbers could come to haunt the BRT. Several lawyers said the AVI numbers, flawed or not, could come in handy when owners appeal for lower taxes.

Mescolotto shrugged that off, saying he didn't believe the AVI numbers would count for much: "They are preliminary and deserve to be treated as such."

But the numbers already are in play.

Consider the old Byberry Hospital in Northeast Philadelphia, now a home-development site. The BRT said the average value for the 398 parcels should be $18,749 each. The owner, Westrum Development Co., sued, saying it should be $8,417.

Under AVI, most of those parcels would be dramatically cut - to about $5,000 each.

Lawyer Peter Kelsen reacted with a shocked expletive when told about the drop, saying he had been battling the BRT for months to cut the Byberry values.

"That's outrageous," he said. But after rethinking it, he saw the bright side.

In July, Kelsen filed a brief using the AVI projections to bolster his argument.

"It confirms what we've been saying all along," he said. "They don't have value right."

To read The Inquirer's three-part series "Tax Travesty" and other recent articles on the Board of Revision of Taxes, and to look up the new and current values for nearly any city property, visit http://go.philly.com/brtEndText