On most CRE acquisitions, the property gets reassessed at the purchase price (or a fraction of it under state-specific rules), often producing a forward property tax expense materially higher than the trailing-12 expense. Lenders underwrite to the forward, so the borrower must too, or the loan won't size as expected.
What happens at acquisition
The county tax assessor reassesses the property based on the purchase price. The new assessed value typically takes effect on the next tax cycle (sometimes immediately, sometimes the following January).
State-specific rules vary widely: California Prop 13 caps reassessment to purchase price (rare elsewhere); Texas reassesses annually but caps year-over-year increases; Florida has Save Our Homes for residential and limited similar provisions for commercial; New York, Georgia, Tennessee, North Carolina reassess to purchase price typically with no cap.
The forward property tax expense after reassessment can be 25% to 100% higher than the trailing expense, depending on how stale the prior assessment was and how high the purchase price is relative to the prior assessed value.
How lenders handle it
Lenders underwrite to the forward tax basis. The lender's underwriter calculates the projected post-reassessment tax expense and uses that in the operating budget, not the trailing actual.
Forward tax projections vary by lender and by state. Most institutional lenders use the assessor's published rules and the borrower's purchase price to project the new expense. Some use comparable sales of similar-vintage acquisitions to estimate.
Sizing impact: forward tax higher = NOI lower = max loan smaller. On a $30M acquisition where forward tax is $100K higher than trailing, NOI is $100K lower; at 8.0% debt yield, that's $1.25M less loan supportable.
What the borrower should do
Underwrite to the forward tax basis at the offer stage. Don't underwrite to trailing; the loan will not size to that NOI.
Ask the lender for their forward tax assumption early, typically at term sheet. Lenders publish their methodology; the assumption should be discussable, not a black box.
Engage tax counsel for state-specific advice on appeal opportunities. Many states allow protest of the reassessed value, particularly when the assessor's methodology is more aggressive than supported by comparable sales.
Build a tax escrow that anticipates the forward expense, not the trailing. The lender's escrow funding requirement will be based on forward; budget accordingly at closing.
Worked example
Acquisition: $20M multifamily in Tennessee. Trailing 12 property tax: $80K. Prior assessed value: $10M (the property hasn't been reassessed since the prior owner acquired it 8 years ago). Purchase price reassessment: $20M assessed value. Forward tax at the same millage rate: $160K, double the trailing.
Trailing NOI assuming $80K tax: $1.20M.
Forward NOI with $160K tax: $1.12M.
Sizing impact at 8.0% debt yield: $14M (forward) vs. $15M (trailing). $1M less loan than underwritten-light trailing-based underwriting.
The borrower who underwrote to trailing was over-leveraged in their LOI. The borrower who underwrote to forward bid appropriately and got a deal that closes.
Frequently asked questions
Will the lender finance the post-reassessment tax escrow at closing?
Yes, the lender will require a tax escrow funded based on forward tax expense. The escrow funding at closing typically covers 1 to 6 months of forward tax depending on lender and timing relative to next assessment cycle.
Can I appeal the reassessment?
Yes, in most states. Appeal procedures are state-specific. Successful appeals often reduce the reassessed value by 10% to 25% but rarely fully reverse the increase. Engage local tax counsel.
Does property tax reassessment apply on refinances?
Generally no, reassessment is typically triggered by transfer of ownership, not refinance. Some states have additional triggers (e.g., majority ownership transfer of LLC interests in California). Check state-specific rules.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Biennial Report to the Legislature · Texas Department of Insurance · 2025