Class A towers paying B taxes

When it comes to advertising and marketing, the city's two tallest skyscrapers are Class A, all the way.

But throw out that notion at tax time.

The owners of Chase Tower and OneAmerica Tower–and some of the city's other large office buildings–have successfully
lobbied for lower building "grades" that save them big bucks on property taxes. Both buildings now enjoy B+ ratings
for tax purposes.

The strategy is just one tool owners use to reduce their tax assessments. Some also have made successful challenges based
on low occupancy or, in the case of storm-scarred Indiana Square, disaster.

Appeals are the norm, and they work: For the six largest office buildings downtown, assessed values fell a combined $72 million,
or 20 percent, this year based on appeals that began as early as 1995. Four of the six buildings got a lower tax bill, although
some of the savings was soaked up by cuts in the replacement credit–the portion of tax bills paid by the state. Owners also
got refunds for paying too much in previous years.

At the same time, homeowners in Marion County saw an average spike of 35 percent in their tax bills this year. Outrage over
those increases led Gov. Mitch Daniels to freeze taxes to last year's levels and order an independent reassessment of
residential and commercial properties, including the city's most visible buildings.

The tax tricks for skyscrapers are just one more detail in a baffling system that few would argue is working properly. After
an assessment, owners can appeal to a county board of appeals, the Indiana Board of Tax Review, the state Tax Court and the
Indiana Supreme Court. Successful appeals of reassessments in 1995 and 2002 are just now showing up in tax bills, said Frank
Corsaro, who heads the real estate division for the Center Township Assessor's Office.

The owners of OneAmerica Tower–which is 99-percent leased–got a tax bill this year that is $408,000 less than last year's.
The 692,000-square-foot building's assessment dropped $28 million, to $65.5 million. In 2002, the Center Township Assessor's
Office put the skyscraper's worth at $100.4 million, but the assessor lost its case on appeal.

The battle affected more than one building. The B+ for OneAmerica set a precedent for the market, pushing down grades for
every other building, Corsaro said.

The CEO of building owner OneAmerica Financial Partners Inc., Dayton H. Molendorp, called the original assessment "excessive"
in a statement to IBJ.

"OneAmerica has a responsibility to act in the best interest of its policyholders and appealed the assessment to ensure
that the organization was paying no more than its fair share of commercial property taxes," Molendorp said.

The company's attorney on the case, Steve Paul, said the appeal took several years to process since residential challenges
receive priority. Paul, a partner with Baker & Daniels, also has represented Chase Tower, Indiana Square, National City
Center and 300 North Meridian in tax appeals.

He said the determination of grades for commercial buildings has nothing to do with how a building is marketed to the public.
The state's standards for an "A" building require "outstanding architectural style and design" and
"the finest quality materials and workmanship." On the other hand, "B" buildings must be "architecturally
attractive and constructed with good quality materials and workmanship."

Building owners theoretically have to be careful about appeals, since the law says assessments also can go up.

"We never file an appeal unless there's a basis for it," Paul said.

But the largest buildings usually can find a basis. For "large and complex" properties like office towers, most
owners bring in attorneys and experts to contest any changes in assessment, said Steve Johnson, president of the Indiana Fiscal
Policy Institute.

"They have every right to appeal; the law gives them that right," Johnson said. "As owners and investors in
property, they have every obligation to protect that value from being overtaxed."

Top of the line

The owner of Chase Tower, Australia-based Macquarie Office Trust, describes its building as "Class A" on its Web
site. It also lists the price it paid for the 1.1-million-square-foot building in September 2004: $170.6 million. Still, an
appeal filed by the previous owners successfully challenged an assessment of $108.6 million. The building is now valued at
$99.9 million.

Only one of downtown's largest buildings is now listed for sale: First Indiana Plaza. The 400,000-square-foot building
has an assessment of $38.7 million, but is listed at an asking price of $60 million.

Since 2002, the state has been trying to set assessments based on actual market values. Even so, in Indianapolis it is generally
understood and accepted that assessed values are lower than sale prices, said Jon R. Owens, a principal with the local office
of St. Louis-based Colliers Turley Martin Tucker.

Owens believes the whole assessment process should be overhauled.

"To me, the problem rests with the assessor," he said. "The system is just archaic, and they don't have
the manpower to do it accurately."

Assessing commercial properties such as office buildings requires a high degree of sophistication, since the buildings don't
sell often enough to rely on sales comparisons alone.

Instead, assessments have to consider the other two basic ways of valuing property: income-producing capability and replacement
cost, said Mark Brown, director of policy and research for the Indiana Association of Realtors.

Shifting burden

When a building owner's property taxes fall, the burden normally shifts to other property owners. However, higher assessments
for the city's skyscrapers probably would provide little relief to residential taxpayers. That's because many sit
within so-called tax-increment financing districts, where increases in property-tax collections are captured to pay down bonds
on downtown projects, such as the Conrad Indianapolis hotel.

That's one of many ways government leaders help spur private development, but it also makes it difficult to maintain
the tax base, said Center Township Assessor Eugene Akers.

"The governor and mayor are giving the city away, as far as I'm concerned," Akers said. "Business has
been getting away with murder."

Assessor Corsaro recalled a day back in 1979 when Jack E. Reich–then CEO of OneAmerica's forerunner, American United
Life Insurance Co.–paid him a visit. The company's new limestone-faced skyscraper was set to open in a few years, and
Reich wanted it assessed "as high as it goes, because it's the best."

No one makes that request anymore.