No one should cry when Chanel or Dolce Gabbana on Newbury Street is stuck with a property tax bill that matches its designer prices. It’s Michelle Merrill we should all be worried about.
She’s the Quincy woman living her dream of owning a Newbury Street hair salon. But her new tax bill from the city of Boston is threatening to kick Salon 350 out of the Back Bay: $6,000, up from just under $2,000 in 2014.
“We’re going to try to get through the year,” said Merrill, whose lease is up next April.
The sticker shock is being felt up and down Newbury and Boylston streets, where a red-hot real estate market has sent assessed values skyrocketing 29 percent, on average; the rest of Boston experienced close to an 11 percent bump. Commercial property tax bills are based on the value of buildings in the neighborhood, which the city determines by analyzing real estate sales and rents.
But what may be good for city coffers — the total value of property in Boston went up by $10 billion — is hurting the bottom lines of small businesses in this part of the Back Bay. One yoga studio on Boylston Street will see its taxes jump to nearly $45,000, up from $14,000. The tax bill for Lolita Cocina & Tequila Bar, on Dartmouth between Newbury and Boylston streets, will double to $140,000.
“It is a game-changer,” said Meg Mainzer-Cohen, president of the Back Bay Association, which represents neighborhood businesses and has been inundated with calls about the new assessments. “I don’t know how many businesses in the Back Bay will close, but I’m concerned many will.”
Talk to merchants and property owners, and they feel left out to dry by the city assessor. Many businesses have leases that require them to pay their portion of the building’s property taxes.
No business budgets for these kinds of hikes. Taxes go up. They get that. They even expect that. But this much? The business owners wonder if something can be done to absorb the shock.
Instead of compassion, this is the message from the city: Fend for yourselves. You can afford it.
But here’s the dirty little secret about the Back Bay: Yes, you’ll find the hoity-toity shopping at Gucci, Burberry, Tiffany & Co., and other fancy shops, but nearly 65 percent of businesses in the neighborhood are small and independent.
The hair salons, restaurants, bridal shops, tailors, art galleries, yoga studios, and boutiques sandwiched between high-end specialty stores and chains make Newbury and Boylston streets special. Imagine the frustration of these mom and pops: Investors from around the world scoop up buildings that drive up real estate values, their landlords get richer (even if on paper), but the tenants are stuck holding the bag — or in this case the bigger tax bill.
“There is a lot of cheap money floating around. [Investors] are buying buildings at insane valuations,” said Chris Jamison, owner and managing partner of the Mexican restaurant Lolita. “I’m now the one paying all the taxes and seeing the downside of the valuation.”
Jamison, who opened Lolita in 2010, said his tax bill will surge by $67,000 in 2015, and he’s counting the days until his lease is up in four years or so. “We won’t stay in the Back Bay a minute longer if this is not reversed or changed,” Jamison said.
Some landlords are complaining too because they don’t want to raise rents to the point where they lose longtime tenants. Property owners don’t have to pass along the increases, but when they go up by this much it’s hard for them to eat the difference.
“It should be fair,” said Jon Rotenberg, who manages and owns eight buildings in the area, of the city’s assessing process. “This is not fairly done.”
Ron Rakow, Boston’s commissioner of assessing, thinks he has been more than fair. In fact, he called his analysis of Newbury and Boylston streets “conservative.”
Aware of the prices that buildings in the neighborhood were fetching, Rakow leaned more heavily on other market indicators, such as leases, to determine assessed values, rather than just real estate sales. His office also took the unusual step of notifying Back Bay property owners last fall of the coming higher taxes.
When assessed values go up, the city tries to offset the increase by lowering the tax rate to comply with Prop 2½ limits. For this current fiscal year, the assessing department lowered the commercial tax rate citywide by 5.3 percent.
Still, the average tax bill for both residential and commercial owners on Newbury and Boylston streets rose 18.4 percent, compared to 5.7 percent citywide, according to city records.
Rakow points to how values, in particular on Newbury Street, have soared every time buildings change hands. Take 275 Newbury: In 2014, the building sold for $12.5 million; its previous sale, in 2004, was $5 million.
“This is very unusual market activity,” said Rakow. “We are required by the state statute to assess values by their market value. It puts the city in a tough position.”
Couldn’t he spread out the higher property values across the city to even out the pain?
“If we assessed everyone to the same market standard, you have parts of the city that are subsidizing others,” he said. “I don’t know if there is anything we could have done differently.”
While building owners are filing requests with the city to reduce their taxes, their tenants are finding ways to pay these bills. Small business owners are taking pay cuts and looking at cutting employees’ hours. Some are passing along the costs to customers.
This week at Salon 350, Merrill reluctantly raised the price of haircuts and other treatments by $5 to $10. The salon has been in its 500-square-foot space on the third floor overlooking Newbury Street for eight years. She wants to stay.
Merrill put out a plea to landlords and Mayor Martin J. Walsh to help small businesses like hers. And here’s why: When her clients come to get their hair done, they’re not just lining her pockets. They make a day of it, dropping dollars all over the neighborhood, whether it’s lunch at Sonsie or shopping at Newbury Comics.
For Merrill, it’s also about what Boston in general and the Back Bay in particular want to be. Do we want AT&T, Fendi, and only stores that can stomach the high cost of doing business?
“I know the city is changing, and we’re getting a lot of high rises,” said Merrill, but “there has to be a happy medium.”