The three biggest markets for real estate activity in Texas are Dallas, Houston and Austin. On the positive, as an overall trend, market values seem to be increasing in all three cities. Unfortunately, with the increase in market values there is a corresponding increase in assessed values and property taxes.

Although the major Appraisal Districts in the three markets have similarities, there are some differences in the amount and distribution of the increases across asset types.

Of the three, Dallas County had the lowest overall increase in assessed value for commercial real estate with a 4.2 percent increase. Of note, this number also includes new construction or rehab, but the majority of the difference is accounted for in increases of existing properties. Dallas County had a more targeted approach in where it increased values in 2012. Not surprisingly, hospitality and multi-family had the largest increases at 17 and nine percent respectively. These were followed by office at five percent, industrial at two percent and retail was flat at zero percent growth.

In Houston, the Harris County Appraisal District was more aggressive and the values increased by 7.8 percent for commercial property. The level of increase was spread more evenly across the various asset types than Dallas or Austin’s Travis County. Once again, hospitality had the largest increase at 14 percent. This was followed by office at 11 percent, multi-family at eight percent, industrial at six percent, and retail at five percent. Of note, the industrial sector grew in Harris County more than Dallas or Travis, and that seems to be in line with how their respective markets have been.

Travis County has seen remarkable growth over the last few years, and the 2012 assessed values are reflective of that with a 9 percent increase on commercial property. As with both Dallas and Harris County, hospitality led the way with a 15 percent increase in values. This was followed by office at 13 percent, multi-family at 11 percent, retail at four percent and industrial at three percent.

Now, what do these numbers mean for the future? There are a few points that we feel are good possibilities for 2013.

· We feel that the Dallas County Appraisal District will be more aggressive than it was in 2012. The growth in assessed value was almost half of Harris County, and it is certain that many would argue that commercial real estate growth in Dallas has been almost or just as good as Houston. Furthermore, Dallas County has room to grow in a more balanced fashion with bigger percent increases in both office and retail.

· Overall, the hospitality sector will continue to see growth in assessments that should be at the same rate as revenue per available room (RevPAR) growth.

· Multi-family will continue to be a major driver in the growth of property tax revenue in each of the jurisdictions. Due to the pricing and transaction volume, we believe growth in 2013 will be similar to that of 2012. Specifically, since Harris County was slightly less aggressive this year, they may choose to compensate for that in 2013.

Assessed values tend to increase when there is high transaction volume, when revenues are increasing, or cap rates are contracting. We are seeing elements of all three in the various real estate sectors in 2012. Since the 2013 assessed values are based off 2012 numbers, investors should expect increases in 2013 similar to those in 2012, and in some cases, appraisal districts will choose to be more aggressive than before.