By the Numbers
If you have owned your industrial building for fifteen or twenty years, the property tax line on your operating statement is one of the best numbers on the page. It is also the number your buyer will never get to use. The day escrow closes, the county reassesses the property to its new market value, and the tax bill your buyer inherits can be three or four times what you have been paying.
That matters to you, not just to them, because buyers underwrite the tax bill they will actually pay. If you market the building on your historical expenses, you are showing a return that does not exist for the person writing the check — and sophisticated buyers will re-trade you on it.
How Prop 13 works, and what resets it
Proposition 13, passed in 1978, set a property's assessed value at its purchase price and capped annual increases at 2%. The base rate is 1% of assessed value, and voter-approved bonds and special assessments push the effective rate in most Contra Costa, Alameda, and Solano County jurisdictions to roughly 1.1%–1.3%.
The cap holds until a change of ownership. At that point the assessor establishes a new base year value at the property's fair market value — generally your sale price — and the 2% clock starts over from there. The county issues a supplemental assessment covering the balance of the tax year, which often lands months after closing and surprises buyers who budgeted from the seller's statement.
Worth noting: the 2020 split-roll ballot measure that would have reassessed commercial property annually did not pass, and Prop 19 changed transfer rules for residential property, not industrial. The commercial framework here is the same one that has been in place for decades.
The math a buyer runs on your building
Take a Concord multi-tenant industrial park purchased in 2004 for $1.6 million and now worth $5 million. With the 2% cap, its assessed value has drifted to roughly $2.3 million, and the owner pays about $27,000 a year in taxes. Reassessed at a $5 million sale price, the new bill runs about $60,000 — a $33,000 annual increase.
If that $33,000 comes out of net operating income, the value impact is not $33,000. At a 6.5% cap rate it is roughly $508,000 ($33,000 ÷ 0.065). That is the gap between an operating statement built on your taxes and one built on your buyer's. It is the same arithmetic that governs rising insurance and carrying costs — every dollar of unrecovered expense is worth about fifteen dollars of value at today's cap rates.
Your lease structure decides who absorbs it
Whether reassessment actually hits value depends almost entirely on how your leases are written.
- True NNN leases pass real estate taxes through to tenants, including increases from reassessment. NOI is largely protected, and the buyer's underwriting barely moves.
- Industrial gross or modified gross leases leave the owner holding some or all of the increase. This is where the full value hit shows up.
- Base-year stop clauses are the middle case. The tenant pays increases over a base year — but if that base year is a decade old and resets on sale, read the clause carefully. Some are written so a new owner's higher taxes are recoverable; others are not.
In practice, most East Bay small-bay multi-tenant parks are a mix. A rent roll with four NNN tenants and three gross leases has a partial exposure, and the number is knowable before you go to market.
Pro Tip: Recast your operating statement before you list
Build the pro forma the way your buyer will: replace your historical tax figure with an estimated post-sale assessment at your target price, then apply your actual lease recovery terms. If the recast NOI still supports your number, you can defend the price with data. If it does not, you would rather know that in your own office than in a re-trade conversation two weeks before closing.
The entity-transfer wrinkle
Reassessment is triggered by a change of ownership, not only by a deed. If the property is held in an LLC, partnership, or corporation, transferring a cumulative majority interest — or a single person or entity obtaining more than 50% control — generally triggers reassessment of the entity's California real property. Legal entity ownership changes carry their own reporting obligation to the State Board of Equalization.
The practical takeaway for owners planning a partial exit, a partner buyout, or an estate transfer: the structure of the transaction can change the tax outcome. This is a question for your CPA and real estate counsel before documents are drafted, not after.
What to do before you go to market
Three steps, in order:
- Pull your current assessed value from the county assessor and compare it to your target sale price. The spread is your buyer's exposure.
- Audit your leases for tax recovery language — specifically whether reassessment increases are recoverable and whether any base-year stop resets on sale.
- Get a valuation built on recast NOI, not historical expenses. If you are working through what your building is worth today, our guide on how industrial buildings are priced in 2026 walks through the cap-rate math this sits inside.
None of this reduces what your building is worth. Reassessment is a fact of every California commercial sale, and every comparable sale in your submarket priced through it. The owners who get full value are simply the ones who know the number before the buyer brings it up.
Want Your Building Priced the Way a Buyer Will Underwrite It?
I will recast your operating statement with post-sale taxes and your actual lease recoveries, then run the comps — so you see the number a buyer would defend. No obligation.
Request a Broker Opinion of ValueThis article is general information, not tax or legal advice. Assessment practices and rates vary by county and by transaction structure — confirm your specific situation with your CPA and counsel.