One was long and ran parallel to the street and Lake Superior. It generally offered a series of professional service agencies in its storefronts. The other stood beside it, perpendicular to the lake, and was owned by an architect, who requested privacy when reached about this story.
In 2018, Essentia paid $4.59 million for the two properties. The buildings have since been razed as the hospital expansion has proceeded. The property acquisition figure, found using St. Louis County reports, outpaced the assessed values of the land and buildings by $2.34 million.
“If Essentia didn’t need that property, and it was just up for sale, we don’t believe it would have sold for anywhere near that — that $2 million (each) mark,” said deputy county assessor Ben Thomas of St. Louis County.
Separately, 405 E. Superior St. sold to Essentia for $2.48 million, and 413 E. Superior St. for $2.11 million, property reports show. How Essentia came to pay so much for the property seems simple, given its well-touted overall $800 million private investment in the expansion project.
“We considered that sale an assemblage situation,” Thomas said. “Somebody has a plan and needs to assemble real estate to implement the plan, so we don’t consider that a typical sale.”
Essentia declined to answer questions about its acquisitions budget for expansion, but told the News Tribune in an email, "These are the only two (commercial) properties we purchased for the replacement St. Mary’s Medical Center that we’re building.”
How the commercial properties on East Superior Street became so highly-assessed in the first place is a matter of timing.
Through 2016, the county assessments totaled under $1 million for the two properties — coming in at $992,500 in tax assessed value, according to property details reports. Then in 2017, that number skyrocketed to $2.25 million.
That’s because in 2016, the county did a commercial reevaluation of the surrounding district. For the four blocks leading to Lake Avenue, it meant some gigantic recalculations — some properties more than doubling in value.
For Thomas and the county assessor’s office, that stretch of commercial property is difficult to assess. Assessors use data from neighborhood real estate transactions to set an assessment for a particular property. So, when an area has few or rare sales it becomes what Thomas termed "a pickle" for how assessed values can fly under the radar.
“In Lakeside, we might have 80 sales a year,” Thomas said. “That’s a lot of information, and we get all of this data telling us where we’re at.”
Most neighborhoods offer those troves of data, he said.
But not always. There are few properties sold in the blocks between the 400 block and Lake Avenue on East Superior Street. Prior to Essentia’s purchases, the most recent sale on that section of street came in 2012, at 310 E. Superior St., Thomas said.
The county assessment of that property at the time was decidedly off at $845,000 — or $855,000 under the $1.7 million sale price. Currently, the same property at 310 E. Superior St. is assessed at $1.69 million and taxed at $67,952 for 2019, according to its property tax statement on file with the county.
Thomas explained the large discrepancy between sale price and assessed value in those types of cases.
“Every time a property sells, it’s a test to show what the level and quality of our work is,” he said, admitting defeat sometimes. “But when we’re in an area with one sale a year on average, it’s hard to put big increases on, or justify any increases yearly, because we don’t have enough data to hang our hat on.”
The county reports its data to the Minnesota Department of Revenue, which oversees county assessments. To combat areas that languish undervalued, reevaluations are done every five years. Notably, a 2017 commercial reassessment campaign through downtown Duluth yielded outcry from commercial property owners the next year after property values were shown to be doubled in some cases.
“We did the western half of downtown and we made the news,” Thomas said. “That was the year after we did East Superior Street. We didn’t make the news then," even though there were similarly large adjustments made.
After declaring no commercial reevaluation districts in 2019, the county will move farther west downtown in 2020, as well as into Lincoln Park and other points up to the western edge of the city, Thomas said.
One aspect of the Essentia purchases at 405 and 413 E. Superior St. that lingers is the purchase prices themselves. Because the sale prices were roughly double the assessed values of the properties, the county will throw out those figures when determining the value of neighboring properties in the future.
The county assessor’s office has registered the Essentia purchases as non-typical of the market with the Department of Revenue.
“So that $2 million-plus sale (each) is not going to be used to judge our assessments,” Thomas said. “Other properties aren’t going to receive assessments of that nature, because we believe it was not a typical sale.”
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