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Inform Interiors and Bensen Manufacturing owner, Niels Bendtsen, poses for a photograph in Vancouver, B.C., on Monday January 9, 2017.

Darryl Dyck/The Globe and Mail

Niels Bendtsen is one of Vancouver's longest-standing design and manufacturing success stories. He has been designing and making furniture in Vancouver since 1963 and his Ribbon Chair sits in the permanent collection of the Museum of Modern Art in New York. But a recent eye-popping property tax assessment has Mr. Bendtsen considering if he should relocate his business to another city.

Mr. Bendtsen owns warehouse, manufacturing and office space in Railtown, which is part of the Downtown Eastside. The rundown area near the city's industrial waterfront had long been ignored. But nearby residential real estate prices have skyrocketed, gentrification is pushing eastward, and even an area strictly zoned for industry is feeling the pressure of greater demand.

A couple of high-priced recent sales and increased interest in the area have meant major jumps in property values. Mr. Bendtsen's property at 365 Railway St. tripled in value: It was assessed this month at $12.245-million, compared with $3.93-million the year before. In 2016, he paid $60,307 in taxes on the property; based on the 2017 value, his taxes will climb to $147,000.

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Mr. Bendtsen's property at 405 Railway was just assessed at $14.512-million, up from $5.751-million last year. In 2016, he paid $68,852 in taxes. Based on the 2017 value, his taxes will be an estimated $175,000.

Mr. Bendtsen says it's unfair to penalize small and mid-size businesses that bring manufacturing jobs to the city. He has 75 employees in Railtown; however, he is considering a move to Toronto, where commercial properties are much cheaper.

"[The city] says they want this type of business down there, and yet they are taxing us out of there," says Mr. Bendtsen.

"I was going to develop one of the properties, build on it and make a new building. But with these tax rates, there's no way of doing it," he says. "Of course I can sell them, but that's not really what I felt like doing. I want to be in business."

Paul Sullivan, of property tax consultants Burgess Cawley Sullivan & Associates, says he's preparing for what could turn into the "biggest tax revolt in Canadian history." Although Railtown was one of the hardest hit areas, Mr. Sullivan says Vancouver's insane property market is wreaking havoc for businesses throughout the city. In the West End, on major shopping streets like Denman, Robson and Davie streets, it's the small retailers getting hit hard.

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Mr. Bendtsen and several other businesses around the city have hired Mr. Sullivan to appeal the assessments. He expects more to sign on to appeal before the deadline at the end of the month. He says his inbox is full of unread e-mails from angry businesses.

He cites a restaurant at 703 Denman St., that has risen in value by 268 per cent from last year, with new taxes estimated to increase to $614,000 from about $229,000. He says a public market building at 1610 Robson is also facing a 268-per-cent increase in value, with taxes estimated to rise to $727,000 from $272,000.

Tenants running small businesses, which make up most of Railtown, will be hardest hit, Mr. Sullivan says. The majority of leases in Vancouver are "triple net," which means the tenant pays the landlord the rent, but is also responsible for maintenance and property taxes. With an unexpectedly huge tax hike, many businesses won't survive, he says.

Mr. Sullivan says a couple of factors are at play in the industrial area: assessments in previous years were likely lower than actual market value and buyers are moving into the area and paying unexpectedly high prices.

He says part of the problem is that like many municipalities, Vancouver assessments are based on the potential for development of the property, as opposed to actual use. Also, city policies are having an impact. In the West End, the city has rezoned for significantly more high-density residential, which has driven up prices. The change could signal a similar move in the east side of the city.

"Density is good, but density drives value," says Mr. Sullivan. "In the case of the West End, what has happened is we've allowed residential density… and that has driven these values out of sight. You are going to destroy every local independent business during the process."

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Mr. Sullivan has joined city councillors Geoff Meggs and Raymond Louie, as well as the Urban Development Institute – which represents the development industry – to ask the province to rewrite legislation on how small businesses are taxed. The goal, he says, is to bring property values in line with actual use.

"If we've got a cruddy little building that a guy is using for an incubator business, and that's all they can afford, the assessment should reflect that cruddy little building and not a beautiful redevelopment at three times the price," he says. "But half the values are based on redevelopment."

Mr. Louie, acting mayor and former finance chair, says the city's hands are tied because of the valuations made by BC Assessment, a Crown corporation that assesses all B.C. properties. Only a change in legislation can help small businesses, he says.

"I am worried about these small businesses continuing on, when the tax bill continues to rise because of the way BC Assessment assigns values to these properties … Ultimately, the resolution to this lies at the province's feet."

Jason Grant, BC Assessment's assessor for Greater Vancouver, says B.C.'s system is one of the purest examples of a market value system that is measured annually.

"At the end of the day, the taxes you pay relative to others are based on the market value of your property. If you have a property worth twice as much as someone else, you are going to pay twice as much in taxes."

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He adds that he's open to hearing concerns, and "walking people through" their assessments.

As for Railtown, Mr. Sullivan believes that there's an inconsistency in the assessments, which will probably form the basis of their appeal.

Steven Fast, a commercial real estate broker and long-time landowner in Railtown, says he is among the businesses that will appeal. He believes the values are too high relative to similar buildings in gentrified mixed-use areas, such as Gastown and Yaletown.

"The increase is so dramatic I think somebody has made an error," says Mr. Fast. "I'm sure every owner will appeal it. I expect everyone will."

He also acknowledges that property owners are benefiting from the situation, since their values are tripling. On the downside, it means that anyone wanting to run a business is losing.

"The sad part is that Mr. Niels' manufacturing business can't survive on Railway. The unsad part is that his property has at least quadrupled in value."

A new real estate report from Royal LePage analyzing trends in the last quarter of 2016 suggests that the GTA will become the hottest housing market in the country in 2017, surpassing Vancouver.
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