Minneapolis 2027 Property Taxes: How Falling Downtown Values Hit Duplex and Fourplex Owners

Truth-In-Taxation notices start hitting Minneapolis mailboxes in November, and for a lot of duplex triplex and fourplex owners, future taxes are going to sting.

As I’ve shared in the past, Mayor Jacob Frey’s 2027 budget proposed an 11.3 percent increase in the city’s property tax levy to close a budget gap of more than $60 million. After all, things are more expensive for cities now, just like they are for consumers. Meanwhile, downtown office buildings keep losing value. Those two stories are connected. Let me explain why.

Most people assume property tax is a simple formula: your property’s value times a fixed rate. In Minnesota, taxes run the other direction. Each taxing jurisdiction- the city, Hennepin County, Minneapolis Public Schools, the Park Board, and a handful of special districts decides how much money it needs to raise. That total is the levy. The levy is then divided among every property according to each property’s share of the total tax base.

Not every dollar value counts the same.  Minnesota applies “class rates” by property type to convert market value into tax capacity, and commercial property is taxed at a substantially higher rate than homestead residential property. So, when a dollar of commercial value disappears, it takes more tax capacity with it than a dollar of residential value would.

That’s where the downtown office market comes into play.

During COVID, many traditional office workers discovered they could do their jobs from home. When things went back to normal, many were no longer interested in driving to the office 5 days a week.

Businesses quickly realized fewer people sitting at desks meant they didn’t need as much space. So, when their leases came up for renewal, they downsized.

That meant less revenue for the building owner. It’s important to note: the value of commercial buildings is determined by revenue, expenses, and cash flow.

Unlike loans on residential properties (including 2-4 unit buildings), commercial mortgages are typically fixed for a period of 5, 7 or 10 years. At the end of that time, the building owner is expected to refinance and sign on for whatever the going interest rate is.

During the low interest rate environment of COVID, just like the rest of us, many property owners refinanced into mortgages with lower rates.

Today, those same property owners must refinance again—but at higher interest and insurance rates, greater expenses and with lower revenue.

That means their building is worth less than when they refinanced five or more years ago. In fact, in many cases, the building is no longer worth what they owe. Many owners are simply giving their properties back to the bank.

This lowers values, which in turn inform assessed values. Case in point, the estimated market value of downtown commercial buildings went from about $7.5 billion in 2021 to about $4.1 billion in 2026.

When that much commercial value leaves the base, everyone else has to pick up the slack. City Assessor Rebecca Malmquist said about 2 percent more of the city’s overall tax burden moved from commercial to residential in 2026, following a similar 2 percent shift the year before.

Minnesota taxes run a year behind assessments: the values set in the 2026 assessment determine taxes payable in 2027. So the bills you’ll pay next year reflect both the bigger levy and the latest round of declines in downtown values at the same time.

Here’s the detail that gets missed. When the city and the press talk about “residential” property absorbing the difference, that category includes single-family homes, condos, duplexes, and triplexes. Small multifamily is in the group picking up the slack.

I don’t want to blame everything on downtown offices. The increase in the levy is certainly a large part of the equation too. The truth is, both higher city and county expenses, coupled with declining commercial property values, are creating a painful double-whammy for not only small multifamily property owners, but homeowners as well.

What can you do about it?

If you’re analyzing a 2–4 unit purchase in Minneapolis (or any other city that’s announced a higher tax levy), don’t plug in the seller’s current tax bill and call it done. Taxes are going to be higher in 2027 than in 2026 on most properties. Factor that into your pro forma.

And if you already own?

Pay attention when your proposed tax statement shows up. It should include the date of the public hearing for your jurisdiction. The City Council adopts the final budget in December after that hearing, and council members have said they want to bring the levy down. That hearing is where the final number gets negotiated. If you attend the hearing, you can make your thoughts known.

Next, you can’t appeal a levy, but you can challenge your assessed value. Your valuation notice arrives in the spring, and Minneapolis offers an informal review followed by formal appeal options.

Here’s where a market shift benefits you. If your assessed value is out of line with what your property would actually sell for, it’s worth a look. Contact me immediately. I am happy to take a look and provide you with any comparable sales that can help your case. Know that appeal windows and deadlines are strict, so mark your calendar for those deadlines when the notice arrives.