Best Buy seeks lower property tax with Richfield headquarters 'half vacant'

Best Buy is asking for a property tax break on its headquarters in Richfield, pointing to offices they think have become less valuable as more people work from home.

As part of the agreement for subsidies that funded the Richfield headquarters 20 years ago, Best Buy agreed to pay property taxes on a property value of no less than $118.5 million until the end of 2025.

Now, Best Buy wants to cut that value by at least $37 million, arguing its suburban office park is not worth nearly as much post-pandemic.

Building Best Buy's headquarters in the early 2000s cost $300 million, according to Star Tribune archives, including public subsidies worth more than $59 million. Best Buy officials now say their property may be worth between $60 million and $81.5 million.

Richfield has signed off on the deal to lower Best Buy's assessment below the $118.5 million floor, but the Richfield school board has yet to vote on the matter. Without the board's approval, Best Buy cannot get out of the agreement.

The company says it would benefit because it wants to rent out vacant space in the cavernous building, but argues high taxes are preventing it from offering competitive rates amid a glut of office space in the Twin Cities.

Best Buy is offering to make a one-time payment to the school district in 2025 to offset some of the impact.

But in 2025, the Richfield Housing and Redevelopment Authority, which funds Section 8 vouchers for poor renters and runs other housing programs, would stand to get less in tax revenue.

Because the Best Buy property has not been formally assessed yet, it's not clear what the difference would be between taxes the company would pay in 2024 and 2025 if the minimum-value agreement ends.

"Our intent is that the [school] district and its taxpayers will not be negatively impacted," Best Buy's Vice President and Tax Counsel Tracy Smith said at a Richfield school board meeting this week.

Richfield school superintendent Steven Unowsky said he would not sign off on any agreement that will hurt students or cost taxpayers.

"Schools will not lose nor will residents, and we will not allow this to impact student funding," he said.

Richfield approved tens of millions of dollars in tax increment financing, or TIF, to lure the Best Buy headquarters from Eden Prairie a quarter-century ago. TIF captures the increase in property tax revenue on a redeveloped area and redirects it to infrastructure in that area or affordable housing, rather than general city services.

The city spent $48 million to buy land for Best Buy — bulldozing more than 100 homes and three car dealerships. It also spent $8 million expanding the Penn Avenue Bridge over Interstate 494 to deal with thousands of new commuters, and another $3.5 million on other infrastructure.

Richfield and Best Buy agreed to set the value for the headquarters property at $118.5 million as part of the TIF agreement. The minimum-value agreement was meant to shield the city from risk by making sure the city would always have enough income from the TIF district to make payments on the bonds that funded the subsidies. The bonds will be fully paid in February 2024. Best Buy argues its obligations to the city will have been met.

When the TIF agreement ends at the end of 2025, the value of the property will be assessed according to fair market value. Best Buy is asking to have the value assessed at market value a year early, hoping the assessment will lower its property tax bill.

Smith told the school board a recent estimate pegged the market value of the campus at $81.5 million, but over the summer told the city it could be worth as little as $60 million.

"Our Richfield campus today is half vacant," she said.

In an email, Best Buy said most employees work from the office three days per week, though some employees are fully remote. The company has rented office space to tenants in the past, according to the company.

Mayor Mary Supple said coming to an agreement with Best Buy over the value of the property has been a frustrating process. But said she supported the agreement, and urged the school board to sign off on Best Buy's request, in the interest of keeping the office building viable and contributing property taxes.

Richfield's Housing and Redevelopment Authority estimated it will lose between $105,000 and $192,000 in revenue in 2025 if the property value is decreased.

The city believes it overpaid Best Buy with the TIF money by $851,000 for redevelopment costs years ago. The company has agreed to refund Richfield that money, even though Best Buy believes Richfield shorted them by $600,000.

Unowsky and the school board are asking Best Buy to pay $150,000 in 2025 to make up for both lost revenue and the taxpayer-funded staff time spent dealing with the issue. Best Buy has yet to formally agree to that payment, but Smith told the school board it seemed feasible. The board likely will vote on an agreement on Dec. 18.

When the TIF agreement ends and the property taxes are distributed normally instead of flowing primarily to the Housing and Redevelopment Authority, Unowsky said the school district should get more money from the Best Buy property. He estimated funding for the school district could increase by about $400,000 in 2026, once the TIF expires. The city's general fund also will get more money when the TIF ends.

In an earnings report last month, Best Buy CEO Corie Barry announced "better-than-expected profitability" on $9 billion in revenue for the prior three months. The company spent $313 million paying shareholder dividends and buying back stock in the quarter.

Clarification: This story has been updated to note that the bonds that funded subsidies for Best Buy's headquarters will be fully repaid in 2024.