With commercial property valuations up in the air and tenant finances in disarray after the coronavirus pandemic, commercial property owners face a challenging 2021 tax season.

Property owners in most commercial real estate asset classes face major uncertainties when it comes to their current property values and long-term cash flow as tenants struggle to pay rent amid economic pain. And it's nearly impossible to get the right property valuation in a market where buildings are losing their value because of the coronavirus rather than true market dynamics, experts say.

That is expected to create havoc during the next tax season.

"I think valuations are very difficult right now," Ryan principal Susan Orloff said while speaking at a Bisnow webinar titled "From Tax Valuations To Distressed Sales."

"The concern is whether you are going to be overvalued if everyone is using pre-COVID numbers, or if you are undervalued [because] you are just looking at your income in place right now."

Generally, during tax season, assessors want to collect hard facts from property sales data to inform their opinions, Orloff said. Unfortunately, that is difficult to do in today's market with the coronavirus impacting the industry's economic health and fewer sales going forward to set the bar for other valuations.

Commercial property owners should be prepared to fight excessive property valuations and to ensure they're not over or under-appraised when their buildings are facing the shock of a one-time black swan event, Ryan's tax experts said.

Hard-hit sectors like retail and hospitality will probably have to rely more extensively on outreach to local administrative authorities and tax assessors to get their values right, Ryan principal Brad Wallace said.

"As an owner in the hospitality space, you are very well within your rights to expect an adjustment in your overall tax liability across your portfolio," Wallace said. "You just have to be specific on your expectations and dial in on the local codes and landscape to form your conclusion."

In at least one state, Wallace has already witnessed taxing authorities assenting to different commercial property values to reflect the reality of the real estate's value in the wake of the pandemic.

The best way to do this is to ensure owners are tracking critical interactions with tenants and preparing to possibly bring this information to the forefront in any type of tax appeals process, Orloff added.

"The biggest thing I tell my clients is to document what happened and when," Orloff said. "The more you can prove how long you were closed or when you found out about bankruptcies or defaults ... the more documentation and sturdy history you can give to a tax person."