The Assessor, however,
impeached Mr. Matheidas’s valuation opinion through Mr. Lichtenberg’s testimony
and consulting report. Mr. Lichtenberg, who is an experienced MAI appraiser,
credibly pointed to several problems with Mr. Matheidas’s analysis, including
Mr. Matheidas’s failure to apply a size multiplier and his use of an
insufficient sprinkler adjustment. Had Mr. Matheidas used the appropriate
adjustments, his improvement values would have been higher, ranging from
$1,621,688 to $1,725,317 for January 1, 2008, and from $1,603,198 to $1,705,810
for March 1, 2010. Without those adjustments, Mr. Matheidas found
depreciated improvement values ranging from $1,510,772 to $1,577,634.
The bigger problem with Mr.
Matheidas’s cost-approach analysis lays in his failure to include (1) soft
costs that were not otherwise included in MVS cost data, and (2)
entrepreneurial incentive.
…
The Board need not delve too
deeply into the issue here, because both experts apparently recognized that
generally accepted appraisal principles require including some amount for
entrepreneurial incentive or profit when valuing the subject property. Indeed,
in his closing argument, Mr. Matheidas acknowledged that had he done an
appraisal, he would have included indirect costs and “some entrepreneurial
profit.” Matheidas argument. Thus, Mr. Matheidas’s failure to include
those things detracts significantly from the credibility of his valuation
opinion. And contrary to Mr. Matheidas’s testimony, the sum of excluded
indirect costs and entrepreneurial profit or incentive together with Mr.
Lichtenberg’s other corrections amounts to far more than $200,000.
Mr. Matheidas’s errors are even
more troubling in light of his decision to rely solely on the cost approach
despite the fact that market participants do not rely on that approach when
buying and selling properties like the subject property. Mr. Matheidas
justified his decision to forego the income approach primarily on grounds that
ALC does not get any income from the subject real estate itself but instead
makes its money from services provided at the property. Even if ALC does not
operate the subject property to generate income from the real estate itself,
however, that does not automatically hold true for comparable facilities from
which one might draw market income and expense information. But the record says
little about whether such data exists, so Mr. Matheidas’s justification for not
applying the income approach arguably has at least some merit.
That cannot be said about Mr.
Matheidas’s justification for ignoring the sales-comparison approach—that sales
of assisted living facilities almost always include intangible property, such
as business enterprise value. Granted, the fact that sales may include
non-real-estate interests likely makes for a for a difficult valuation
problem—allocating comparable sale prices between real-estate and non-real-estate
interests. But it is a problem that appraisers and analysts are called on to
solve. Blanket statements that most sales include business value and that
allocation is too complex do little to justify ignoring a valuation approach on
which market participants heavily rely.
Mr. Matheidas also reasoned
that it is against the spirit of property assessment appeals to require
appraisals. He is right; the Indiana General Assembly has made it clear that a
taxpayer need not have an appraisal to initiate or prosecute an assessment
appeal. I. C. § 6-1.1-15-1(m); I.C. § 6-1.1-15-3(f). But that does not mean
that a taxpayer may ignore generally accepted valuation principles on grounds
that applying them would be too complex or expensive.
