Saturday, November 10, 2012

Board Finds Taxpayer's Trended Sale Price More Probative of Mall's Value than County's Income Valuation

Here the Petitioners argue that their property was over-assessed in 2006 and 2007 based on the property’s $18,000,000 sale price in December of 2007. In order to show that the sale was a valid, arms’ length transaction, Mr. Kingsley testified that the property was sold because it was not a strategic asset, but the property’s use remained a regional mall after the sale. In addition, Ms. Vosper testified that the property was offered by a broker to a large number of prospective purchasers; bids were taken from interested parties; and Simon negotiated a final purchase price with the highest bidder. Both Mr. Kingsley and Ms. Vosper testified that Simon’s goal in the sale was to “maximize the selling price” of the mall. Finally, the Respondent’s expert testified that the sale appeared to have been an arms’ length transaction. According to Ms. Coers, there was no evidence of a relationship between the seller and the buyer and there was no indication of inappropriate sales conditions or atypical financing. Moreover, Ms. Coers testified that she found that the property was adequately marketed and the seller and buyer were knowledgeable, willing and typically motivated participants.

In order to explain how the property’s sale price related to the property’s value as of January 1, 2005, and January 1, 2006, the Petitioners presented testimony from Ms. Coers, who explained how she trended the subject property’s December 27, 2007, sale price back to the March 1, 2006, and March 1, 2007, assessment dates and from the assessment dates to the relevant valuation dates of January 1, 2005, and January 1, 2006. Ms. Coers testified that she used the average change in capitalization rates and the changes in the price index from Real Capital Analytics and Moody’s Investor Services to develop her trending factor. The Petitioners’ representative then applied Ms. Coers’ trending factors to the property’s purchase price, concluding that the value of the subject property was $15,281,398 for the 2006 assessment year and $16,849,758 for the 2007 assessment year.

The sale of the subject property is often the best evidence of the property’s value. See Hubler Realty Co. v. Hendricks County Assessor, 938 N.E.2d 311, 315 (Ind. Tax Ct. 2010) (finding that the Board’s determination assigning greater weight to the property’s purchase price than its appraised value was proper and supported by the evidence). The Petitioners presented sufficient evidence that the property was sold in a valid, arms’ length transaction and the Petitioners trended the sale price to the relevant valuation dates for both of the assessment dates at issue in this appeal. Thus, the Board finds that the Petitioners raised a prima facie case that the property’s true tax value was $15,281,398 for the 2006 assessment year and $16,849,758 for the 2007 assessment year.

Once the Petitioners establish a prima facie case, the burden shifts to the assessing official to rebut the Petitioners’ evidence. See American United Life Insurance Co. v. Maley, 803 N.E.2d 276 (Ind. Tax Ct. 2004). To rebut or impeach the Petitioners’ case, the Respondent has the same burden to present probative evidence that the Petitioners faced to raise their prima facie case. See Fidelity Federal Savings & Loan v. Jennings County Assessor, 836 N.E.2d 1075, 1082 (Ind. Tax Ct. 2005).

The Respondent’s counsel first argues that the property’s sale price was not sufficient by itself to support a determination of the market value in use of the subject property as of either of the relevant valuation dates. According to the Respondent’s witness, the subject property was offered on the open market for insufficient period of time because the average time for a mall to sell was between six and twenty-four months. On cross-examination, Ms. Beckman conceded that the sale of the subject property encompassed roughly a nine month period. Thus, even given Ms. Beckman’s time frame for a valid sale, the sale of the subject property fits within this time frame. Moreover, the Petitioners’ witnesses credibly testified that the subject property was aggressively marketed to obtain the maximum amount of profit possible.

On cross-examination the Respondent’s representative also sought to prove that, because the subject property was de-branded in 2005, it was in decline. However, Petitioners’ witness Mr. Kingsley testified that, while the subject property was in fact de-branded in 2005, the property was still operated as a mall and run as if the Simon name remained on the door. Moreover, the Petitioners established that the buyer of the property intended to continue to run the subject property as a mall.

Ultimately, much of the Respondent’s criticisms of the property’s sale price in 2007 centered on the Assessor’s belief that the property was performing better in the years leading up to the sale. And, in fact, Mr. Kingsley testified that the property had been declining steadily. But the Respondent’s evidence fails to show any significant deterioration during the relevant time period sufficient to disregard the sale price. For example, the Respondent’s evidence shows that Lafayette Square Mall’s total occupancy was reported to be 61% on March 1, 2006, 59% on March 1, 2007, and 60% in October of 2007. Respondent’s Exhibit 19. Similarly, the Respondent’s evidence shows that the mall’s total income was $7,912,283 on March 1, 2006, $7,943,392 on March 1, 2007, and $7,918,947 in October of 2007. Id. And while it is true the Mall was debranded by Simon Property Group, that debranding occurred in 2005 – which is prior to the assessment years at issue in this appeal.

The Respondent’s counsel also argues that the property’s December 2007 sale price should be disregarded because the purchase price did not represent the property’s market value-in-use. In support of this contention, Respondent’s representative presented an income approach analysis. “The income approach to value is based on the assumption that potential buyers will pay no more for the subject property … than it would cost them to purchase an equally desirable substitute investment that offers the same return and risk as the subject property.” MANUAL at 14. The income approach thus focuses on the intrinsic value of the property rather than the Petitioners’ operation of the property because property-specific rents or expenses may reflect elements other than the value of the property “such as quality of management, skill of work force, competition and the like.” Thorntown Telephone Company, Inc. v. State Board of Tax Commissioners, 588 N.E.2d 613, 619 (Ind. Tax Ct. 1992). See also MANUAL at 5 (“[C]hallenges to assessments [must] be proven with aggregate data, rather than individual evidence of property wealth. …[I]t is not permissible to use individual data without first establishing its comparability or lack thereof to the aggregate data”). Here, Ms. Beckman based her opinion entirely on the rent rolls from tenants at the mall. She made no attempt to show how the rents or expenses she used compared to the market.

Ms. Beckman also failed to adequately support her choice of capitalization rates. A capitalization rate “reflects the annual rate of return necessary to attract investment capital and is influenced by such factors as apparent risk, market attitudes toward future inflation, the prospective rates of return for alternative investments, the rates of return earned by comparable properties in the past, the supply of and demand for mortgage funds, and the availability of tax shelters.” See Hometowne Associates, L.P. v. Maley, 839 N.E.2d 269, 275 (Ind. Tax Ct. 2005). Here Ms. Beckman testified that she chose her capitalization rate from the Korpacz survey for the 4th quarter of 2004. And Respondent’s Exhibits 8 and 9 show that she used an 11.75 percent rate in 2006 and an 11.5 percent rate in 2007. However, the Respondent’s Exhibit 12, shows that
capitalization rates for Non-Institutional Grade Regional Malls ranged from seven percent to 13.5 percent for 4th quarter 2004 and 4th quarter 2005. And they ranged from 6.5 percent to 13.5 percent in 2006. While the rules of evidence generally do not apply in the Board’s hearings, the Board requires some evidence of the accuracy and credibility of the evidence. See Whitley Products, Inc. v. State Board of Tax Commissioners, 704 N.E.2d 1113, 1119 (Ind. Tax Ct. 1998). Thus, it was incumbent upon Ms. Beckman to fully support her choice of capitalization rate.

Further, while Ms. Beckman’s analysis may not differ significantly from the calculations made by a certified appraiser in an appraisal report, the appraiser’s assumptions are backed by his education, training, and experience. The appraiser also typically certifies that he complied with the uniform standards of professional appraisal practice. Thus, the Board, as the trier-of-fact, can infer that the appraiser used objective data, where available, to quantify his adjustments. And where objective data was not available, the Board can infer that the appraiser relied on his education, training and experience to estimate a reliable quantification. Here, however, there is no evidence that Ms. Beckman is a certified appraiser; she did not establish that she has any particular expertise in applying generally accepted appraisal principles; and she did not certify that she complied with USPAP in performing her valuation analysis. Consequently, Ms. Beckman’s income analysis is less reliable than the property’s sale price, which was trended to the relevant valuation dates by the Petitioners’ appraiser.