[N]either of the assessments at issue here represents an increase of more than 5% over what the Assessor had determined for the previous year. Thus, on its face, Ind. Code § 6-1.1-15-17.2 does not shift the burden of proof the Assessor.
Wesleyan, however, argues that all three assessment years (2008-2010) must be viewed together, and that, had the Assessor properly valued Wesleyan’s real property at $3,006,060 (the amount reflected in Bovee’s appraisal) on March 1, 2008, that assessment would have carried forward in succeeding years. Consequently, argues Wesleyan, if the Assessor sought a different value for the ensuing assessment years, she had the burden of proof to show what an appropriate trending factor would be.
In making that argument, Wesleyan apparently recognizes that, for evidence to be probative in an assessment appeal, the party offering the evidence must explain how it relates to the property under appeal’s value as of the appropriate valuation date. O’Donnell v. Dep’t of Local Gov’t Fin., 854 N.E.2d 90, 95 (Ind. Tax Ct. 2006). And that valuation date varies depending on the assessment date under appeal. For March 1, 2009 and March 1, 2008 assessments, the valuation dates were January 1, 2008 and January 1, 2007, respectively. See 50 IAC 21-3-3(b)(2009) (“The valuation date is January 1 of the year preceding the year of the assessment date.”). For March 1, 2010 assessments, the valuation date was March 1, 2010. I.C. § 6-1.1-4-4.5 (f); 50 IAC 27-5-2 (c).
Thus, Wesleyan apparently seeks to shift to the Assessor the burden of relating Wesleyan’s evidence to the appropriate valuation dates for these appeals. Wesleyan, however, reads things into Ind. Code § 6-1.1-15-17.2 that simply are not there. Thus, to the extent that Wesleyan relies on Bovee’s appraisal, it is Wesleyan’s burden to show how that appraisal relates to the valuation dates for the March 1, 2009 and March 1, 2010 assessment dates at issue in these appeals.
…
The Board first notes that Lichtenberg and Bovee mostly arrived at similar numbers in valuing the entire business enterprise (i.e., the real estate, intangible business assets, and FF&E)—Bovee valued the entire enterprise at $---------- as of January 1, 2007, while Lichtenberg offered the following values:
· January 1, 2007: $----------
· January 1, 2008: $----------
· March 1, 2010: $----------
To the extent that the appraisers differed in their methodologies for valuing the business enterprise as a whole, the Board generally finds Bovee’s opinion to be more credible. First, while both appraisers valued the property retrospectively, Bovee used information from around the January 1, 2007 valuation date. Lichtenberg, on the other hand, initially valued the property as of March 1, 2010, mostly using data from well after 2007, and trended his conclusions back to January 1, 2007. Bovee’s opinion therefore more closely mirrors the likely decision-making of an informed investor both on the March 1, 2008 assessment date and the January 1, 2007 valuation date applicable to that assessment.
Similarly, Bovee largely provided more support for various subjective judgments underlying his valuation of the business as a whole than did Lichtenberg. For example, while both appraisers found wide ranges of sale prices under their respective sales-comparison analyses, Bovee offered a more detailed and reasoned comparison between Wesleyan’s facility and his comparable sales. He also gave detailed explanations to support his adjustments to those sale prices, including adjustments for sales that were part of portfolio transactions. Lichtenberg did less to support his qualitative analysis. And he did little to explain his decision not to adjust the sale prices from his two comparable sales that were part of the same portfolio transaction. Instead, he simply indicated that the sale prices were buyer allocations. That does not mean that those allocated sale prices necessarily required an adjustment, but Lichtenberg’s summary treatment of the issue does not inspire confidence.
The gulf between the two experts’ opinions, however, stems mostly from how they valued the intangible assets, which in turn led them to allocate significantly different portions of Wesleyan’s overall business value to real property. Bovee valued Wesleyan’s assembled workforce and permits at $---------- and therefore assigned a significant portion of the entity’s overall NOI to those costs, leaving a relatively modest amount to capitalize in determining the real property’s value. Lichtenberg, by contrast, assigned only 15% of the business’s overall NOI to intangible assets, leading him to allocate most of the facility’s NOI to real estate and to value the intangible assets at only $----------.
The Board’s decision is complicated by the fact that there appears to be no single generally accepted approach to allocating a business’s overall value between tangible and intangible assets. The methodologies employed by Lichtenberg and Bovee both seem plausible. While Morlan and Bovee made much of the fact that Lichtenberg’s entrepreneurial- or proprietary-profit capitalization approach is not universally accepted, Tellatin’s book shows that at least some of the profession has accepted that methodology. Similarly, Bovee testified without impeachment or rebuttal that his methods for valuing Wesleyan’s assembled workforce and permits are supported by USPAP Standards 9 and 10 and are used in valuing intangible assets in various types of legal proceedings.
Ultimately, the Board finds Bovee’s allocation analysis to be the better reasoned and supported of the two. Lichtenberg simply deducted an estimated 15% of the overall NOI. Yet Lichtenberg did little to support why he chose that amount. He established a range of 10% to 20%, the low end of which he drew from his estimate of entrepreneurial incentive under his cost approach, and the high end of which he took from a seminar in which the authors apparently found that skilled nursing facilities typically rent for an amount between 80% and 85% of NOI. But Lichtenberg offered little or no support for his conclusions about entrepreneurial incentive. And he did not attempt to parse out the types of facilities on which the seminar’s vague aggregate data was based. Lichtenberg then settled on the middle of that range, which happened to equal the minimum amount that HUD deducts for proprietary profit when making federally insured loans on nursing home real estate.
Granted, Lichtenberg’s conclusions under the cost-approach, in which he directly estimated the real property’s value, were generally consistent with his ultimate allocation of the business’s overall value between real estate and other assets. But there are significant problems that detract from the reliability of Lichtenberg’s cost-approach analysis. As already explained, Lichtenberg did not support his choice to include entrepreneurial incentive equaling 10% of hard costs. Also, as Morlan pointed out, Lichtenberg summarily dismissed the presence of any functional or external obsolescence. Morlan, however, persuasively explained that a building the age of Wesleyan’s likely would have at least some functional obsolescence due to its lack of energy efficiency. Bovee, too, pointed out that the building was constructed in phases, with each phase creating a new plant design, duplicated interior and exterior walls, and new roof lines. And the Board is persuaded by Bovee’s opinion that retrofitting costs related to such additions generally cannot be recaptured on a dollar-per-dollar basis. Similarly, Morlan laid out the external economic issues impacting nursing homes in cities affected by the decline in the automobile industry, casting some doubt on Lichtenberg’s summary conclusion that the property did not suffer form any external obsolescence.
That is not to say that Bovee’s allocation analysis was perfect. He made several assumptions in his relief-from-royalty analysis, most significantly in choosing hotel franchise rights to serve as a proxy for Wesleyan’s licenses, permits and approvals. And he did not describe the licenses, permits and approvals at issue in any detail. Similarly, Bovee did little to support the capitalization rates that he used in determining what portions of the enterprise’s overall NOI to attribute to intangible assets and FF&E, although the Board notes that his 25% rate for the intangible assets was the same rate that Lichtenberg used in his analysis. On the whole, though, the Board finds Bovee’s allocation analysis to be better supported and more persuasive than Lichtenberg’s analysis.
Of course, Bovee estimated the value of Wesleyan’s property as of January 1, 2007. So Wesleyan needed to explain how Bovee’s valuation opinion related to the property’s market value-in-use as of the January 1, 2008, and March 1, 2010, valuation dates at issue in these appeals.
Wesleyan offered surprisingly little explanation. As related above in the Board’s discussion about the burden of proof, Wesleyan took the position that, had the Assessor properly valued the Wesleyan’s property in 2008, that correct value would have rolled forward to the next two assessment dates. And in Wesleyan’s view, any change necessitated by trending was for the Assessor to determine. As already explained, that misconstrues Wesleyan’s burden of proof. It also ignores case law holding that each tax year stands alone and that evidence of a property’s assessment in one year is not necessarily probative of its true tax value in another year. Fleet Supply, Inc. v. State Bd. of Tax Comm’rs, 747 N.E.2d 645, 650 (Ind. Tax Ct. 2001) (citing Glass Wholesalers, Inc. v. State Bd. of Tax Comm’rs, 568 N.E.2d 1116, 1124 (Ind. Tax Ct. 1991)) (“Finally, the Court reminds Fleet Supply that each assessment and each tax year stands alone. . . . Thus, evidence as to the Main Building's assessment in 1992 is not probative as to its assessed value three years later.”).
Wesleyan’s heavy reliance on its mistaken interpretation of who has the burden of proof aside, the record contains at least some evidence that addresses the relationship between the value of Wesleyan’s property as of January 1, 2007, and the property’s value as of later dates. Morlan testified at length about the state of the economy heading into and through the recession. And the general tenor of his testimony was that things were getting worse, both nationally and in cites like Marion that were heavily reliant on the automobile industry. Granted, Morlan was not very specific as to dates and he did not attempt to directly relate Bovee’s appraisal to a different valuation date. Nonetheless, the valuation date for the March 1, 2009 assessment date is just one year after the date as of which Bovee estimated the value of Wesleyan’s property. And the Board is persuaded that the property was worth no more than $3,006,100 as of January 1, 2008.
Of course, Lichtenberg came to a different conclusion. He estimated that the property’s market value-in-use increased slightly more than 50% between January 1, 2007 and January 1, 2008. Morlan, however, persuasively discredited Lichtenberg’s conclusions in that regard. As Morlan explained, a 50% increase in real estate value in one year at the front end of a deep recession is hard to fathom, especially without more support than Lichtenberg supplied. Indeed, Morlan generally felt that Lichtenberg failed to adequately explain how his opinion of the property’s market value-in-use as of March 1, 2010, related to the property’s value at either of the earlier valuation dates. Morlan found that lack of explanation especially troubling given the state of the national and local economies during the four-year period between Lichtenberg’s engagement and the earliest valuation date in his report. The Board is persuaded by Morlan’s testimony on those points.
Morlan’s testimony, however, does not suffice to relate Bovee’s valuation opinion to March 1, 2010. Morlan testified that the economy in general, and the nursing home industry in particular, was starting to come back in 2010. Thus, the inference that the Board relies on for the January 1, 2008 valuation date—that the property’s value was unlikely to have increased since January 1, 2007—is not available for the March 1, 2010 valuation date. Granted, Lichtenberg found a close correlation between the property’s January 1, 2007 and March 1, 2010 values. But Wesleyan can hardly rely on Lichtenberg’s opinion on that point given how thoroughly its own witness discredited that opinion.
In reaching its conclusion, the Board recognizes that the Assessor made almost no change to the property’s value between the three assessment years at issue—the March 1, 2008 and March 1, 2009 assessments were identical ($5,604,300), and the March 1, 2010 assessment which was actually $200 less ($5,604,100). But there is nothing in the record to show what the Assessor considered in making her annual adjustments. And Wesleyan’s own witness testified to the significant economic changes between 2008 and 2010. Under those circumstances, the Assessor’s failure to significantly change the property’s assessment between assessment years does not suffice to explain how Bovee’s appraisal relates to the market value-in-use of Wesleyan’s property as of March 1, 2010.
http://www.in.gov/ibtr/files/Wesleyan_Health_Care_Ctr_27-002-08-1-4-000015_Redacted.pdf
