The Assessor pointed to three things to support the six
parcels’ assessments: (1) the assessments
themselves, which Beckman testified were determined using a mass appraisal
version of the cost approach; (2) Beckman’s valuation opinion for the Shoppes parcels,
and (3) the purported $21,000,000 allocated sale price from the 2007 portfolio sale.
To the extent that the Assessor relies on Beckman’s
conclusory testimony that the parcels were assessed correctly under the
mass-appraisal version of the cost approach represented by the Real Property
Assessment Guidelines for 2002 – Version A and the administrative regulations
governing annual adjustments, he misunderstands his burden of proof. The Assessor needed to show through the types
of market-based evidence described in the Manual that the assessments actually
reflect the parcels’ market values-in-use.
See Eckerling v. Wayne Twp. Assessor, 841 N.E.2d 674, 678 (Ind. Tax Ct.
2006) (pointing to the Manual in explaining what types of evidence can be used
to demonstrate a property’s market value-in-use).
By offering Beckman’s valuation opinion and evidence
concerning an allocated sale price for the subject property, the Assessor at
least attempted to offer market-based evidence.
On closer examination, however, neither of those items is sufficiently reliable
to be probative of the subject property’s market value-in-use.
The Board turns first to Beckman’s valuation opinion. Beckman analyzed the property’s value using
the sales-comparison and income approaches.
Her sales-comparison approach was almost entirely conclusory. Beckman apparently relied on some unidentified
number of sales or listings contained in a packet that includes information for
233 properties. Of the six properties
that she actually highlighted, two were from out of state and had been listed
for lengthy periods without selling. Of
the remaining four properties, the largest building was only 39,451 square feet
compared to approximately 270,000 square feet of rentable space spread among
the subject property’s three buildings.
Yet, Beckman did not explain how she adjusted any of the list or sale
prices to account for differences in size, sale date or location, testifying
instead that “there are all kinds of adjustments that fall under what we call a
grid. [A]s far as that, in looking at these,
I did that but it was more of a mental exercise.” Beckman testimony.
Although Beckman’s analysis under the income approach was a
little more detailed, it was still fairly cursory. And Correll pointed to problems that detract
significantly from the reliability of her conclusions. First, Beckman relied solely on national
surveys to determine her capitalization rate without even examining
capitalization rates from more local sales.
And she used the survey rates for power centers even though, as Correll persuasively
explained, the subject property is more of a hybrid type of center.
More importantly, Beckman grossly misconstrued the impact of
property taxes on the subject property’s market value-in-use. Beckman did not include real estate taxes in
her 25% expense ratio, and as Correll explained, the capitalization rate that
she took from Korpacz was not loaded for taxes.
Viewed in isolation, that might not be fatal to Beckman’s
credibility. The record indicates that
the subject property’s tenants were responsible for property taxes under their
leases and actually reimbursed Gateway Arthur for those taxes. Thus, taxes were not an expense, or were a
pass-through expense. Had Beckman simply
capitalized the property’s NOI without dealing with property taxes at all, the
resulting value might not have been nearly as distorted.
But that is not how Beckman proceeded; she instead included
the tenant reimbursements as income. Having
done that, Beckman could no longer treat property taxes as a pass through
expense—although Gateway Arthur received the reimbursements, it had to pay an
equal amount to taxing authorities.
Beckman therefore needed to account for those property taxes by loading
her capitalization rate, and her failure to do so greatly distorted her value
conclusion. Had Beckman loaded her
capitalization rate with the net tax rate that Correll used in his appraisal,
she would have come up with a value of $14,387,025, which is over $4,000,000
less than what she arrived at by counting property tax reimbursements as income
while ignoring the actual tax liability as an expense.
As to the allocated sale price, Beckman did not attempt to
explain how that allocated price related to the subject property’s value as of
the relevant valuation date, which was more than two years before the
sale. For that reason alone, the sale
price lacks probative value.
Regardless, the Assessor did not offer reliable evidence to
prove what the allocated sale price actually was. The $21,000,000 figure that Beckman cited
comes from a computer printout. That
printout reflects data entered into a computer by an unidentified person from a
sales disclosure statement that no longer exists. The printout does not indicate that anyone
verified the disclosure. It also
contains several errors and omissions, such as incorrectly listing the “sale”
and “deed” dates and omitting several parcels that were included in the
sale. The transfer history log attached
to the subject parcels’ property record cards lists the correct deed date, and
it refers to all six parcels (although two of the parcel numbers are
incomplete). But there is no evidence in
the record as to who completed the transfer log, when it was completed, or the
information on which it was based.
Even if the Board were to credit the printout as accurately
reflecting the price that was listed on the original sales disclosure form,
there is nothing in the record about the basis underlying that allocation. As Correll testified, parties to portfolio
sales have various motives when deciding what portion of the total sale price
they will allocated to individual properties.
And many of those motives do not directly relate to the property’s market
value-in-use. Although Beckman differed
on that point, her testimony was not as persuasive as Correll’s.
At the end of the day, there are too many problems with the
purported $21,000,000 allocated sale price for the Board to give that price any
probative weight. Indeed, even when
Beckman grossly overestimated the property’s market value-in-use by using a low
OAR and including real estate tax reimbursements in the property’s income
without accounting for those taxes as an expense, she still arrived at value of
only $18,472,400, which is over $2,500,000 less than the purported $21,000,000
allocated sale price.
