Gateway Arthur relied on valuation opinions from the Correll appraisers, who reached their conclusions after applying two generally accepted approaches to value and who certified that they prepared their appraisal in conformity with USPAP. And Correll testified at great length both about the data that he and Schlemmer examined in preparing their appraisal and about the reasoning behind various judgments that they made. On the whole, the Correll appraisers’ valuation opinions were persuasive.
And contrary to what the Assessor argues, the Correll appraisers sufficiently related their valuation opinions to the relevant valuation date for each year. The Assessor makes much of statements in some of the Board decisions that he characterizes as requiring assessors to determine a property’s value based on the property’s physical condition and market factors as those things existed on the assessment date and then trend that value to the appropriate valuation date. See Slatten argument (citing Woods Edge Apartments, LP v. Center Twp. Assessor, pet nos.18-032-04-1-4-00134 and 18-032-05-1-4-00134 (Ind. Bd. Tax Rev. Sep’t 25, 2007)). According to the Assessor, by using income from the calendar year leading up to the valuation date instead of income from around the assessment date, the Correll appraisers failed to account for the market conditions on the assessment date… The Board, however, has never held that such a process is the only way to relate a property’s market value-in-use to the appropriate valuation date. Using market income and capitalization rates from around the valuation date, especially when that valuation date is only a little more than a year before the assessment date and, as Correll testified, the market for the property in question was relatively stable, is an acceptable method. To the extent that another way might lead to even more accurate values, the burden was on the Assessor to show what those values were. And the Assessor did not do that.
The Board is similarly unmoved by Beckman’s claim that the Correll appraisers should not have valued the six parcels as a single economic unit. As Correll explained, Gateway Arthur and Emmes use the parcels as a single unit. Neighboring properties might benefit from easements over the access road off U.S. 31 or their ability to use the sign parcel. But that does not mean that those parcels are somehow excluded from the same economic unit as the Shoppes parcels.
On the other hand, the Assessor did point to issues with the Correll appraisers’ valuation opinions that affect the reliability of those opinions. For example the Correll appraisers were careless in failing to include real estate tax reimbursements in their original report and then, in their second report, in failing to include those reimbursements when totaling the property’s income. But those errors did not affect the appraisers’ ultimate value conclusions. The exclusion of the tax reimbursements from the property’s total income was simply a reporting error. The Correll appraisers included tax reimbursements when completing their stabilized income and expense statements, and those stabilized statements were what the appraisers actually used to arrive at the NOI that they capitalized.
But Beckman also pointed to another, more significant omission. The Correll appraisers ignored real estate taxes that Kroger and Incredible Pizza paid directly to taxing officials. And that omission likely affected the appraisers’ ultimate value conclusions. Granted, the Correll appraisers did not include tax reimbursements dollar for dollar in their stabilized income and expense statements. They instead found that reimbursements equaling 9% of NOI were within the market and were consistent with the actual reimbursements from the first few years of their analysis. But if one includes the payments that were made directly to local officials, those reimbursements would have been greater than 9% of NOI.
Those direct payments should have been included. By loading their OARs with net tax rates, the Correll Appraisers accounted for property tax expenses in their value estimates. Because Gateway Arthur leased out the property under net leases, however, it did not actually realize much in the way of property tax expenses; instead, those expenses passed through to the tenants, at least for the space that was occupied. And that is true whether tenants reimbursed Gateway Arthur or paid taxes directly. Thus, failing to include the direct payments distorted the appraisers’ value estimates in the same way that failing to include the reimbursements distorted the appraisers’ estimates in their original report. Indeed, although Correll addressed other points raised by the Assessor in his rebuttal testimony, he said nothing to dispute Beckman’s claim that he should have included the direct payments as reimbursement income.
Unfortunately, that begs the question: To what extent did omitting the direct payments affect the Correll appraisers’ value conclusions? To answer that question, one would need to know, at a minimum (1) the amount of taxes that Kroger paid directly during the first three years of the Correll appraisers’ analysis, and (2) whether, when those payments were included as reimbursements, the total real estate tax reimbursement income would still reflect the market. Nobody provided very specific information on those points. Beckman, however, testified that Kroger paid approximately $120,000 per year in taxes. When capitalized using the Correll appraisers’ loaded rates for each year, that income translates to value increases ranging from $981,193 to $1,047,120.
But even when one recognizes the Correll appraisers’ error in failing to include tenants’ direct tax payments as income, their valuation opinions are probative of the property’s market value-in-use and suffice to rebut the presumption that the subject property was accurately assessed.
…
The Board therefore finds that the subject property’s true tax value was the following amount for each assessment year at issue in these appeals:
Assessment Date
|
True Tax Value
|
March 1, 2007
|
$13,800,000
|
March 1, 2008
|
$14,800,000
|
March 1, 2009
|
$13,900,000
|
March 1, 2010
|
$11,300,000
|
The Board proceeds with caution in reaching this conclusion. Appraisal is more art than science, and an appraiser’s valuation opinion is not simply a mathematical calculation. Thus, one cannot always substitute different data into an appraiser’s analysis and say that nothing else in that analysis would have changed. Nonetheless, on these facts, the preponderance of the evidence shows that subject property’s market value-in-use is no more than what the Correll appraisers estimated for each year, augmented by $1,000,000 to account for their omission of property taxes paid directly by tenants to local officials.
