The Petitioner’s representative first contends that the property under appeal was over-valued based on the income approach to value. Clark testimony. “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 Petitioner’s 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, the Petitioner’s representative offered a two-page opinion of value prepared by Mr. Webster. Clark testimony. According to Mr. Webster’s opinion of value, he applied the income approach and used the subject property’s 2008 rent and expenses to estimate the property’s value at $469,000. Clark testimony; Petitioner Exhibit 1. The Petitioner’s representative, however, provided no evidence to demonstrate whether the property’s income and expenses were typical for comparable properties in the market. Thus, any low rent or high expenses may be attributable to the Petitioner’s management of the property rather than the property’s market value. See Thorntown Telephone Company, 588 N.E.2d at 619. See also, Lake county Trust Co. No. 1163 v. State Board of Tax Commissioners, 694 N.E.2d 1253, 1257-58 (Ind. Tax Ct. 1998) (economic obsolescence was not warranted where taxpayer executed unfavorable leases resulting in a failure to realize as much net income from the subject property). In fact, the opinion of value suggests that Mr. Webster failed to even confirm that the Petitioner’s income and expense figures were accurate.
The Petitioner’s evidence also shows that Mr. Webster made a deduction for real estate taxes as an expense. Petitioner Exhibit 1. But when valuing property for ad valorem tax purposes, subtracting real estate taxes as an expense “distorts the final estimate of value.” Millennium Real Estate Investment, LLC v. Benton County Assessor, Cause No. 49T10-1008-TA-42 (Ind. Tax Ct. Nov. 5, 2012).
In addition, Mr. Webster failed to adequately support his 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 rate 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, Mr. Webster provided no explanation for his choice of 9.134% as the overall rate and the Petitioner’s representative failed to show that was the appropriate capitalization rate for a sale of commercial property in Crawfordsville.
Ultimately, the Petitioner’s representative failed to show that Mr. Webster’s income approach methodology conformed to the Uniform Standards of Professional Appraisal Practice (USPAP) or any other generally accepted standards. Consequently, the Petitioner’s income approach calculation lacks probative value in this case. See Inland Steel Co. v. State Board of Tax Commissioners, 739 N.E.2d 201, 220 (Ind. Tax Ct. 2000) (holding that an appraiser’s opinion lacked probative value where the appraiser failed to explain what a producer price index was, how it was calculated or that its use as a deflator was a generally accepted appraisal technique).
The Petitioner’s representative also contends that the assessed value of the Petitioner’s property should be reduced for 2009 and 2010 because the Petitioner has been unable to sell the property for its June 7, 2011, listing price of $659,000. Clark testimony; Petitioner Exhibit 2. However, the Petitioner’s representative admitted the Petitioner’s property was listed for $962,600 prior to February 1, 2008. Clark testimony; See Respondent Exhibit F. “True tax value may be thought of as the ask price of property by its owner, because this value more clearly represents the utility obtained from the property, and the ask price represents how much utility must be replaced to induce the owner to abandon the property.” MANUAL at 2. Thus, when reasonable marketing efforts are made to sell a property at a given price for a long period of time and those efforts are unsuccessful, it can be inferred that the market value-in-use of a property is something less than its asking price. Here, the parties’ evidence shows that the property under appeal was listed for sale on or around February 1, 2008, for $962,600. For the March 1, 2009, assessment date, however, the property’s assessed value was only $796,500 and for the March 1, 2010, assessment date the property’s assessed value was only $785,600.
Mr. Clark argues that, because the property was listed through September 30, 2012, at $659,000 and did not sell, the property’s market value is lower than the property’s 2009 and 2010 assessed values. Clark testimony. However, the fact the Petitioner could not sell the property for $659,000 in 2011 or 2012 is not evidence that the property would not have sold in 2009 and 2010 for that price. Thus, the Petitioner’s 2011 and 2012 listing price fails to show the property was over-assessed for the March 1, 2009, and March 1, 2010, assessment dates and the property’s listing price in 2008 supports the property’s assessed value.
Finally, to the extent that the Petitioner’s contentions the property suffers from high vacancy or low rental rates can be seen as a claim for obsolescence, this argument also fails. It is not sufficient for the Petitioner’s representative to merely identify random factors that may cause the property to be entitled to an obsolescence adjustment. The Petitioner’s representative must explain how the purported causes of obsolescence cause the property to suffer an actual loss in value. See Indian Industries, Inc. v. Department of Local Government Finance, 791 N.E.2d 286, 290 (Ind. Tax Ct. 2003) (“All Indian has done in this case is provide the State Board with a laundry list of factors that may cause obsolescence to its improvements and then say ‘as a result, we’re entitled to a 70% obsolescence adjustment.’ However, Indian needed to link one with the other by showing an actual loss in value.”) Because, as the Board found above, the Petitioner’s representative failed to sufficiently show the property’s market value-in-use, the Petitioner has failed to raise a prima facie case that the subject property’s 2009 and 2010 assessments were incorrect.
