The Board turns first to Mr. Whisler’s analyses based on the sales and assessments of nearby properties. For sales data to be probative, the sold properties must be sufficiently comparable to the property under appeal. Conclusory statements that a property is “similar” or “comparable” to another property do not suffice. See Long, 821 N.E.2d at 470. Instead, one must identify the characteristics of the property under appeal and explain how those characteristics compare to the characteristics of the sold properties. Id. at 471. Similarly, one must explain how any differences between the sold properties and the property under appeal affect the properties’ relative market values-in-use. Id.
Mr. Whisler did little to compare the other properties in his analysis to the subject property other than to make some very basic comments on capitalization rates and, in one instance, on the property’s location. And he did nothing to adjust the properties’ sale prices to account for relevant ways in which they differed from the subject property. Instead, Mr. Whisler simply computed a median and average sale price. Mr. Whisler did not show that his cursory methodology complied with generally accepted appraisal principles, and the Board therefore gives his conclusions under the sales-comparison approach little or no weight.
Mr. Whisler also pointed to the land assessments for various nearby properties. Although the Assessor argued that a taxpayer cannot prove a property’s market value-in-use through comparable properties’ assessments, the Indiana General Assembly has said otherwise. Effective July 1, 2012, the Indiana General Assembly enacted Ind. Code § 6-1.1-15-18, which allows parties to offer evidence of how comparable properties were assessed in order to determine the market value-in-use for a property under appeal:
(a) This section applies to an appeal to which this chapter applies, including any review by the board of tax review or the tax court.
(b) This section applies to any proceeding pending or commenced after June 30, 2012.
(c) To accurately determine market-value-in-use, a taxpayer or an assessing official may:
(1) in a proceeding concerning residential property, introduce evidence of the assessments of comparable properties located in the same taxing district or within two (2) miles of a boundary of the taxing district; and
(2) in a proceeding concerning property that is not residential property, introduce evidence of the assessments of any relevant, comparable property.
However, in a proceeding described in subdivision (2), preference shall be given to comparable properties that are located in the same taxing district or within two (2) miles of a boundary of the taxing district. The determination of whether properties are comparable shall be made using generally accepted appraisal and assessment practices.
I.C. § 6-1.1-15-18.
The subject property was divided into primary and secondary commercial land. The primary land was assessed at $6.00 per square foot with a 50% influence factor, while the secondary land was assessed at $0.75 per square foot. W & S offered property record cards for 11 properties, all from what appears to be the same assessment neighborhood as the subject property. Those properties were assessed using various base rates ranging from $4.00 per square foot to $8.00 per square foot. The most common rate was $4.00 per square foot, which was used for five of the properties.
Mr. Whisler’s analysis of other properties’ land assessments suffers from the same problems as his sales-comparison analysis. Without a more-detailed comparison of relevant features such as access, visibility, and topography, the raw assessment data has little probative weight.
Mr. Whisler, however, ultimately relied on the income approach to estimate the subject property’s market value-in-use at $2,948,600. That approach calls for taking the net income that a property is expected to earn and discounting that income to present value using a capitalization rate that reflects things such 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.” Lacy Diversified Industries, Ltd. v. Dep’t of Local Gov’t Fin., 799 N.E.2d 1215, 1224 (Ind. Tax Ct. 2003) (quoting AM. INST. OF REAL ESTATE APPRAISERS, THE APPRAISAL OF REAL ESTATE, 417 (10th ed. 1992)).
Mr. Whisler used Building 2’s actual leases to estimate the building’s potential gross income. But he did not do much to test those leases against the market, other than to point to the slightly higher full-service-lease rates from the 2009 Zacher survey. For Building 1, however, Mr. Whisler used rates for Class B office buildings published in the 2011 Zacher survey. That is problematic for two reasons. First, Mr. Whisler used data from 2011, which is three years removed from the relevant January 1, 2008 valuation date. Second, as Mr. Stone pointed out, CBRE/Sturges, an entity owned, in part, by one of W & S’s principles, described Building 1 as a Class A building in a published listing. And the 2009 Zacher survey shows higher rent for Class A suburban office buildings than for Class B buildings. While Mr. Whisler dismissed the listing’s description of Building 1 as salesmanship and asserted that Building 1 does not have the same architectural amenities as a Class A building, that listing casts at least some doubt on the reliability of Mr. Whisler’s rent estimate.
Mr. Whisler’s treatment of Building 1’s expenses also raises concerns about the reliability of his valuation opinion. He simply asserted that $4.00 per square foot is typical for full-service leases. When pressed for support, Mr. Whisler pointed to his 30 years of experience in dealing with commercial properties and to a RealtyRate.com survey. Mr. Whisler, however, acknowledged that the RealtyRates.com expenses include property taxes, which he could not include as operating expenses in his analysis because he loaded his capitalization rate with an effective tax rate.
Mr. Whisler did not do much more to support his choice of capitalization rates. For each building, he used the midpoint of a range from a published survey of Indianapolis properties and adjusted that midpoint by 1% to account for the difference between the Indianapolis and Fort Wayne markets. Mr. Whisler did not support his 1% adjustment beyond claiming that Indianapolis is a better market than Fort Wayne and that the PTABOA and Assessor previously had endorsed his methodology. The Assessor, however, actively contested Mr. Whisler’s methodology at the Board’s hearing, and what the PTABOA has done in other cases is irrelevant. While Mr. Whisler ostensibly checked his adjusted survey-derived rate using the band-of-investment technique, his calculation contained similarly unsupported assumptions. Most importantly, he assumed a required return on equity of 12% without giving any explanation for that choice.
Thus, Mr. Whisler offered a fairly conclusory valuation opinion in which he gave little support for some of his key assumptions beyond pointing to the facts that he is a certified level II assessor-appraiser and that he has 30 years of experience in commercial real estate. Mr. Whisler’s training and experience are certainly relevant. But they are not a substitute for more objective support, especially where that type of support should be readily available.
Plus, as the Assessor noted, Mr. Whisler is employed by an entity in which Barry Sturges—one of W & S’s principles—has a significant interest. In a vacuum that connection arguably might be too attenuated to show that Mr. Whisler has an interest in the outcome of W & S’s appeal. But Mr. Whisler and Brad Sturges both highlighted the connections between Barry Sturges’s various entities and W & S in arguing that the sale from Dupont Auburn, LLC to W & S and the construction permits for Building 2 were invalid as indicators of the subject property’s market value. Thus, while the Board does not give too much weight to Mr. Whisler’s apparent interest in outcome of W & S’s appeal, his relative lack of independence is at least relevant.
That being said, the Assessor’s own witness and deputy, Mr. Stone, admitted that the income approach was a valid methodology for estimating the subject property’s value. And when he applied that approach, he came to an overall value $2,824,399 ($711,227 for Building 1 and $2,113,172 for Building 2). That is $1,336,301 less than the subject property’s assessment and $124,201 less than Mr. Whisler’s valuation opinion. Notably, Mr. Stone’s estimate includes the vault, to which he attributed rent of $5.03 per square foot in selecting Building 2’s pro forma lease rate. The Board cannot ignore Mr. Stone’s conclusions, which ultimately support Mr. Whisler’s otherwise shaky valuation opinion. Under those circumstances, the Board finds that Mr. Whisler’s opinion is enough to make a prima facie case.
Mr. Stone, however, ultimately gave less weight to his conclusions under the income approach than he did to his conclusions under the cost and sales-comparison approaches. And the Assessor contends that those approaches are better evidence of the subject property’s market value-in-use.
The Board agrees that for a newly constructed building, such as Building 2, the cost approach may be relevant. But Mr. Stone used building permits to support his analysis. And those permits do little to describe the work that was involved. Indeed, Mr. Whisler and Brad Sturges persuasively explained why those permits, which at best are simply estimates for the cost of proposed work that may or may not have been completed, are unreliable indicators of the building’s actual construction costs. Of course, W & S did not offer invoices or other evidence to show what W & S and its tenants ultimately paid to construct Building 2. Had the permits been more detailed, W & S’s failure to contradict them with evidence of actual expenditures arguably might lead to a different conclusion. As things stand, though, the permits have little probative value.
Mr. Stone’s sales- and assessment-comparison analyses are unpersuasive for much the same reasons that the Board explained in addressing with Mr. Whisler’s analyses under those same approaches. Mr. Stone made at least some effort to compare the properties in his analyses to the subject property in terms of their uses, relative ages, and construction quality. But he did little to adjust the purportedly comparable properties’ assessments for relevant ways in which they differed from Building 2 other than eliminating depreciation, adding a cost for sprinklers, and adjusting land rates to $6.00 per square foot. And Mr. Stone did not adjust his sale prices at all, opting instead to simply calculate average and median prices. Mr. Stone therefore failed to show that his analyses complied with generally accepted appraisal or assessment practices.
Finally, Mr. Stone pointed to two sales involving portions of the subject property—one from January 8, 2007, where W & S bought the subject land and Building 1 from Dupont Auburn, LLC for $1,735,000, and another from April 1, 2009, where Dupont Auburn Real Estate, LLC bought Building 1 (and presumably only a portion of the subject property’s land) on contract. Mr. Stone also pointed to a listing from 2011 where W & S advertised Building 1 for sale at $1,400,000.
The listing was from November, 2011, more than three years after the January 1, 2008 valuation date at issue in this appeal. Yet Mr. Stone did not attempt to explain how that list price related to the subject property’s market value-in-use as of January 1, 2008. For that reason alone, the listing lacks probative value. Regardless, a property’s list price, by itself, does little to show the property’s market value-in-use. Where a property has been marketed in a commercially reasonable manner and has failed to sell, one may infer that the property is worth no more than the price at which it was listed. Without more, however, the list price does little to show the property’s actual market value—the property could be worth any amount less than its list price. Thus, while the listing at issue might tend to show that Building 1 was worth no more than $1,400,000 (at least as of 2011), it does little to rebut Mr. Whisler's estimate that the building was worth $948,500.
Like the listing, the contract sale to Dupont Auburn Real Estate, LLC occurred more than a year after the relevant January 1, 2008 valuation date. Once again, Mr. Stone did not explain how the sale price related to Building 1’s market value-in-use as of that valuation date. In any case, W & S financed the sale through an installment contract. Thus, Mr. Stone needed to at least examine whether it was necessary to adjust the sale price. He did not do so.
The transaction in which W & S bought the subject property from Dupont Auburn, LLC occurred in April 2007, less than a year before the January 1, 2008 valuation date. Mr. Whisler, however, testified that the seller was controlled by Barry Sturges and therefore was a related party. He also testified that the sale was a ―1031 transaction,‖ although he did not attempt to explain what that type of transaction entails or how it disqualified the sale as a valid indicator of the property’s market value-in-use. In any event, the sale predated Building 2. Thus, it cannot be used to value the subject property as a whole. Of course, the sale might still be relevant to valuing Building 1. But even then, one would need to abstract the portion of the total sale price that was attributable to Building 1 and its share of the land. Mr. Stone did not attempt to do that, although he elsewhere attributed 38% of the subject land’s assessment to Building 1. Given all the circumstances, the sale carries little probative value.
Thus, the Board is left to weigh Mr. Whisler’s valuation opinion, which is fairly conclusory but which is supported by Mr. Stone’s own analysis under the income approach, against the rest of the Assessor’s valuation evidence. As explained above, Mr. Stone’s sales-comparison analysis is even more conclusory than Mr. Whisler’s valuation opinion, and Mr. Stone based his cost-approach analysis solely on vague construction permits. Similarly, the Assessor’s sales and listing information has little probative value for a variety of reasons. Ultimately, the Board gives more weight to Mr. Whisler’s valuation opinion, if only barely.
