Case Title: Regency West Apartments LLC v. City of Racine

Citation: 

Docket Number: 2014AP002947

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2016-12-22T00:00:00Z

Document:
2016 WI 99 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2014AP2947 
COMPLETE TITLE: 
Regency West Apartments LLC, 
          Plaintiff-Appellant-Petitioner, 
     v. 
City of Racine, 
          Defendant-Respondent. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT APPEALS 
 
 
OPINION FILED: 
December 22, 2016 
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
September 9, 2016 
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit 
 
COUNTY: 
Racine 
 
JUDGE: 
Gerald P. Ptacek 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
      
 
DISSENTED: 
ABRAHAMSON, J., joined by BRADLEY, A. W., J. 
dissent 
 
NOT PARTICIPATING:          
 
 
 
ATTORNEYS: 
 
 
For the plaintiff-appellant-petitioner, there was a brief 
by Maureen A. McGinnity and Foley and Lardner LLP, Milwaukee, 
and oral argument by Maureen A. McGinnity 
 
For the defendant-respondent, there was a brief by Robert 
E. Hankel, and Robert E. Hankel, S.C., Mount Pleasant., John M. 
Bjelajac, and Bjelajac and Kallenbach, LLC, Racine and oral 
argument by Robert E. Hankel. 
 
 
 
 
 
2016 WI 99
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.   2014AP2947 
(L.C. No. 
2013CV1546 & 13CV1848) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Regency West Apartments LLC, 
 
          Plaintiff-Appellant-Petitioner, 
 
     v. 
 
City of Racine, 
 
          Defendant-Respondent. 
FILED 
 
DEC 22, 2016 
 
Diane M. Fremgen 
Clerk of Supreme Court 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed and 
remanded.   
 
¶1 
PATIENCE 
DRAKE 
ROGGENSACK, 
C.J.   Regency 
West 
Apartments, LLC brought actions against the City of Racine in 
circuit court pursuant to Wis. Stat. § 74.37(3)(d) (2011-12)1 to 
recover refunds from claimed excessive taxation for 2012 and 
2013.  We review a per curiam, unpublished decision of the court 
of appeals,2 affirming an order of the Racine County Circuit 
                                                 
1 All subsequent references to the Wisconsin Statutes are to 
the 2011-12 version unless otherwise indicated. 
2 Regency West Apts. LLC v. City of Racine, No. 2014AP2947, 
unpublished slip op. (Wis. Ct. App. Sept. 16, 2015).   
No. 
2014AP2947   
 
2 
 
Court3 that dismissed Regency West's claims of excessive 
taxation.4   
¶2 
The City of Racine's appraisers valued Regency West's 
property at $4,425,000 as of January 1, 2012 and at $4,169,000 
as of January 1, 2013 for purposes of tax assessment.  Regency 
West claims both appraisals fail to comply with appraisal 
principles required by Wisconsin law, and that those appraisals 
resulted in excessive taxation.  
¶3 
Our discussion centers on whether Racine's appraisals 
of 
Regency 
West's 
property 
comply 
with 
Wisconsin 
law.  
Specifically, we review whether Racine employed the methodology 
required 
by 
Wis. 
Stat. 
§ 70.32(1) 
for 
valuing 
federally 
subsidized property that is subject to I.R.C. § 42 restrictions;5 
whether Regency West has overcome the presumption of correctness 
set out in Wis. Stat. § 70.49; and whether Regency West proved 
the tax assessments for 2012 and 2013 were excessive.  
¶4 
We conclude that the valuation methodologies Racine 
used for the 2012 and 2013 assessments did not comply with 
Wisconsin law.  Accordingly, we also conclude that Regency West 
has overcome the presumption of correctness for the 2012 and 
                                                 
3 The Honorable Gerald P. Ptacek of Racine County presided. 
4 Regency West commenced separate refund actions for 2012 
and 2013, which were consolidated for trial.    
5 I.R.C. § 42 provides "a dollar-for-dollar reduction in 
federal tax liability for investors in exchange for equity 
participation in low-income rental housing."  1 Wisconsin 
Property Assessment Manual at 9-40; see 26 U.S.C. § 42.   
No. 
2014AP2947   
 
3 
 
2013 tax assessments, and that the circuit court and the court 
of appeals erred in concluding otherwise.  And, finally, we 
conclude that Regency West has proved that Racine's tax 
assessments for 2012 and 2013 were excessive.  Accordingly, we 
reverse and remand to the circuit court to calculate the amount 
of Regency West's refund. 
I.  BACKGROUND 
¶5 
Regency West is the owner and developer of a property 
located in Racine, Wisconsin.  Regency West constructed the 
property in 2010-11, with the first units placed in service 
September of 2011, and the project being fully leased in 
February of 2012.   
¶6 
The property has 9 two-story buildings consisting of 
72 residential units, all of which are family units.  All units 
are federally regulated housing pursuant to I.R.C. § 42.  These 
federal regulations include income and rent restrictions.  As 
part of the restrictions, the property is subject to a Land Use 
Restriction Agreement (LURA) that provides that for 30 years, 51 
of the 72 units are restricted to tenants earning up to 50 
percent of the median income in Racine County and 21 are 
restricted to tenants earning up to 60 percent of the median 
income in Racine County.  The maximum rents that Regency West 
may charge are set by Wisconsin Housing and Economic Development 
Authority (WHEDA).  
¶7 
For purposes of assessing real estate taxes, Racine's 
appraisers valued Regency West's property at $4,425,000 as of 
January 1, 2012 and at $4,169,000 as of January 1, 2013.  
No. 
2014AP2947   
 
4 
 
Regency West contested both tax assessments, claiming that the 
appraisals that underlie the tax assessments did not comply with 
Wisconsin law.  Regency West did not challenge the 2012 
assessment before the board of review because Racine did not 
timely deliver the assessment to Regency West.  However, Regency 
West did challenge the 2013 assessment before the board of 
review.  The board upheld that tax assessment.  
¶8 
The matter now before us is Regency West's refund 
action 
brought 
in 
circuit 
court 
pursuant 
to 
Wis. 
Stat. 
§ 74.37(3)(d).  Therefore, we review the record made in the 
circuit court and the circuit court's determination, not the 
determination of the assessor or the board of review.  See 
Nankin v. Vill. of Shorewood, 2001 WI 92, ¶¶24-25, 245 Wis. 2d 
86, 630 N.W.2d 141.   
¶9 
Trial testimony turned on various methods of real 
estate appraisal by which the value of Regency West could be 
determined.  The City presented testimony from its assessor, 
Janet Scites, as well as the Chief Assessor for the City of 
Racine, Ray Anderson.  Scites testified that for 2012 she 
applied a direct capitalization of income approach, using "mass 
appraisal techniques."6  With a direct capitalization of income 
approach to valuation, an appraiser computes the property's net 
operating income (income less expenses or NOI) and divides it by 
                                                 
6 Mass appraisal techniques have been used to value all 
properties in a taxing district using uniform benchmarks.  
Standard on Mass Appraisal of Real Property, 2013, International 
Ass'n of Assessing Officers. 
No. 
2014AP2947   
 
5 
 
the applicable capitalization rate (ratio between NOI of 
comparable properties and their sale prices).7  
¶10 One of Regency West's construction lenders provided 
estimates of potential gross income and expenses to Racine for 
use in the 2012 valuation.  However, Racine's assessor said that 
the 
expense 
projections 
in 
that 
report 
were 
too 
high.  
Accordingly, Scites applied a 40 percent estimated expense ratio 
that she believed was reflective of other Section 42 properties.  
She testified that she did so "to stabilize expenses." 
¶11 Racine's assessor used a 6 percent capitalization rate 
derived from market-rate properties, not from the market for 
Section 42 properties.8  To this, Scites added the 2.5 percent 
property tax rate, for a loaded capitalization rate of 8.5 
percent.9  Racine's appraisers divided the NOI they calculated 
based on "stabilized expenses" by an 8.5 percent capitalization 
rate thereby yielding a value of $4,425,000 for 2012.  
¶12 With respect to the 2013 assessment, Racine valued 
Regency West's property at $4,169,000 as of January 1, 2013.  
                                                 
7 The capitalization rate is an estimate of the rate of 
return an investor would expect in order to invest in the 
subject property.   
8 Ray Anderson testified that the capitalization rate was 
given to them by a brokerage firm in Southeastern Wisconsin.  
9 The Wisconsin Property Assessment Manual (WPAM) requires 
that an appraiser add the effective tax rate to create the 
loaded capitalization rate for the subject property when doing 
an income-based valuation.  1 Wisconsin Property Assessment 
Manual at 9-23.   
No. 
2014AP2947   
 
6 
 
The City's assessors used the comparable sales approach, rather 
than the income approach, to appraise the property.  They relied 
on the sales of three properties, which they claimed were 
reasonably comparable properties.   
¶13 One of the properties, Lake Oakes, had few Section 42 
housing units; most were market-rate units.  The other two 
properties 
the 
City's 
assessors 
relied 
on, 
Woodside 
Village/Albert House and McMynn Tower, had no Section 42 units.  
Each of those developments was either entirely HUD § 8 housing 
or HUD § 8 housing with a small number of commercial units.10  
The assessor did not adjust for differences in government 
restrictions on the different types of federally regulated 
housing when appraising Regency West's property.  Instead, 
Scites testified that she considered the restrictions for 
Section 8 and Section 42 properties to be sufficiently similar. 
¶14 Racine also presented the testimony of two outside 
appraisers, Peter Weissenfluh and Dan Furdek.  The outside 
appraisers used four appraisal methods for both their 2012 and 
2013 assessments.  First, Weissenfluh and Furdek used the 
comparable 
sales 
approach. 
 
The 
appraisers 
relied 
on 
a 
combination of Section 42 and Section 8 properties, and Furdek 
                                                 
10 HUD § 8 housing has entirely different restrictions than 
does Section 42 housing.  For example, Section 8 properties do 
not have tenant income or rent restrictions, and the government 
provides rent subsidies when tenant income is insufficient to 
pay the rent charged.  Compare 42 U.S.C. § 1437f (HUD § 8) with 
26 U.S.C. § 42 (I.R.C. § 42).  
No. 
2014AP2947   
 
7 
 
testified that he believed the restrictions on the properties 
were irrelevant as long as the rental income from the properties 
was the same.  Next, they used two variations of the income 
approach:  the direct capitalization method and the discounted 
cash flow method.  Finally, they used the cost approach.  Each 
of Furdek and Weissenfluh's valuations resulted in higher 
valuations than Racine's.  
¶15 In contrast, Regency West argued that it had overcome 
the 
presumption 
of 
correctness 
afforded 
the 
City's 
tax 
assessment for two reasons.  First, the City had failed to 
comply with the Wisconsin Property Assessment Manual (WPAM)11 in 
its appraisals of Regency West's property as Wis. Stat. 
§ 70.32(1) requires.  Second, Regency West presented sufficient 
contrary evidence that Racine's appraisals were excessive.  In 
that regard, Regency West presented testimony from Michael 
Lerner and, its appraiser, Scott McLaughlin.  Michael Lerner has 
vast experience working with Section 42 housing whereas Scott 
McLaughlin 
specializes 
in 
appraising 
subsidized 
housing.  
Relying solely on the income approach, which he explained was 
consistent with WPAM, McLaughlin appraised the property at 
$2,700,000 for 2012 and $2,730,000 for 2013. 
¶16 At the conclusion of the trial, the circuit court 
dismissed Regency West's excessive tax claims for both years.  
The circuit court concluded that Regency West had failed to 
                                                 
11 All references to the Wisconsin Property Assessment 
Manual are to the 2011 version unless otherwise indicated.   
No. 
2014AP2947   
 
8 
 
overcome Wis. Stat. § 70.49's presumption of correctness given 
to the 2012 and 2013 tax assessments.   
¶17 The circuit court found that Racine did not do an 
individual valuation of Regency West's property for 2012, but 
instead, it "applied mass appraisal techniques."  The court 
found that Scites "estimated expenses based upon her experience 
and used a capitalization rate of 8.5%."  The court then 
concluded that "[d]ue to the number of assessments needed to be 
done (7,500), the City used mass appraisal techniques, [which 
was] an appraisal method approved by the Property Assessment 
Manual for commercial property" in arriving at $4,425,000 as the 
property's value in 2012.   
¶18 The court of appeals affirmed the circuit court's 
dismissal of Regency West's complaint.  With respect to the 2013 
assessment, the court rejected Regency West's argument that 
Section 
42 
and 
Section 
8 
properties 
are 
not 
reasonably 
comparable for purposes of the comparative sales approach.  The 
court reasoned that both types of subsidized housing are found 
within the same section of the WPAM, and Racine's assessors had 
opined that the rents from all the properties were essentially 
the same.  With respect to the 2013 assessment, the court 
concluded that reliance on market-rate properties for the NOI 
was immaterial because Racine used the comparative sales 
approach for that valuation; and for 2012, reliance on a market-
rate 
NOI 
was 
reasonable 
because 
Regency 
West 
was 
newly 
constructed and did not have actual expenses to consider.  
No. 
2014AP2947   
 
9 
 
¶19 Consequently, the court of appeals concluded that 
Regency West had not overcome the presumption of correctness 
accorded 
to 
tax 
assessments 
by 
Wis. 
Stat. 
§ 70.49 
and, 
therefore, Regency West was unable to show that its 2012 and 
2013 tax assessments were excessive.    
¶20 We granted Regency West's petition for review and now 
reverse.  
II.  DISCUSSION 
A.  Standard of Review 
¶21 This is a refund action commenced under Wis. Stat. 
§ 74.37(3)(d).  It permits "an aggrieved person to recover that 
amount of general property tax imposed because the assessment of 
property was excessive."  Wis. Stat. § 74.37(1).  A claim for 
excessive assessment is a "new trial, not a certiorari action."  
Trailwood Ventures, LLC v. Vill. of Kronenwetter, 2009 WI App 
18, ¶6, 315 Wis. 2d 791, 762 N.W.2d 841.  Therefore, "we review 
the record made before the circuit court, not the board of 
review."  Adams Outdoor Advert., Ltd. v. City of Madison, 2006 
WI 104, ¶24, 294 Wis. 2d 441, 717 N.W.2d 803 (citing Nankin, 245 
Wis. 2d 86, ¶25).  
¶22 As we review the record made in the circuit court, we 
interpret and apply Wis. Stat. § 70.32 to determine whether 
Racine's appraisals for 2012 and 2013 followed the statute's 
directives.  We also interpret Wis. Stat. § 70.49(2) to 
determine whether Regency West has overcome the presumption of 
correctness 
that 
attached 
to 
Racine's 
tax 
assessments.  
Statutory interpretation and application present questions of 
No. 
2014AP2947   
 
10 
 
law that we independently review, while benefitting from the 
analyses of the court of appeals and the circuit court.  Oneida 
Cty. Dep't of Soc. Servs. v. Nicole W., 2007 WI 30, ¶9, 299 
Wis. 2d 637, 728 N.W.2d 652; see also Soo Line R.R. Co. v. DOR, 
97 Wis. 2d 56, 59-60, 292 N.W.2d 869 (1980).   
B.  General Appraisal Principles 
¶23 "The power to determine the appropriate methodology 
for valuing property for taxation purposes lies with the 
legislature."  Walgreen Co. v. City of Madison, 2008 WI 80, ¶19, 
311 Wis. 2d 158, 752 N.W.2d 687.  Wisconsin Stat. § 70.32(1) 
provides that "property shall be valued by the assessor in the 
manner specified in the Wisconsin property assessment manual."  
"The Manual, in turn, provides that '[t]he goal of the assessor 
is to estimate the market value of a full interest in the 
property, subject only to governmental restrictions.  All the 
rights, privileges, and benefits of the real estate are included 
in this value.  This is also called the market value of a fee 
simple interest in the property.'"  Walgreen, 311 Wis. 2d 158, 
¶20 (quoting 1 Wisconsin Property Assessment Manual (2007) at 7—
4).  
¶24 The objective of an appraisal is to determine "the 
full value" that an owner would receive at a "private sale."  
Wis. Stat. § 70.32(1).  For purposes of determining full value, 
property is separated into seven classifications based on use.  
Wis. Stat. § 70.32(2).  Regency West is residential property.  
§ 70.32(2)(a)1.   
No. 
2014AP2947   
 
11 
 
¶25 Wisconsin Stat. § 70.32(1) provides the methodological 
framework that appraisers must follow when appraising property.  
It delineates a three-tier approach:  
In determining the value, the assessor shall consider 
recent arm's-length sales of the property to be 
assessed if according to professionally acceptable 
appraisal practices those sales conform to recent 
arm's-length sales of reasonably comparable property; 
recent arm's-length sales of reasonably comparable 
property; 
and 
all 
factors 
that, 
according 
to 
professionally acceptable appraisal practices, affect 
the value of the property to be assessed.  
Wis. Stat. § 70.32(1); see also State ex rel. Markarian v. City 
of Cudahy, 45 Wis. 2d 683, 686, 173 N.W.2d 627 (1970). 
¶26 "An assessor has an obligation to follow the three 
tier assessment analysis."  Adams, 294 Wis. 2d 441, ¶47.  
Nevertheless, this hierarchy of appraisal methods does not 
permit an assessor to use an appraisal method when insufficient 
data exist to perform an accurate valuation under that method.  
To the contrary, an assessor must not appraise a property using 
unreliable data.  Metro. Holding Co. v. Bd. of Review of City of 
Milwaukee, 173 Wis. 2d 626, 631-32, 495 N.W.2d 314 (1993). 
¶27 Under the first tier of appraisal methods set out in 
Wis. Stat. § 70.32(1), an appraiser should rely on recent arm's-
length sales of the subject property to determine the property's 
value.  This approach is universally considered the most 
reliable method of appraising property.  Markarian, 45 Wis. 2d 
at 686.  However, both parties agree that this method is not at 
issue in the present case because there were no sales of the 
subject property to consider.  
No. 
2014AP2947   
 
12 
 
¶28 Under the second tier of appraisal methods, an 
appraiser values a property by considering recent, arm's-length 
sales of "reasonably comparable" properties.  Id.; 1 Wisconsin 
Property 
Assessment 
Manual 
at 
9-45. 
 
The 
WPAM 
defines 
"reasonably comparable" properties as those properties that 
represent the "subject property in age, condition, use, type of 
construction, location, design, physical features and economic 
characteristics."  1 Wisconsin Property Assessment Manual at 7-
22.   
¶29 Moreover, "if there has been no arms-length sale and 
there are no reasonably comparable sales [] an assessor [may] 
use any of the third-tier assessment methodologies."  Adams, 294 
Wis. 2d 441, ¶34.  "The income approach, which seeks to capture 
the amount of income the property will generate over its useful 
life, and the cost approach, which seeks to measure the cost to 
replace the property, both fit into this analytic framework."  
Id., ¶35. 
¶30 However, when valuing subsidized housing, the WPAM 
suggests that the "Cost Approach is the least reliable valuation 
method" because of "the difficulty in estimating external 
obsolescence."  1 Wisconsin Property Assessment Manual at 9-45.  
Accordingly, an assessor should apply the cost approach when 
No. 
2014AP2947   
 
13 
 
evaluating subsidized housing only when other approaches are not 
available.12  
¶31 Because an appraiser must consider all aspects of the 
subject property that may affect its value, appraisers must 
consider 
whether 
a 
property's 
value 
is 
affected 
by 
its 
classification as residential property subject to Section 42 
subsidized housing restrictions.  See Metro. Holding, 173 
Wis. 2d at 631-32. 
¶32 The income approach is often the most reliable method 
for 
assessing 
subsidized 
housing. 
 
1 
Wisconsin 
Property 
Assessment Manual at 9-45 ("The income approach may be the most 
useful method for valuing subsidized housing . . . .").  The 
income approach is superior when applied to subsidized housing 
"due to the conditions of the agreement and the limited 
availability of data."  Id. 
¶33 The WPAM recognizes dissimilarities between subsidized 
properties and market-rate properties.  It instructs that 
federally regulated properties are to be treated "as a separate 
market and distinct from conventional (market level) projects."  
1 Wisconsin Property Assessment Manual at 9-42.  Specifically, 
federally regulated properties have "operational constraints 
                                                 
12 Wisconsin Stat. § 70.32(1g) prohibits assessors from 
considering the effect of Section 42 tax credits when valuing 
property.  It is nearly impossible to apply the "cost approach" 
to subsidized housing because the "cost approach" requires an 
appraiser to examine the cost of replacing the property, which 
will necessarily be impacted by the tax credits an owner 
receives in return for constructing the property.    
No. 
2014AP2947   
 
14 
 
(regulations) and risk factors that are different from a market 
rate property."  Id.  As such, appraisals that fail to account 
for 
differences 
between 
those 
properties 
and 
market-rate 
properties contravene the WPAM and Wis. Stat. § 70.32.  Metro. 
Holding, 173 Wis. 2d at 630-32.  
¶34 The WPAM provides that to be "reasonably comparable," 
other properties must have "similar restrictions" to the subject 
property.  1 Wisconsin Property Assessment Manual at 9-45 ("To 
be considered [reasonably] comparable, the recent arm's-length 
sales 
should 
have 
restrictions 
similar 
to 
the 
subject 
property.").  With these foundational principles in mind, we 
turn to the 2012 and 2013 appraisals that underlie the tax 
assessments for Regency West's property. 
C.  Regency West's Property 
1.  2012 tax assessment 
¶35 Regency West placed its first units in service 
September of 2011, and the project was fully leased in February 
of 2012.  Both Racine and Regency West valued the subject 
property as of January 1, 2012, using the income approach.  
However, they did not apply it in the same way.  First, Racine 
did not do an individualized appraisal of Regency West's 
property, but instead, employed "mass appraisal techniques" 
because its appraisers had 7,500 properties to value in 2012.  
Regency West's appraisal was based on the subject property.  
Second, Racine did not consider the projected expenses and 
income for the subject property when calculating its NOI.  
Regency West used projected expenses and income for the subject 
No. 
2014AP2947   
 
15 
 
property.  Third, Racine employed a capitalization rate based on 
market-rate properties; Regency West applied a capitalization 
rate derived from a Section 42 housing market. 
¶36 In calculating Regency West's NOI for 2012 under its 
mass appraisal technique, the City's appraiser used market-rate 
vacancy and market-rate expenses instead of the vacancy and 
expense projections that were specific to the subject property.  
This approach fails to account for the vast differences in 
federally regulated housing discussed above and distorts the 
actual value of Regency West's property.  
¶37 An appraiser must not value federally regulated 
housing as if it were market-rate property.  Doing so causes the 
assessor to "pretend" that the subject property is not hindered 
by federal restrictions.  Metro. Holding, 173 Wis. 2d at 631; 
see also 1 Wisconsin Property Assessment Manual at 9-45 ("Any 
income approach used must consider all the impacts of the 
subsidy program.").  The restrictions and underlying agreements 
implicit 
in 
federally 
regulated 
housing 
will 
affect 
the 
property's value.  See Bloomer Hous. Ltd. P'ship v. City of 
Bloomer, 2002 WI App 252, ¶31, 257 Wis. 2d 883, 653 N.W.2d 309 
("An assessor must consider the effects of the restrictions on 
subsidized housing."); Walworth Affordable Hous., LLC v. Vill. 
of Walworth, 229 Wis. 2d 797, 802–03, 601 N.W.2d 325 (Ct. App. 
1999) 
(reasoning 
that 
because 
the 
subject 
"property 
is 
encumbered with income and rental restrictions resulting from 
the [Federal Housing Tax Credits], these restrictions must be 
considered in the property's valuation.").  As discussed above, 
No. 
2014AP2947   
 
16 
 
the WPAM recognizes these differences and directs that assessors 
are not to treat federally regulated housing as if it were 
market-rate housing for purposes of determining property values.  
1 Wisconsin Property Assessment Manual at 9-42 ("Subsidized 
housing 
properties 
operate 
differently 
than 
conventional 
(market-rate) properties.").  
¶38 Our decision in Metropolitan Holding unambiguously 
requires assessors to use income and expenses for the subject 
property when valuing subsidized housing under the income 
approach.  Metro. Holding, 173 Wis. 2d at 634 (remanding the 
"case with instructions that [t]he Board order the city assessor 
to assess Layton Garden using the capitalization of income 
approach based on actual income and expenses").  
¶39 In Metropolitan Holding, the plaintiff, Layton Garden, 
argued that its property was valued artificially high because 
the City of Milwaukee had relied on market-rate expenses when 
determining the property's NOI.  Id. at 630.  We agreed with 
Layton Garden and overturned the City of Milwaukee's tax 
assessment based on that valuation.  Id.  We reasoned that by 
employing market-rate rents and market-rate expenses, the city 
assessor "pretended that Layton Garden was not hindered by the 
HUD restrictions and valued the property at the amount the 
property 
would 
bring 
in 
an 
arm's-length 
transaction 
if 
Metropolitan were able to charge market rents."  Id. at 631; see 
also Mineral Point Valley Ltd. P'ship v. City of Mineral Point 
Bd. of Review, 2004 WI App 158, ¶11, 275 Wis. 2d 784, 686 N.W.2d 
697 
(concluding 
that 
the 
assessor 
must 
value 
properties 
No. 
2014AP2947   
 
17 
 
individually, not based on hypothetical income and expenses 
(citing Metro. Holding, 173 Wis. 2d at 629)).  
¶40 Wisconsin Stat. § 70.32(1) requires assessors to value 
property based on "the best information that the assessor can 
practicably obtain."  Here, there was available to Racine's 
assessor projected expenses and income for this newly opened 
property.  However, Racine chose not employ that information and 
chose instead to calculate the NOI for its income-based 
valuation through mass appraisal techniques that were not 
particularized to Regency West's property.  We conclude that in 
that regard, Racine did not comply with the directive of 
§ 70.32(1) because it did not use the "best information" that 
was available to its assessor. 
¶41 In contrast to the City's approach, Regency West used 
income and expenses specifically projected for the subject 
property when it calculated the NOI for its income-based 
valuation.  These projected expenses are the best information 
that could practicably be obtained.  We conclude that for this 
newly opened property, the use of projected expenses complies 
with the mandate of Wis. Stat. § 70.32(1).  
¶42 In addition to calculating a NOI for the subject 
property, an income-based valuation requires determining the 
applicable capitalization rate.  Therefore, we consider whether 
appraisers, when valuing federally regulated properties, may 
derive the capitalization rate from market-rate properties.  We 
conclude that they may not. 
No. 
2014AP2947   
 
18 
 
¶43 The capitalization rate expresses the rate of return 
an investor would expect to receive from an investment in the 
subject property.  1 Wisconsin Property Assessment Manual at 9-
21.  The determination of the applicable capitalization rate is 
a critical element in determining the value of a property 
because a small change in capitalization rate will create a 
significant change in a property's value.  This is so because 
the value of a subject property is determined by dividing its 
NOI by the applicable capitalization rate, which rate is 
expressed as a percentage.  Id.  Therefore, a larger percentage 
will yield a smaller total value for the property.   
¶44 When determining the applicable capitalization rate, 
assessors must consider factors that appreciably alter the value 
of the property.  Otherwise, the capitalization rate will not 
truly represent the risk an investor is undertaking when 
investing in the property.   
¶45 "Capitalization rates from the marketplace are usually 
derived from the sale of market-rate projects."  Id. at 9-45.  
Such 
capitalization 
rates 
"do 
not 
reflect 
the 
unique 
characteristics of subsidized housing.  In some cases there can 
be more risk in subsidized housing, in other cases there is 
less."  Id.  The WPAM further explains, "Rent levels are often 
regulated and annual increases may be difficult to obtain.  In 
many cases the proportion of debt to equity is different in 
subsidized projects than in market rate projects.  With some 
types of projects the amount of annual equity return is limited 
(called a limited dividend)."  Id.  Additionally, for some types 
No. 
2014AP2947   
 
19 
 
of federally regulated housing, "equity investors primarily look 
to other sources beyond the cash flow of the property for their 
required return on investment."  Id.  
¶46 Appraisers who fail to consider property classified as 
federally regulated housing and the restrictions attendant 
thereto when deriving capitalization rates are overlooking major 
characteristics of such property.  After all, a property's 
classification as federally regulated housing may substantially 
impact the risks associated with the property, thereby altering 
the market for the property. 
¶47 Moreover, as discussed above, the WPAM prohibits 
appraisers from using market-rate properties when valuing 
federally regulated housing.  As a corollary, appraisers may not 
derive a capitalization rate from market-rate properties.  
Rather, appraisers should use "recent market value sales of 
similar properties" to determine the capitalization rate.  Id. 
at 9-24.  Therefore, when valuing a property using the income 
approach, appraisers must use capitalization rates derived from 
a market consistent with the market for the subject property. 13 
                                                 
13 The market of properties an appraiser may consider when 
determining the capitalization rate will often be broader than 
the market of properties that are reasonably comparable to the 
subject property. The WPAM does not require an appraiser to 
consider the specific restrictions attendant to each property an 
appraiser relies on to determine the capitalization rate; the 
property manual requires that the properties the appraiser 
relies on be "similar."  See 1 Wisconsin Property Manual at 9-24 
(stating that an appraiser must use "similar properties" when 
determining 
the 
capitalization 
rate). 
 
Therefore, 
the 
capitalization rate may be derived from properties classified as 
the same type of federal housing as the subject property without 
(continued) 
No. 
2014AP2947   
 
20 
 
¶48 The 
City 
assessor 
used 
6 
percent 
as 
a 
base 
capitalization rate, which she derived through mass appraisal 
techniques of market-rate properties.  The assessor then added 
2.5 percent, which is the tax rate for Regency West, yielding a 
loaded capitalization rate of 8.5 percent.14   
¶49 Both the circuit court and the court of appeals 
approved the 6 percent base rate.  They relied on Mineral Point 
Valley 
from 
which 
they 
concluded 
that 
the 
applicable 
capitalization 
rate 
must 
be 
derived 
from 
market-rate 
properties.15  The court of appeals also relied on Bischoff v. 
City of Appleton, 81 Wis. 2d 612, 260 N.W.2d 773 (1978).  Their 
reliance 
on 
either 
Mineral 
Point 
Valley 
or 
Bischoff 
is 
misplaced, and it also fails to comply with our decision in 
Metropolitan Holdings discussed in some detail above. 
                                                                                                                                                             
considering the property's individualized restrictions.  In 
contrast, whether properties are reasonably comparable for 
purposes of the comparative sales approach to valuation requires 
a more exacting analysis.  Properties used for valuation under 
the comparable sales approach must have "restrictions similar to 
the subject property."  Id. at 9-45 (emphasis added).  
14 Both parties added the City of Racine's tax rate to the 
base capitalization rate they calculated, as the addition is 
required by WPAM.  1 Wisconsin Property Assessment Manual at 9-
22. 
15 The circuit court also approved Racine's appraisal for 
the 2012 income valuation, saying it was ok for "commercial 
Property."  However, under Wis. Stat. § 70.32(2)(a)1., Regency 
West is classified as residential property, not commercial 
property, which is set out under Wis. Stat. § 70.32(2)(a)2. 
No. 
2014AP2947   
 
21 
 
¶50 Mineral Point Valley considered competing arguments 
about which interest rate should be used when establishing a 
capitalization rate based on the underlying mortgage for a HUD 
§ 515 property.16  Mineral Point Valley, 275 Wis. 2d 784, ¶8.  
The partnership had obtained a 50-year mortgage at 8.75 percent.  
Id. at ¶3.  As part of the HUD program, the federal government 
subsidized the partnership for 7.75 percent of that interest.  
Id.  Because of the subsidy, the city assessor used 1 percent as 
the capitalization rate and the partnership used 8.75 percent.  
The court of appeals precluded the use of 1 percent as the 
capitalization rate.  Id., ¶13.   
¶51 Mineral 
Point 
Valley 
did 
not 
involve 
a 
direct 
capitalization of income approach, which is the type of 
capitalization approach all parties have used in the case before 
us for 2012.  Mineral Point Valley had nothing to do with 
whether market-rate properties or Section 42 properties should 
establish the market from which sales and NOIs were obtained 
when 
determining 
the 
applicable 
capitalization 
rate 
for 
federally regulated housing.17  Therefore, Mineral Point Valley 
should not be read to have concluded that an appraiser may 
calculate a capitalization rate from market-rate properties when 
valuing federally regulated property.  
                                                 
16 See 42 U.S.C. § 1485. 
17 Recall that a market-driven capitalization rate is 
determined by taking NOIs of comparable properties and dividing 
those numbers by the sale prices for those properties.   
No. 
2014AP2947   
 
22 
 
¶52 In the case at hand, the City's assessors used a 
capitalization rate derived from market-rate properties when 
appraising Regency West's federally regulated property for 2012.  
The City's assessors should have used a market for Section 42 
properties to determine the capitalization rate.  See Metro. 
Holding, 173 Wis. 2d at 634.  Instead, the assessors used a 
capitalization rate provided by a brokerage firm, which did not 
account for the property's classification as subsidized housing.  
As a result, the City's assessors' use of a 6 percent base 
capitalization rate was not in compliance with Wis. Stat. 
§ 70.32(1) or with the WPAM.  Taxing authorities are required to 
comply with the law when valuing properties, and failing to do 
so negates the presumption of correctness that Wis. Stat. 
§ 70.49 otherwise accords.  Allright Props., Inc. v. City of 
Milwaukee, 2009 WI App 46, ¶12, 317 Wis. 2d 228, 767 N.W.2d 567 
(citing Walgreen, 311 Wis. 2d 158, ¶17).   
¶53 The court of appeals, relying on our decision in 
Bischoff concluded that an appraiser's sole reliance on an 
income approach to valuation was improper.  The court of 
appeals' reliance on Bischoff is understandable, but misplaced.18  
                                                 
18 The court of appeals' rationale that Section 42 and 
Section 8 programs are similar because they are found within the 
same section of the WPAM is unconvincing.  Both are subsidized 
housing; however, the similarities between the two programs 
largely end there.  The two programs have vastly different 
restrictions.   
No. 
2014AP2947   
 
23 
 
¶54 Bischoff arose in the context of demurrer where we 
held that a complaint that alleged error in the use of the 
income approach for valuation when there had been an arm's-
length sale was timely filed.  Bischoff, 81 Wis. 2d at 619-20.  
We never concluded that an income approach could not be used as 
the sole method of valuation in all cases.  See also Northland 
Whitehall Apts. Ltd. P'ship v. City of Whitehall Bd. of Review, 
2006 WI App 60, ¶25, 290 Wis. 2d 488, 713 N.W.2d 646 ("the 
'income approach' as utilized by its appraiser has also been 
recognized by the courts . . . as a valid method of determining 
the value of subsidized housing projects").   
¶55 Furthermore, 
Bischoff 
did 
not 
address 
subsidized 
housing.  As we have explained, because of the difficulty in 
appraising subsidized properties under other appraisal methods, 
the income approach may be the best determiner of value.  And, 
the WPAM does not preclude appraisers from relying solely on the 
income approach when valuing subsidized properties.  We have 
recognized that a single valuation approach under the third tier 
may be appropriate.  Adams, 294 Wis. 2d 441, ¶53 ("There may be 
situations in which the only information available compels an 
assessor to use a single methodology to [value] property.").  
¶56 By contrast, Regency West's expert utilized a market 
for Section 42 properties when constructing the applicable 
capitalization rate.  In that market, Section 42 property base 
capitalization rates averaged 7.4 percent for senior properties 
(with a high of 8.4 percent and a low of 5.9 percent) and 
averaged 7.57 percent for family property (with a high of 8.83 
No. 
2014AP2947   
 
24 
 
percent and a low of 6.59 percent).  Regency West's expert used 
a base capitalization of 8 percent for 2012.  He then added the 
same tax rate of 2.54 percent, and employed a loaded rate of 
10.54 percent in his income-based 2012 valuation.  Determining 
the capitalization rate in this manner complied with the WPAM as 
Wis. Stat. § 70.32(1) requires.   
¶57 Based on its expert's calculations described above, 
Regency West valued its property at $2,700,000 as of January 1, 
2012.  Racine's valuation of $4,425,000 was derived from a 
procedure that did not comply with Wis. Stat. § 70.32(1) and the 
WPAM; Regency West's valuation followed the requirements of 
§ 70.32(1) and WPAM in its valuation.  Regency West's appraisal 
is the best evidence of the property's value.19  Accordingly, we 
conclude that Regency West has shouldered its burden to show 
that Racine's taxation for 2012 was excessive and a refund is 
due. 
2.  2013 tax assessment 
¶58 Although both parties employed the income approach to 
valuation for 2012, only Regency West did so for 2013.  Racine 
applied a comparative sales approach for its 2013 assessment.  
                                                 
19 We do not consider the appraisals of Peter Weissenfluh 
and Dan Furdek because their appraisals exceeded the valuations 
of Racine for both 2012 and 2013.  See Trailwood Ventures, LLC 
v. Vill. of Kronenwetter, 2009 WI App 18, ¶¶12-13, 315 Wis. 2d 
791, 762 N.W.2d 841 (concluding that a taxation district that 
has accepted the payment it requested has agreed that its 
taxation value is the maximum value that it may seek; Wis. Stat. 
§ 74.37 permits a refund to the taxpayer or may uphold the 
status quo, but there is no authority for deficiency judgments).  
No. 
2014AP2947   
 
25 
 
Regency West argues that the properties the City's appraiser 
relied on, primarily Section 8 properties, were not reasonably 
comparable to the subject property, which is Section 42 housing.  
For the reasons discussed below, we conclude that Section 8 and 
Section 42 properties are not "reasonably comparable," and 
therefore the City incorrectly applied the comparative sales 
approach when valuing Regency West's property for 2013.  
¶59 It is the legislature that required the use of "recent 
arm's-length sales of reasonably comparable property" when an 
appraiser is valuing a property under the second tier method.  
Wis. Stat. § 70.32(1).  And in addition, § 70.32(1) also 
requires consideration of "all factors that, according to 
professionally acceptable appraisal practices, affect the value 
of the property."  
¶60 If there are no "reasonably comparable" properties, 
the comparable sales approach cannot be used.  Allright Props., 
317 Wis. 2d 228, ¶29.  That is, an appraiser cannot accurately 
value a property using data from the sales of properties that 
are not "reasonably comparable" to the subject property.  Absent 
comparable sales, an appraiser must apply the third tier for 
valuing property.  Id. 
¶61 The WPAM does not leave the determination of whether 
properties are reasonably comparable wholly to the discretion of 
an appraiser.  It provides appraisers with instructions for 
assessing subsidized properties under the comparable sales 
approach.  To obtain the necessary information, an appraiser 
"may have to perform a statewide search to find comparable 
No. 
2014AP2947   
 
26 
 
sales."  1 Wisconsin Property Assessment Manual at 9–45.  An 
appraiser can obtain this information "by viewing website data 
and by calling other assessors who have similar subsidized 
housing in their jurisdictions."  Id.  
¶62 The WPAM explicitly states when subsidized properties 
are reasonably comparable:  properties being compared must have 
"restrictions similar to the subject property."  Id.  To 
determine if properties have similar restrictions, an appraiser 
must examine the specific restrictions that apply to each 
property, as well as the differences between these restrictions.  
And, an appraiser must consider the nature of these restrictions 
and the ways in which these restrictions affect the value of 
each property.  This also suggests that an appraiser should not 
compare subsidized property to non-subsidized property as non-
subsidized property lacks the restrictions subsidized property 
carries.  We have explained the necessity of understanding the 
specific 
restrictions 
appurtenant 
to 
federally 
regulated 
property when appraising such property.  Metro. Holding, 173 
Wis. 2d at 631-32.  The failure of an appraiser to consider the 
restrictions specific to the subject property is a failure to 
follow Wisconsin law.  We now examine whether two specific 
classifications of subsidized housing, Section 8 and Section 42, 
are "reasonably comparable."20   
                                                 
20 The WPAM 
has a section dedicated to the various 
subsidized housing credits.  1 Wisconsin Property Assessment 
Manual at 9-40.  This section includes descriptions of the two 
types of federally regulated properties at issue in this case, 
Section 42 and Section 8.    
No. 
2014AP2947   
 
27 
 
¶63 Section 42 is a United States Treasury program that 
promotes the development of affordable housing by allowing an 
owner to receive federal tax credits for developing a parcel of 
land into Section 42 housing.21  The credits can be exchanged for 
equity in the property, which allows the owner to reduce 
construction debt with equity financing.  Under the Section 42 
program, investors receive "a dollar-for-dollar reduction in 
federal tax liability . . . in exchange for equity participation 
in low-income rental housing."  1 Wisconsin Property Assessment 
Manual at 9-40.  
¶64 Section 42 "credits come with many restrictions."  Id.  
For example, in Wisconsin the owner is required to enter into a 
LURA that obligates the owner to maintain the project for 30 
years with rent-restricted units for income-qualified tenants.  
Id.   
¶65 In contrast, Section 8 is a rent subsidy program.  
"Project owners receive a rental subsidy payment under Housing 
Assistance Payment Contract (HAP Contract) that range from 15 to 
40 years."  Id. at 9-42.  The property owner is required to rent 
Section 8 units to tenants from low or very low-income families.  
"Families whose incomes do not exceed 80% of the median income 
in the area are defined as low-income; very low-income families 
do not exceed 50% of the median income."  Id.  
                                                 
21 In Wisconsin, Section 42 housing is administered by 
WHEDA. 
No. 
2014AP2947   
 
28 
 
¶66 Section 
8 
properties 
are 
generally 
a 
low 
risk 
investment.  The risk is low, in part, because the federal 
government insures the owners of Section 8 housing against the 
possibility that their tenants will fail to pay rent.  
¶67 In sum, Section 42 and Section 8 are vastly different 
subsidized housing programs, with different risks for the 
owners.  Section 42 is a tax credit program; Section 8 is a 
subsidy program.  Section 42 is a riskier investment because the 
government does not insure against non-payment of rents.  In 
contrast, the government guarantees much of the rents of Section 
8 properties.  Unlike owners of Section 8 properties, Section 42 
owners are required to enter into a 30-year LURA.  Regency 
West's expert testified that these differences lead to vastly 
different markets for the two types of properties.   
¶68 In the case before us, the City's assessors relied on 
the 
sales 
of 
three 
properties: 
 
Lake 
Oakes, 
Woodside 
Village/Albert House and McMynn Tower.  Lake Oakes possesses few 
Section 42 housing units; most units are market-rate rentals.  
Woodside Village/Albert House and McMynn Tower have no Section 
42 units.  One property was entirely Section 8 housing and the 
other was Section 8 housing with a few commercial units.  
Therefore, their sales were not representative of "reasonably 
comparable" arm's-length sales as the second tier of Wis. Stat. 
§ 70.32(1) and the WPAM require.   
¶69 Moreover, the City's assessors did not consider the 
varying restrictions federal regulations require when valuing 
Regency West's property.  Rather, Scites testified that Section 
No. 
2014AP2947   
 
29 
 
42 and Section 8 properties have similar restrictions.  Scites 
relied almost entirely on the properties' similar rates of rent, 
without recognizing that Section 8 rents are subsidized by the 
government and Section 42 rents are not.  Furthermore, nothing 
in the WPAM or Wisconsin law equates "reasonably comparable" 
with "similar rents."  The failure of Racine to consider the 
properties' restrictions caused the three sales Scites relied on 
to fall outside the parameters of reasonably comparable sales.  
¶70 The 
City 
was 
required 
to 
consider 
the 
various 
restrictions on subsidized properties.  And, as a matter of law, 
Section 8 and Section 42 do not possess the same restrictions.  
The City's 2013 assessment of the subject property relied 
totally on its assertion that the sales of Lake Oakes, Woodside 
Village/Albert House and McMynn Tower were sales of reasonably 
comparable properties.  As we have explained above, WPAM 
explains the differences those properties have from Regency 
West's property such that they are not reasonably comparable.  
Accordingly, Scites' 2013 appraisal was completed in violation 
of Wisconsin law and the WPAM.  The circuit court erroneously 
concluded that the City's assessors complied with Wisconsin 
law.22  
¶71 We conclude that Scites' 2013 appraisal failed to 
follow Wisconsin law and the WPAM, negating the presumption of 
                                                 
22 We emphasize that whether an assessor complied with 
Wisconsin law and the WPAM are questions of law for our 
independent review.  Adams Outdoor Advert., Ltd. v. City of 
Madison, 2006 WI 104, ¶26, 294 Wis. 2d 441, 717 N.W.2d 803.  
No. 
2014AP2947   
 
30 
 
correctness otherwise available in Wis. Stat. § 70.49.  Allright 
Props., 317 Wis. 2d 228, ¶12.   
¶72 Regency West argues that it has presented the only 
evidence of its property's value as of January 1, 2013 that 
complies with Wisconsin law and the WPAM.  We agree.  It did so 
in its third tier direct capitalization of income appraisal.  
That appraisal employed actual expenses and income for the 
property upon which the NOI was calculated, and it derived its 
capitalization rate from a market for Section 42 properties.  
Regency West's appraisal determined that the property's value 
was $2,730,000 as of January 1, 2013.  This is sufficient 
evidence to meet Regency West's burden to show that the City's 
tax assessment was excessive and accordingly a refund is due.23  
III.  CONCLUSION 
¶73 We conclude that the valuation methodologies Racine 
used for the 2012 and 2013 assessments did not comply with 
Wisconsin law.  Accordingly, we also conclude that Regency West 
has overcome the presumption of correctness for the 2012 and 
2013 tax assessments, and that the circuit court and the court 
of appeals erred in concluding otherwise.  And, finally, we 
conclude that Regency West has proved that Racine's tax 
assessments for 2012 and 2013 were excessive.  Accordingly, we 
                                                 
23 Regency West had the burden to show that that assessment 
was excessive.  See Sausen v. Town of Black Creek Bd. of Review, 
2014 WI 9, ¶20, 352 Wis. 2d 576, 843 N.W.2d 39. 
No. 
2014AP2947   
 
31 
 
reverse and remand to the circuit court to determine the amount 
of the refund due Regency West. 
By the Court.—The decision of the court of appeals is 
reversed and remanded. 
 
 
No.  2014AP2947.ssa 
 
1 
 
¶74 SHIRLEY S. ABRAHAMSON, J.   (dissenting).  Fortunately 
for Regency West (and unfortunately for Racine's coffers and the 
other Racine taxpayers), the majority opinion declares that the 
lower assessment of the property at issue is correct. The 
majority opinion flouts the longstanding principle that property 
tax assessors should use the best information possible in order 
to determine real property's full value, upends the proper scope 
of appellate review, and inserts itself as a fact-finder.  
Because of the majority opinion's unwarranted departures from 
precedent and usurpation of the role of the circuit court, I 
dissent.   
¶75 The essential question posed in this court is whether 
Racine's original assessments are excessive.  The circuit court, 
the court of appeals, and I answer the question in the negative.  
Applying a correct legal analysis, giving deference to the 
circuit court, the fact-finder, and reviewing the record compel 
answering the question with a firm, clear "No."  
¶76 The majority opinion reaches the opposite answer, 
resting its conclusion on errors of law and on its refusal to 
consider the evidence Racine presented.  Now, assessors of 
federally subsidized housing (at least Section 42 housing) 
apparently can go straight to an income approach, a third-tier 
method of assessment, bypassing the best information and other 
proper assessment methodologies along the way.   
I 
¶77 Regency West, the property at issue, comprises 72 
apartment units and is owned by a limited liability corporation.  
No.  2014AP2947.ssa 
 
2 
 
The property is treated as commercial property for assessment 
purposes.  Wisconsin Property Assessment Manual 9-1 (2011) 
[hereinafter 
Manual] 
("For 
assessment 
purposes 
commercial 
property consists of . . . [a]partment houses of four or more 
units . . . .").  Although the majority opinion describes 
Regency West as residential property, the majority opinion 
applies the commercial valuation principles set forth in the 
Manual.1 
¶78 I agree with the majority opinion that general 
appraisal principles apply to federally subsidized housing.  I 
agree with the majority opinion that the three valuation 
approaches are an arm's-length sale of the subject property 
(tier one), the sales comparison approach (tier two), and 
income, cost, and other valuation methods (tier three).2 
¶79 I agree with the majority opinion that the statutory 
interpretation and application of Wis. Stat. § 70.32 presents a 
question of law that this court determines independently.  The 
court determines, as a matter of law, whether the assessor's 
valuation methodology complies with statutory requirements.  
Here our agreement ends.   
¶80 I disagree with the majority opinion that, as a matter 
of law, the only valuation approach applicable in the instant 
                                                 
1 See majority op., ¶¶24, 31, 50 n.15. 
2 All parties agree that there are no recent arm's-length 
sales of Regency West, so a tier one analysis was not possible.  
The instant case is about which other tier analyses should be 
used.   
No.  2014AP2947.ssa 
 
3 
 
case is the income approach.  The majority opinion errs as a 
matter of law. 
¶81 The majority opinion errs as a matter of law when it 
totally discards and disregards in its analysis the evidence 
presented by Dan Furdek and Peter Weissenfluh, Racine's expert 
witnesses. 
 
The 
majority 
opinion 
describes 
Furdek 
and 
Weissenfluh's evidence, but does not consider the evidence in 
its analysis and conclusion.   
¶82 Why ignore these experts?  One reason is "because," 
according to the majority opinion, "their appraisals exceeded 
the valuations of Racine for both 2012 and 2013."  Majority op., 
¶57 n.20.3  A second reason for ignoring Racine's two experts, 
according to the majority opinion, is that they err as a matter 
of law in using a sale comparison approach to valuation in the 
instant case.  
¶83 The majority opinion supports its legal conclusion 
that Racine's two experts should be ignored in their entirety in 
footnote 19, citing Trailwood Ventures, LLC v. Village of 
Kronenwetter, 2009 WI App 18, ¶¶12-13, 315 Wis. 2d 791, 762 
N.W.2d 841.  The footnote in the majority opinion states: 
We do not consider the appraisals of Peter Weissenfluh 
and Dan Furdek because their appraisals exceeded the 
valuations of Racine for both 2012 and 2013.  See 
Trailwood Ventures, LLC v. Vill. of Kronenwetter, 2009 
                                                 
3 The majority misstates Furdek and Weissenfluh's report 
because the experts' pre-reconciliation value derived from the 
income 
approach 
was 
actually 
lower 
than 
the 
original 
assessments.  After reconciling their various approaches, 
however, their appraisal was slightly higher than the original 
assessments.      
No.  2014AP2947.ssa 
 
4 
 
WI App 18, ¶¶12-13, 315 Wis. 2d 791, 762 N.W.2d 841 
(concluding that a taxation district that has accepted 
the payment it requested has agreed that its taxation 
value is the maximum value that it may seek; Wis. 
Stat. § 74.37 permits a refund to the taxpayer or may 
uphold the status quo, but there is no authority for 
deficiency judgments). 
¶84 The Trailwood Ventures case does not support the 
conclusion of law (reached by the majority opinion) that a court 
cannot or should not consider evidence presented that the value 
of the subject property was greater than the assessment from 
which review was sought.  The Trailwood Ventures decision says 
nothing about admissible evidence or disregarding evidence that 
the value of the subject property was greater than the original 
assessment.  The briefs filed in Trailwood Ventures, as well as 
the opinion, make clear that admissibility of evidence was not 
an issue in Trailwood Ventures.     
¶85 Trailwood Ventures holds only that the statutes do not 
permit a trial court to set a higher assessment under Wis. Stat. 
§ 74.37 than that from which the taxpayer appealed or impose a 
greater tax burden on the taxpayer than the one the taxpayer 
challenges.  Trailwood Ventures, 315 Wis. 2d 791, ¶¶10, 12-14.  
¶86 Trailwood Ventures offers no guidance in the instant 
case.  Racine's purpose of introducing its experts' evidence was 
not to increase Regency West's assessments for 2012 and 2013 or 
to levy a larger tax on Regency West for those years.  Furdek 
and Weissenfluh's evidence was to serve the singular purpose of 
showing that Racine's initial assessments were not excessive.  
In misapplying Trailwood Ventures, the majority opinion commits 
No.  2014AP2947.ssa 
 
5 
 
a fatal error of law by utterly ignoring the evidence presented 
by Racine's two expert witnesses.   
¶87 The majority opinion is off on its own solo venture in 
discussing Trailwood Ventures.  Regency West has made no 
objection to the admission of Furdek and Weissenfluh's testimony 
on the ground that their valuation was higher than Racine's 
initial estimate.  Neither party's briefs in the instant case 
cite or discuss Trailwood Ventures.  The majority opinion 
misinterprets and misapplies Trailwood Ventures to make new law 
in the instant case.     
¶88 A second reason the majority opinion errs as a matter 
of law in deciding that only the income method of valuation 
applies and in discarding the evidence of Weissenfluh and Furdek 
is that the majority opinion concludes that the sales comparison 
approach was not a valid appraisal method in the instant case.  
The majority opinion takes a cribbed, too narrow view of the 
sales comparison approach.  (Weissenfluh and Furdek also used an 
income approach.)  
¶89 The majority opinion misreads the directive in the 
Manual that "the recent arm's-length sales [of federally 
subsidized housing] should have restrictions similar to the 
subject property."  Manual at 9-52 (emphasis added).  The 
majority opinion reads "similar" to mean "identical" and 
concludes that Racine's two experts' comparable sales approach 
was erroneous.   
¶90  The second tier method of valuation, the sales 
comparison approach, requires an assessor to use the value of 
No.  2014AP2947.ssa 
 
6 
 
"reasonably 
comparable" 
properties. 
 
"'[R]easonable 
comparability' depends upon the degree of similarity between the 
properties in question."  Rosen v. City of Milwaukee, 72 
Wis. 2d 653, 686, 242 N.W.2d 681 (1976).  The court has 
suggested some factors to consider in determining the similarity 
of properties:  
Important 
considerations 
in 
determining 
whether 
particular property is sufficiently similar to the 
property being assessed to warrant reliance on its 
sale price as evidence of market value include its 
location, including the distance from the assessed 
property, its business or residential advantages or 
disadvantages, its improvements, size and use. It is 
also important to consider the conditions of sale, 
including its time in relation to the date of 
valuation, and its general mode and character insofar 
as they tend to indicate an arm's-length transaction. 
Rosen, 72 Wis. 2d at 665.       
¶91 The Manual at 9-12 provides that the "sales comparison 
approach should be used" if there are comparable properties, and 
that "[t]o be comparable, properties should be similar in both 
physical 
and 
economic 
characteristics 
including . . . the 
ability to generate income . . . ."    
¶92 The Manual contains a section devoted to subsidized 
housing, including Section 42 housing.4  The Manual describes 10 
different types of federally subsidized housing.  Regarding 
Section 42 housing, the Manual notes that these projects' 
operating income is often lower than market rate properties and 
that these projects can be risky because of tenant income 
                                                 
4 Manual at 9-44 to 9-54. 
No.  2014AP2947.ssa 
 
7 
 
restrictions.5  The Manual addresses generally how to assess the 
10 different federally subsidized projects.  Case law and the 
Manual make clear that assessors must consider the impact that 
the subsidized housing's restrictions have on value.   
¶93 Nothing 
in 
the 
Manual's 
subsection 
addressing 
federally 
subsidized 
Section 
42 
housing 
discusses 
any 
limitations on the type of assessment methodology that should be 
used in assessing these properties.  The Manual does not 
foreclose using sales comparison to value subsidized housing, 
although the majority opinion reads the Manual as if it does.  
Indeed, the Manual refers to using the sales comparison approach 
in determining the proper method of valuation for federally 
subsidized housing.  See Manual at 9-52.  The Manual does state 
that "the income approach may be the most useful method for 
valuing subsidized housing . . . ."  See Manual at 9-53.  The 
operative word is "may."   
¶94 As to using the sales comparison approach, the Manual 
explains that a comparable property should have restrictions 
similar to the subject property and information should be sought 
from several sources.  The Manual states: 
To be considered comparable, the recent arm's-length 
sales should have restrictions similar to the subject 
property.  The assessor may have to perform a 
statewide search to find comparable sales.  Sales data 
should always be confirmed by reliable sources.  
Information may be obtained by viewing website data 
                                                 
5 Manual at 9-47.  In both Racine and Milwaukee (the 
location of the comparables used by Racine's experts), Section 
42 properties usually have a waiting list. 
No.  2014AP2947.ssa 
 
8 
 
and by calling other assessors who have similar 
subsidized housing in their jurisdictions.   
Manual at 9-52.   
¶95 The evidence presented by Furdek and Weissenfluh 
adheres to the Manual.  They considered the impact of the 
Section 42 restrictions in their sales comparison valuation.  I 
will comment further on their evidence later on.  For now, I 
just point out that the majority opinion errs in disregarding 
out of hand the sales comparison approach in the instant case.   
 
¶96 In sum, the majority opinion is based on errors of law 
regarding the interpretation and application of the three tiers 
of 
valuation 
and 
in 
entirely 
disregarding 
Furdek 
and 
Weissenfluh's evidence.  The majority opinion relies only on 
Racine's assessor, Janet Scites, and Racine's Chief Assessor, 
Ray Anderson.   
¶97 I turn to the standard of review of the evidence in 
the record.  I then analyze the testimony of the competing 
experts and review the circuit court's findings of fact and 
determination under the proper standard of review.    
II 
¶98 Having determined that Racine's experts complied with 
the statute and the Manual in using several methods of 
valuation, I now determine whether Racine's original assessments 
were excessive.  A challenger, here Regency West, has the burden 
at trial to "produce evidence that it is more probable than not 
that the assessed value is not correct."  Bonstores Realty One, 
LLC v. City of Wauwatosa, 2013 WI App 131, ¶9, 351 Wis. 2d 439, 
No.  2014AP2947.ssa 
 
9 
 
839 N.W.2d 893.  Racine may rebut with its own evidence Regency 
West's production of evidence. 
¶99 The circuit court's findings of fact will not be 
overturned by an appellate court unless they are clearly 
erroneous, that is, unless they are against the great weight of 
the evidence.  Findings of fact are not against the great weight 
of the evidence "merely because a different fact-finder could 
draw different inferences from the record."  State v. Wenk, 2001 
WI App 268, ¶8, 248 Wis. 2d 714, 637 N.W.2d 417.   
¶100 Further, the weight and credibility that an appellate 
court gives to the evidence of an expert witness is also 
"uniquely within the province of the fact finder."  Bloomer 
Housing Ltd. P'ship v. City of Bloomer, 2002 WI App 252, ¶12, 
257 
Wis. 2d 883, 
653 
N.W.2d 309 
(quoted 
source 
omitted).  
"Where, as here, there is conflicting testimony, the fact finder 
is the ultimate arbiter of credibility and when more than one 
reasonable inference can be drawn, the reviewing court must 
accept the inference drawn by the trier of fact."  Bloomer, 257 
Wis. 2d 883, ¶12 (internal quotation marks omitted); see also 
Mineral Point Valley Ltd. P'ship v. City of Mineral Point Bd. of 
Review, 2004 WI App 158, ¶16, 275 Wis. 2d 784, 686 N.W.2d 697 
(Deininger, P.J., concurring) ("I recognize that, in the absence 
of a recent arms-length sale, property valuation depends largely 
on matters of judgment and expertise. . . . [A]ppraised values 
of a particular property can differ sharply, and [ ] it is most 
often the fact finder's proper role to assess the weight and 
credibility of competing opinions of fair market value.").   
No.  2014AP2947.ssa 
 
10 
 
III 
 
¶101 Following a four-day bench trial filled with extensive 
expert evidence from both sides, the Circuit Court for Racine 
County 
concluded 
that 
the 
original 
assessments 
were 
not 
excessive.   
¶102 The crux of the circuit court's decision involved 
determining the weight and credibility of conflicting expert 
evidence.  Each side presented experts and, as the circuit court 
explained, "[t]he opinions provided by all experts in this case 
[were] highly subjective.  All experts stabilized values, loaded 
cap rates, or made adjustments to factors used in calculating 
their valuations based on their experience and for reasons 
stated in their testimony."   
¶103 Ultimately, the circuit court concluded (and the court 
of appeals agreed) that Racine's experts were more credible and 
more persuasive.  Based on this determination, the circuit court 
concluded that Racine's original assessments were not excessive.  
The court of appeals affirmed. 
¶104 Deferring to the circuit court's findings of fact 
about the credibility of the expert witnesses and the weight to 
be given to each of them, I agree with the circuit court's 
conclusion that Regency West failed to carry its burden.  The 
circuit court was not persuaded that Regency West established 
that it was more probable than not that the assessed values were 
excessive. 
 
The 
evidence 
supports 
the 
circuit 
court's 
conclusion.  
No.  2014AP2947.ssa 
 
11 
 
¶105 Racine's experts, Furdek and Weissenfluh, are well-
versed in Wisconsin appraisal techniques as well as appraisal 
techniques for subsidized housing.  Each has spent the majority 
of his career in the Milwaukee Assessor's Office; they have 
recently gone into private practice together.  Contrary to the 
majority opinion's assertion, both Furdek and Weissenfluh have 
experience with Section 42 subsidized housing.  In their 
respective tenures at the Milwaukee Assessor's office, they were 
directly involved with assessing Milwaukee's numerous Section 42 
properties or reviewing and signing off on the assessments of 
Section 42 properties.  Each has given presentations on valuing 
subsidized housing.   
¶106 These experts submitted a thorough, nearly 70-page 
assessment 
report 
using 
several 
different 
valuation 
methodologies.  They testified at length, concluding that 
Racine's initial assessments of Regency West were not excessive.  
¶107 Furdek and Weissenfluh considered three traditional 
valuation approaches:  sales comparison (tier two), income (tier 
three), and cost (tier three).  The Manual at 9-52 states, 
referring to Wis. Stat. § 70.32, that "[t]he assessor should 
consider all three approaches to value when assessing federally 
subsidized properties."  Indeed, all three approaches are set 
forth in the Manual at 9-52 to 9-54, discussing federally 
subsidized housing.   
¶108 Before applying these assessment methodologies, Furdek 
and 
Weissenfluh 
explained 
Wisconsin 
assessment 
standards 
applying to subsidized housing, thoroughly examined Racine's 
No.  2014AP2947.ssa 
 
12 
 
real estate climate, and stated the assumptions upon which they 
based their analyses.  This extensive pre-assessment analysis 
complies with the Manual, which provides:  
Each type of property presents unique valuation 
problems.  This requires the assessor to possess a 
great deal of knowledge about the current economic 
conditions of the area and any trends and factors that 
may influence the value of commercial property. 
. . . . 
Given 
the 
data 
used 
and 
the 
type 
of 
property 
appraised, the appraiser must consider how well each 
method 
employed 
estimates 
the 
value 
of 
the 
property. . . .  
How does the appraiser determine which approach or 
approaches are most reliable?  The best guidance that 
can be offered is to review the market activity for 
the subject and determine the attributes by which the 
market uses to evaluate alternative real estate 
decisions.   
Manual at 9-1, 9-39.   
¶109 Furdek and Weissenfluh also met with the Wisconsin 
Housing and Economic Development Authority (WHEDA) to discuss 
Section 42 and Section 8 federally subsidized housing.  In 
Wisconsin, 
WHEDA 
administers 
Section 
42 
tax 
credits 
and 
publishes the maximum rents that may be charged to Section 42 
tenants.  Manual at 9-46.  The WHEDA representative stated that 
Section 
8 
and 
Section 
42 
properties 
were 
economically 
comparable.   
¶110 Based upon their conversation with WHEDA, Furdek and 
Weissenfluh concluded that most Land Use Restriction Agreements 
(LURAs) for Section 42 properties impose similar restrictions.  
No.  2014AP2947.ssa 
 
13 
 
They therefore used a sales comparison approach using other 
Section 42 properties.    
¶111 Furdek and Weissenfluh primarily relied on a sales 
comparison approach that consisted of three properties.  Their 
Report explains that the "sales [were] researched through 
numerous sources, inspected and verified by a party to the 
transaction."  Two of the properties comprised a mix of Section 
42 units and market units.  The other comparable property 
consisted of a building that was being converted into Section 42 
housing.  
¶112 Because the comparables Furdek and Weissenfluh found 
were not identical to Regency West, these experts complied with 
the Manual——they made adjustments in their comparisons.  They 
explained that they took into account specific differences 
between 
the 
comparables 
and 
Regency 
West, 
including 
the 
location, age, and non-section 42 portions, to arrive at a value 
for Regency West.  Only after making these adjustments did 
Furdek and Weissenfluh use the sales comparison approach to 
arrive at the value of the Regency West property.  This 
valuation corroborated the original assessments.  
¶113 Furdek 
and 
Weissenfluh 
also 
used 
two 
income 
approaches, a capitalization of income approach and a discounted 
cash flow analysis, and a cost approach.  For each of these 
approaches, these experts used a combination of Regency West's 
actual expenses as well as projected expenses.  The experts 
reconciled the values derived from each approach to reach a 
valuation.  
No.  2014AP2947.ssa 
 
14 
 
¶114 Each of these valuation methodologies, independently 
and when reconciled with the others, confirmed that Janet 
Scites——Racine's assessor whose initial assessments Regency West 
challenged——got it right.     
¶115 In stark contrast to the extensive, multi-faceted 
evidence presented by Racine's experts, Regency West presented 
one expert, Scott McLaughlin.  Although McLaughlin claimed that 
he specialized in assessing federally subsidized housing, the 
record does not reflect the extent of his Wisconsin-specific 
assessment experience.  That said, the majority opinion relies 
extensively (indeed exclusively) on McLaughlin's testimony and 
report.        
¶116 In the instant case, McLaughlin prepared a four-page 
report consisting only of a capitalization of income approach to 
valuation.  This report was based on Regency West's projected 
expenses for 2012 and actual expenses for 2013.  McLaughlin's 
report did not state his assumptions, nor did it consider market 
conditions 
affecting 
the 
value 
of 
property 
in 
Racine.  
Furthermore, McLaughlin's report does not explain the basis for 
his opinions or the figures that he uses.  His testimony filled 
in some of this information. 
¶117 McLaughlin's report concluded, based on his "extensive 
experience 
appraising 
IRC 
§ 42 
properties," 
that 
"[t]he 
inability to obtain reliable data regarding the rent and income 
restrictions for IRC § 42 properties prevents a valid comparable 
sales valuation in this case."    
No.  2014AP2947.ssa 
 
15 
 
¶118 Nevertheless, McLaughlin derived a capitalization rate 
based on sales of fifteen Section 42 properties.  Although 
McLaughlin claimed he could not perform a comparable sales 
analysis of Regency West because he did not have the Land Use 
Restriction Agreements (LURAs) for his list of fifteen Section 
42 sales, McLaughlin relied on data from Section 42 sales to 
derive a capitalization rate for his income approach.6  The 
majority opinion unsuccessfully attempts to explain away this 
inconsistency 
in 
McLaughlin's 
evidence 
regarding 
the 
availability of comparables.   
¶119 Based 
upon 
an 
income 
valuation 
approach 
alone, 
McLaughlin concluded that Regency West's value was nearly two 
million dollars less than the valuations that Racine or Furdek 
and Weissenfluh reached.   
¶120 McLaughlin and the majority opinion rely solely on the 
income approach to conclude that Racine's original assessment 
was excessive.  The majority opinion is unsuccessful in 
explaining away precedent.  The cases have stated time and time 
again that the income approach "may never be the sole basis for 
an assessment of property."  Waste Mgmt. of Wis. v. Kenosha Cty. 
Bd. of Review, 184 Wis. 2d 541, 558, 516 N.W.2d 695 (1994); see 
                                                 
6 There is no evidence that McLaughlin attempted to obtain 
the LURAs for any of these fifteen properties or communicated 
with WHEDA, buyers, sellers, or brokers to obtain information.   
No.  2014AP2947.ssa 
 
16 
 
also 
Bischoff 
v. 
City 
of 
Appleton, 
81 
Wis. 2d 612, 
260 
N.W.2d 773 (1978).7 
¶121 After comparing evidence presented by the experts, the 
circuit court unsurprisingly ruled in favor of Racine.  The 
circuit court was persuaded by Racine's appraisers and experts, 
but was not impressed by McLaughlin.  The circuit court stated 
its finding that Racine's assessors were more credible as 
follows: 
Credibility of the assessors and experts is critical 
to this analysis.  Based upon the years of experience, 
knowledge, 
and 
demeanor, 
this 
Court 
finds 
the 
testimony of the City's assessors and experts more 
credible than that of the plaintiff's expert, Scott 
McLaughlin.  The City's assessors and experts are very 
familiar and experienced in valuing property in the 
Racine and Southeastern Wisconsin area and McLaughlin 
is not.  
Based on my review of the record, without even giving deference 
to the circuit court, I agree with the circuit court.  
¶122 I conclude that Regency West has failed to present 
sufficient evidence showing that the initial assessments were 
excessive.  Racine's assessors and experts presented the more 
persuasive evidence that Racine's initial assessments were not 
excessive.   
IV 
                                                 
7 See State ex rel. I.B.M. Corp. v. Bd. of Review, 231 
Wis. 303, 312, 260 N.W. 784 (1939) ("Though net income from the 
rental of either real or personal property is always a proper 
element to consider, it cannot be considered as the sole 
controlling factor in determining value of either real or 
personal property.  Such a rule, if given approval, would 
require 
a 
holding 
that 
non-income 
producing 
property 
is 
practically valueless for taxation purposes."). 
No.  2014AP2947.ssa 
 
17 
 
¶123 Before I end my analysis, I discuss court procedure.  
I dissented in an unpublished order granting review in the 
instant case.  I repeat my objection in this published dissent 
to inform litigants and lawyers about court procedure.  
¶124 On November 16, 2015, the court adopted a procedure 
governing when a justice may hold for further discussion a 
petition for review in which a Supreme Court Commissioner 
recommended granting review.   
¶125 The procedure applies when the justices vote on the 
Wisconsin 
Supreme 
Court 
Commissioners' 
recommendations 
on 
petitions for review by e-mail.  Most months the court votes on 
the recommendations in person, in closed conference.  The new e-
mail procedure states: 
Regarding 
petitions 
for 
review, 
certifications, 
petitions to bypass, original actions, petitions for 
supervisory writ, and petitions for writ of mandamus, 
prohibition, quo warranto, and habeas corpus, some 
months are scheduled as mail-in conferences, whereby 
each justice votes, by e-mail, on the recommendations 
of each Commissioner.  A justice, who wishes to hold a 
matter for which a Commissioner has recommended 
granting review, must submit in writing, with his or 
her e-mail votes, the specific reason(s) why he or she 
would not approve the grant as recommended by the 
Commissioner.  Within 5 calendar days of that writing, 
all justices shall vote, by e-mail, to grant the 
matter, deny the matter, or otherwise approve the 
suggestions in the written proposal.  If sufficient 
votes to grant the matter remain, the grant order 
shall issue within two business days.  If the matter 
no longer has the requisite votes to grant, it shall 
be discussed in a court conference, but in any event, 
no later than at the next in-person petition for 
review conference.   
No.  2014AP2947.ssa 
 
18 
 
¶126 The new procedure was adopted without any notice to 
the Supreme Court Commissioners and Clerk of the Supreme Court, 
let alone the litigants, lawyers, and the public.8    
¶127 Although I did not vote in favor of adopting this 
procedure, I have followed it.  At the very least, the court 
should follow its adopted procedures.  As I have written before, 
a scent of lawlessness pervades the court.     
¶128 The 
effect 
of 
several 
newly 
adopted 
procedures 
(whether the effect is intended or not) is to silence an 
individual justice's voice——whether that justice wants to hold a 
petition for review for further discussion, write separately on 
a matter, or dissent.   
¶129 I have pledged to continue to discharge my duties on 
this court as the people of the state have four times elected me 
to do.  The commitment I made to myself nearly 40 years ago and 
in 
four 
successive 
elections 
since 
then 
remains: 
 
Be 
independent, impartial, and non-partisan, and help the court 
system improve.  I will continue to implement that commitment 
whether in the majority or in dissent.   
¶130 We are a court of seven.  Each justice is only one 
voice of seven.  I will continue to be one justice with one 
                                                 
8 The procedure was adopted pursuant to the Introduction to 
the Supreme Court's Internal Operating Procedures, which states 
that the Internal Operating Procedures "may be changed without 
notice as circumstances require."  The Supreme Court Internal 
Operating Procedures are available in Volume VI of the Wisconsin 
Statutes (2013-14).   
No.  2014AP2947.ssa 
 
19 
 
voice, but mine will not be a timid voice as I continue to serve 
the people of the state of Wisconsin.   
¶131 For the reasons set forth, I write on the merits of 
the case and court procedure.   
¶132 I am authorized to state that Justice ANN WALSH 
BRADLEY joins this dissent. 
No.  2014AP2947.ssa 
 
 
 
1