This memorandum opinion was not selected for publication in the New Mexico Appellate

Reports. Please see Rule 12

- 405 NMRA for restrictions on the citation of unpublished memorandum opinions. Please also note that this electronic memorandum opinion may contain computer

- generated errors or other deviations from the offici al paper version filed by the Court of Appeals and does not include the filing date.

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO 1

2727 SAN PEDRO LLC , 2

Petitioner

- Appellant
, 3

v. A

- 1

- CA

- 35898 4

BERNALILLO COUNTY ASSESSOR , 5
Respondent

- Appellee

. 6

AP PEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY 7 Clay Campbell , District Judge 8

John R. Polk
, 9 Albuquerque, NM 10

Vance, Chavez & Associates, LLC 11 Claud Eugene Vance 12 Albuquerque, NM 13
for Appellant 14
Robles, Rael & Anaya, P.C. 15 Charles Rennick 16 Marcus J. Rael, Jr. 17 Albuquerque , NM 18
for Appellee 192 MEMORANDUM OPINION 1

VARGAS , Judge. 2

{1} 2727 San Pedro LLC (Taxpayer) appeals the district court’s affirmation of 3
the Bernalillo County Valuation Protests Board’s (the Board) decision to uphold 4
the Bernalillo County Assessor’s (the Assessor) valuation of Taxpayer’s property 5
for tax year 2015. Taxpayer claims that the district court erroneously concluded 6
that it had not overcome the presumption that the Assessor’s valuation was correct

. 7
As a result of this error, Taxpa yer argues that the district court failed to properly 8
shift the burden to the Assessor to prove that her method of valuation utilized a 9
generally accepted appraisal technique

. Finally, Taxpayer contends that the 10
Assessor failed to use a generally accepted appraisal technique in valuing its 11
property, and, as such, the Assessor’s valuation was not supported by substantial 12

evidence

. We agree with Taxpayer that it overcame the presumption of correctness 13
and that the burden shifted to the Assessor. We also agree with Taxpayer that the 14
Assessor’s valuation was not supported by substantial evidence because the 15
Assessor failed to put on ev idence that the expense rate it utilized was appropriate 16
for Taxpayer’s property type. We reverse the district court with instructions to 17
remand the matter back to the Board for further proceedings. 18

BACKGROUND 193

{2 } This is the second of two appeals Taxpay er filed objecting to the Assessor’s 1
valuation of Taxpayer’s commercial building at 2727 San Pedro NE in 2
Albuquerque, New Mexico (Property). In its initial appeal, Taxpayer filed a 3
petition protesting the Assessor’s 2014 valuation of the Property. 2727 San Pedro 4

LLC v. Bernalillo C ty. Assessor ( San Pedro I ) , 2017

- NMCA

- 008, ¶ 1, 389 P.3d 5

287. The Board and the district court affirmed the Assessor’s valuation. Id. We 6
granted Taxpayer’s petition for a writ of certiorari and, following briefing and oral 7

argumen t, issued an opinion on September 13, 2016, vacating the district court’s 8
decision and remanding the matter to the Board for additional proceedings because 9

the Assessor failed to sat isfy her burden “to prove that [her] method of valuation 10
utilized a generally accepted appraisal technique.” Id. ¶ ¶ 2, 2 5 , 29 (internal 11
quotation marks and citation omitted) . Specifically, we concluded that the Assessor 12

failed to show that the market data on which she relied to calculate Taxpayer’s 13
value was applicable “in this market, for this property type, and during this time 14
period,” preventing a reasonable person from concluding that the methodology 15
used was based on a generally accepted appraisal technique. Id. ¶ 25 (emphasis 16

omitted). 17

{3 } While its 2014 protest was pending in the district court, Taxpayer received 18
its 2015 notice of value from the Assessor for the Property, valuing the Property at 19

the same amount of the 2014 valuation

. Taxpayer protested th is valuation, again 204

repeating its argument that the income method of appraisal was most appropriate 1
and the actual income produced from the Property was insufficient to justify the 2

Assessor’s valuation

. A hearing before the Board on Taxpayer’s 2015 protest took 3
place in December 2015. 4

{4 } Upon conclusion of the hearing, the Board determined the Assessor’s 5

valuation was the most reliable
, and Taxpayer did not overcome the presumption 6

of correctness in favor of that valuation

. Taxpayer appealed the Board’s de cision to 7
the district court pursuant to Rule 1

- 074 NMRA

. The district court agreed with the 8
Board and concluded Taxpayer did not present evidence tending to disprove the 9
factual correctness of the Assessor’s valuation. Taxpayer appealed the district 10

court ’s decision by filing a petition for a writ of certiorari in this Court pursuant to 11

Rule 12

- 505 NMRA
, which we granted. 12

DISCUSSION 13

{5 } Taxpayer raises five issues on appeal that we group into two general 14
categories. First, Taxpayer claims that the district court erroneously concluded that 15
it had not overcome the presumption that the Assessor’s valuation was correct and 16
therefore failed to shift the burden to the Assessor to prove that her method of 17
valuation utilized a generally accepted appraisal technique

. Second, Taxpayer 18
contends that the Assessor failed to use a generally accepted appraisal technique in 19
valuing the Property when it used unreliable hearsay to support its valuation. The 205

Assessor’s valuation, Taxpayer claims, was therefore not supported by substantial 1

evidence. 2

Standard of Review 3

{6 } District courts sit in an appellate capacity when reviewing an administrative 4

decision. See Rule 1

- 074(T). “Upon a grant of a petition for writ of certiorari under 5

Rule 12

- 505, this Court conducts the same rev iew of an administrative order as the 6
district court sitting in its appellate capacity, while at the same time determining 7
whether the district court erred in the first appeal.” Town & Country Food Stores, 8

Inc. v. N

. M

. Reg

. & Licensing Dep’t , 2012

- NMCA

- 046 , ¶ 8, 277 P.3d 490 9

( alteration, internal quotation marks , and citation omitted). We employ a whole 10
record review when reviewing administrative decisions. See In re Otero Cty. Elec. 11

Coop., Inc. , 1989

- NMSC

- 033, ¶ 6, 108 N.M. 462, 774 P.2d 1050. “This standard 12
requires that we independently review the entire record of the administrative 13
hearing to determine whether the decision was arbitrary and capricious, not 14
supported by substantial evidence, o r otherwise not in accordance with law.” San 15

Pedro I, 2017

- NMCA

- 008, ¶ 15 (omission, alteration, internal quotation marks, 16

and citation omitted) . “To the extent [Taxpayer] contends that there are errors of 17
law in the [district] court’s conclusions or in th ose findings that function as 18
conclusions, we apply a de novo standard of review.” Jones v. Schoellkopf , 2005

- 19

NMCA

- 124, ¶ 8, 138 N.M. 477, 122 P.3d 844. “When the facts are not in dispute, 206

but the parties disagree on the legal conclusion to be drawn from t hose facts, we 1

review the issues de novo.” Id. However, “we give a heightened degree of 2
deference to legal questions that implicate special agency expertise or the 3
determination of fundamental policies within the scope of the agency’s statutory 4

function.” Jicarilla Apache Nation v. Rodarte , 2004

- NMSC

- 035, ¶ 25, 136 N.M. 5
630, 103 P.3d 554 (internal quotation marks and citation omitted). 6
Statutory Scheme for Valuation of Property for Taxation 7

{7 } Our Property Tax Code (the Code) , NMSA 1978 §§ 7

- 35

- 1 to

- 38

- 93(1973, 8
as amended through 2018), sets out the method for valuation of real property in 9

New Mexico and authorizes the Tax ation and Revenue Department (Department) 10
or the county assessor to determine those values. Section 7

- 36

- 15(A). Unless 11

otherwise au thorized by the Code, “the value of property for property taxation 12
purposes shall be its market value as determined by the application of the sales of 13
comparable property, income or cost methods of valuation or any combination of 14

these methods.” Section 7

- 36

- 15(B). The Department or the county assessor “shall 15
apply generally accepted appraisal techniques” in determining property values. 16

Section 7

- 36

- 15(B)(1). 17

{8 } As she had done in 2014, the Assessor used the income method of valuation 18

to determine the val ue of Taxpayer’s Property

. “The income method of valuation is 19
a method used to value property by capitalizing its income when the market value 207

method cannot be used due to lack of data on sales of comparable properties

. . . 1

[and ] is determined by dividing the annual income by the applicable capitalization 2
rate.” 3.6.5.22(A)(1) NMAC (2001) “ ‘[I]ncome’ . . . is net income or the 3
difference between annual revenue or receipts, actual or imputed, from rental of 4
the property and the annual expenses relating to the property [
, ] ” 3.6.5.22(A)(5) 5
NMAC, and “is based upon the fair rent which can be imputed to the 6

property

. . .based upon rent actually received . . . by the owner and upon typical 7
rentals received in the area for similar property in similar use [

. ] ” 3.6 .5.22(A)(3) 8

NMAC

. Expenses relating to the property that are deducted to arrive at a 9
property’s income are defined as “the outlay or average annual allocation of money 10
or money’s worth that can fairly be charged against the revenue or receipts from 11

the property. . . . [and] are limited to those which are ordinary and necessary in the 12
production of the revenue and receipts from the property and do not include debt 13
retirement, interest on funds invested in the property or income taxes.” 14

3.6.5.22(A)(6) NMAC

. 15

{9 } “The value of property determined by the county assessor is presumed to be 16

correct.” First Nat ’l Bank v. Bernalillo C ty. Valuation Protest B d. , 1977

- NMCA

17
005, ¶ 24, 90 N.M. 110, 560 P.2d 174. A taxpayer, however, can overcome the 18
presumption of corre ctness by “showing that the assessor did not follow the 19
statutory provisions of the [Code] or by presenting evidence tending to dispute the 208

factual correctness of the valuation” based on generally accepted appraisal 1
techniques. Id. “When a taxpayer overcom es the presumption of correctness of the 2
assessor’s method of valuation, the burden shifts to the assessor to prove that h is or 3

[her] method of valuation utilized a ‘generally accepted appraisal technique.’ ” Id. 4
¶ 25. Both the Board and the district court concluded that Taxpayer did not 5
overcome the presumption of correctness of the Assessor’s valuation. 6
Taxpayer Overcame The Assessor’s Presumption of Correctness 7

{1 0 } At the hearing before the Board, the Assessor advised that she valued the 8
Property by using the actual average rent collected from the Property and 9

market

- based values derived from other similar properties for the vacancy and 10

expense rates

. Using those numbers, she arrived at a value of $923,800

. Taxpayer, 11
by contrast, presented evidence of its actual 2014 expenses through an Annual 12
Property Operating Data (APOD) report, from which he derived a Property value 13
of $721,200. 14

{1 1 } Weighing all the evidence presented at the hearing, the Board concluded the 15

“Assessor’s valuation is the most reliab le and . . . [Taxpayer] has not overcome the 16
presumption of correctness in favor of that valuation.” Similarly, the district court 17
held Taxpayer failed to overcome the presumption of correctness because 18
Taxpayer “failed to show the Assessor did not use a g enerally accepted appraisal 19
technique.” In arriving at its conclusion, the district court stated, “To the extent 209

[Taxpayer] claims the valuation is incorrect merely because it uses market rates 1
rather than the [P]roperty’s actual vacancy and expense rates, the [district c]ourt 2
rejects the argument.” 3

{1 2 } Taxpayer contends it overcame the presumption of correctness when it 4
applied the income method of appraisal to the Property, utilizing the actual income 5
and expenses from the Property to derive a value different from the Assessor’s and 6
the Assessor failed to introduce evidence showing Taxpayer did not use a generally 7
accepted appraisal technique in arriving at that different value

. The Assessor 8
responds that because the record contains evidence supportin g its valuation of the 9
property, the Board’s finding below should remain undisturbed. 10

{1 3 } The standard to overcome the presumption of correctness, however, does not 11
require a taxpayer to prove that the Assessor’s valuation is not supported by the 12

evidenc e, as the Assessor contends. Nor is it to present evidence which is more 13

reliable than the Assessor’s, as the Board intimated

. Instead, to overcome the 14
presumption of correctness, a taxpayer need only present evidence tending to 15
dispute the valuation of th e Assessor. See San Pedro I, 2017

- NMCA

- 008, ¶ 22. 16

{1 4 } In San Pedro I , we considered whether Taxpayer presented sufficient 17
evidence to overcome the statutory presumption of correctness when it “proposed a 18
market value based upon its own application of the income method of valuation.” 19

Id. ¶ 22. Noting that “ [Taxpayer’s] application of the income method of valuation 2010

[using actual expenses] differs from that advocated by the Assessor
, ” and that the 1
Assessor did not claim that Taxpayer’s methodology was not a generally accepted 2
appraisal technique, we concluded that Taxpayer’s evidence of value disputed the 3

factual correctness of the Assessor’s method of valuation. Id. Thus, Taxpayer 4
overcame the statutory presumption of correctness and “shifted the burden of proof 5
to the Assessor to prove that his or her method of valuation utilized a generally 6
accepted appraisal technique.” Id. (alteration, internal quotation marks, an d citation 7

omitted). 8

{1 5 } At the hearing before the Board that gave rise to this appeal, Taxpayer again 9
presented evidence using actual expenses to calculate the value of the Property 10
applying the income method of valuation
, with the result differing from that 11
advocated by the Assessor, just as it had in San Pedro I . Once again, the Assessor 12
did not claim Taxpayer’s approach was not a generally accepted appraisal 13
technique. As was the case in San Pedro I , Taxpayer’s evidence of differing value 14

“tends to dis pute the factual correctness of the method of valuation.” Id. ( 15
alterations, internal quotation marks
, and citation omitted.) “[T]he burden of proof 16
[therefore] shifted to the Assessor to prove that her method of valuation utilized a 17
generally accepted app raisal technique.” Id. (alteration, internal quotation marks, 18

and citation omitted). 19

The Assessor Failed to Provide Subs tantial Evidence That She Used a 20 Generally Accepted Appraisal Technique. 2111

{1 6 } We next turn to the issue of whether substantial evidence exists to support 1
the Board’s conclusion that the Assessor used a generally accepted appraisal 2
technique in her application of the income method to value the Property. See i d. ¶¶ 3

23, 25 . Initially, we note that the Board found that Taxpayer did not show t hat the 4
Assessor failed to use generally accepted appraisal techniques
, implicitly 5
concluding that the Assessor’s appraisal techniques were, in fact, generally 6
accepted. 7

{1 7 } Taxpayer raises three specific objections to challenge the Board’s implicit 8
finding. First, Taxpayer argues that the Assessor improperly imposed a flat 9
percentage expense limit in calculating the value of the Property

. Second, 10
Taxpayer contends that the Assessor’s use of market data for five unidentified 11
properties to calculate th e applicable expense rate violated his right to a fair 12
hearing and therefore, due process rights

. Third, Taxpayer claims that the Board’s 13
findings that the Assessor used a generally accepted appraisal technique was not 14
supported by substantial evidence bec ause it was based exclusively on hearsay and 15
did not include evidence that the income and expense information relied upon by 16
the Assessor were for properties that were comparable to Taxpayer’s Property

. At 17
the root of all three of Taxpayer’s arguments is his objection to the Assessor’s use 18
of five unidentified properties to calculate the expense rate to be used in the 19
valuation of the Property. “Whether an appraisal technique is ‘generally accepted’ 2012

is a question of fact.” Id. ¶ 20. We defer to the Board’s factual determinations 1
where they are supported by substantial evidence. See El Castillo Ret

. Residences 2

v. Martinez , 2017

- NMSC

- 026, ¶ 21, 401 P.3d 751. 3

{1 8 } In applying the income method of valuation to value Taxpayer’s Property, 4

the Assessor used a combination of market and actual data

. Because Taxpayer’s 5
argument on appeal focuses on the information relied upon by the Assessor to 6
calculate the expense rate component of the Assessor’s income method valu atio n, 7
we begin our analysis there. 8

{1 9 } At the hearing before the Board, the Assessor presented a pro forma 9
explaining her calculation of the value of the Property using the income approach

. 10
The pro forma notes that the Assessor applied a forty

- five perc ent expense rate 1 in 11
arriving at a valuation of $923,800. Juanita Chavez, an employee of the Assessor, 12
testified that to determine the appropriate expense rate to calculate the Property’s 13
value, the Assessor compiled information related to expense rates fo r other office 14
buildings in the area and arrived at a forty

- one percent expense rate, which she 15
increased to forty

- five percent for purposes of calculating the Property’s value

. The 16
expense information contains five entries listing two properties on San Pe dro 17
Drive, two properties on Uptown Boulevard
, and one property on Prospect

. The 18

1 In reviewing the Assessor’s calculations, we note, as the district court did
, that the amount of operation expenses set out in the Assessor’s pro forma used to calculate the Property’s value is actually forty

- eight percent of the effective gross income, rather than the forty

- five percent noted.13

Assessor testified that the expense rate information she used was provided to the 1
Assessor’s office by other taxpayers and was for properties located in the same 2
neighborhood designation as Taxpayer’s Property

. Ms. Chavez explained that the 3
five properties she used to calculate the expense rate were all office buildings
, 4
were all properties offering full

- service leases
, and were all of the office buildings 5
in the same neighborh ood whose information was available to her

. The expense 6
rates shown are for the years 2011, 2012
, and 2013 and range from twenty

- five 7
percent of effective gross income to fifty

- nine percent of effective gross income

. It 8

is unclear whether the entries are f or five different properties or just three, as the 9
two Uptown Boulevard properties and two San Pedro Drive properties show 10
expense rates for different years, allowing for the possibility that the Assessor’s 11
information shows the expense rate for the same p roperties over different time 12
periods. 13

{20 } To rebut the information provided by the Assessor, Taxpayer provided 14
testimony from realtor, Ken Shaffer
, and from appraiser, Ron Alfred. When asked 15
for his expert opinion on the market expense rate for office sp ace similar in age to 16
the Property
, Alfred presented two data sheets for properties he contended were 17

similar

. The first property, located on Louisiana Boulevard, was quickly 18
discounted because it was subject to triple

- net leases, requiring tenants to pay the 19
cost of most property expenses

. Alfred, however, also pointed to a building located 2014

in downtown Albuquerque, which he conceded was not located in the same area as 1
the Property, but was newer in effective age and similar in construction type and 2
type of lease

. The downtown property, Alfred testified, had an expense rate of 3
fifty

- nine percent of effective gross income. 4

{ 2 1} Taxpayer also called Ken Shaffer, a commercial realtor, to testify on his 5
behalf. Shaffer testified that commercial realtors general ly develop an APOD for a 6
property in order to bring it to market to sell. Generally, his APOD contains all 7
expenses usually connected with an office building

. Use of an APOD, he testified, 8
is a generally accepted appraisal technique to develop the net oper ating income of 9
a property relative to the income approach. 10

{22 } Addressin g the Assessor’s information, S haffer testified that expense rate 11
information averaged from five properties is not statistically reliable
, and the 12

Ass essor should have used at least thirty properties. Explaining the considerations 13
at play in evaluating prope rty values and expense rates, S haffer testified that Class 14
C office properties, such as Taxpayer’s Property, face the biggest challenge in the 15
existing market, with owners frequent ly having to offer a period of free rent, 16
significant tenant improvements
, and a short lease term

. Further, Shaffer noted that 17
to determine whether expenses are “ordinary and necessary,” as required by the 18
regulation, they must be set out by line

- item in o rder to be properly reviewed

. 19
Finally, Shaffer explained that expense rates will differ between commercial 2015

properties and it was necessary to consider the property itself, stating as one such 1
example, “ You have a lot of common area and trees to take care o f
, that’s going to 2
give you higher expenses because you have a lot more land to take care of.” 3

{23 } Considering the evidence that was presented, we cannot say that, under the 4
circumstances of this case, the Board’s factual determinations are supported by 5

s ubstantial evidence. See id

. Just as we found that the Assessor failed to provide 6
sufficient evidence that the expense rates on which she relied applied to 7
Taxpayer’s office building in San Pedro I , we find similar shortfalls here. S ee 8

2017

- NMCA

- 008, ¶ 25. We are unable to determine from the evidence presented 9
by the Assessor whether the properties upon which she relied to arrive at her 10
expense rate were of the property type of Taxpayer’s Property. See id. (noting that 11

without data showi ng that forty

- five percent is appropriate for the property type at 12
issue, we cannot conclude the assessor used generally accepted appraisal 13
techniques) ; see also Edith J. Friedman, Encyclopedia of Real Estate Appraising
, 14

at 381 ( 3d ed. 1978) (stating that “[t]he cost of operating an office building varies 15
with its age, condition in which it has been maintained, size, shape, height, 16
mechanical and other equipment
, and the services provided by the landlord”)

. 17
Shaffer testified that Class C properties such as Taxpayer’s face unique challenges, 18
requiring the owners of those properties to incur expenses that are not applicable to 19
owners of other office buildings. Absent data showing that the five properties on 2016

which the Assessor relied to arrive at her forty

- five percent expense rate are either 1
similar to Taxpayer’s Property in those qualities that affect the operating expenses 2
of an office building or that the Assessor adjusted the expense rate to account for 3
the lack of similarity, we cannot conclude that the As sessor’s valuation was 4
conducted using generally accepted appraisal techniques. 5

{24 } We understand that the Assessor is subject to certain statutory constraints 6
that limit her ability to disclose information related to the Property. See § 7

- 38

- 7

19(E) (requiring information regarding income and expenses of specific property 8
may only be released as authorized by Section 7

- 38

- 4)

. Nonetheless, the Assessor 9
is permitted to release information if it is to be used in a way that does not identify 10
the property owner. Section 7

- 38

- 4(A)(5). Nothing in the statute prohibits the 11
assessor from testifying about the itemized expenses, age, size, and condition of 12
comparable properties on which the Assessor relies, as well as the services 13
provided by the landlords for th ose properties. See Encyclopedia of Real Estate 14

Appraising
, supra , at 381. Nonetheless, the Assessor did not provide the Board 15

with that information. We find that, on whole record review, substantial evidence 16
does not exist to support the conclusion that t he Assessor used generally accepted 17
accounting principles when she valued Taxpayer’s Property. 18

CONCLUSION 1917

{25 } We therefore reverse the district court’s order and remand the matter to the 1

district court with instructions to vacate the Board’s decision and remand the 2
matter to the Board for further proceedings in accordance with this decision. 3

{ 26 } IT IS SO ORDERE D. 4

_________________________ _____ 5 JULIE J. VARGAS , Judge 6

WE CONCUR: 7

_________________________ ___ _ 8 J. MILES HANISEE, Judge 9

______________________________________ 10 KRISTINA BOGARDUS, Judge 11