IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Missouri River Corp. :

:

v. :

: Erie County Board of Assessment : Appeals, Erie County, PA :

: Interested Parties: : City of Erie School District, City of : Erie and Erie County :

: Parcel No.: 17

- 040

- 037.0

- 210.00 : Property Address: 1012 W. Bayfront : Pkwy., City of Erie, Erie County :

: Appeal of: Missouri River Corp. : (Sunrise Senior Living, Inc., tenant and : agent) and NHI

- REIT of Bickford, : (Bickford Master Bu ckeye, LLC, : tenant and agent), successor

- in

- interest : to Missouri River Corporation : No. 639 C.D. 2019

Missouri River Corp. :

:

v. :

: Erie County Board of Assessment : Appeals, Erie County, PA :

: City of Erie School Distr ict, City of : Erie and Erie County :

: Parcel No.: 17

- 040

- 037.0

- 210.00 :

: Appeal of: Missouri River Corporation : No. 640 C.D. 2019 and NHI

- REIT of Bickford : Argued: February 11, 2020

BEFORE: HONORABLE ANNE E. COVEY, Judge

HONORABLE CHRISTINE FIZZANO CANNON, Judge HONORABLE ELLEN CEISLER

, Judge

OPINION NOT REPORTED2

MEMORANDUM OPINION BY JUDGE COVEY FILED: March 2, 2020

Missouri River Corp. (Sunrise Senior Living, Inc., tenant and agent)

(Missouri River) and NHI

- REIT of Bic kford (Bickford Master Buckeye, LLC, tenant

and agent) (Bickford Master ) , successor

- in

- interest to Missouri River Corporation

(Current Owner) (collectively, Taxpayers) appeal from the Erie County (County)

Common Pleas Court’s (trial court) April 29, 2019 o rder denying Taxpayers ’ appeal

and entering judgment in the City of Erie School District ’s (District) favor . The re are

two issue s be for e this Court : (1) whether Taxpayers waived all issues on appeal by

filing an insufficiently detailed statement of errors complained of on appeal ; and (2)

whether the trial court committed an error of law by including intangible assets and

other personal property in the fair market value of the Taxpayers’ property

. After

review, we affirm.

The instant matter arises from a tax assessment appeal for property

located at 1012 West Bayfront Parkway, Erie, Pennsylvania (Property). The Property

is the situs of a 69

- room personal care facility (Facility) that Karrington Operating

Company, Inc. (Original Lessee) constructed between 1996 and 1998 . In 1998,

Original Lessee negotiated a sale leas e back to Missouri River (1998 Sale Leaseback)

,
a real estate investment trust (REIT)

, 1 and entered into a long

- term lease (Original

Lease) as lessee with Missouri River as lessor that ran thro ugh 2018.

The Original Lease defined “Leased Property” to includ e “ personal

tangible and intangible propert y . . . acquired by [Missouri River] pursuant to the

Purchase Agreement [(Purchase Agreement)]

. ” 2 Reproduced Record ( R .R. ) at 567a.

1 See R eproduced R ecord (R.R.) at 252a.

2 The Original Lease defined the “Purchase Agreement” as “[t] hat certain Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of May 12, 1998 . . . providing for [Missouri River’s] acquisition of the Leased Property . . . .” R.R. at 573a.3

In addition , the Original Lease described “Facility ” as “ [t] hat certain assisted living

facility which is part of the Leased Property . . . inclusive of the Land, Leased

Improvements, Fixtures, Personal Property and Intangible Property pertaining to such

Facility.” R.R. at 570a. Section 6.3 of the Original Lease provide d : “ Lessee may

. . . at its expense, install, assemble or place on any parcels of the Land or in any of the

Leased Improvements, any items of Lessee’s Personal Property, [ 3 ] and Lessee

may , subject to the conditions set forth below, remove the same upon the

expiration or any prior termination of the Term .” R.R. at 579a (emphasis added)

. Additionally, Section 9.1.4 of the Original Lease declared :

Unless Lessor shall convey any of the Leased Property to Lessee pursuant to the provisions of this Lease, and subject to the provisions of P aragraph 6.3 regarding Lessee’s
P ersonal P roperty, upon the expiration or prior termination of the [t] erm, all the Leased [ P ] roperty, including all [ f ] ixtures and P ersonal P roperty located thereon , and

any [ a ] lterations, repairs, restorations, additions or improvements otherwise made by or for Lessee, shall be Lessor’s property and shall be vacated and surrendered to Lessor

. . . .

R.R. at 584a (bold and underline emphasis added)

. Further, the Original Lease stated

that Missouri River would, at the term ’s end or at the earlier termination of the

Original Lease, own patient and other records. See R.R. at 584a

- 585a. The Original

3 The Original Lease defines Lessee’s Personal Property as:

All machinery, equipment, furniture, furnishings, moveable walls or partitions, computers, or trade fixtures or other personal property, and consumable inventory and supplies, owned by Lessee and used or useful in Lessee’s business on the Leased Property and located thereon, including without limitation, all items of furniture, furnishings, equipment, supplies and inventory, except items (i) included within the definition of Fixtures; and (ii) personal property described in Paragraph 1.1(v) above [(pertain ing to personal property acquired by Lessor pursuant to the Purchase Agreement)].

R.R. at 572a.4

Lease required that

, at Missouri River’s requ est upon the Original Lease ’s

termination or expiration , Original Lessee was to use its best efforts to transfer to

Missouri River or its nominee, all licenses, operating permits, governmental

authorizations and all contracts necessary for the Facility’s o peration. See R.R. at

611a.

Original Lessee operated the Facility and made yearly lease payments to

Missouri River. As of January 31, 2008, the Property’s real estate was assessed for

$7 ,400,000

. On July 31, 2008, Missouri River filed an appeal with th e Erie County

Board of Property Assessment Appeals (Board) challenging the $7 ,400,000

assessment. The Board sustained the January 31, 2008 assessment and Taxpayers

appealed to the trial court. The District intervened. In 2013, while the appeal was

pendi ng, the County conducted a county

- wide reassessment which increased the

Property’s assessment to $8,062,400. Taxpayers filed a protective appeal and the two

matters were consolidated for trial.

On April 30, 2018, the Original Lease between Missouri Riv er and

Original Lessee expired. Th at same day, Missouri River sold the Facility to Current

Owner as part of a portfolio of five assisted living properties. 4 T he Facility ’s

allocated sale price was $15,768,000. Current Owner leased the Property through

4 Four of the properties in the portfolio were located in Ohio. According to the Real Property Conveyance Fee Statements of Value and Receipt, o ne Ohio propert y was valued at $18 ,0 9 0, 0 00

. “Of that, [$]280,000 was paid for items other than real

. . . property.” R.R. at 79a ; see also R.R. at 862a. Another Ohio property was valued at $14 ,2 42

, 5 00 . Of that amount , “the portion for items other than real property w as [$]190,000.” R.R. at 80a ; see also R.R. at 863a. A third Ohio property was purchased for $12 ,075, 75 0 , which included $200,000 for items other than real
property. See R.R. at 80a, 864a. The fourth Ohio property was purchased for $7

, 323,750 which

incl uded $170,000 for items other than real property. See R.R. at 80a, 865a. Notably, no similar

allocation representing the portion of the purchase price for items other than real property was made

for the Property

. See R.R. at 867a.5

2 033 (2018 Lease) to Bickford Master, which subleased the Property to Bickford of

Erie, LLC (Current Lessee), Bickford Master’s wholly owned subsidiary. 5

The 2018 Lease de scribed the leased Property to include “all of the

[Current Owner’s] right, title and interest in and to all the Land, the Facilities, the

[furniture, fixtures and equipment (]FF&E[)], [ and ] all other personal property ”

owned or thereafter acquired by Current Owner and located at the Facility. R.R. at

711a. Further , the 2018 Lease defin e d “Facilities” as “ the facilities and all land,

improvements (whether now existing or made during the term of the Lease), FF&E,

other personal property and intangibles, owned by [Current Owner] as set forth on

Schedule 1 and located at and used in the oper ation of [the] Facility.” R.R. at 704a

.
The 2018 Lease also describe d “Personal Property” to include inventory and records

.

I t de fined “Inventory” as “ the operating supply of consumable supplies, including

food, drugs, medicines, materials and other sup plies used in connection with the

operation of [the] Facility.” R.R. at 707a. Records are described in the 2018 Lease

as “electronic, digital or written files and records . . . .” R.R. at 709a.

On December 19 and 20, 2018, the trial court held a heari ng on
Taxpayers’ appeal. At the hearing, the Board offered County Assessment Director

Scott Maas ’ (Maas) testimony. Maa s explained that

, according to the County

Assessment Office, the Property’s assessed value between 2009 and 2012 was

$7 ,400,000 . After the c ounty

- wide reassessment in 2013, the Property’s assessed

5 According to Current Lessee’s co

- president, Michael Eby (Eby), the transfer to Current

Lessee included more than the real estate, such as “ the rents

-- the rents and the healthcare component that the residents pay, and then also the staff costs, food costs that we use. So th e net operating income of the business. ” R.R. at 72a. Eby elaborated: “[t] he contracts with the residents to provide the services that the seller

- - that

. . . the previous operator, was currently providing.

There are the furniture and the fixtures [tha t] were transferred over. The employees, we assumed

those. We took all of them

-- hired all of them, so. ” R.R. at 75a

- 76a. Eby also described that patient records and some food inventory was transferred.6

value was $8,062,400. Current Lessee’s co

- president Michael Eby (Eby) appeared

for T axpayers

.

Both Taxpayers and the District presented the testimony of c ertified r eal

e state a ppraisers

, who calculated the Property’s fair market value using the cost,

comparable sales and income approaches. Taxpayers’ valuation expert Mark R.

Shonberg (Shonberg) valued the Property between $6,190,000 and $6,900,000 for tax

years 2009 through 2019. Although Sh onberg considered all three valuation

approaches and developed the cost approach and income approach , he reached his

ultimate valuation opinion based on the cost approach. Shonberg related that

, in

preparing his income approach, he did not use the Propert y’s yearly lease payments

because the leases included intangible assets, personal property and business value.

Shonberg explained that “ [t] he primary challenge [in appraising a personal care

home] is making sure you allocate correctly between real estate and non

- real estate

components ” because “ the real estate and non

- real estate aspects are really

intertwined. ” R.R. at 97a. Shonberg expounded:

So personal care homes, they are

– they’ re residences, but they are residences that provide more than shelter. They provide meals. They provide varying levels of care.

So, for instance, . . . [there’s] a t rained staff [] in place. There’ s care and social components to it. There ’ s the meals, wellness visits. There ’ s housekeeping, personal laundry, medication co ordination. There ’s a number of things that are in addition to just the shelter.

R.R. at 97 a

- 98 a

. 6

6 Further , Shonberg opined that a sale leasebac k is not an accurate indicator of value

. Specifically, he testified :

[S] ale leasebacks aren’t wonderful to use because they don’t have to be related to the market. They’re simply a mutually beneficial

mechanism.7 Shonberg justified his disregard of the leases based, in part, on the

inclusion of FF&E in the Original Lease. However, Shonberg admitted that he did

no t know what specific personal property was included therein. He also

acknowle d ged that none of the FF&E present at the Facility in 1998 remained in

2018 , because Original Lessee gradually replaced it through the years, and the FF&E

value that Original Les see left at the Property when it ceased operating in 2018 was

“relatively small

. ” R.R. at 199a. Ultimately, Shonberg conceded that the FF&E

So if, for instance, [Original Lessee], [i ts] intent, and this probably

was [its] intent, was to raise capital to finance [its] expansion, they wanted the rent to be as high as possible so [it] could raise as much capital as possible so [it] could maximize [its] expansion potential.

So what we see here is that there’s a lease in place because [it]

want [s] to maximize [its] capital that is above market and we can see it’s above market because through the 10 years that we know about,

never once did [its] actual operational revenue to the business eve n cover the lease.

[ Trial Court ]: If the lease is above market, help me, how does that help [Original Lessee]?

[ Shonberg ]: That helps [Original Lessee] because [it is] getting a big chunk of money up front. So that lease

--
[ Trial Court ]: Doesn ’ t the leas e payment go to Missouri River?

[Shonberg]: The lease payment goes to Missouri River, but because of the sale leaseback [Original Lessee] got paid a big chunk of money up

front.

. . . . [ Shonberg ]: And the more [it] inflate [s] [the] lease payment, the big ger [it] get [s] paid up front.

[ Trial Court ]: And [its] lease payment is obviously a deduction for tax

purposes.

[ Shonberg ]: Correct. So

--
[ Trial Court ]: So [it] shift [s] revenue that might have been operating income to the purchase of the dwelling or of the property.

R.R. at 177a

- 179a.8

value “ is too small of a number to have a material impact, ” R.R. at 200a, and “ the

physical, tangible personal pro perty is not a big deal here. What is a more significant

component is the intangible personal property. ” R.R. at 201a.

Shonberg described the “intangible component” to be “things like the in

place staff. It might be . . . the residents that are in pla ce. The medical record cards

that are associated with those residents. Things of that nature.” R.R. at 107a.

Shonberg further de tailed the intangible property as “ relat [ing] to two different

factors, certainly the resident base and the medical records, all that stuff [,]” and “[t] he

employee base, so the workforce in place. So those are probably the two big

components of intangible property. ” R.R. at 192a. According to Shonberg, the

Original Lease required the intangible assets to be transferred to Mi ssouri River.

However

, to support that contention, Shonberg could point only to paragraph 1.1(v)

of the Original Lease, see R.R. at 204a, which provided that

, under the Original

Lease , Original Less ee rented from Missouri River: “All personal tangible and

intangible property comprising the ‘ Personal Property ’ and/or the ‘ I ntangible

Property ’ acquired by [Missouri River] pursuant to the Purchase Agreement .”

R.R. at 567a (emphasis added). Thus, pursuant to the Original L ease, the only

intangible property u sed at the Facility and owned by Missour i River was such

property that it acquired under the original P urchase A greement. Neither party

offered s aid P urchase A greement into evidence and it is not a part of the record

below.

Further , regarding the purpor ted value of the Facility ’s staff, the trial

court questioned Shonberg :

[ Trial Court ] : Can’t you look at the employees themselves in an individual capacity as [ not ] having much value because they’re always underpaid

. So they ’ re never interested in any one employee. And they don ’ t care as long as everyone doesn ’ t walk out the door or who comes9 or who goes, they don ’ t really care about that, longevity,

ten [ure] , skill set. All they need to know is they got bodies there when they buy

.
[ Shonberg ] : They do ca re to some degree about skill set

, but normally you’re correct

.
[ Trial Court ] : For a few people, perhaps. Generally, they’re buying an unskilled labor force that provide unskilled services to these residents at somewhere near minimum wage or slightly abov e

. And there are few key people who know how they operate and want to crack the whip and keep things going.

[ Shonberg ] : Yes, sir

.
[ Trial Court ] : I ’ m just guessing.

[ Shonberg ] : That’s mostly correct

. And it’s certainly mostly a

-- I don ’ t want to say an u nskilled labor, but a marginally skilled

--

[ Trial Court ] : Even when they employ nurses they try to maximize licensed practical nurses as opposed to registered

nurses. They ’ re probably generally few and far between.

[ Shonberg ] : Right.

R.R. at 201a

- 202a (e mphasis added)

. 7 Ultimately, Shonberg testified that

, in his

estimation, $8 ,000,000 of the $15,768,000 sale price represented intangibles. 8 See

R.R. at 237a.

Because Shonberg believed that the leases included intangible assets and

personal property

– i tems that are not subject to real estate tax

– he settled on the cost

approach as the appropriate method to determine the Property’s fair market value.

7 After Shonberg admitted that Current Lessee changed the Facility’s name, the trial court explained with respect to business value: “ There ’ s no good will, so it ’ s solely the medical records, the patients, the employees a nd the fact that it ’ s a going concern

. . . . ” R.R. at 237a.

8 This significant amount is in stark contrast to the estimated intangible values for the Ohio properties ( which ranged from $170,000 to $280,000 )

. In fact, the $8 ,000,000 allocation for intang ibles is almost 30 times the highest such allocation made for items other than real property for the four Ohio properties in the 2018 transfer.10

Us ing the cost approach, Shonberg calculated the Property’s fair market value by first

estimating the P roperty’s land value. Shonberg considered nine sales of comparable

commercial properties (apartments/hotels). Based thereon, he estimated the land

value for the relevant years as follows: 2009

- $1,170,000 ; 2010

- $1,235,000 ; 2011

- $1,235,000 ; 2012

- $1 ,275,000; 2013

- $1,275,000 ; 2 014

- $1,275,000 ; 2015

- $1,300,000 ; 2016

- $1,300,000 ; 2017

- $1,300,000 ; 2018

- $1,300,000 ; 2019

- $1,325,000

. See R.R. at 426a. With respect to the Property’s

improvements/buildings, Shonberg determined replacement costs for similarly sized

buildings and improvements of like utility

. Shonberg also calculated the Property’s

improvements’ yearly depreciation. Shonberg provided the following market value s
for the Property from 2009 through 2019:

Tax Year Cost Approach In come Approach Value Conclusion

2009 $6,515,000 $4,550,000 $6,515,000

2010 $6,190,000 $4,310,000 $6,190,000

2011 $6,375,000 $4,710,000 $6,375,000

2012 $6,380,000 $5,310,000 $6,380,000

2013 $6,520,000 $5,440,000 $6,520,000

2014 $6,740,000 $6,280,000 $6,740,000

2015 $6,725,000 $6,040,000 $6,725,000

2016 $6,750,000 $6,520,000 $6,750,000

2017 $6,635,000 $6,620,000 $6,635,000

2018 $6,810,000 $7,380,000 $6,810,000

2019 $6,900,000 $7,840,000 $6,900,0 00

See R.R. at 487a.11 Expert appraiser Robert Glowacki (Glowacki) testified for the District

regarding the Property’s fair market value. Glowacki explained the manner in which

he performed his analysis:

I developed a sales approach. I developed a cost ap proach. I put basically no weight on those at all. The primary reason is you’ ve got a property that is encumbered by a long

- term lease.

And I think the decisions

. . . going back to 1992 of the Pennsylvania State Supreme Court, which says when

you ’ ve g ot a property that ’ s encumbered by a long

- term lease that the income approach is probably the only

-- I can quote if you want, but basically the only approach to be considered for a property that’ s encumbered by the long

term lease, so I put basically all my weight on the income approach.

R.R. at 251a. Glowacki emphasized that since 1998, the Property has been owned by

REITs. See R.R. at 252a. He explained that a REIT cannot operate the F acility itself

and owns the Property as an investment. See R.R. at 252a

- 254a.

Like Shonberg, Glowacki’s cost approach involved comparable site sales

analysis. Based thereon, Glowacki estimated the Property’s land value to be

$960,000 for all relevant years. Glowacki calculated the replacement costs for

similarly sized buildings and improvements to those on the Property and their

depreciation. Glowacki’s initial figures were similar to Shonberg’s ; h owever,
Glowacki added to his cost approach value for each year the difference between the

depreciated value and his incom e approach figure for that year.

Glowacki developed his income approach valuing the Property’s leases. 9

Using the actual gross rent paid annually, Glowacki calculated the net rent by making

9 With respect to Shonberg’s assertion that the Original Lease included FF&E and intangible
property , Glowacki t estified that the value of any such property was minimal. Glowacki further explained:12

a 2% vacancy and credit loss adjustment , and another 3% reducti on for administrative

and management fees associated with rent collection

. Glowacki then applied a

market based capitaliz ation rate to the net rent to produce his income approach

indication for each year.

Glowacki valued the Property for the relevant yea rs as follows:

Year C ost A pproach 10 I ncome A pproach Final Value

2009 $ 9,900,000 $9,900,000 $9,900,000 ($3,550,000+$6,350,000)

Through this whole discovery process, [I raised the issue that] I need some clarification as to what is the value of this personal property and intangible property compo sing the personal property. And the response from counsel on the other side was there isn ’ t any value to it.

So I ’ ve got items that are 20 years old. I ’ ve got items that have been in place after the [Original L]ease that were purchased by the
operator

. They definitely were not included in the [ 1998 S ale

L easeback ]

. And I got a statement from the [Current O] wner saying

there isn ’ t any value to any of it. So I didn ’ t put a lot of weight on what the personal or intangibles are.

R.R. at 259a. With respect to patient records, although Section 9.1.4 of the Original Lease provides that Missouri River “shall own and may remove . . . all patient records and other records in connection with the Facility,” R.R. at 585a, the trial court expressed skepticism, stati ng:

I got that language. But, you know, there’s a footnote in my head to the extent those records might constitute medical records, what

-- I got a feeling that some HIPPA [

, ( Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. No. 104

- 191, 110 Stat. 1936 (codified as amended in scattered sections of 18, 26, 29, and 42 U.S.C.) )

, ] lawyer would be in the shorts of a REIT guy and try to walk off with those records in short order. I’m assuming that a fight broke out, but I ’m just not s ure that the tenant had any right to give to
the landlord what the tenant didn’t own.

R.R. at 295a. The trial court elaborated: “ [ T ] he landlord says he gets them, but those records are
the residents’ records. And to the extent there are medical records, they can’t be bought and sold so easily.” R.R. at 296a.

10 The parentheses in this column depict the depreciated value plus the additional value Glowacki attributed to the leased fee, which totals Glowacki’s cost approach.13

2010 $10,025,000 $10,025,000 $10,025,000 ($4,000,000+$6,025,000)

2011 $10,500,000 $10,500,000 $10, 500,000 ($4,600,000+$5,900,000)

2012 $11,050,000 $11,050,000 $11,050,000 ($5,150,000+$5,900,000)

2013 $ 11,250,000 $11,250,000 $11,250,000 ($5,650,000+$5,600,000)

2014 $12,200,000 $12,200,000 $12,200,000 ($6,150,000+$6,050,000)

2015 $13,100,000 $13,100,000 $13,100,000 ($6,350,000+$6,750,000)

2016 $13,200,000 $13,200,000 $13,200,000 ($6,600,000+$6,600,000)

2017 $13, 800 ,000 $13,450,000 $13,450,000 ($6,650,000+$7,150,000)

2018 $ 14

, 150 ,000 $13,800,000 $13,800 ,000 ($6,850,000+$7,300,000)

2019 (Not provided) $14,150,000 $14,150,000

See R.R. at 921a

- 925a, 941a.

On April 29, 2019, the Trial Court denied Taxpayers’ appeal

, adopting

Glowacki’s income approach because it was more credible and consistent w ith

Pennsylvania stare decisis . Taxpayers appealed to this Court. 11

11 “ This [C] ourt ’ s review is limit ed to determining whether the trial court abused its discretion, committed an error of law, or rendered a decision unsupported by the evidence. ” Downingtown Area Sch. Dist. v. Chester Cty. Bd. of Assessment Appeals , 131 A.3d 152, 156 n.4 (Pa. Cmwlth. 2015 )

.14 I. Waiver

T he District argu es that

, pursuant to Pennsylvania Rule of Appellate

Procedure (Rule) 1925(b)(4), Taxpayers waived all issues on appeal by filing an

insufficiently detailed st atement of errors complained of on appeal

.

Initially, t he Pennsylvania Superior Court has explained:

[W] hen the trial court directs an appellant to file a concise statement of [errors] complained of on appeal, any issues that are not raised in such a st atement will be waived for appellate review. Similarly, when issues are too vague for the trial court to identify and address, that is the functional equivalent of no concise statement at all. Rule 1925 is intended to aid trial judges in identifying and focusing upon those issues which the parties plan to raise on appeal. Thus, Rule 1925 is a crucial component of the appellate process. Id

. ‘ When the trial court has to guess what issues an appellant is appealing, that is not enough for meaningful review

. ’ [ Commonwealth v. Lemon

, . . . 804 A.2d 34, 37 (Pa. Super. 2002) .]

Commonwealth v. Smith , 955 A.2d 391, 393 (Pa. Super. 2008) (citations omitted).

“Importantly, however, ‘[e]ach error identified in the [Rule 1925 (b) s]tatement will

be deemed to include every subsidiary issue which was raised in the trial court.’

Pa.R.A.P. 1925 (b)(4)(v). . . .” Desher v. Se. Pa. Transp. Auth. , 212 A.3d 1179, 1185

(Pa. Cmwlth. 2019).

T he District contends that Taxpayers’ ambiguous statement of errors
complained of on a ppeal hampered the trial court’s ability to address the issues on

appeal. 12 Regarding Taxpayers’ first issue, the District stated: “ Each expert

12 Specifically, the District asserted in its brief :

In their [statement of errors] complained of on appeal, [] Taxpayers identified two issues. First, Taxpayers claimed the trial court erred by finding the District’s appraiser’s testimony to be substan tial evidence because the appraiser ‘used an improper factor’ when calculating the Property’s [fair market value] . Taxpayers did not identify the alleged improper factor and provided no additional information regarding this15

considered numerous factors in arriving at their value conclusions. To simply allege

that the District’s expert utilized ‘ an improper factor ,’ without anything further,

prevents the trial court from meaningfully addressing this issue

. ” District ’s Br. at 16

(emphasis added). With respect to Taxpayers’ second issue, the District asserts:

The [Original Lease] and 20 18 [L] lease [] , with exhibits and amendments, are 56 pages and 106 pages, respectively. Taxpayers argue that, under these leases, the operators obtained ‘ more than just land and buildings. ’ ( [Taxpayers’ Br. at 7] )

. . . . The Taxpayers’ statement of [erro rs] complained of on appeal does not dispute the trial court’s conclusion that the economic value of any personal property is de minimis; it simply asserts that the trial court’s value included personal property and intangibles. Taxpayers do not identify the specific personal property included in the trial court’s value conclusions. This prevented the trial court from conducting any meaningful assessment of Taxpayers’ claims.

District ’s Br. at 17 (emphasis added).

Taxpayers rejoin : “Throughout the trial of this matter, Taxpayers’

central contention was that the leases encumbering the Property should not be used to

value the real estate because the intangible components of the leases could not be

extracted therefrom.” Taxpayer s’ Reply Br. at 4.

purported improper factor. Sec ond, they argued the trial court erred by ‘including value attributed to personal property and intangibles’ in the Property’s [fair market value] . Once again, Taxpayers did not identify the specifics of this alleged error and did not identify that

persona l property or intangible property allegedly included in the trial
court’s value conclusions.

In its Rule 1925(a) Opinion, the trial court found that [] Taxpayers waived any issues on appeal by failing to specify the alleged improper factor or specific pers onal property and intangibles included in its

value conclusions.

District ’s Br. at 15

- 16.16 Before the trial court, Taxpayers argued that the Property’s fair market

value should not include consideration of the Leases because the Leases included

elements that were not subject to real estate tax. Taxpayers offered expert testimony

in support thereof. T hus, at trial, Taxpayers clearly identified the issues that were

before the trial court, and generally referenced those very issues in their Rule 1925(b)

statement

. Consequently

, “ the language of Appellant ’ s Rule 1925(b) statement is not

vague; it is appr opriately concise, given the mandate that the statement ‘ should not be

redundant or provide lengthy explanations as to any error. ’ Pa.R.A.P.

1925(b)(4)(iv). ” Desher , 212 A.3d at 1185

. Accordingly , Taxpayers did not waive

their issues on appeal.

II. Fai r Market Valuation

Taxpayers argue that the trial court erred by including intangible asse t s
and other personal property in its fair market value determination.

The law is well established:

In a tax assessment appeal, the trial court proceeds de novo. Once the taxing authority ’ s assessment is admitted into the record, it has made the prima facie case on the assessment. The burden then shifts to the appellant to present sufficient, competent, and credible evidence to overcome the taxing authority ’ s pri ma facie case.

The [ Consolidated County Assessment Law (] Assessment
Law [) 13 ] requires that real property be assessed at its ‘ actual value. ’ 53 Pa.C.S. § 8842. The actual value is a parcel ’ s fair market value, which has been defined as ‘ the price which a purchaser, willing but not obliged to buy, would pay an owner, willing but not obliged to sell, taking into consideration all uses to which the property is adapted and might in reason be applied. ’ Harley

- Davidson Motor Co [

. ] v. Springettsbury T [ wp. ]

, . . . 124 A.3d 270, 279 ( [ Pa. ] 2015). The Assessment Law authorizes three approaches to

13 53 Pa.C.S. §§ 8801

- 8868.17 a valuation: (i) the cost approach; [ 14 ] (ii) the comparable sales approach; [ 15 ] and (iii) the income approach, [ 16 ] which divides a subject property ’ s annual net rental income by an investment rate of return. A trial court has discretion to decide which method of valuation is most appropriate for a given property.

When determining fair market value, the property tax

assessment ‘ must include all relevant factors having a beari ng on that value. ’ Harley

- Davidson , 124 A.3d at 283. The assessment must include ‘ the entire property and not merely its constituent elements. ’ Tech One [ Assocs. v. Bd. of Prop. Assessment, Appeals & Review of Allegheny Cty. ], 53 A.3d [685,] 700 [(Pa. 2 012)]

. The property must be valued based upon its current use even where an appraiser opines that the highest and best use of the property is different.

Erie

- W

. Pa. Port Auth. v. Erie Cty. Bd. of Assessment Appeals , 213 A.3d 1041, 1048

-
49 (Pa. C mwlth

. 2 019 ) (citations omitted)

. Importantly

, “non

- real estate elements

must be separately valued because they are not subject to real estate taxes[,]” and

“they must be . . . backed out of the fair sale price to establish the fair market value

for real estate t ax purposes.” Grand Prix Harrisburg, LLC v. Dauphin Cty. Bd. of

Assessment Appeals , 51 A.3d 275, 277

- 78 (Pa. Cmwlth. 2012).

The actual or fair market value, while not easily ascertained, is fixed by the opinions of competent witnesses as to what the prope rty is worth on the market at a fair sale. Many factors should be taken into account by the expert witness in arriving at his estimate of value.

14 Section 8842(b)(1)(iii)(A) of t he Assessment Law describes the c ost a pproach as

“ reproduction or replacement, as applicable, less depr eciation and all forms of obsolescence. ” 53 Pa.C.S. § 8842(b)(1)(iii)(A).

15 “ The comparable sales approach compares the subject property to similar properties with consideration given to size, age, physical condition, location, and other factors. ” Aetna Life Ins. Co. v. Montgomery Cty. Bd. of Assessment Appeals , 111 A.3d 267, 278 (Pa. Cmwlth. 2015)

.

16 “ The income approach or capitalization method is used to appraise income [

- ] producing real estate by dividing the annual net rental income (gross income min us expenses) expected from the property by the investment rate of return (the capitalization or ‘ cap ’ rate) for that property .” Cedarbrook Realty, Inc. v. Cheltenham Twp. , 611 A.2d 335, 339 n.4 ( Pa. Cmwlth. 1992)

.18

Buhl Found. v. Bd. of Prop. Assessment, Appeals & Review of Allegheny Cty. , 180

A.2d 900, 902 ( Pa. 1962) (cita tion omitted)

. 17 However, “ if an expert uses an

improper factor when fixing the fair market value of real estate, his opinion is not

substantial evidence that can support a finding of value. ” Aetna Life Ins. Co. v.

Montgomery Cty. Bd. of Assessment Appeal s , 111 A.3d 267, 279 (Pa. Cmwlth. 2015)

.

T h e Pennsylvania Supreme Court has explained that there are

two basic principles applicable to valuing real property which is subject to a long

- term lease: First, the ‘ economic reality ’ of the existence of the leas e must be considered by an appraiser in establishing the market value of property encumbered by a lease, since it will be a factor which affects the price which a purchaser of the property is willing to pay. Second, when the property generates income, the capitalization of income approach is an appropriate method to use to ascertain its value , and, in applying that method, the contract rent received under the lease is the relevant income stream which is to be capitalized , even if it is below prevailing mar ket rental

rates

.

Tech One Assocs. , 53 A.3d at 703 (emphasis added) . Thus , “wh en real estate is

subject to a long

- term lease, the portions of the property subject to a leasehold

interest cannot be disregarded in valuing the property. Rather, the ‘ economi c reality ’

of the lease must be considered in establishing the market value of the property. ” In

re Consol. Appeals of Chester

- Upland Sch. Dist. , 200 A.3d 1052, 1059 (Pa. Cmwlth.

2018) (citation omitted)

, appeal granted

, In re Chester

- Upland Sch. Dist

. , 2 16 A

. 3d

1031 (Pa. 2019) ; see also Downingtown Area Sch. Dist. v. Chester Cty. Bd. of

Assessment Appeals , 131 A.3d 152 (Pa. Cmwlth. 2015)

. “[O] nce [an] expert

testifie [s] that he took the leases ‘ into consideration but did not make an adjustment,

this fail ure to make an adjustment, if anything, goes to the weight of his testimony

17 Buhl was superseded by statute as state d in Grand Prix

.19

and not its competency. ’” Aetna Life , 111 A.3d at 280 (quoting In re Appeal of Prop

. of Cynwyd Invs

. , 679 A.2d 304 , 309 (Pa. Cmwlth. 1996) ).

“[I] t is well [] settled that all matte rs of credibility and evidentiary weight

are within the exclusive province of the trial court and that these determinations are

binding on this Court absent an error of law. ” RAS Dev. Corp. v. Fayette Cty. Bd. of

Assessment Appeals , 704 A.2d 1130, 1137 (P a. C mwlth . 1997)

. “ Nevertheless, as

fact

- finder, ‘ the trial court must state the basis and reasons for its decision. ’” Aetna

Life , 111 A.3d at 279 (quoting Green v. Schuylkill C ty. Bd

. of Assessment Appeals

, 772 A.2d 419, 433 (Pa. 2001) )

. “The function of the trial court in a tax assessment

matter is not to independently value the property, but to weigh the conflicting

testimony and values expressed by the experts and, based on the credibility of their

opinions, arrive at a valuation.” Downingtown , 131 A.3d at 157.

Further

,

a lthough it is the role of the trial court to determine the credibility and weight of the evidence before it, our [S] upreme [C] ourt has noted that there is a difference between credibility as a matter of personal veracity and as a

ma tter of substantive reasonableness.

The language chosen by the trial court

. . . implies that its evaluation of the expert ’ s testimony involved a credibility determination. In this regard, it is important to distinguish between credibility as a matter of personal veracity and as a matter of the substantive reasonableness of a witness ’ s testimony. While the trial court ’ s determinations concerning the former are unreviewable by an appellate court, the same is not true of the latter. See McKnight [ Shopping Ctr

. , Inc. v. Bd

. of Prop [

. ] Assessment, Appeals and Review of Allegheny C [ ty

. ] ],

. . . 209 A.2d [389

, ] 392 [( Pa. 196 5)] (rejecting the trial court’ s conclusion that expert testimony was not20 credible, where such conclusion rested on an incorrect factual as sumption).

. . .
Koppel Steel Corp. v. Bd. of Assessment Appeals of Beaver Cty. , 849 A.2d 303, 305

-
06 (Pa. Cmwlth. 2004) (footnote omitted) (quoting Green

, 772 A.2d at 434 n.11 ) ; see
also Masalehdan v. Allegh e ny Cty. Bd. of Prop. Assessment , Appeals & Rev iew , 931

A.2d 122 (Pa. Cmwlth. 2007). Accordingly , “[i] f th e trial court rejects an expert’ s
testimony for specified reasons, an appellate court may review the validity of those

reasons. ” Aetna Life , 111 A.3d at 279

.

Here, the trial court found both e xpert s credible. However, the trial

court rejected the substantive reasonableness of Shonberg’s opinion on fair market

value. Regarding the competing expert opinions

, the trial court explained:

Although [the trial court] found neither expert’s approach t o valuation perfect, in the end, [the trial court] found Glowacki’s calculation of fair market value based on the income approach more credible. [The trial court] found Shon[]berg’s explanation of the recent $15,768,000 sale as attributable in large part to the non

- real estate aspects of the [P]roperty, hard to swallow, particularly since the deed (and transfer taxes paid thereon) does not except out any amount for intangibles.

In accordance with Tech One Assoc iate s

. . . , in order to determine the market value of property, the leased fee and the leasehold must be considered. [ The trial court] decline [s] Shonberg’s analysis under the cost approach because he did not consider the value of the leased fee and leasehold interests.

Furthermore, as suggested by the court in Downingtown

. . .

, [ the trial court ] believe [ s ] that the income approach is the best method of calculating the actual value of this type of income producing property. As previously noted, employment of this method should include a considerat ion of both the landlord’s leased fee and the tenant’s leasehold interest. . . . To examine a property in its unencumbered form is to ignore the economic realities of commercial real estate transactions

. Similarly, [ the trial court ] cannot simply ignore the fact that the current lease nets21 the owner of the subject property approximately 1 million dollars per year in rental income

. To the extent that [Taxpayers] argue[] that there are elements in the leases that are extraneous to the real estate, [the tri al court] find [s] the economic value of those intangibles de minim [i] s. Although teasing out the real estate and intangible aspects of the business is murky science at best, [ the trial court ] cannot simply don blinders, as Shonberg advocates, and ignore t he fact that the lease enhances the fair market value of the [ P ] roperty

.

R.R. at 5a

- 6a (emphasis added; citation s and footnotes omitted).

The trial court exercised its discretion to determine the appropriate

valuation method for the Property

. Here, Misso uri River and Current Owner, two

real estate investment trusts holding the Property as an income

- producing investment,

have been the only Property owners since 1998. See R.R. at 252a. This Court has

explained that “ [ t ] he income approach is the most appro priate method for

appraising a property typically purchased as an investment

. . . , because such a

property is valued by a purchaser for its ability to produce income. ” In re Appeal of

V.V.P. P ’ ship , 647 A.2d 990, 992

- 93 ( Pa. Cmwlth. 1994) (emphasis adde d) ; see also

1198 Butler St. Assocs. v. Bd. of Assessment Appeals , Cty. of Northampton , 946 A.2d

1131 (Pa. Cmwlth. 2008)

.

Relative to the personal property and intangibles, Shonberg conceded

that the FF&E ’s value is de minim i s, and acknowledged that the Facility’s staff was

also of limited monetary value. Shonberg and Taxpayers did not provide a

justification or a legal basis for considering the residents as intangible property

. A s
the trial court noted, “[n]obody owns the residents. They’re free to c ome and go as

they want .” R.R. at 288a. Finally, Taxpayers did not address the trial court’s

concerns regarding ownership of resident medical records. Given these

considerations, substantial evidence supported the trial court ’s finding that the value

of the FF&E and intangibles was de minim i s. Accordingly, the trial court did not err22

when it gave greater weight 18 to and credited Glowacki’s income approach which

reflected the Property’s income

- producing nature.

For all of the above reasons, the trial cou rt’s order is affirmed. 19

___________________________ ANNE E. COVEY, Judge

18 Although Shonberg testified that he considered the leases and

, thus, his testimony was competent, his failure to make adjustments for the leases goes to the weight of his testimony, and “the trial court has exclusive province over all ma tters of credibility and evidentiary weight.” Aetna Life , 111 A.3d at 279.

19 Relying solely on Section 8854(a)(6) of the Assessment Law, 53 Pa.C.S. § 885 4 (a)(6), Taxpayers also assert in their Reply Brief that the Board’s brief to this Court, which incor porates by reference the District’s brief, violates the Board’s statutory duty to defend its assessment. That Section pertains to appeals to the courts of common pleas and provides that a tax board:

shall have the power and duty to present a prima facie c ase in support of its assessment, to cross

- examine witnesses, to discredit or impeach any evidence presented by the taxable person, to prosecute or defend an appeal in any appellate court and to take any other necessary steps to defend its valuation and as sessment.

53 Pa.C.S. § 8854 (a)(6) (emphasis added). Notably, Section 8854(b) of the Assessment Law , addresses appeals to this Court, and simply provides: “The [B]oard, or any party to the appeal to the court of common pleas, may appeal from the judgment, order or decree of the court of common pleas.” 53 Pa.C.S. § 8854(b). At the trial court’s hearing, the Board offered Maas’ testimony to support its assessed value for the Property. The trial court ultimately adopted Glowacki’s higher assessed value as the Property’s fair market value. Presumably , the Board agreed with the trial court’s decision and, therefore, incorporated by reference the District’s argument in requesting this Court affirm the trial court’s

order. This Court discerns the Board did no t err by doing so

.IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Missouri River Corp. :

:

v. :

: Erie County Board of Assessment : Appeals, Erie County, PA :

Intereste d Parties: : City of Erie School District, City of : Erie and Erie County :

Parcel No.: 17

- 040

- 037.0

- 210.00 : Property Address: 1012 W. Bayfront : Pkwy., City of Erie, Erie County :

Appeal of: Missouri River Corp. : (Sunrise Senior Living, In c., tenant and : agent) and NHI

- REIT of Bickford, : (Bickford Master Buckeye, LLC, : tenant and agent), successor

- in

- interest : to Missouri River Corporation : No. 639 C.D. 2019

Missouri River Corp. :

:

v. :

: Erie County Board of Ass essment : Appeals, Erie County, PA :

City of Erie School District, City of : Erie and Erie County :

Parcel No.: 17

- 040

- 037.0

- 210.00 :

Appeal of: Missouri River Corporation : No. 640 C.D. 2019 and NHI

- REIT of Bickford :

O R D E R

AND NOW, this 2 nd day of March , 2020

, the Erie County Common

Pleas Court’s April 29, 2019 order is affirmed.

___________________________ ANNE E. COVEY, Judge