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STATE OF MICHIGAN 

COURT OF APPEALS 

MENARD, INC., 

 Petitioner-Appellee, 

FOR PUBLICATION 

May 26, 2016 

9:10 a.m. 

v No. 325718 

Tax Tribunal 

CITY OF ESCANABA, LC No. 00-441600; 

14-001918-TT 

 Respondent-Appellant, 

and 

MICHIGAN MUNICIPAL LEAGUE, 

MICHIGAN TOWNSHIPS ASSOCIATION, 

MICHIGAN ASSOCIATION SCHOOL 

BOARDS, MICHIGAN SCHOOL BUSINESS 

OFFICIALS, MICHIGAN ASSOCIATION OF 

COUNTIES, and MICHIGAN ASSESSORS 

ASSOCIATION, 

 Amici Curiae. 

Before: TALBOT, C.J., and HOEKSTRA and SHAPIRO, JJ. 

PER CURIAM. 

 This case arises out of ad valorem property tax assessments for the tax years 2012, 2013, 

and 2014. The subject property is a 166,196 square foot “big-box” store built on 18.35 acres and 

located in Escanaba, Michigan. After a hearing on petitioner Menard, Incorporated’s challenge 

to respondent City of Escanaba’s tax assessment, the Michigan Tax Tribunal (the tribunal) 

rejected Escanaba’s assessment and found in favor of Menard. Because we conclude that the 

tribunal made an error of law and its decision was not supported by competent, material, and 

substantial evidence, we reverse. 

I. FACTS 

 Menard filed a petition to appeal the ad valorem property tax assessments for tax years 

2012, 2013, and 2014 for property located in the City of Escanaba. Escanaba made the 

following valuations of the property: (1) in 2012 the true cash value (TCV) was $7,815,976; (2) 
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in 2013 the TCV was $7,995,596; and (3) in 2014 the TCV was $8,210,938. Menard contended 

that the TCV for each year was only $3,300,000. 

 In support of its position, Menard submitted a valuation appraisal prepared by Joseph 

Torzewski, a commercial real estate appraiser. Torzewski opined in his report that the property’s 

highest and best use (HBU) was “for continued use of the existing improvements as a freestanding retail building.” Torzewski stated that he appraised the “fee simple interest” in the 

subject property. 

 Torzewski reached his opinion on the property’s TCV by developing the salescomparison and income approaches to valuation.1

 In his sales-comparison approach, Torzewski 

provided eight comparable sales. Because he found no other big-box stores in the Upper 

Peninsula, he used buildings primarily located in southeast Michigan. The record contains the 

following information on the eight comparables used by Torzewski: 

1. Comparable 1 was a former Home Depot built in 2006, located in Holland, 

Michigan, and had 103,000 square feet. The structure was sold in 2014. The 

record does not contain any information on the current or intended future use of 

the building, but does state that deed restrictions limit its ability to be used as a 

retail space; 

2. Comparable 2 was a former Circuit City built in 1996, located in Westland, 

Michigan, and had 63,686 square feet. The structure was sold in 2013 to the City 

of Westland which turned it into a city hall; 

3. Comparable 3 was a former Wal-Mart built in 1989, located in Alma, Michigan, 

and had 122,790 square feet. The building was sold in 2012 for redevelopment as 

industrial property. The property contained deed restrictions that prohibited use 

of the property as a grocery store over 35,000 square feet or a discount store over 

50,000 square feet; 

4. Comparable 4 was a former Sam’s Club built in 1986, located in Madison 

Heights, Michigan, and had 113,262 square feet. The building was sold in 2012 

for redevelopment as industrial property; 

5. Comparable 5 was a former Wal-Mart built in 1995, located in Auburn Hills, 

Michigan, and had 151,017 square feet. The building was sold in 2011 for 

redevelopment as industrial property. The property contained deed restrictions 

that prohibited use of the property as a grocery store over 35,000 square feet or a 

discount store over 50,000 square feet; 

 

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 The parties stipulated that, because the subject property was not income-producing, the income 

approach was inapplicable. In its final opinion and judgment, the tribunal gave no weight to the 

income approach. That decision has not been challenged on appeal. 
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6. Comparable 6 was a former furniture store built in 1986, located in Flint, 

Michigan, and had 53,474 square feet. The building was sold in 2010 and 

continues to function as a furniture store; 

7. Comparable 7 was a former Kroger built in 1981, located in Dearborn, Michigan, 

and had 55,474 square feet. The building was sold in August 2010, but no detail 

is contained in the record about the current or future use of the building other than 

that it is intended for future retail use; and 

8. Comparable 8 was a former Wal-Mart built in 1993, in Monroe, Michigan, and 

had 130,626 square feet. The building was sold in 2009 to be divided into multitenant space with current tenants being Dunham’s Sports and Hobby Lobby. The 

property contained deed restrictions that prohibited use of the property as a 

grocery store over 35,000 square feet or a discount store over 50,000 square feet. 

 In his valuation report, Torzewski mentioned that Comparable 1 had deed restrictions. 

He did not reference deed restrictions with regard to any of the other comparables, nor did he 

make any adjustments for the existence of deed restrictions. At the hearing, however, Torzewski 

testified that most of the properties contained deed restrictions. Specifically, he acknowledged 

that Comparables 1, 3, 5, and 8 had use restrictions, but Comparables 6 and 7 did not.2

 He 

testified that he took the deed restrictions into account, explaining that in selecting comparables, 

he would inquire if the deed restrictions affected the sales price. He stated that if he could not 

get that information he would not use the sale as a comparable. He testified that “in many cases” 

deed restrictions did not “have any effect on the sales price because the restrictions that were in 

place aren’t anything really out of the ordinary or would affect the secondary user of the 

property, so, therefore, we—in the conditions of the sales adjustment . . . grid there are no 

adjustments for that condition of sale factor.” Torzewski explained that it was “pretty common 

for build-to-suit owners” to put deed restrictions on their property “to exclude any sort of use that 

might be a competitive use.” He testified that, after speaking to the brokers, sellers, and buyers, 

he was satisfied that the deed restrictions had no impact on the price obtained for the 

comparables used in the valuation for Menard. However, Torzewski’s appraisal report showed 

that Comparables 6 and 7, the ones he noted had no restrictions, had the highest selling price per 

square foot. 

 After making adjustments for other differences in the comparables, Torzewski concluded 

that the subject premises should be valued at $20 per square foot for tax years 2012, 2013, and 

2014. 

 Diana Norden, the city assessor for Escanaba, opined that the comparables used by 

Torzewski were “not great.” She testified that, after researching Menard’s comparables, she 

learned: Comparable 1 was subject to a building easement and had use restrictions, Comparable 

2 was not a freestanding unit but had multiple storefronts, Comparable 3 looked like someone 

 

2

 According to Torzewski, the “larger, more big-box-type stores did have some deed restrictions 

in place” as opposed to “a couple of the smaller [comparables],” which did not have restrictions. 
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buying themselves out of a lease, Comparable 4 had been foreclosed on, and Comparables 5 and 

8 had use restrictions. Criticism of Menard’s comparable selection was also offered by Miles 

Anderson, an expert in appraisal review. He, like Norden, testified that Comparable 1 had use 

restrictions. More generally, he criticized Menard’s appraisal for failing to state, explain, or 

make adjustments for use restrictions on the sales comparables.

 In support of its assessment of value, Escanaba submitted a valuation summary prepared 

by Norden. Norden primarily used the cost-less-depreciation approach to value the property. 

She testified that she used the cost-less-depreciation approach because there were insufficient 

comparable sales and because the building being valued was a newer construction. She opined 

that properties with deed restrictions should not be compared to the subject property, which had 

no use restrictions in place. She testified that she adjusted the value for depreciation, but that she 

did not adjust for functional obsolescence. Norden, who was admitted as an expert in appraisal, 

opined that there was no functional obsolescence in the property because, if purchased for its 

existing use, other retailers would use the components of the existing building. 

 By contrast, Torzewski testified that he did not use the cost-less-depreciation approach 

because functional obsolescence is built into built-to-suit big-box stores, and because, in a down 

market, a property like the subject property would have external obsolescence. He testified that 

both the functional and external obsolescence need to be accounted for in depreciation under the 

cost-less-depreciation approach, but that with this building, accounting for the obsolescence 

would be difficult. Torzewski also stated that the buyers of similar buildings do not use the costless-depreciation approach and that owners of properties like the subject property are typically 

not concerned with reselling, but are instead looking to maximize their floor space. Torzewski 

did not, however, identify any specific features of the building that created functional 

obsolescence, nor did he identify any economic factors in the subject market that would account 

for external obsolescence. 

 Following a hearing, the tribunal concluded that the TCV for 2012 was $3,325,000, the 

TCV for 2013 was $3,490,000, and the TCV for 2014 was $3,660,000. In its reasoning, the 

tribunal concluded that Escanaba’s cost-less-depreciation approach should be given no weight 

because Norden did not account for functional or external obsolescence. The tribunal also 

credited Menard’s assertion that the cost-less-depreciation approach should not be used to value 

the subject property because (1) functional obsolescence is difficult to calculate and (2) firstgeneration users are concerned with optimizing sales, not with optimizing market value to the 

property. The tribunal also concluded that Norden’s sales-comparison approach did not provide 

sufficient data for the tribunal to arrive at an independent conclusion because Norden did not 

make any analytical adjustments for differences in the properties. By contrast, the tribunal 

concluded that the sales-comparison approach advanced by Menard was persuasive and was 

meaningful to an independent determination of market value. On reconsideration, the tribunal 

specifically found that the deed restrictions in Menard’s comparables did not require an 

adjustment because it found credible Torzewski’s testimony that the deed restrictions had no 

effect on the sales price of the deed-restricted comparables. 

II. STANDARD OF REVIEW 
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 In the absence of fraud, our review of Tax Tribunal determinations “is limited to 

determining whether the tribunal made an error of law or adopted a wrong legal principle.” 

Meijer, Inc v City of Midland, 240 Mich App 1, 5; 610 NW2d 242 (2000). “The tribunal’s 

factual findings are upheld unless they are not supported by competent, material, and substantial 

evidence.” Id. Substantial evidence is “evidence that a reasoning mind would accept as 

sufficient to support a conclusion.” Kotmar, Ltd v Liquor Control Comm, 207 Mich App 687, 

689; 525 NW2d 921 (1995). “Substantial evidence must be more than a scintilla of evidence, 

although it may be substantially less than a preponderance of the evidence.” Jones & Laughlin 

Steel Corp v City of Warren, 193 Mich App 348, 352-353; 483 NW2d 416 (1992). “Failure to 

base a decision on competent, material, and substantial evidence constitutes an error of law 

requiring reversal.” Meijer, Inc, 240 Mich App at 5. The entire record, “not just the portions

that support the agency’s findings,” must be reviewed when evaluating the tribunal’s final 

determination. Stege v Dep’t of Treasury, 252 Mich App 183, 188; 651 NW2d 164 (2002). 

Further, cursory rejection of evidence is also erroneous. Jones & Laughlin Steel Corp, 193 Mich 

App at 354. 

 The petitioner, Menard, bears the burden of proving the true cash value (TCV) or the 

property. MCL 205.737(3). 

The burden of proof encompasses two concepts: “(1) the burden of persuasion, 

which does not shift during the course of the hearing; and (2) the burden of going 

forward with the evidence, which may shift to the opposing party.” Jones & 

Laughlin Steel Corp, [193 Mich App at 354-355]. Nevertheless, because Tax 

Tribunal proceedings are de novo in nature, the Tax Tribunal has a duty to make 

an independent determination of true cash value. Great Lakes Div of Nat’l Steel 

Corp[ v City of Ecorse, 227 Mich App 379, 409; 576 NW2d 667 (1998)]. Thus, 

even when a petitioner fails to prove by the greater weight of the evidence that the 

challenged assessment is wrong, the Tax Tribunal may not automatically accept 

the valuation on the tax rolls. Id. at 409. Regardless of the method employed, the 

Tax Tribunal has the overall duty to determine the most accurate valuation under 

the individual circumstances of the case. Meadowlanes Ltd Dividend Housing 

Ass’n v City of Holland, 437 Mich 473, 485–486, 502; 473 NW2d 636 (1991). 

[President Inn Props, LLC v City of Grand Rapids, 291 Mich App 625, 631; 806 

NW2d 342 (2011).]3

 

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 Menard asserts that Escanaba, as the appellant, now bears the “burden of proof” in establishing 

the TCV of the subject property. This is not strictly accurate. On appeal, in order for the 

appellant to receive relief, it has the burden to demonstrate that the lower court erred as governed 

by the relevant standard of review. However, at the tribunal, initially and on remand, the burden 

of proof to establish TCV is on the petitioner. President Inn Props, 291 Mich App at 631. 

Menard relies on Drew v Cass Co, 299 Mich App 495; 830 NW2d 832 (2013) in suggesting that 

the “burden of proof” is on the taxing authority when it is the appellant. Indeed, in Drew, we 

stated, “[t]he appellant bears the burden of proof in an appeal from an assessment, decision, or 

order of the Tax Tribunal.” Id. at 499 (quotation omitted). In that case, however, the petitioner, 
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III. APPROACHES TO VALUATION 

 “The Tax Tribunal is under a duty to apply its expertise to the facts of a case in order to 

determine the appropriate method of arriving at the true cash value of property, utilizing an 

approach that provides the most accurate valuation under the circumstances.” Great Lakes, 227 

Mich App at 389. TCV “means the usual selling price at the place where the property to which 

the term is applied is at the time of assessment, being the price that could be obtained for the 

property at private sale, and not at auction sale . . . or forced sale.” MCL 211.27(1). TCV is the 

equivalent of the property’s fair market value. Great Lakes, 227 Mich App at 389. 

 “[T]o determine true cash value, the property must be assessed at its highest and best 

use.” Huron Ridge, LP v Ypsilanti Twp, 275 Mich App 23, 33; 737 NW2d 187 (2007) (emphasis 

added). The concept of “highest and best use . . . recognizes that the use to which a prospective 

buyer would put the property will influence the price that the buyer would be willing to pay for 

it.” Great Lakes, 227 Mich App at 408. “The concept . . . is fundamental to the determination of 

true cash value.” Detroit Lions, Inc v Dearborn, 302 Mich App 676, 697; 840 NW2d 168 

(2013). “Highest and best use” is defined as “ ‘the most profitable and advantageous use the 

owner may make of the property even if the property is presently used for a different purpose or 

is vacant, so long as there is a market demand for such use.’ ” Id., quoting Detroit/Wayne Co 

Stadium Auth v Drinkwater, Taylor & Merrill, Inc, 267 Mich App 625, 633; 705 NW2d 549 

(2005). The tribunal is required to make a determination of a subject property’s highest and best 

use. Detroit Lions, 302 Mich App at 697. 

 The parties agree that the highest and best use of the property is as an owner-occupied 

freestanding retail building.4

 Their disagreement lies in the valuation methodologies to be 

not the respondent, was the appellant. Id. at 496. The Drew Court cited ANR Pipeline Co v 

Dep’t of Treasury, 266 Mich App 190, 198; 699 NW2d 707 (2005) in support of the proposition. 

The petitioner, not the respondent, was the appellant in ANR Pipeline. Id. at 191. The ANR 

Pipeline Court cited Dow Chem Co v Dep’t of Treasury, 185 Mich App 458, 463; 462 NW2d 

765 (1990) in support of the proposition. In Dow Chem, however, the petitioner was also the 

appellant. Dow Chem Co, 185 Mich App at 459. The Dow Chem Court cited Holloway Sand & 

Gravel Co Inc v Dep’t of Treasury, 152 Mich App 823, 831 n 2; 393 NW2d 921 (1986), another 

case where the appellant and the petitioner were the same party. Id. at 831. Critically, the 

Holloway Sand & Gravel Court relied on MCL 205.7, which, at the time had already been

repealed by 1980 PA 162. Prior to its repeal, MCL 205.7 provided that “[t]he burden of proof in 

any appeal from any assessment, decision or order shall rest with the appellant,” but, critically, 

the statute referred to the appellant and the taxing authority as separate entities. See 1941 PA 

122, § 7, now codified at MCL 205.22. Accordingly, we conclude that the statement in Drew

that the burden of proof is on the appellant does not shift the burden to establish TCV from 

petitioner to respondent. Rather, in its proper context, it is apparent that the reference to 

“appellant” in Drew and its progeny actually refers to petitioner. 

4

 Escanaba and the amicus argue that the tribunal failed to make an explicit determination of the 

property’s HBU. However, we find that such a finding is implicit in the tribunal’s decision, 

which recounted in the findings of fact that the parties did not dispute the HBU. Given that the 
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employed and the data relevant to the valuation. The three valuation methodologies that have 

been “found acceptable and reliable by the Tax Tribunal and the courts” are the cost-lessdepreciation approach, the sales-comparison or market approach, and the capitalization of 

income approach. Meadowlanes Dividend Housing Ass’n, 437 Mich at 484-485. While, if 

possible, all three methods should be used, the “final value determination must represent the 

usual price for which the subject property would sell” irrespective of the specific method 

employed. Id. at 485. 

 As noted, the parties and the tribunal agreed that the income approach does not apply in 

this case. The tribunal also rejected the cost-less-depreciation approach advanced by Escanaba, 

but found the values in Menard’s sales-comparison approach to be meaningful. 

A. SALES-COMPARISON APPROACH 

 We first examine whether the tribunal’s reliance on the sales-comparison approach 

advanced by Menard was supported by competent, material, and substantial evidence. 

 Menard owns a fee simple interest in the subject property. The property, as it currently 

exists, is not subject to any use restrictions. However, half of the comparables in Torzewski’s 

sales-comparison valuation contained deed restrictions that limited the use of the properties for 

retail purposes, thereby preventing sale of an entire fee simple interest in the property. 

Torzewski failed to mention all the deed restrictions in his valuation report, did not make any 

adjustments for their existence, and, during his testimony, he insisted that the restrictions did not 

affect the value of the comparables because the parties involved in the comparable sales told him 

that the restrictions did not affect the sale price. The tribunal accepted Torzewski’s testimony 

and used the deed-restricted comparables in its determination of value. We conclude that the 

tribunal’s finding was based on an error of law and was not supported by competent, material, 

and substantial evidence. 

 In Helin v Grosse Pointe Twp, 329 Mich 396, 407-408; 45 NW2d 338 (1950), our 

Supreme Court recognized that deed restrictions in property that prohibited its use for an 

“apartment house, multiple residence, or institutional purposes” would have an effect on the 

value of the property. Accordingly, it would be error to fail to consider “deed restrictions in 

establishing assessments[.]” Kensington Hills Dev v Milford, 10 Mich App 368, 372; 159 NW2d 

330 (1967). This Court emphasized further in Lochmoor Club v Grosse Pointe Woods, 10 Mich 

App 394, 397-398; 159 NW2d 756 (1968), that all factors, including “restrictions imposed” on 

property must be considered in determining a property’s TCV. 

 Although Torzewski testified that he considered the deed restrictions, the record is 

insufficient to support his assertion that they had no effect on the sales price for the restricted 

comparables. His testimony is that he consulted the brokers, sellers, and buyers of the 

comparables. Thus, that testimony is only sufficient to establish that to the parties involved in 

the actual transaction, the deed restrictions did not affect the sales price they were willing to 

matter was not contested and that the tribunal recognizes the agreed-upon HBU, we conclude 

that the tribunal did not err by not expressly stating the HBU.
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pay. In other words, the market for sale was limited to those purchasers who were willing to 

accept the restrictions and so did not reflect the full value of the unrestricted fee simple. 

 However, in assessing TCV, the property “must be assessed at its highest and best use,” 

Huron Ridge, 275 Mich App at 33, which in this case is as an owner-occupied freestanding retail 

building. Deed restrictions that limit the ability of prospective buyers to use the comparable 

properties for the subject property’s HBU necessarily limit, if not eliminate, the willingness of 

those buyers to purchase the restricted property. Those who would be interested in buying the 

property with restrictions would need to make modifications to convert the building from retail 

to something else, like industrial use. Given the need to convert, the buyers would necessarily 

pay a lower price. 

 For the same reasons, the anti-competitive nature of the deed restrictions means that the 

deed-restricted comparables could not be sold for their HBU. The potential buyers of the 

comparables were therefore limited to buyers willing to accept the use restrictions. Further, 

because of the prevalence of the self-imposed deed restrictions on big-box stores, there is 

essentially no market for big-box stores being sold for the HBU of the subject property. Thus, 

half of Torzewski’s comparables were not evaluated at the HBU of the subject property because 

the deed restrictions expressly prohibited their use as a freestanding retail center. 

 On this record, there is no evidence to account for the impact of the deed-restricted 

properties being sold for purposes other than the HBU of the subject property. It is plain that no 

adjustments were taken for this major difference in the subject property and the restricted 

comparables. Accordingly, we conclude that the tribunal erred in finding Menard’s salescomparison approach meaningful to its determination of the subject property’s TCV. The 

tribunal did not value the subject property at its HBU, an owner-occupied freestanding retail 

building, but instead valued it as a former owner-occupied freestanding retail building that could 

no longer be used for its HBU and could best be used for redevelopment for a different use. In 

doing so, the trial court made an error of law by failing to value the subject property at its HBU. 

B. COST-LESS-DEPRECIATION APPROACH 

 The tribunal rejected the cost-less-depreciation approach advanced by Escanaba. 

However, because the deed restrictions imposed by other big-box store owners drastically 

limited the actual market for such properties, it is appropriate to look at the cost-less-depreciation 

approach.5

 

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 Menard argues that use of the sales-comparison approach over the cost-less-depreciation 

approach is supported by this Court’s two recently issued unpublished opinions on the valuation 

of similar “big-box” stores in Lowe’s Home Ctrs v Twp of Marquette, unpublished opinion per 

curiam of the Court of Appeals, issued April 22, 2014 (Docket Nos. 314111 and 314301), and 

Lowe’s Home Ctrs Inc v Grandville, unpublished opinion per curiam of the Court of Appeals, 

issued December 30, 2014 (Docket No. 317986). We disagree. In those cases, the salient issue 

was whether, using the sales-comparison approach, comparables should be to the fee simple 
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 “The adjusted-cost-of-reproduction-less-depreciation method is most suitable for 

industrial facilities for which no market, an inadequate market, or a distorted market exists.” 

Tatham v Birmingham, 119 Mich App 583, 591; 326 NW2d 568 (1982). Here, although there is 

evidence of a market for big-box stores when they are sold for secondary purposes, there is 

limited evidence as to whether there is a market for big-box stores at the subject property’s HBU. 

Instead, Torzewski testified that large big-box stores commonly had deed restrictions for anticompetitive purposes, and Norden testified that she could not locate a sufficient number of 

unencumbered comparables to make adjustments in her sales-comparison approach. As such, the 

cost-less-depreciation approach is appropriate to value the TCV of the property. 

 In Clark Equip Co v Leoni, 113 Mich App 778, 782-783; 318 NW2d 586 (1982), this 

Court approached the problem of determining the TCV of an industrial facility. In that case, all 

of the property’s appraisers determined that the industrial property’s current use was “also its 

highest and best use.” Id. at 782. This Court described the difficulty in determining the TCV to 

such property and the appropriate solution as follows: 

The reality is that these types of industrial plants are rarely bought and sold . . . . 

However, as we construe MCL 211.27; MSA 7.27, to the extent that an industrial 

plant is not so obsolete that, if a potential buyer did exist who was searching for 

an industrial property to perform the functions currently performed in the subject 

plant, said buyer would consider purchasing the subject property, the usual selling 

price can be based upon value in use. . . . To construe MCL 211.27; MSA 7.27, 

as requiring the taxing unit to prove an actual market for a property’s existing use 

would lead to absurd undervaluations. Large industrial plants are constructed to 

order, in accordance with the exact specifications of the purchasing user. . . . It is 

ludicrous to conclude, however, that such a brand new, modern, industrial facility 

is worth significantly less than represented by its replacement cost premised on 

value in use because, in actuality, such industrial facilities are rarely bought and 

sold. Thus, we hold that, to the extent a large industrial facility is suited for its 

current use and would be considered for purchase by a hypothetical buyer who 

wanted to own an industrial facility which could operate in accordance with the 

subject property’s capabilities, said facility must be valued as if there were such a 

potential buyer, even if, in fact, no such buyer (and therefore no such market) 

actually exists. [Id. at 784-785 (emphasis in original).] 

In other words, Clark provides that (1) when the HBU of the property is its existing use and (2) 

when because the property is built-to-suit there would be little to no secondary market for the 

alone or the fee simple plus the value to an occupier of an already existing leasehold or operating 

business. We determined in both cases, over the objection of the taxing authority, that because 

the subject premises was owner occupied, it must be valued as if vacant and available. Lowe’s 

Home Ctrs v Twp of Marquette, unpub op at 1, and Lowe’s Home Ctrs Inc v Grandville, unpub 

op at 7. In other words, those cases held, as do we, that what must be valued is what would 

actually be sold. In those cases, the sales would be of the property without an existing lessee or 

operating retail business. In this case, what is being valued is the property without deed 

restrictions limiting its use. 
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property where it would still be used at its HBU, then the strict application of the salescomparison approach would undervalue the property, so the cost-less-depreciation approach is 

more appropriate. 

 In Great Lakes, this Court elaborated that “valuation can be determined strictly on a 

hypothetical basis, with the hypothetical buyer looking at the costs of building a new facility to 

determine the usual price of an existing facility even if a real buyer would not consider building 

such a facility.” Great Lakes, 227 Mich App at 403. However, the hypothetical buyer need not 

“be presumed to have considered building an industrial facility as an alternative to purchasing an 

existing one when no such facility would be built and that hypothetical buyer has the ability to 

see what is occurring in the marketplace of existing facilities.” Id. (emphasis in original). Thus, 

Great Lakes states that the holding of Clark should not be applied when (1) no facility like the 

subject facility would actually be built, and (2) a buyer has the ability to see what is occurring in 

the marketplace of existing facilities. In the present case, there is no indication that “big-box 

stores” like the subject are not being built. Additionally, because such big-box stores are not 

typically sold on the marketplace for use as “big-box stores,” a buyer does not have the ability to 

see what is occurring in the marketplace of existing facilities. Thus, the limitation in Great 

Lakes does not apply and this case is governed by Clark. 

 In the present case, given that multiple valuation methods should be used when possible, 

Meadowlanes, 437 Mich at 485, and that the analysis in the first issue shows that the 

comparables that the tribunal used in this case were not appropriate, the tribunal committed error 

in refusing to consider Escanaba’s evidence under the cost-less-depreciation approach. The 

evidence demonstrates that owner-occupied freestanding retail buildings like the subject, which 

Menard describes as “big-box stores,” have many similar qualities to the industrial properties 

that this Court addressed in Clark. Both are constructed or built to order to conform to the 

specifications of the purchasing user and are rarely sold on the open market for their current use. 

Similar to the plant at issue in Clark, there is no indication in the record that the subject premises 

is not a new, modern facility capable of fully functioning as a freestanding retail center just as 

the industrial center in Clark was modern enough for continued use of the industrial purpose it 

was designed for. Clark, 113 Mich App at 782-783. Therefore, like the industrial plant in Clark, 

it would not be appropriate to value the subject property significantly less than its replacement 

costs simply because owner-occupied freestanding retail spaces are rarely bought or sold for use 

as owner-occupied freestanding retail spaces on the open market. Like the industrial plant in 

Clark, the subject premises is well-suited for its current use and would be considered by a 

hypothetical buyer who wished to own a freestanding retail building in accordance with the 

subject’s capabilities, and, therefore, the property must be valued “as if there were such a 

potential buyer, even if, in fact, no such buyer . . . actually exists.” Id. at 785. 

 Additionally, Menard’s and the tribunal’s reliance on the concept of functional 

obsolescence to discredit using the cost-less-depreciation approach is misplaced. The tribunal 

rejected the cost-less-depreciation approach advanced by Escanaba in part because it concluded 
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that Norden failed to adjust for functional obsolescence.6

 Norden, however, testified that she did 

not adjust for functional obsolescence because there was none in the subject property. She 

explained that, considering the property’s HBU, the same building would be built by Menard if it 

were to build a new store. Further, she testified that the existing building would be used in 

essentially the same fashion if a competitor were to purchase the property. Although Torzewski 

testified that it would be difficult to value functional obsolescence, he did not identify any 

functional obsolescence presently in the subject property, other than to suggest that the building 

was automatically functionally obsolete the moment it was completed. He also suggested in 

general terms that there was external obsolescence because the market for big-box stores was a 

“down market” because there was little to no demand for the properties. 

 There was no evidence in the record of any deficiency in the subject premises that would 

inhibit its ability to properly function as an owner-occupied freestanding retail building. The 

functional obsolescence to which Menard refers appears to be the fact that, due at least in part to 

self-imposed deed restrictions that prohibit competition, such freestanding retail buildings are 

rarely bought and sold on the market for use as such but are instead sold to and bought by 

secondary users who are required to invest substantially in the buildings to convert them into 

other uses, such as industrial use. However, as stated in Clark, to read MCL 211.27 “as 

requiring the taxing unit to prove an actual market for a property’s existing use would lead to 

absurd undervaluations.” Clark, 113 Mich App at 785 (emphasis in original). Therefore, the 

tribunal erred by failing to consider evidence under the cost-less-depreciation approach.7

IV. CONCLUSION 

 

6

 To determine the present TCV of property under the cost-less-depreciation approach, 

depreciation must be subtracted from the replacement costs. Teledyne Continental Motors v 

Muskegon Twp, 145 Mich App 749, 755; 378 NW2d 590 (1985). Depreciation includes 

functional obsolescence. Id. “Functional obsolescence is a loss in value brought about by failure 

or inability to deliver full service.” Id. It can include loss of value due to “shortcomings or 

undesirable features contained within the property itself. . . . such as poor floor plan, inadequate 

mechanical output, or functional inadequacy or superadequacy due to size or other 

characteristics.” Id.

7

 Escanaba also argues that the tribunal’s decision should be reversed because it accepted a nonauthoritative definition of the phrase “big-box” store. Menard’s expert relied on a definition of 

“big-box store” from the Dictionary of Real Estate Appraisal, whereas Escanaba’s expert in 

appraisal review relied on definitions from Investopedia, Wikipedia, and businessdictionary.com. 

However, the closest the tribunal came to addressing the debate over the definition of the term 

“big-box” store was when it criticized Escanaba’s expert’s use of “internet definitions.” The 

tribunal did not, however, adopt the definition of “big-box” store advocated by Menard or base 

its conclusions regarding the sales-comparison approach or the cost-less-depreciation approach 

on Menard’s definition of “big-box” store. 
-12- 

 The tribunal committed an error of law requiring reversal when it rejected the cost-lessdepreciation approach and adopted a sales-comparison approach that failed to fully account for 

the effect on the market of the deed restrictions in those comparables. Given this error, and the 

fact that there is little if any evidence in the record as to the impact of the deed restrictions on the 

comparables, we conclude that it is inadequate to simply remand to the tribunal for a new 

determination as to value. Instead, on remand, the tribunal shall take additional evidence with 

regard to the market effect of the deed restrictions. If the data is insufficient to reliably adjust the 

value of the comparable properties if sold for the subject property’s HBU, then the comparables 

should not be used. The tribunal shall also allow the parties to submit additional evidence as to 

the cost-less-depreciation approach.8

 After allowing the parties the opportunity to present 

additional testimony in light of the deficiencies identified in this opinion, the tribunal shall make 

an independent determination of the property’s TCV using correct legal principles. In doing so, 

the tribunal must “apply its expertise to the facts of a case in order to determine the appropriate 

method of arriving at the true cash value of property, utilizing an approach that provides the most 

accurate valuation under the circumstances.” Great Lakes, 227 Mich App at 389. 

 Reversed and remanded. We do not retain jurisdiction. 

/s/ Michael J. Talbot 

/s/ Joel P. Hoekstra 

/s/ Douglas B. Shapiro 

 

8

 As noted above, the parties agree that the income approach is inapplicable.