Source: https://stc.mo.gov/legal/hildegard-properties-llc-v-robert-boyer-assessor-jefferson-county/
Timestamp: 2019-04-26 14:28:39+00:00

Document:
The assessment made by Robert S. Boyer, Assessor, Jefferson County, Missouri, (Respondent) is SET ASIDE. Hildegard Properties, LLC, (Complainant) presented substantial and persuasive evidence to establish that Complainant’s opinion of the subject property’s true value in money (TVM) as of January 1, 2017, was correct.
Complainant appeared by Counsel Patrick W. Keefe.
Respondent appeared by Counsel R. Scott Harness.
Appeal heard and decided by Senior Hearing Officer Amy S. Westermann (Hearing Officer).
Complainant appealed on the ground of overvaluation. Respondent initially set the TVM of the subject property at $3,337,000, classified as commercial property. Because Complainant’s purchase of the subject property closed on June 29, 2017, after the filing deadline for an appeal to the Jefferson County Board of Equalization had passed, Complainant filed the appeal directly with the State Tax Commission (STC). The STC takes this appeals to determine the TVM for the subject property as of January 1, 2017, under the economic conditions as they existed on January 1, 2017. The value as of January 1 of the odd numbered year remains the value as of January 1 of the following even numbered year unless there is new construction or improvement to the property. Section 137.115.1.
Jurisdiction. Jurisdiction over this appeals is proper. Complainant timely appealed to the STC.
Evidentiary Hearing. The issue of overvaluation was presented at an evidentiary hearing on September 18, 2018, at the Jefferson County Government Administration Building in Hillsboro, Missouri.
Identification of Subject Property. The subject property is identified as real property located at 3787 Vogel Road, Arnold, Missouri. It is further identified by parcel/locator number 01-9.0-31.0-002-006.05A.
Assessment. Respondent set a TVM of the subject property at $3,337,000, as of January 1, 2017, classified as commercial.
Board of Equalization. Complainant’s purchase of the subject property closed on June 29, 2017, after the filing deadline for an appeal to the Jefferson County Board of Equalization had passed; therefore, Complainant filed the appeal directly with the STC.
On cross examination, Lauer testified that the appraisal report documented a discussion with Kyle Steiner (Steiner) of Jones Lang LaSalle regarding Complainant’s purchase of the subject property. Steiner was the purchasing broker for Complainant. During the due diligence period prior to the closing of the sale, Steiner discovered that a considerable amount of deferred maintenance existed and that the major tenant, a fitness club, Xist Fitness, was at high risk of closure due to criminal indictments filed against the owner of the fitness club. Steiner informed Lauer that the purchase price of $1,000,000 was based on the assumption that the fitness club would close. At the time of sale, the fitness club leased 21,767 square feet and generated 60% of the base rent of the subject property. Lauer testified that he did not have personal knowledge of whether the fitness club was late on its rent or at risk of going out of business or of vacating the premises. Lauer testified that the lease for the fitness club ran with the land.
On further cross examination, Lauer testified that he did not include a deferred maintenance adjustment in the comparable sales adjustment grid of his appraisal report because the deferred maintenance issues had been addressed since the date of purchase. Lauer testified that as of January 1, 2017, some of the subject property’s tenants were paying back rent.
On re-direct examination, Lauer testified that the fitness club was a large tenant but that he had found no evidence of a completed transaction where the business had been sold to a new owner. With regard to tenant issues, Lauer testified that the creditworthiness of tenants would be important to a landlord. Lauer further testified that if the two major tenants of the subject property were to vacate, the subject property would be 72% vacant. Lauer testified that it was public knowledge that the owner of the fitness club went to jail and that this information would affect investors’ willingness to purchase the subject property. Lauer further testified that he believed the tenant issues and the deferred maintenance issues impacted Complainant’s purchase price.
On re-cross examination, Lauer testified that the appraisal report was based on market transactions. Lauer testified that he had no knowledge of whether the fitness club had a new chief operations officer as of December 2016, prior to the relevant tax date.
Rental rates for similar commercial rental units range from $9.00 to $15.00/Sq Ft nnn for retail commercial type properties within the immediate area of the subject. These figures depend on remodeled property condition(s), location, visibility, access, age and size. Currently the subject is multi-tenant occupied and has approximately 37,741 +/- sq ft currently leased and 7,124 +/- Sq Ft available % leased 83.1% . . . . Asking rental rate is $14.00/Sq Ft nnn.
(Exhibit 1) The comparable rental spaces were rented from start dates that began as long ago as January 2012 (four-year lease) and as recently as November 2016 (five-year lease).
Flecke testified that he made site visits to the subject property to collect data and photographs of the subject property in order to prepare his appraisal report. Flecke testified that he also obtained information about the subject property from “[p]ublic files, personal data files, CoStar, Loopnet, and a collection of similar types of appraisals performed by others.” (Exhibit 2) Flecke testified that he used the cost approach, the income approach, and the sales comparison approach to valuing the subject property. (Exhibit 2) Flecke testified that he reconciled the three approaches and concluded a weighted average, giving the most weight to the sales comparison approach.
On cross examination, Flecke testified that he had inspected the subject property on May 18, 2018, and June 20, 2018. Flecke testified that he relied upon a property condition report provided by TerraCon dated April 28, 2017, near the date of sale. Flecke included the TerraCon report in Exhibit 1. Flecke testified that the TerraCon report was a good indicator of the subject property’s condition on January 1, 2017. Flecke testified that he could see 80% to 85% of the building during site visits and that the building seemed to be in average condition, not poor or fair condition. Flecke was aware of some deferred maintenance repairs conducted after Complainant purchased the subject property. Flecke saw a roof crew and equipment on the roof during one of his visits. Flecke testified that he did not get onto the roof but acknowledged that he could have arranged for someone to meet him to provide access to the roof. Flecke acknowledged that the asphalt probably was repaired in early 2018. Flecke acknowledged that he could not confirm whether the air handling units inside the subject property had been replaced. Flecke did not dispute that the subject property had normal wear and tear but disputed some of the costs of deferred maintenance, which he believed should have been characterized as wear and tear. According to Flecke, the costs for roof repair and asphalt repair were not included in Complainant’s income and expense statements. Flecke testified that the TerraCon report contained a replacement reserve cost table with estimates for the costs of deferred maintenance, which exceeded Complainant’s purchase price for the subject property.
On further cross examination, Flecke testified that the subject property is situated below grade along an arterial road and that one cannot see the roof of the building from the road. Flecke testified that his research of the sales history and ownership of the subject property showed Complainant’s purchase on June 29, 2017, was not an arms-length transaction because the $1,000,000 purchase price was too low. Flecke testified that he knew the land price alone would be approximately $1,000,000. Flecke testified that the price for the subject property was far below the market value of any of the properties he reviewed in the sales comparison approach, especially considering the subject property was 80% occupied. Flecke testified that research into the tenants of the subject property was provided by CoStar, an authoritative source used by appraisers. CoStar provided the current rent roll and researched the leases for the subject property. Flecke testified that he confirmed one of the tenants, a pizza restaurant, was in arrears and had trouble keeping up with rent payments. Flecke testified that another tenant, the fitness club, Xist Fitness, had a problem with the club’s ownership and operation of the club.
On re-direct examination, Flecke testified that he had not made any adjustment to value based on the tenants because he would need to do so based on individual tenants, who likely would not provide the information necessary to make such an adjustment. Flecke testified that he did not use comparable properties in Jefferson County because he was looking at characteristics of comparable properties and the type of shoppers who visited the subject property and the comparable properties. Flecke testified that he used a market-derived capitalization rate for the income approach and that he did not create an adjustment grid for the sales comparison approach because his analysis was qualitative.
TVM Established. Complainant’s exhibits and evidence were substantial and persuasive to establish that the correct TVM of the subject property was $2,000,000 as of January 1, 2017.
The STC has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary, or capricious, including the application of any abatement. The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the BOE, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious. Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4.
The Constitution mandates that real property and tangible personal property be assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass. Article X, Sections 4(a) and 4(b), Mo. Const. of 1945. The constitutional mandate is to find the TVM for the property under appeal. By statute, real property and tangible personal property are assessed at set percentages of TVM: residential property at 19%; commercial property at 32%; and agricultural property at 12%. Section 137.115.5.
In the present appeal, Respondent valued the subject property as of January 1, 2017. Complainant purchased the subject property after the valuation date and after the deadline for filing an appeal with BOE had passed. Complainant is now seeking to lower Respondent’s valuation. Accordingly, Complainant must present substantial and persuasive evidence to establish the TVM should have been placed on the property.
Respondent, when advocating a value different from that determined by the original valuation, must meet the same burden of proof to present substantial and persuasive evidence of the value advocated as required of the Complainant under the principles established by case law. Hermel, Inc., 564 S.W.2d at 895; Cupples-Hesse, 329 S.W.2d at 702; Brooks, 527 S.W.2d at 53.
“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.” Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005), citing St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977). “Each valuation approach is applied with reference to a specific use of the property—its highest and best use.” Snider, 156 S.W.3d at 346-47, citing Aspenhof Corp., 789 S.W.2d at 869. “The method used depends on several variables inherent in the highest and best use of the property in question.” Snider, 156 S.W.3d at 347. “Each method uses its own unique factors to calculate the property’s true value in money.” Id.
The income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property. The income approach is based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use.
Capitalize the net operating income into an estimated property value.
Property Assessment Valuation 2nd Ed., IAAO, page 204.
“In considering the income and expenses of a property, a decision must be made on how to treat the property taxes.” Property Assessment Valuation 2nd Ed., IAAO, page 240. “When property is valued for ad valorem tax purposes, taxes should not be considered an expense item.” Id. Only typical and reasonable expenses can be used because any deduction from gross income directly affects the indicated property value through the income approach. Id. Ad valorem taxes are based upon the value of the property itself; therefore, the practice of using property taxes as an expense item is based on a preconceived value and discredits the whole approach. Id.
Section 137.115 requires that property be assessed based upon its true value in money, which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and bought by one who is willing or desirous to purchase but who is not compelled to do so. St. Joe Minerals Corp. v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Children’s Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993). True value in money is defined in terms of value in exchange and not value in use. Daly v. P. D. George Company, et al, 77 S.W.3d 645, 649 (Mo. App E.D. 2002), citing, Equitable Life Assurance Society v. STC, 852 S.W.2d 376, 380 (Mo. App. 1993); citing, Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798, 801-803 (Mo. 1973).
It is the fair market value of the subject property on the valuation date. Hermel, supra.
Market value is the most probable price in terms of money that a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.
The price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction. Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; See also, Real Estate Valuation in Litigation,J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary.
In these appeals, both parties presented substantial evidence to support their opinions of the TVM that should have been placed on the subject property as of January 1, 2017. Substantial evidence is that which is relevant, adequate, and reasonably supports a conclusion. Cupples Hesse Corp., 329 S.W.2d at 702. However, upon close inspection, only Complainant’s evidence of value was also persuasive. Persuasive evidence is that which causes the trier of fact to believe, more likely than not, the conclusion advocated is the correct conclusion. Id.
First, it must be recognized that Complainant’s opinion of the subject property’s TVM as of January 1, 2017, is twice the amount Complainant admittedly paid for the property. Consequently, the sale price of the subject property in June 2017, six months following the relevant tax date, carries no weight in determining the property’s TVM in this appeal.
Second, Exhibit A, the appraisal report of Complainant’s expert, Lauer, thoroughly and clearly explained the reasoning to support his opinion of the subject property’s TVM on the relevant tax date. In arriving at an opinion of value, Lauer gave the most weight to the income approach. After studying the analyses of all the approaches to value contained in both Exhibit A and Exhibit 1, the Hearing Officer finds the income approach reported in Exhibit A to be the best indicator of the subject property’s TVM as of January 1, 2017. Particularly persuasive was the fact that Lauer had obtained information directly from Complainant and Steiner, the purchasing broker, regarding the subject property’s condition and tenants near the relevant tax date. Although Lauer did not have historical income and expenses to review, he had the rent roll and the ongoing budgeted expenses. Lauer, unlike Flecke, properly excluded the real estate taxes from the calculation of expenses. Lauer also developed a capitalization rate based on known information, i.e., the risk related to the potential closing of the two major tenants in the subject property and published sources relied upon by appraisers.
Third, the evidence as a whole established that the subject property had substantial deferred maintenance as of the date Complainant acquired the property, six months after the valuation date. Respondent’s own evidence, Exhibit 1, included the TerraCon report, which described the subject property’s condition in early 2017. The TerraCon report provided estimates for replacement reserves totaling between $1,172,549 and $1,232,451. Consequently, one can reasonably infer that the deferred maintenance was significant in terms of cost, was present on the valuation date, and had an effect on the TVM.
Moreover, Respondent’s Exhibit 1 drew conclusions from surveys of comparable properties without clearly explaining the connections between the source data and the assumptions made. For example, Exhibit 1 did not clearly explain the reason for choosing the dollar-per-square-foot assigned to the subject property, $80.00 per square foot, which fell between the “high” and “low” calculation of comparable properties but was neither the average dollar-per-square-foot nor the median dollar-per-square foot. Flecke testified that he did not create an adjustment grid for the comparable properties because his analysis was qualitative. One can infer that “qualitative” is the equivalent of “subjective.” Without objective support for the conclusions and calculations in Exhibit 1, the Hearing Officer would be forced to engage in speculation to conclude that Respondent’s opinion of TVM was correct. The Hearing Officer will not engage in such speculation.
Complainant presented substantial and persuasive evidence supporting an opinion that the correct TVM of the subject property as of January 1, 2017, was $2,000,000 (assessed value $640,000).
In this appeal, the assessed valuations of the subject property for the subject tax day is SET ASIDE.
The Collector of Jefferson County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an Application for Review, unless said taxes have been disbursed pursuant to a court order under the provisions of Section 139.031.8, RSMo.
 All statutory references are to RSMo 2000, unless otherwise noted.
 The appraisal report noted that it relied upon the budgeted 2018 expenses for the subject property because the historical expenses prior to Complainant’s acquisition of the subject property were not provided. The appraisal report noted the budgeted 2018 expenses and then either rounded up some of the budgeted 2018 expenses or did not use some of the budgeted expenses. This Decision utilizes the same expenses utilized by the appraisal report rather than all of the budgeted 2018 expenses.

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