Opinion ID: 2377818
Heading Depth: 3
Heading Rank: 2

Heading: The Board's Findings Regarding Disproportionate Valuation And Obsolescence

Text: The Assessor and Pacific Park both contend the Board's valuation of the Apartments must be set aside. The Assessor argues the Board did not accord his valuation proper deference and lacked sufficient grounds to find his valuation excessive or grossly disproportionate compared to other similar projects. Pacific Park argues the Board should have recognized complete economic obsolescence due to the rental restrictions and, even under the cost approach, should have reached the same valuation as Pacific Park's appraiser under the income approach. The only grounds for adjustment of assessment are proof of unequal, excessive, improper, or under valuation based on facts that are stated in a valid written appeal or proven at the appeal hearing. [54] In reviewing the Board's findings, we understand the word overvalued to be synonymous with excessive and the phrase grossly disproportionate as compared to similar properties to be synonymous with unequal. Our threshold question . . . is whether the record sufficiently reflects the basis for the [Board's] decision so as to enable meaningful judicial review. [55]
The Board found the failure to factor in rental restrictions and economic obsolescence made the Assessor's valuation excessive. The Assessor argues that his failure to incorporate rental restrictions in the form of economic obsolescence did not render the valuation excessive because economic obsolescence cannot measure internal conditions such as rental rates. But although the deed restriction limiting a LIHTC property's rental rates is part of the property itself, the marketplace's reaction to the deed restriction is external. [56] In this way, economic obsolescence can measure the external reaction to the deed restriction on the Apartments. [57] The Board could reasonably determine the Assessor's valuation was excessive because it failed to account for economic obsolescence, and to this extent we affirm the superior court's decision upholding the Board on this issue. Pacific Park argues the Board should have recognized complete economic obsolescence instead of a 40% factor. In applying the 40% factor, the Board acknowledged it heard testimony that up to a 50% reduction would be reasonable as an economic obsolescence factor. Pacific Park accurately clarifies that Bethard's testimony suggested a 50% factor at the hearing to account for the depressed nature of the general housing market in Seward, and implies that its 30-year rental restrictions would make the Apartments even less desirable to a potential buyer. Pacific Park never quantified the additional economic obsolescence due to rental restrictions except to assert that an appropriate economic obsolescence factor would render a cost-approach valuation similar to an income-approach valuation. The Board's oral findings do not specify whether its 40% economic obsolescence factor accounts for the general housing market in Seward, the rental restrictions, or both, stating simply the cost approach should include a factor for economic obsolescence. The Board's written findings state the Apartments were overvalued because [t]he assessment did not include a factor for economic obsolescence, even though the property is burdened by rent restrictions that run with the land, indicating the 40% factor relates at least in part to the rental restrictions. At oral argument before us, counsel for Pacific Park stated that the 40% factor chosen by the Board lacked an evidentiary basis. The Assessor stated at oral argument that he understood the restricted rental income was the sole reason for the Board's 40% obsolescence factor and the general Seward market was not taken into account by the Board. It is not clear to us why the Board applied a 40% economic obsolescence factor when the only quantified factor presented to the Board was the 50% obsolescence factor accounting for the depressed Seward rental market in general. We therefore remand to the Board for clarification and explanation of its decision on this issue and for further factual findings as it deems necessary. [58]
The Board's oral and written findings do not state the comparison from which it determined the Assessor's valuation to be unequal. Pacific Park argued to the Board that the Assessor's valuation was unequal to valuations of other LIHTC properties in Alaska. But as the Assessor pointed out to the Board, the other LIHTC properties in Alaska are valued under AS 29.45.110(d)  which mandates they be assessed under the income approach based on actual income without adjustment for federal tax credits  because they either qualified as LIHTC properties before January 1, 2001, or are located in municipalities without an ordinance allowing for a different valuation method. [59] The Assessor made particular mention of another post-2000 LIHTC property in the Borough valued under the cost approach without adjustments for rental restrictions or federal tax credits. But Pacific Park pointed out that the property was not appropriate for comparison because its owners participated in the Section 515 Program, [60] which Pacific Park explained provides for a flexible on-going federal subsidy to help the owners cope with high property taxes. The Assessor asserted the valuation was not unequal given the appropriate comparison to the nearly 90 apartment complexes in the Borough appraised under the cost approach. The Board's finding that the Assessor's valuation was grossly disproportionate because of the failure to factor in recorded restrictions suggests that the Board compared the Apartments to the non-LIHTC apartment complexes, which are unencumbered by rental restrictions. This would be consistent with the Board's finding that the Assessor's valuation was excessive for the same reason. But given the cost-approach valuation of all the properties, the Board could not have found the valuation grossly disproportionate compared to other Borough apartment complexes unless it considered those properties' actual rental or fair market rental rates as well. There is no evidence in the record regarding those rental rates, except for Pacific Park's appraiser's testimony suggesting that the depressed housing market in Seward would make up to [a] 50% reduction in value reasonable due to economic obsolescence. The obvious implication from this testimony is that restricted rents at the Apartments might not be significantly less than current apartment rental rates in Seward, contradicting the argument that the Apartments were over-valued in comparison to other apartment complexes. [61] Despite reviewing the parties' briefing and the record for clarification, [62] we cannot discern with any reasonable certainty what the Board used as comparison properties for its finding that the Assessor's valuation was grossly disproportionate as compared to similar properties. We therefore remand to the Board for clarification and explanation of its decision on this issue and for further factual findings as it deems necessary.