Opinion ID: 2377818
Heading Depth: 3
Heading Rank: 5

Heading: Pacific Park LIHTC Property And 2007 Assessment

Text: Pacific Park Limited Partnership (Pacific Park) owns a 30-unit apartment complex (Apartments) in Seward, within the Kenai Peninsula Borough (Borough). In 2003 Alaska Housing Finance Corporation, the state agency tasked with allocating federal income tax credits to LIHTC program participants in Alaska, allocated to Pacific Park $383,833 of tax credits in anticipation that the Apartments would be LIHTC housing. Pacific Park used the tax credits to finance the Apartments' construction. After construction was completed in 2004, Pacific Park recorded a 30-year restrictive covenant under which the Apartments' units, with the exception of one unit reserved for a manager, could be rented only to low-income tenants and only at restricted rates. In 2005 Pacific Park applied to the Assembly for a resolution directing the Assessor to value the Apartments based on actual income derived from the property. The resolution failed. In 2005, 2006, and 2007 the Assessor valued the Apartments at $2,930,700 using the cost approach, which is based on the rationale that a willing buyer will not pay more for a building than it would cost to build one just like it. [37] The Assessor described the steps of the cost approach as: (1) calculating the current cost to reproduce or replace improvements such as buildings; (2) subtracting out physical, functional, or economic depreciation evident in the structures; and then (3) adding in the value of the land and entrepreneurial profit. The Assessor used the cost approach to value the nearly 90 apartment complexes in the Borough, including Pacific Park's Apartments. But three pre-2001 LIHTC projects were revalued under the income approach required by AS 29.45.110(d)(1), based on actual restricted rents and without consideration of federal income tax credits. In 2007 Pacific Park had the Apartments independently appraised using the income approach and the restricted rents. As explained by the Assessor, the income approach measures property value by capitalizing income streams and potential future resale into a present, lump sum value. [38] The independent appraisers, Brian Z. Bethard and Michael A. Forsland, used this approach because [t]he income approach best reflects the market value at restricted rents for the subject and because Pacific Park had limited the appraisal to that approach. Bethard and Forsland projected the stabilized net operating income at the restricted rents, excluding property tax, as $62,089 annually and valued the Apartments at $652,000.