Opinion ID: 4505127
Heading Depth: 2
Heading Rank: 1

Heading: Description of the evidence

Text: {¶ 5} The school board presented evidence at the BTA relating to (1) the conveyance of the real estate, (2) a loan secured by a mortgage on the real estate, (3) the sale of the apartment complex (including both real estate and appurtenant personal property), and (4) the real-estate appraisals. 2 January Term, 2020
{¶ 6} A deed executed October 6, 2015, and recorded October 8, 2015, reflects the conveyance of the real estate from an entity called Palmer Square, L.L.C., to appellant Palmer House Borrower, L.L.C. A contemporaneously filed form declares the transaction exempt from the conveyance fee because the property was not transferred for valuable consideration. See R.C. 319.54(G)(3)(m). The supporting affidavit, notarized on October 5, 2015, explained that “[t]he conveyance of the Real Property constitutes a capital contribution to the Grantee limited liability company.”
{¶ 7} The school board introduced a mortgage instrument, notarized and recorded in December 2014, evidencing a secured loan of $25,536,000 to Palmer Square, and a document showing the later assumption of the mortgage obligation by appellant Palmer House Borrower, effective October 6, 2015, the same day the real estate was transferred from Palmer Square to Palmer House Borrower.
{¶ 8} In a signed “Purchase and Sale Agreement” dated June 22, 2015, Palmer Square agreed to sell the subject real estate to PPG Manhattan Real Estate Partners, L.L.C., for $35,000,000. The price encompassed items of personal property, both tangible (e.g., clubhouse furnishings and recreational amenities) and intangible (e.g., the “Palmer House” name), all of which related to the business of renting apartments. Subsequently, through a formal amendment to the purchase agreement, the parties changed the sale price to $35,250,000. {¶ 9} Article 15 of the purchase agreement gave the purchaser the option to structure the sale as a “Drop Down LLC sale.” The first amended purchase agreement encompassed the purchaser’s decision to exercise that option. Under the option, the purchaser would give notice to the seller, then organize a limitedliability company (“L.L.C.”) in Delaware with the seller as the sole owner. 3 SUPREME COURT OF OHIO Thereafter, the seller would convey the property to the L.L.C. in accordance with a prescribed form of warranty deed. Next, the agreement provided: [I]n lieu of Seller selling to Purchaser, and Purchaser purchasing from Seller, the Property, as contemplated in this Agreement, (i) Seller shall sell, and Purchaser shall purchase, all of the membership interests of the Drop Down LLC from Seller at Closing (the “Drop Down LLC Sale”), and (ii) in addition, Seller shall execute and deliver at Closing to Purchaser an assignment of all the membership interests in the Drop Down LLC. (Boldface sic.) In an amendment to the purchase agreement, the parties acknowledged the purchaser’s preference to consummate the transaction pursuant to the “Drop Down L.L.C.” provision and the purchaser obtained an option to terminate the agreement if the lender would not approve the entity transfer in connection with the purchaser’s assumption of the loan obligation. {¶ 10} The school board also introduced a “Final Settlement Statement” on a real-estate title agency’s form, which was dated October 6, 2015, and signed by the parties. On that statement, the “transaction type” is specified as “purchase of membership interest in Palmer House Borrower, LLC”; the seller is Preferred Real Estate Investments, L.L.C., and the buyer is Palmer House Owner, L.L.C. The statement corroborates a sale price of $35,250,000 and establishes the closing date as October 6, 2015, the same day that the subject real estate was transferred to Palmer House Borrower and Palmer House Borrower assumed the existing mortgage on the property.
{¶ 11} The school board introduced the financing appraisal prepared in connection with the mortgage loan and offered the testimony of the appraiser, 4 January Term, 2020 Matthew Bilger, to authenticate it. Bilger’s appraisal opines an “as-is market value” of $36,500,000 as of October 23, 2014, and a “prospective value upon stabilization” as of May 1, 2015, of $36,600,000. Palmer objected to the admission of the appraisal and testimony, arguing that Bilger’s value opinion was not expressed “as of” the tax-lien date, January 1, 2015, and that the value opinion lacked relevance for tax-valuation purposes because the appraisal had been prepared for financing purposes. Palmer also contends that Bilger made a particular error in relation to the impact of property taxes on the property’s value. {¶ 12} Palmer presented the appraisal report and testimony of Robert J. Weiler, a real-estate expert and member of the Appraisal Institute. Weiler used three valuation approaches—cost, income-capitalization, and sales-comparison— which all generated a similar value. Giving the most weight to the incomecapitalization method and taking into account the personal property that would transfer in a sale, Weiler estimated a real-estate market value of $25,000,000 as of the January 1, 2015 tax-lien date. In appraising the property, Weiler noted the $0 transfer of the property from Palmer Square to Palmer House Borrower, but did not take into account the sale price of the entity, Palmer House Borrower. {¶ 13} Finally, in an attempt to rebut Weiler’s appraisal, the school board offered testimony in the nature of an “appraisal review” by Thomas Sprout, a member of the Appraisal Institute. Sprout identified several aspects of Weiler’s appraisal that he viewed as defects. B. The BTA decision, the appeal to the court of appeals, and the transfer to this court {¶ 14} After overruling Palmer’s objections to the admission of the sale and conveyance documents, the BTA relied on the documents to determine the realestate value based on the following findings: 5 SUPREME COURT OF OHIO  The “transaction [by which Palmer House Borrower’s ownership interest was transferred] was effectively the sale of real estate structured using the ‘Drop Down LLC Option’ provided in the purchase agreement”;  “The purchase agreement    reflects the intent to engage in a real estate transaction”;  The personal property in the present transaction “is consistent with the tangible personal property that would ordinarily be included in the sale of similar real property”;  Therefore, “the BOE has met its initial burden to show that there was a qualifying sale of the subject real property.” BTA No. 2016-2365, 2018 Ohio Tax LEXIS 1574, -9 (July 25, 2018). Having determined that an arm’s-length sale had occurred in this case, the BTA rejected Weiler’s appraisal, finding that Palmer had not rebutted the presumption that the sale price established the value of the property. Id. at . {¶ 15} Accordingly, the BTA took the total sale price of $35,250,000 as the starting point and then deducted the value of the personal property that transferred in the sale. Relying on Weiler’s appraisal to determine the personal-property value, the BTA computed a $792,000 deduction for personal property and arrived at a final real-estate value of $34,458,000. {¶ 16} Palmer appealed, then petitioned for transfer of its appeal from the court of appeals to this court. On November 28, 2018, we granted the transfer.