Opinion ID: 2691975
Heading Depth: 2
Heading Rank: 2

Heading: The conflicting appraisal evidence

Text: {¶ 7} The testimony of the appraisers, the expository passages of their appraisal reports, and the values they determined for the property reflect a fundamental dispute. Lorms looked at the big-box store as adding only modest market value because the structure would not be easily adaptable to the needs of a potential buyer, a factor that he opined would impair the property’s marketability. According to Lorms, most potential buyers would be hard-pressed to utilize such a large space for their own business and would probably have to significantly renovate or even tear down the existing structure in order to use the property. Lorms called this limitation on the property’s marketability “external obsolescence” and looked at second-generation purchasers and tenants to determine value by the sales-comparison and income-capitalization approaches. {¶ 8} By contrast, Koon looked at Meijer’s own use as the touchstone for determining market rent and comparable sales. When asked, in the context of his income approach, who would lease the space, Koon answered: “Meijer.” Accordingly, “market rent” for Koon consisted in part as what rent Meijer itself would be willing to pay to an owner other than itself. Comparable sales in Koon’s view included sales by developers who built big-box retail facilities on a build-to-suit basis and then sold them to third parties.1 1. As for the cost approach, both appraisers minimized its importance, but for very different reasons. Lorms, who set the value at $10,200,000 under his cost approach, stated that functional and external obsolescence led him to attach little weight to that approach. Koon, who set the value at $16,000,000 under his cost approach, stated that he would need actual-cost figures “as a check 3 SUPREME COURT OF OHIO {¶ 9} The selection of other properties as comparables by the two appraisers bears out this general point of contrast. For his sales-comparison approach, Lorms used eight properties that included four Kmarts that had been abandoned by that entity during its bankruptcy, two Ames stores that had also been abandoned during bankruptcy, a WalMart abandoned by the retailer when it moved into a new supercenter, and a Sam’s Club that “went dark” in 1995 and took five years to sell. On the other hand, Koon’s comparable properties included seven properties, four of which were purchased subject to long-term leases. Koon opined that the value of the Meijer store is “at a point which lies somewhere between selling prices of properties which are leased to first generation users    and prices of properties which are vacant and available for occupancy.” {¶ 10} Similar differences pervade the rent comparables used by the two appraisers. Lorms used a “market rent” approach that deliberately excluded data derived from build-to-suit leases and newly developed discount stores because under Lorms’s theory, the rent in such cases reflected values other than market rent that pertained to the fee-simple estate. Koon took the contrary approach: by viewing Meijer itself as the potential lessee of the property, Koon justified using seven first-generation properties and five second-generation properties as rent comparables. The first-generation comparables were all build-to-suit properties. In those arrangements, an independent developer constructed the store to the retailer’s specifications with a lease in place that provided recovery of costs and a profit. The developer was then the owner of the property and could continue to collect rent or resell the property with the lease in place to a new owner. {¶ 11} In his report, Koon opined that “second-generation rents will never adequately reflect market rent” for property such as that at issue. Koon emphasized the newness of the construction and stated that “the fact that the against the estimated construction costs,” but that absent such figures, he could give only “marginal consideration” to that approach. 4 January Term, 2009 subject facility continues to operate under the auspice of its first generation user indicates that it possesses certain attributes which make it inherently more desirable than second-generation space.” Accordingly, Koon opined that the market rent applicable to the property at issue “is considered to lie somewhere between the ranges indicated by the first and second generation comparables, with a strong bias towards those rents indicated by the first generation lease comparables.” {¶ 12} The appraisers’ conflicting methodologies yielded significantly different valuations. Lorms’s sales-comparison approach determined the value of all the parcels at issue (including the main parcel on which the Meijer store had been constructed) to be $8,800,000. Koon concluded that the value of the main parcel was $12,100,000, and by adding that figure to the value he derived for the adjacent service station and convenience store and other land, Koon arrived at a total value of $15,100,000 under the sales-comparison method. {¶ 13} With regard to the income-capitalization approach, Lorms arrived at a value of $7,800,000 for all the parcels. Under this approach, Koon determined the value of the main parcel to be $11,600,000, and when added to the value of the other parcels, the value totaled $14,600,000. After reconciling the different approaches, Lorms certified a total value of $8,800,000, and Koon certified a total value of $14,850,000.