Court Opinion

ID: 9389186
Source: CourtListenerOpinion
Date Created: 2023-04-24 20:03:51.865395+00
Date Added: 2024-06-11T17:18:25.750450
License: Public Domain

2023 IL App (1st) 210799-U
                                                                               FIRST DISTRICT,
                                                                               FIRST DIVISION
                                                                               April 24, 2023

                                             No. 1-21-0799

     NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the
     limited circumstances allowed under Rule 23(e)(1).
     _____________________________________________________________________________

                                         IN THE
                             APPELLATE COURT OF ILLINOIS
                                FIRST JUDICIAL DISTRICT
     _____________________________________________________________________________

      COOK COUNTY BOARD OF REVIEW,                 )
                                                   )
                                                          Petition for Review of an
                              Petitioner,          )
                                                          Order of the Illinois Property
      v.                                           )
                                                          Tax Appeal Board
                                                   )
      ILLINOIS PROPERTY TAX APPEAL BOARD and )
                                                          Nos. 11-24443.001-C-3
      401 NORTH WABASH VENTURE, LLC,               )
                                                          through 11-24443-340-C-3
                                                   )
                              Respondents.         )
     _____________________________________________________________________________

            JUSTICE COGHLAN delivered the judgment of the court.
            Presiding Justice Lavin and Justice Pucinski concurred in the judgment.

                                                ORDER

¶1          Held: Decision of the Illinois Property Tax Appeal Board reducing property assessment
                  was not against the manifest weight of the evidence.

¶2          This case involves the property tax assessment for a portion of the Trump International

     Hotel and Tower Chicago. For 2011, the Cook County Board of Review (BOR) assessed the

     subject property at $15,604,993. The building’s developer, 401 North Wabash Venture, LLC

     (401 North), filed an appeal with the Illinois Property Tax Appeal Board (PTAB), which issued a
     No. 1-21-0799

     decision in 2021 reducing the assessment to $9,240,000. The Board filed the instant petition

     challenging the PTAB’s decision. For the reasons that follow, we affirm.

¶3                                            BACKGROUND

¶4          The Trump International Hotel and Tower Chicago is a 92-story building located in

     downtown Chicago. The building is mixed use, containing residential condominiums as well as a

     luxury hotel with associated commercial facilities. The assessment in dispute concerns the

     commercial portion of the building (henceforth “the subject property” or “the Trump Hotel”),

     which comprises 836,662 square feet, or 32%, of the total building area. As Class 5 commercial

     property under the Cook County Real Property Assessment Classification Ordinance, it is

     assessed at 25% of its market value. Construction of the property was completed in 2010, and the

     property achieved full market occupancy that same year, meaning that all rooms were available

     to be let or purchased.

¶5          401 North challenged the Trump Hotel’s 2011 tax assessment before the BOR. The BOR

     reduced the assessment from $19,825,033 to $15,604,993, reflecting 25% of a market value of

     $62,419,972. 401 North appealed to the PTAB, seeking a reduction in market value to

     $33,000,000.

¶6          In support, 401 North submitted an appraisal prepared by Arthur Murphy, president of

     Urban Real Estate Research, and his associate Robert Kownacki, estimating the property’s

     market value at $33,000,000 as of January 1, 2010. According to the appraisal, the Trump Hotel

     contains two “profit centers.” The hotel profit center consists of 339 hotel rooms, hotel

     amenities, a spa area, and public parking. The “proposed retail arcade mall profit center” consists

     of 98,521 square feet of vacant property located on four floors overlooking the river. Although

     the hotel developers intended to use the space as a retail mall, “the best retail brokers in

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     No. 1-21-0799

     downtown Chicago *** could not identify even one tenant for the space” in approximately three

     years. The appraisal stated that many major hotels along the Magnificent Mile have successful

     retail mall sections, but the Trump Hotel “is located in an out of the way location” and “does not

     participate in the synergism of the magnificent mile.” Additionally, there are no elevators or

     escalators servicing the vacant area, and the layout is “irregular” and “very poor,” making it

     “difficult to put a corridor through the space.” The appraisal concluded that “this vacant unused

     space, at this time, adds no value [to] the fee simple market value of the property for ad valorem

     purposes.”

¶7          The appraisal discussed three approaches to estimating value: cost, income, and sales

     comparison. The cost approach, which measures the cost of building the structure, was “not

     employ[ed]” because the subject property is only a portion of the building and the developer “has

     less than a full interest in the underlying land.”

¶8          For the income approach, which measures the income-producing potential of the

     property, the appraisal analyzed the Trump Hotel’s revenue and expenses from 2008 to 2010 and

     compared the data to other high-end luxury hotels in downtown Chicago. The appraisal found

     the hotel to be “very competitive” in the downtown hotel market, with 8% higher revenue per

     room than comparable hotels. After calculating the hotel’s net operating income, the appraisal

     divided it by a capitalization rate (CAP rate) of 10.5% to reach a valuation estimate of

     $32,250,000. In computing the appropriate CAP rate, adjustments were made for the fact that the

     Trump Hotel is a “newly constructed hotel” in a “weak” and oversaturated hotel market.

¶9          For the sales comparison approach, the appraisal examined sales of 26 hotels in the

     downtown Chicago area between 2001 and 2009 and ultimately limited its analysis to four hotels

     located along Michigan Avenue. It adjusted the raw sales values in accordance with the

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       “Rushmore Approach,” a “rule of thumb” that attributes 60% of the value of a hotel’s sale price

       to the value of the real estate. The appraisal explained that the value of non-realty components

       must be deducted “to arrive at a sale price which reflects real estate only,” which is difficult for

       “complex properties” such as hotels which have many non-realty components (e.g., franchise

       affiliation, business goodwill, visibility, location, and facilities such as restaurants and fitness

       centers). Because of the “many potential adjustments needed,” the sales comparison approach “is

       seldom given substantial weight in a hotel appraisal *** [but] can assist in bracketing a value to

       check the value derived by the income capitalization approach.”

¶ 10           The adjusted sale prices of the comparables ranged from $95,638 to 275,858 per room

       during “the peak of the market” (three in 2006, and the fourth in 2008). In mid- to late 2008, a

       severe recession caused a “downturn in the hotel market,” and “[t]he market *** is not expected

       to recover for at least 2 to 4 years.” Additionally, “Chicago has lost its firm grip on the

       convention market and hotels similar to the subject are starting to suffer.” Taking these market

       factors into account, the appraisal valued the Trump Hotel at $100,000 per room, for a total

       valuation of $33,900,000. Because of the difficulty of assessing value via the sales comparison

       method, the appraisal gave it only “limited weight” in its final value assessment of $33,000,000.

¶ 11           On December 12, 2017, the PTAB conducted a hearing on the tax appeal. 401 North

       called Murphy, the president of Urban Real Estate Research, as an expert in appraisal. In his 30

       years as a private appraiser, Murphy appraised around 25 hotels in the downtown Chicago area

       every three years. Prior to that, he worked “in the assessor’s office” and “was responsible for all

       the downtown hotels.” Murphy and his associate Kownacki visited the property to inspect it on

       multiple dates between April 2009 and March 2011. The appraisal, written by Kownacki and

       reviewed by Murphy, reflects Murphy’s expertise and familiarity with hotels in the area.

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¶ 12          Murphy testified that he did not utilize the cost approach in his appraisal because the

       subject property is a vertically subdivided portion of a larger building, making it “almost

       impossible to do a cost approach.” Additionally, the cost approach is typically not recommended

       for hotels. On cross-examination, counsel for the BOR sought to impeach him with a 2008

       appraisal he performed on the subject property in which he included a cost analysis. Murphy

       explained that “if you read the [2008] appraisal, we’re saying we didn’t do a cost approach” and

       the cost value in that document “is generated from the income and sales approaches.”

¶ 13          Regarding the income approach, Murphy testified that in his stabilized income analysis,

       he used a revenue value that was higher than the property’s actual 2010 revenue, and an expense

       value “slightly” lower than the actual 2010 expenses. For the subject time period, the Real Estate

       Investor Survey reported an overall luxury hotel CAP rate of 7 to 13%, and the Research

       Corporation Real Estate Report had a range of 7 to 12%; thus, Murphy’s CAP rate of 10.5% was

       “within the range.”

¶ 14          Regarding the sales comparison approach, Murphy explained that there are two nationally

       recognized methods of adjusting a hotel’s selling price to remove non-realty factors. The Linhoff

       method attributes “a lot more value” to non-realty factors, while the Rushmore method, which

       Murphy used, is more “conservative” and results in a higher valuation for the property. Murphy

       testified that adjusting for non-realty factors is “subjective” and difficult, so “I go to my income

       approach and see if it makes sense.” However, he denied that his sales analysis was dependent

       upon his income analysis. He explained that the sales comparison approach provides “a range of

       values” that can be cross-checked against the value produced by the income approach in reaching

       a final valuation, and the income approach is generally considered the most reliable.

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       No. 1-21-0799

¶ 15          On cross-examination, Murphy acknowledged that the vacant portion of the subject

       property was marketed for sale at $1200 per square foot, which is the price of “prime Michigan

       Avenue Magnificent Mile space,” but the subject property is not on the Magnificent Mile.

       Murphy’s report does not detail any efforts to sell the vacant space at any other price. He

       acknowledged that similar riverfront properties contain restaurants and offices but did not

       analyze the rent charged by those properties in an attempt to value the vacant space.

¶ 16          The BOR did not present testimony at the hearing, but presented its “Notes on Appeal”

       prepared by a staff member which assessed the property at $15,604,993, reflecting a market

       value of $62,419,972. The BOR’s valuation was based on six comparable hotel sales occurring

       from November 2006 to December 2011 for raw prices ranging from $136,569 to $326,768 per

       room. The sale prices in the BOR’s notes “have not been adjusted for market conditions, time,

       location, age, size, land-to-building ratio, parking, zoning and other related factors” and also

       “have not been adjusted for the non-realty component of the sale.” An accompanying

       memorandum states that the notes are “not intended to be an appraisal or estimate of value and

       should not be construed as such.”

¶ 17          The PTAB issued a unanimous final administrative decision in June 2021 in which it

       found that 401 North presented the best evidence of value on the record. Murphy’s valuation of

       $32,250,000 under the income method was “credible,” since his detailed analysis of the

       property’s income and expenses was “well supported and credible,” and his estimate of the CAP

       rate was “well reasoned and justified.” Regarding the sales comparison approach, the PTAB

       stated: “Although there are some issues with respect to the methods employed by Murphy and

       his reasoning, he was the only witness *** to explain the methodology and reasoning behind his

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       No. 1-21-0799

       analysis.” The PTAB concluded that his sales comparison valuation of $33,900,000 was

       “reasonable.”

¶ 18          However, the PTAB found that Murphy undervalued the subject property by failing to

       attribute any value to the vacant retail portion. Since the vacant portion comprised 12% of the

       building area appraised, the PTAB increased Murphy’s estimated value by 12%, resulting in a

       valuation of $36,960,000 and a revised total assessment of $9,240,000.

¶ 19          The BOR petitioned for review in this court pursuant to section 16-195 of the Property

       Tax Code (35 ILCS 200/16-195 (West 2020) (final decisions of the PTAB are subject to direct

       review in the appellate court when a change in assessed value of $300,000 or more is sought)).

¶ 20                                               ANALYSIS

¶ 21          Final administrative actions of the PTAB are subject to review under the Administrative

       Review Law (735 ILCS 5/3-101 et seq. (West 2020)), under which the findings and conclusions

       of an administrative agency on questions of fact are considered prima facie true and correct (735

       ILCS 5/3-110 (West 2020)). 35 ILCS 200/16-195 (West 2020). Thus, we will not reweigh the

       evidence or substitute our judgment for that of the PTAB. Cook County Board of Review v.

       Property Tax Appeal Board, 403 Ill. App. 3d 139, 143 (2010). We will reverse the PTAB’s

       factual findings only if they are against the manifest weight of the evidence, i.e., the “opposite

       conclusion is clearly evident from the record.” Central Nursing Realty, LLC v. Illinois Property

       Tax Appeal Board, 2020 IL App (1st) 180994, ¶ 32.

¶ 22          All appeals to the PTAB are de novo (35 ILCS 200/16-180 (2020)), meaning that the

       PTAB accords no precedential weight to prior valuations by the BOR. The PTAB considers

       “only the evidence, exhibits and briefs submitted to it, and will not give any weight or

       consideration to any prior actions by a local board of review or to any submissions not timely

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       No. 1-21-0799

       filed or not specifically made a part of the record.” 86 Ill. Admin. Code § 1910.50(a). When

       market value is the basis of an appeal to the PTAB, the taxpayer must prove the value of the

       property by a preponderance of the evidence. Nat’l City Bank of Michigan/Illinois v. Illinois

       Property Tax Appeal Board, 331 Ill. App. 3d 1038, 1042 (2002).

¶ 23          Illinois law requires property to be valued at its fair cash value, which is synonymous

       with fair market value. Cook County Board of Review (Omni) v. Property Tax Appeal Board, 384

       Ill. App. 3d 472, 480 (2008) (market values “are the standard to be used in valuing property for

       tax purposes” (internal quotation marks omitted)). Here, the BOR argues that the PTAB’s

       valuation of the property is against the manifest weight of the evidence because (1) Murphy’s

       sales comparison approach was not developed independently and “lacked any sound

       justification”; (2) his income approach “warranted no weight”; (3) he did not provide a “credible

       explanation” for not developing a cost approach; (4) he “lost credibility” by attributing no value

       to the vacant portion of the property and by making various typographical errors in his appraisal

       report; and (5) the BOR’s evidence was more persuasive.

¶ 24                                      Sales Comparison Approach

¶ 25          The BOR argues that Murphy’s sales comparison approach is flawed because it was not

       developed independently but relied on his income approach, in contravention of proper appraisal

       practice, which “requires that each approach to value be independent of each other and then

       reconciled among the approaches to estimate a final conclusion of value for the property.”

       (Internal quotation marks omitted.) West Loop Associates, LLC v. Property Tax Appeal Board,

       2017 IL App (1st) 151998, ¶ 61; see also Omni, 384 Ill. App. 3d at 480 (“Professional appraisals

       generally employ more than one method to determine valuation; the use of more than one

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       No. 1-21-0799

       method in a single appraisal serves as a check on the value reached by the other method or

       methods”).

¶ 26          Although there is conflicting evidence as to whether, and to what extent, the two

       approaches were developed independently in Murphy’s analysis, the PTAB’s finding as to the

       sufficiency of his sales comparison approach was supported by the record. The appraisal

       accurately states that the income and sales comparison approaches “must be developed

       independently of each other,” and both approaches are detailed in separate sections. The sales

       comparison analysis states that “it is important not to rely solely upon comparable sales” because

       sale prices often “reflect the buyer’s opinion of the going concern as well as the real property”

       and that “[w]e will also give consideration to our value via the Income Approach in establishing

       a value.” However, at trial, Murphy denied that his sales comparison approach was dependent on

       his income approach. He explained that the sales comparison approach provides “a range of

       value” that one can cross-check against income values “to see whether your income approach is

       making any sense.”

¶ 27          Essentially, the BOR asks us to reweigh the evidence and second-guess the PTAB’s

       credibility determination, which we will not do. Board of Review, 403 Ill. App. 3d at 143;

       Kendall County Board of Review v. Property Tax Appeal Board, 337 Ill. App. 3d 735, 737

       (2003) (“weighing evidence and determining the credibility of witnesses are jobs of the PTAB

       and are uniquely in its province”).

¶ 28          In West Loop, 2017 IL App (1st) 151998, ¶ 61, the PTAB found the appraisal of the

       taxpayer’s expert (Murphy) to be “flawed” where he “readily admitted” to using his income

       approach to adjust both his sales comparison and cost approaches. The PTAB instead gave

       credence to the city’s expert, who testified to values derived by performing each approach

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       independently and supported by credible market data, and the city’s rebuttal expert, who

       “credibly testified as to the flaws within the [Murphy] appraisal.” Id. ¶¶ 63-64. The BOR’s

       reliance on West Loop is misplaced, since in the case at hand, Murphy testified that his

       approaches were independently developed and the BOR did not present any expert to rebut his

       testimony.

¶ 29          The BOR next argues that Murphy lacked sufficient justification for his valuation of the

       Trump Hotel at $100,000 per room. In evaluating the sales comparison approach, the PTAB

       considers the “similarities and dissimilarities of the [comparable] properties” in relation to the

       subject property, as well as the “circumstances surrounding the sales” of those properties.

       Ellsworth Grain Co. v. Illinois Property Tax Appeal Board, 172 Ill. App. 3d 552, 558 (1988). As

       noted, the sales comparables used by Murphy ranged from $95,638 to $275,858 per room. The

       BOR contends that the $95,638 sale (the Sofitel) deserves little, if any, weight because the seller

       retained a 25% interest in managing the property, rendering it not an arm’s length transaction.

       The next lowest comparable sale was for $148,489 per room. Thus, the BOR argues that its per-

       room value of $184,129 “fares much better” than Murphy’s $100,000 estimate.

¶ 30          However, the BOR did not adjust for the drop in real estate values due to the recession,

       nor did it adjust for the FF&E (furniture, fixtures, and equipment) and intangible business values

       of the properties, which Murphy analyzed in depth in his appraisal. Moreover, as the PTAB

       stated in its decision, the BOR “presented no witness to critique or rebut Murphy’s methodology

       or estimated value using the sales comparison approach to value.” Accordingly, we do not find

       the PTAB’s finding that Murphy’s sales comparison approach was “reasonable” to be against the

       manifest weight of the evidence.

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       No. 1-21-0799

¶ 31                                            Income Approach

¶ 32          The BOR argues that Murphy’s income valuation of the property “warranted no weight”

       because he used a valuation date of January 1, 2010, whereas the appraisal at issue was for 2011.

       The record reflects that the Trump Hotel’s revenue increased year-by-year between 2008 and

       2010, the year in which the property was finished and reached full market occupancy. The PTAB

       could reasonably have concluded that, once fully occupied, the subject property would not

       continue to experience further dramatic leaps in income.

¶ 33          The BOR also argues that Murphy used an excessive CAP rate in computing the

       property’s value. In computing value under the income approach, the property’s net operating

       income is divided by the CAP rate; thus, a higher CAP rate results in a lower valuation estimate.

       The evidence at the hearing indicates that Murphy’s rate of 10.5% was squarely within the range

       reported by the Real Estate Investor Survey (with an overall luxury hotel rate of 7 to 13%) and

       the Research Corporation Real Estate Report (with a range of 7 to 12%). Moreover, the PTAB

       explicitly found Murphy’s CAP rate to be “well reasoned and justified.” Under these facts, we

       decline to reweigh the evidence.

¶ 34                                              Cost Approach

¶ 35          The BOR argues that Murphy failed to provide a credible explanation for not developing

       the cost approach to valuation. We disagree. Murphy testified that the cost approach, which

       measures the cost of constructing the property, is not typically useful for income-producing

       properties such as hotels and is “almost impossible” for a vertically subdivided portion of a

       building. Regarding his 2008 appraisal of the property, he explained that it did not contain a true

       cost approach, but generated a value based on the income and sales approaches. The 2008

       appraisal itself states that it relies “minimally” on the cost approach, and the cost analysis

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       “employed the sales comparison approach” in estimating the value of the underlying land.

       Moreover, as discussed, the BOR did not present any expert testimony to critique or rebut

       Murphy’s decision not to develop a cost analysis in his 2010 appraisal. On these facts, the PTAB

       reasonably found his two approaches to valuation to be sufficient. See Omni, 384 Ill. App. 3d at

       480 (“more than one” approach generally employed in determining valuation).

¶ 36                                         Other Credibility Issues

¶ 37          The BOR argues that “the appraisal lost credibility by attributing no value to 12% of the

       property,” i.e., the vacant space intended for use as a retail mall. In fact, the PTAB found that

       Murphy undervalued the property in this regard and raised the final valuation of the property by

       12% from Murphy’s estimate, a finding which is not against the manifest weight of the evidence.

       See Central Nursing Realty, 2020 IL App (1st) 180994, ¶ 32.

¶ 38          The BOR also argues that the credibility of Murphy’s appraisal is reduced by various

       typographical errors. For instance, the properties listed as sales comparisons are inconsistently

       numbered, although the substantive sales data is correct. The appraisal references the “weak

       O’Hare market” (the subject hotel is not in the O’Hare area), states that the hotel’s name “evokes

       memories of the riches of colonial Hong Kong,” and further states that “[f]inding a comparable

       sale for the subject would be akin to finding a needle in a haystack. The value is in the Peninsula

       name, the Peninsula image, and the decor.” The BOR could, and did, vigorously cross-examine

       Murphy regarding these apparent errors at the PTAB hearing. In its decision, the PTAB

       acknowledged “inconsistencies” in the written appraisal but nevertheless found Murphy’s

       analysis to be substantively credible. We decline the BOR’s invitation to second-guess the

       PTAB’s credibility determination. See Kendall, 337 Ill. App. 3d at 737.

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       No. 1-21-0799

¶ 39                                         The BOR’s Evidence

¶ 40          Finally, the BOR argues that the PTAB’s decision was against the manifest weight of the

       evidence because the BOR’s evidence of value was “more persuasive” than 401 North’s

       evidence. We “will not disturb the PTAB’s findings where there exists simply a difference of

       opinion regarding the actual value of the property.” Kraft Foods v. Illinois Property Tax Appeal

       Board, 2013 IL App (2d) 121031, ¶ 51. Particularly since the BOR presented no expert

       testimony in support of its estimation of value, which was premised on raw sales data and was

       “not intended to be an appraisal or estimate of value and should not be construed as such,” the

       PTAB appropriately gave “little weight” to the BOR’s submission.

¶ 41                                            CONCLUSION

¶ 42          For the foregoing reasons, we affirm the final administrative decision of the PTAB.

¶ 43          Affirmed.

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