SSM Health Care v. Shipman (St. Charles County)

May 28th, 2014

State Tax Commission of Missouri

SSM HEALTH CARE,

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Complainant,

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v.

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Appeal Nos.11-32949 & 11-32950

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SCOTT SHIPMAN, ASSESSOR,

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ST. CHARLES COUNTY, MISSOURI,

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Respondent.

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DECISION AND ORDER

HOLDING

 Decisions of the St. Charles County Board of Equalization sustaining the assessments made by the Assessor are SET ASIDE.Complainant presented substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization.

In Appeal 11-32949, true value in money for the subject property for tax years 2011 and 2012 is set at $2,537,100, commercial assessed value of $811,870.

In Appeal 11-32950, true value in money for the subject property for tax years 2011 and 2012 is set at $3,579,600, commercial assessed value of $1,145,470.

Complainant appeared by Counsel, Paul Woody, Blitz, Bardgett & Deutsch, LC, St. Louis, Missouri.

Respondent appeared by Assistant County Counselor, Amanda Jennings.

Case heard and decided by Senior Hearing Officer W. B. Tichenor.

  ISSUE

Complainant appeals, on the ground of overvaluation and discrimination, the decisions of the St. Charles County Board of Equalization, which sustained the valuations of the subject properties. The Commission takes these appeals to determine the true value in money for the subject properties on January 1, 2011. 1 The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.

FINDINGS OF FACT

1.Jurisdiction.Jurisdiction over these appeals is proper.Complainant timely appealed to the State Tax Commission from the decisions of the St. Charles County Board of Equalization.

2.Abandonment of Claim of Discrimination.The ground of discrimination was marked on the Complaint for Review of Assessment in both appeals.No evidence was tendered by Complainant that would establish a prima facie case of discrimination or inequitable assessment.Accordingly, the claim of discrimination was deemed to have been abandoned in the appeals.2.

3.Evidentiary Hearing.The Evidentiary Hearing was held on November 6, 2013 at the St. Charles County Administration Building, St. Charles, Missouri.

4.Briefing of Case.Complainant’s Post-Hearing Brief and Respondent’s Post-Hearing Brief were filed February 14, 2014.Response Briefs by each party were filed March 11, 2014. The Hearing Officer was informed on 3/24/14 that Counsels for the parties had agreed to not submit Reply Briefs as per deadline of April 8, 2014.3

5.Identification of Subject Property – 11-32949.The subject property is identified by map parcel number 6-009D-B129-00-1 and Assessor’s Account Number 011690A000.It is further identified as located at 400 1st Capital Dr., St. Charles, Missouri and known as SJ Health Center MOB 2 or SSM St. Joseph Medical Building 2.4

6.Identification of Subject Property – 11-32950.The subject property is identified by map parcel number 6-009D-B088-00-4 and Assessor’s Account Number 007580A000.It is further identified as located at 330 1st Capitol Dr., St. Charles, Missouri and Known as SJ Health Center MOB 1 or SSM St. Joseph Medical Building 5

7.Description of Subject Property – 11-32949.The subject property consists of a 1.79 acre tract of land improved by a four story medical office building, built in 1998, with a gross building area of 45,228 square feet and a rentable area 6  of 33,165 square feet. See, Net Rentable Area – 400 1st Capitol Drive, infra.Suites 305 and 403 are vacant shell space and have never been finished.These two suites are collectively 3,247 square feet and consist of exposed ceilings and wall, concrete floors, and exposed HVAC system. 7 The building in this appeal is connected via an enclosed sky-walk over South Fourth Street to the building in Appeal 11-32950.    8

8.Description of Subject Property – 11-32950.The subject property consists of a 2.08 acre tract of land improved by a four story medical office building, built in 1987, with a gross building area of 51,000 square feet and a rentable area 9  of 48,218 square feet.See, Net Rentable Area – 330 1st Capitol Drive, infra.The building in this appeal is connected via an enclosed sky-walk over South Fourth Street to the building in Appeal 11-32949. 10

9.Assessment – 11-32949.The Assessor appraised the property at $4,517,600, an assessed commercial value of $1,445,630. The Board of Equalization sustained the assessment. 11

10.Assessment – 11-32950.The Assessor appraised the property at $4,109,970, an assessed commercial value of $1,315,190. The Board of Equalization sustained the assessment.12

11.Complainant’s Evidence – 11-32949.Complainant offered into evidence Exhibit A (hereinafter “Exhibit A – 49”) – Valuation Report of Douglas A. Zink and Exhibit B (hereinafter “Exhibit B – 49”) – Pre-Filed Direct Testimony of Mr. Zink.13 No objections or rebuttal exhibits were filed as to Exhibits A – 49 & B – 49.Same were received into the record.14 Mr. Zink testified at the evidentiary hearing.15

12.Complainant’s Evidence – 11-32950.Complainant offered into evidence Exhibit A (hereinafter “Exhibit A – 50”) – Valuation Report of Douglas A. Zink and Exhibit B (hereinafter “Exhibit B – 50”) – Pre-Filed Direct Testimony of Mr. Zink.16 No objections or rebuttal exhibits were filed as to Exhibits A – 50 & B – 50.Same were received into the record.17Mr. Zink testified at the evidentiary hearing.18

13.Appeal – 11-32949 – No Evidence of New Construction & Improvement.There was no evidence of new construction and improvement from January 1, 2011, to January 1, 2012, therefore the assessed value for 2011 remains the assessed value for 2012.19

14.Appeal – 11-32950 – No Evidence of New Construction & Improvement.There was no evidence of new construction and improvement from January 1, 2011, to January 1, 2012, therefore the assessed value for 2011 remains the assessed value for 2012.20

                15.Appeal – 11-32949 – Presumption of Correct Assessment Rebutted. Complainant’s evidence was

substantial and persuasive to rebut the presumption of correct assessment by the Board and provide evidence upon which true value in money as of January 1, 2011, could be established.See, Presumption In Appeal and  Complainant Proves Value, infra.

16.Appeal – 11-32950 – Presumption of Correct Assessment Rebutted. Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the Board and provide evidence upon which true value in money as of January 1, 2011, could be established.SeePresumption In Appeal and  Complainant Proves Value, infra.

17.Respondent’s Evidence.The appraisal report (Exhibit 1) and written direct testimony of Keith D. McFarland (Exhibit 4) were offered into evidence on behalf of Respondent.Exhibits 2, 3 and 5 were also offered into evidence.21 Mr. McFarland testified at the evidentiary hearing.22

18.Rulings on Respondent’s Evidence.  Complainant’s Objections to Exhibits 1 & 5:The parties were given until and including August 12, 2013 to file objections to any exhibits and written direct testimony which had been filed on or before July 22, 2013.Responses to any objections filed were due on or before September 3, 2013. 23 Complainant filed its Objections to Respondent’s Pre-Filed Evidence and Motion to Strike Same on August 12th.The objections went to Exhibits 1 and 5 .Respondent did not file any responses to Complainant’s Objections and Motion.  Objection to Exhibit 1 was sustained and same was stricken along with Exhibit 4 – Q & A 37. 24 Objection to Exhibit 5 was sustained to the extent that the testimony of Mr. Hodges might have been tendered as an expert  appraisal opinion of values and no probative weight was to be accorded to the values reported as having been placed on each of the properties in these appeals under the Assessor’s mass valuation methodology. 25

Respondent’s Motion for Reconsideration:Respondent filed his Motion for Reconsideration and Motion for Leave to File Responses to Complainant’s Objections.26 The basis for Respondent’s Motion was that Counsel for Respondent had never been served with Complainant’s Objections.Counsel for Complainant confirmed that Respondent’s Counsel had been “unintentionally left off the email” sent to the Commission with Complainant’s objections. 27 Motion for Reconsideration and Motion for Leave were granted and Respondent given until and including September 27, 2013 to file Response to Objections.28

Respondent’s Motion to Strike Objections:Respondent filed Respondent’s Motion to Strike Complainant’s Objections to Respondent’s Pre-Filed Evidence and Complainant’s Motion to Strike Same on September 16, 2013.Complainant filed its Memorandum in Opposition to Respondent’s Motion to Strike Objections on September 26, 2013.

Respondent’s Responses to Complainant’s Objections:Respondent filed his Responses to Complainant’s Objections on September 27, 2013.In said Responses, Respondent admitted that he did not seek to qualify Mr. Hodges as an expert witness and that Respondent was not seeking to admit any appraisal of Mr. Hodges.

Order Ruling on Pending Objections, Responses and Motions: The Hearing Officer issued his ruling on the pending procedural matters at issue on September 30, 2013.29 Said Order vacated the Order dated September 11, 2013 – Striking Exhibit 1 (therefore Exhibit 1 was admitted into evidence) and reaffirmed the remaining portions of said Order.The prior ruling as to objections to Exhibit 5 stood.

Renewal of Objection:Counsel for Complainant renewed Complainant’s Objections to Exhibit 1 at close of the evidentiary hearing.Objection was overruled in accordance with the ruling that had previously been made on the matter. 30 

19.Probative Value of Exhibits 2, 3 and 5:Exhibits 2, 3 & 5 have no probative value for purposes of concluding the true value in money of the subject properties as of January 1, 2011.

Exhibit 2:Mr. Hodges was not tendered as an expert witness for the purpose of rendering a conclusion of value based upon any appraisal which he had performed on either of the two properties which are the subjects of this Decision. 31 Since by Respondent’s admission Mr. Hodges was not presented as an expert witness, his profession qualifications are irrelevant to any issue to be addressed in this Decision.

Exhibit 3:This exhibit is simply a duplicate of the two aerial photographs which appear in Exhibit 1 on the thirty-eighth and thirty-ninth pages.32 Accordingly, the exhibit is simply duplicative of evidence already in the record. It is superfluous.It has no probative value in the appeals.

Exhibit 5:The document contains the pre-filed written direct testimony of Mr. Hodges.The only purpose of the testimony was to (1) identify Exhibits 2 and 3, and (2) state what the fair market values that Mr. Hodges had placed on the properties in 2011.Given that Exhibits 2 and 3 have no probative value, those portions of Exhibit 5 related to those two documents (Q & A 8 – 13) are irrelevant. Likewise, given that Mr. Hodges was not offered to give an opinion of value as an expert in the appraisal of real property, Questions and Answers 1 through 7 are not material to the issue of the fair market value of the subject properties as of January 1, 2011.The only remaining portion of Exhibit 5 (Q & A 14 – 16) simply provides what Mr. Hodges set as the values for each property.Since those two values were already in the record from the Board of Equalization Decisions, as well as Exhibit A-49, Exhibit A-50 and Exhibit 1.This proffered testimony, as with Exhibit 3, is redundant and of no probative value.

20.Qualifications of Mr. Zink:Mr. Zink is a Certified General Real Estate Appraiser in both Illinois and Missouri. He is also a licensed Real Estate Salesperson in Missouri.He is a Member of the Appraisal Institute (1994).He holds the designation of Certified Commercial Investment Member, since 1996.This is a designation awarded by the National Association of Realtors which requires completion of various courses, proof of applied experience and a final examination. Mr. Zink has been active in real estate appraisal since 1983.His appraisal experience includes virtually all types of investment grade properties including apartment communities, office building, retail centers, industrial facilities, and vacant land.He is the managing director of CBRE, Inc., Valuation and Advisory Services.He has received special education and training on the appraisal of office buildings and has appeared as an expert witness on valuation of property previously before the Commission.He has personally appraised an estimated 1,200 to 1,500 commercial, industrial and development properties located in several states, including specifically office buildings. 33

21.Zink Appraisal Methodology:Mr. Zink performed his appraisals in both appeals relying on the same methodology. 34 In each appraisal, the analyses, opinions and conclusions were developed based on, and the report was prepared in conformance with, the appraiser’s interpretation of the guidelines and recommendations set forth in USPAP 35  and the requirements of the Code 36 of the Appraisal Institute. 37 In both appraisals, the valuation date was as of January 1, 2011.

The Highest and Best Use: The highest and best use as vacant would be for medical-related use, time and circumstances warranting.The highest and best use as improved is for continued medical office use.38 

Applicable Methodology:The appraiser considered the three accepted approaches to valuation – Cost, Sales Comparison and Income Capitalization.Only the sales comparison and income capitalization approaches were deemed to be applicable and were used.39

Sales Comparison Approach:40 In order to conclude a value under the sales comparison approach, the appraiser relied on five properties he deemed to be comparable to the subject. The factors for which adjustments were considered for each sale property were: Property Rights Conveyed, Financing Terms, Conditions of Sale, Market Conditions, Location, Size, Age/Condition, Medical Use, Parking, and Occupancy.

Appeal 11-32949:The adjusted sales prices for the five comparable properties provided values per square foot of rentable area for the property in Appeal 11-32949, as follows: $67.12, $94.30, $76.59, $80.14 and $98.75.Most weight was placed on sales three and four.This provided a range (rounded values) of $77 to $80 per square foot.A deduction was made from the indicated value for the cost to finish shell space, for this property, with the resulting value being concluded at $2,485,000.

Appeal 11-32950:The adjusted sales prices for the five comparable properties provided values per square foot of rentable area for the property in Appeal 11-32950, as follows: $66.65, $89.42, $73.64, $76.63 & $94.60.Most weight was placed on sales three and four. The indicated range (rounded values) was $74 to $77 per square foot. The value conclusion for this property was $3,650,000.

Income Capitalization Approach:41 In the development of this approach, the appraiser in each appeal relied upon four comparable office rentals, plus the Complainant’s two properties.42 Based upon the five rent comparables in each appeal, the appraiser arrived at an effective gross income and operating expenses for each property.The net operating income (NOI) for each property was then calculated.An adjusted capitalization rate was developed based upon data from comparable capitalization rates, investor surveys and the band of investment technique.The concluded overall capitalization rate of 9.00% was then adjusted by the addition of the adjusted tax rate to provide the adjusted cap rate of 11.33%.The NOI was then capitalized using the adjusted cap rate.43 The indicated value for the property in Appeal 11-32949 was $2,500,000.The indicated value for the property in Appeal 11-32950 was $3,550,000.

Reconciliation of Value – 11-32949:The sales comparison approach was considered to provide reasonable support in the final reconciliation.The income capitalization approach was considered a reasonable and substantiated value indicator and was given primary emphasis in the final value estimate. Accordingly, the reconciliation of the indicated values of $2,485,000 and $2,500,000 resulted in a final Market Value Conclusion of $2,500,000. 44

Reconciliation of Value – 11-32950:The sales comparison approach was considered to provide reasonable support in the final reconciliation.The income capitalization approach was considered a reasonable and substantiated value indicator and was given primary emphasis in the final value estimate. Accordingly, the reconciliation of the indicated values of $3,650,000 and $3,550,000 resulted in a final Market Value Conclusion of $3,550,000. 45

22.Qualifications of Mr. McFarland:Mr. McFarland is a certified Missouri and Illinois real estate appraiser.He is an accredited member of the American Society of Appraisers.Mr. McFarland has worked in the commercial appraisal field since 1987.He has worked on appraisal assignments throughout the continental United States, Bermuda, Canada, Hawaii, and the British Virgin Islands.He has prepared appraisals for the purpose of sale/purchase, insurance, lease, domestic and international financing, income and ad valorem tax, condemnation, allocation of purchase price, due diligence, property accounting, and estate and corporate planning.In addition to fair market value opinions, Mr. McFarland has provided feasibility, construction, and land use studies.He has conducted research, prepared appraisals, reviewed, and/or made inspections of numerous property types which include the following: regional malls, strip and community shopping centers, apartment and condominium properties, low income housing tax credit and other government and/or age restricted apartment communities, agricultural land, aircraft hangars, auto dealerships, industrial distribution, manufacturing, and/or warehouse facilities, lake and oceanfront property, hotels and motels, medical office buildings, general office buildings, restaurants, and churches.He has previously served as an expert witness in a number of cases, including appearing before the Commission. 46

23.McFarland Appraisal Methodology:In the McFarland appraisal, the reported analyses, opinions and conclusions were developed, and the report was prepared, in conformity with the requirements of the code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. 47 The appraiser valued the two properties under appeal as if it were a single rental building.

The Highest and Best Use:The highest and best use as vacant would be for medical office development as market conditions predicate.The highest and best use as improved is for continued use as a multi-tenant medical office property.48 

Applicable Methodology:The appraiser considered the three accepted approaches to valuation – Cost, Sales Comparison and Income Capitalization.Only the sales comparison and income capitalization approaches were developed and reconciled.49 

Sales Comparison Approach:50 In order to conclude a value under the sales comparison approach, the appraiser relied on four properties he deemed to be comparable to the subject properties combined.The  factors for which adjustments were considered for each sale property were: Conditions of Sale, Market Conditions, Location, Rentable Area, Year Built/Condition, Quality/Amenities, Efficiency Ratio, Economics, and Land to Building Ratio.

The adjusted sales prices for the four comparable properties provided values per square foot of net rentable area for the combined properties as follows: $108.73, $104.02, $105.71 and $101.57. The appraiser concluded an average per square foot of net rentable area, as calculated by the Gray charts, 51 of $105.00.A deduction was made from the indicated value for capital expenditures and rent loss with the resulting value being concluded at $9,150,000.

Income Capitalization Approach:52 In the development of this approach, the appraiser relied upon four comparable office rentals.Based upon the four rent comparables, the appraiser arrived at a potential gross income for the property.A vacancy and collection loss was then applied to arrive at an effective gross income.Relying on historical expenses for the subject, historical expenses from other comparable office buildings and market average expense levels the appraiser arrived at the expense amounts for the various components of the expense deduction.The net operating income (NOI) was then calculated.An adjusted capitalization rate was developed based upon data from market extracted rates, published survey of rates, and the band of investment technique.The concluded overall capitalization rate of 9.00% was then adjusted by the addition of the adjusted tax rate to provide the adjusted cap rate of 11.22%.The NOI was then capitalized using the adjusted cap rate. 53 The appraiser applied a reduction to the indicated value to account for “Costs to Stabilize” to arrive at his conclusion of value.The indicated value was $8,900,000.

Reconciliation of Value:The sales comparison approach was used as support for the value derived via the income capitalization approach.The income capitalization approach was given primary emphasis in the final value estimate. Accordingly, the reconciliation of the indicated values of $9,150,000 and $8,900,000 resulted in a final Market Value Conclusion of $8,900,000. 54

24.Cost Approach Not Applicable .The cost approach is not applicable to the estimation of market value in the present appeals due to the effective age of the improvements which results in a significant amount of accrued depreciation which the typical investor considers difficult to measure.Furthermore, rental rates are less than what is required to produce an acceptable yield for development.As a result, investors do not typically rely on the cost approach.55 The estimate of depreciation required for this approach would have been too large and subjective to provide an accurate estimate of value.56 Therefore, the cost approach is not appropriate as an appraisal approach in the present appeals.57

25.Sales Comparison Approach Not Persuasive.Neither appraiser placed primary reliance on his sales comparison approach both utilized this methodology as simply providing support for the value concluded under their income approaches. 58 The sales comparison approach is not deemed to be reliable and persuasive in these appeals. See, Sales Comparison Approach Not Persuasive, infra.

26.Income Approach Persuasive.Both appraisers ultimately concluded their final value as being the same as the value derived from the development of the income approach.59 This is the appraisal methodology that the typical investment-purchaser would look to in arriving at what would be offered for the purchase of either or both of the subject properties.SeeIncome Approach Appropriate Methodologyinfra.

27.Appeal 11-32949 – Fiscal Factors and Economic Conditions of Property as of January 1, 2011Ownership:The land on this parcel is owned by SSM Healthcare and lease to Lillibridge LHRET through a ground lease.Lillibridge owns the improvements.The land and improvements are a single economic unit.60

Potential and Actual Income:As of January 1, 2011, under the existing rent roll, the potential annual rental income on the eight occupied units was $459,204.24.The actual rental income, plus adjustments, cost recovery and other income for the years 2008, 2009 and 2010 were $760,022, $683,122 and $562,470.

These actual income amounts equate respectively to per square foot income of $22.92, $20.60 and $16.96, based on actual rentable or usable area of 33,165 square feet.61

Occupancy & Vacancy:As of January 1, 2011, eight rental units in the building were occupied, five were vacant. The historic vacancy rates of the property were: January 1, 2008 – 11.6%; January 1, 2009 – 9.7%; January 1, 2010 – 22.5% & January 1, 2011 – 43.1%.The actual rental or usable area is 33,165, the actual occupied is 18,863 (56.88%) square feet and the actual vacant is 14,302 (43.12%) square feet.The annual rental rates for the 8 occupied units on a per square foot basis were: $24.36, $25.00, $25.01, $22.37, $24.57, $24.28, $23.94 & $23.94.This equated to a total annual rent of $459,204.24.The eight leases in place as of January 1, 2011 ran for the following terms: April 8, 2010 to March 31, 2015; April 8, 2010 to April 30, 2015; November 1, 2008 to October 31, 2012; October 1, 2010 to September 30, 2013; May 1, 2009 to September 30, 2013; July 1, 2010 to June 30, 2012; November 1, 2009 to October 31, 2011 and November 1, 2008 to October 31, 2011. 62

Actual Expenses:The actual operating expenses for the years 2008, 2009 & 2010 respectively were: $435,906, $466,500 and $417,683.Operating expenses excluding real estate taxes for the respective years were: $340,161, $363,472 & $314,115.These actual expense amounts equate to per square foot expenses of $10.26, $10.96 and $9.47, based on actual rentable or usable area of 33,165 square feet.63

Actual Net Operating Income:The net operating incomes (NOI) for the years 2008, 2009 & 2010, excluding real estate taxes, respectively were: $436,444, $336,232 and $266,631.These actual NOI amounts equate to per square foot NOI’s of $13.16, $10.14, and $8.04, based on actual rentable or usable area of 33,165 square feet. 64

Cost to Finish Shell Space:The cost to finish the shell space to make Suites 305 and 403 in a rentable condition is $115,000.

28.Appeal 11-32950 – Fiscal Factors and Conditions of Property as of January 1, 2011:

Ownership:The land on this parcel is owned by SSM Healthcare and lease to Lillibridge LHRET through a ground lease.Lillibridge owns the improvements.The land and improvements are a single economic unit. 65

Potential and Actual Income:As of January 1, 2011, under the existing rent roll, the potential annual rental income on the thirteen occupied units was $804,252.60.The actual rental income, plus adjustments, cost recovery and other income for the years 2008, 2009 and 2010 were $937626, $855,050 and $853,347.These actual income amounts equate respectively to per square foot income of $19.45, $17.73 and $17.70, based on actual total rentable area of 48,218 square feet. 66 

Occupancy & Vacancy:As of January 1, 2011, thirteen rental units in the building were occupied, six were vacant. Only twelve of the leases were paying leases, as one office (401 square feet) was for Property Management for which no rent was paid.The historic vacancy rates of the property were: January 1, 2008 – 10.3%; January 1, 2009 – 21.4%; January 1, 2010 – 22.5% & January 1, 2011 – 29.3%.The rental area is 48,218, 34,221 (70.97%) square feet occupied and 13,997 (29.03%) square feet vacant.The annual rental rates for the twelve occupied units on a per square foot basis were: $24.31, $22.73, $23.57, $25.16, $25.01, $24.28, $23.57, $24.66, $23.57, $23.57, $23.20, & $23.19.The average contract rent on a per square foot of the occupied space was $23.50.This equated to a total annual rent of $804,252.60. The twelve leases in place as of January 1, 2011 ran for the following   terms: October 1, 2010 to September 30, 2015, April 8, 2005 to April 7, 2015, March 19, 2010 to March 31, 2013, April 8, 2005 to April 30, 2013, December 28, 2009 to March 31, 2015, April 1, 2010 to March 31, 2012, November 1, 2008 (month to month); October 1, 2001 to September 30, 2012, March 1, 2008 (month to month), January 1, 2001 to February 14, 2011 and January 1, 2005 to February 14, 2011. 67

Actual Expenses:The actual operating expenses for the years 2008, 2009 & 2010 respectively were: $521,669, $662,336 and $585,769.Operating expenses excluding real estate taxes for the respective years were: $424,410, $567,299 and $490,234.These actual expense amounts equate to per square foot expenses of $8.80, $11.77 and $10.17, based on rentable area of 48,218 square feet. 68

Actual Net Operating Income:The net operating incomes (NOI) for the years 2008, 2009 & 2010, excluding real estate taxes, respectively were: $537,325, $311,860 and $389,687.These actual NOI amounts equate to per square foot NOI’s of $11.14, $6.47, and $8.08, based on rentable area of 48,218 square feet.69

29. Appeal 11-32949 True Value in Money:The true value in money for the property in this appeal is $2,537,100, an assessed commercial value of $811,870.See, Complainant Proves Value, infra.

30.Appeal 11-32950 True Value in Money:The true value in money for the property in this appeal is $3,579,600, an assessed commercial value of $1,145,470.See, Complainant Proves Value, infra.

CONCLUSIONS OF LAW AND DECISION

Jurisdiction

The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious.The hearing officer shall issue a decision and order affirming, modifying or reversing the determination of the board of equalization, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious. 70

Basis of Assessment

The Constitution mandates that real property and tangible personal property be assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass. 71 The constitutional mandate is to find the true value in money for the property under appeal. By statute real and tangible personal property is assessed at set percentages of true value in money. 72

Presumption In Appeal

There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization.73 This presumption is a rebuttable rather than a conclusive presumption.The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the Board’s valuation is erroneous and what the fair market value should have been placed on the property.74

Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact.The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief.

 Standard for Valuation

Section 137.115, RSMo, requires that property be assessed based upon its  true value in money which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and bought by one who is willing or desirous to purchase but who is not compelled to do so. 77 True value in money is defined in terms of value in exchange and not value in use.78 It is the fair market value of the subject property on the valuation date.79 Market value is the most probable price in terms of money which a property should bring in competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.

Implicit in this definition are the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:

1.Buyer and seller are typically motivated.

                2.Both parties are well informed and well advised, and both acting in what they consider their own best interests.

               3.A reasonable time is allowed for exposure in the open market.

               4.Payment is made in cash or its equivalent.

              5.Financing, if any, is on terms generally available in the Community at the specified date

and typical for the property type in its locale.

                  6.The price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction. 80 

The Standard For Valuation was followed by both appraisers in the development of their conclusions of value. 81

 Investigation by Hearing Officer

In order to investigate appeals filed with the Commission, the Hearing Officer may inquire of the owner of the property or of any other party to the appeal regarding any matter or issue relevant to the valuation, subclassification or assessment of the property.The Hearing Officer’s decision regarding the assessment or valuation of the property may be based solely upon his inquiry and any evidence presented by the parties, or based solely upon evidence presented by the parties.82 The Hearing Officer during the evidentiary hearing made inquiry of Complainant and Respondent’s appraisers. 83

Weight to be Given Evidence

The Hearing Officer is not bound by any single formula, rule or method in determining true value in money, but is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled.The relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide. 84

The Hearing Officer as the trier of fact may consider the testimony of an expert witness and give it as much weight and credit as he may deem it entitled to when viewed in connection with all other circumstances.The Hearing Officer is not bound by the opinions of experts who testify on the issue of reasonable value, but may believe all or none of the expert’s testimony and accept it in part or reject it in part.85 The finding of one expert to be more persuasive than another does not, at least in this instance, bring into question any matter of the veracity relative to either appraiser.The Hearing Officer weighs the evidence on the bases that he considers both Mr. Zink and Mr. McFarland to have been forthright in their appraisal work and appearance in the evidentiary hearing.

Methods of Valuation

Proper methods of valuation and assessment of property are delegated to the Commission.It is within the purview of the Hearing Officer to determine the method of valuation to be adopted in a given case. 86 Missouri courts have approved the comparable  sales or market approach, the cost approach and the income approach as recognized methods of arriving at fair market value. 87 Both appraisers concluded value after developing two of the three recognizes approaches to value.Both placed their greatest or primary reliance on their valuation of the subject properties based on the income approach methodology.See, FINDING OF FACT 21 & 23, supra.

Sales Comparison Approach Not Persuasive

The information on the comparable sales utilized by each appraiser is summarized as follows:

Comp #88

Year Built

NRA 89

Sale Price

SF/NRA90

NOI 91

SF/NOI 92

Comp 1 – Z

1971

25,000

$1,500,000

$60.00

$137,550

$5.50

Comp 2 – Z

1989

79,566

$7,700,000

$96.78

$808,500

$10.16

Comp 3 – Z

1978

11,386

$1,075,000

$94.41

$96,750

$8.50

Comp 4 – Z

2004

16,196

$1,150,000

$71.01

n/a

Comp 5 – Z

1984

64,606

$7,659,159

$118.55

$624,529

$9.67

Comp 1 – M

1990

41,203

$7,000,000

$169.89

n/a

Comp 2 – M

1999

72,279

$8,845,096

$122.37

$684,568

$9.47

Comp 3 – M

1997

42,000

$3,700,000

$88.10

n/a

Comp 4 – M

1999

44,625

$8,071,000

$180.86

$645,921

$14.47

AVERAGES

1990

44,096

$5,188,917

$111.33

$499,636

$9.63

The two subject properties have the following characteristics for purposes of comparison:

Address

Year Built

NUA 93

NRA  94

NOI  95

NOI/SF  96

400 1st Capital

1998

33,165

39,177

$245,774

$7.41/$6.27

330 1st Capital

1987

48,218

54,965

$319,470

$6.63/$5.81

Combined

1992.5

81,383

94,142

$565,244

$6.95/$6.00

The Hearing Officer recognizes that an appraiser cannot manufacture sales, but must rely on what sales data is available for any given appraisal problem. In this instance, each appraiser exercised his judgment based upon his training and experience to conclude his group of sale comparables.The Hearing Officer does not consider it to be within his province to substitute his judgment for that of either appraiser as to whether the selections of comparables was appropriate for the appraisal problem.Deference is given to Mr. Zink and Mr. McFarland in that respect.

Likewise, with regard to the various adjustments which each appraiser made to each of his sale properties in order to make each of them more like the subject, the Hearing Officer is not in a position to amend and adjust those various adjustments.Both Mr. Zink and Mr. McFarland brought to bear their expertise in making those adjustments.No evidence is present upon which the Hearing Officer could either alter or ignore any of the adjustments made to any of the properties.The Hearing Officer understands that in large measure the percentage adjustments presented on each of the sales grids are based on the accumulated knowledge and experience of each appraiser and involve certain levels of subjectivity in this application.Accordingly, it is understood and respected that each appraiser provided his best effort in developing his sales comparison approach for the properties under appeal.

It is, however, the responsibility of the Hearing Officer to weigh the evidence and ascertain what if any probative weight it merits.In this instance, what is most persuasive to the mind of the Hearing Officer is the  comparability of the NOI of each of the properties, for which the NOI was available and reported, to the historic and projected NOI for the subject properties for the years, 2008, 2009, 2010 and 2011.It is within this realm of comparability that the Hearing Officer finds the soundest foundation upon which the weighing of this evidence can be measured.

Having converted each of the NOI’s for the six properties for which this factor was reported to the square foot unit, a range from $5.50 to $14.47, with an average of $9.63 is established.It is therefore noted that the six sales had an average NOI per square foot from 130% – 154% of the historic and pro forma per square foot NOI for the subject at 400 1st Capital.For the property at 330 1st Capital, the average NOI from the sales was from 145% -166% of the historic and pro forma of that property.If the properties are combined, the NOI of the sales was 139% – 161% above that of the two properties.

In other words, with the exception of the one sale with the $5.50 per square foot NOI, each of the other properties at the time it sold was significantly superior from a financial or economic standpoint to that of either of the subject properties or the two properties combined.The sale properties, for which the NOI data was available, on average had a much higher income stream than the properties being appraised.The sales comparison approach, irrespective of the various adjustments needed for any given comparable, simply does not account for the economic differences between the subjects and the sales.The sales comparison methodology is a valuation and comparison which rests entirely on the physical aspects of the sale compared to the physical aspects of the property being appraised.No adjustment is made to account for the differences that existed as to the income stream of the subjects compared to the superior income streams of five of the six properties for which the NOI was available.Absent such adjustments to make each comparable more fiscally comparable to the subjects, the sale comparison approaches provide no persuasive or probative weight to the mind of the trier of fact.

Finally, what is most compelling to the Hearing Officer that no probative weight should be given to either sales comparison approach is the simple fact that neither appraiser gave any actual weight to this methodology.In Appeal 11-32949, Mr. Zink concluded an indicated value based on the sales comparison approach of $2,485,000 and a value under the income capitalization approach of $2,500,000.The final conclusion was the $2,500,000 established by the income approach.If any deference or weight had been given to the sales comparison value then the reconciliation would have provided a value above $2,485,000, but less than $2,500,000.In similar manner, in Appeal 11-32950, the two approaches concluded two different values, however, the final conclude value was that value found through the income methodology.Again, indicating that no actual weight was given to the sales comparison value. 97

The same holds true for the McFarland reconciliation of his values.The sales comparison resulted in a concluded value of $9,150,000.The value of $8,900,000 was that determined by the income approach.The final conclusion was the income approach value, thus giving to weight to the sales comparison approach. 98

In other words, both appraisers found their sales comparison methodology to give “support” to the conclusion of value determined under the income approach.However, neither appraiser placed any weight on the concluded sales comparison value that would alter that found by development of their income approach.For all the foregoing reasons, the Hearing Officer finds that the conclusions of value tendered by each appraiser based upon the sales comparison approach are not persuasive on the issue of what a willing buyer and seller would have agreed to as the purchase price for the properties under appeal as of January 1, 2011.Accordingly, no probative weight is given to the opinions of value developed by the sales comparison methodologies.

 

Income Approach Appropriate Methodology

Both appraisers concluded their values based upon the income approaches each developed.The income approach is reflective of how the hypothetical investor/purchaser on January 1, 2011 would have assessed the situation relative to the purchase of the properties under appeal.The hypothetical purchase would be purchasing an income stream from each property.The way in which the value of the income streams is to be determined is by the development of the income capitalization approach.Therefore, for purpose of concluding the value of the subject properties, the appropriate methodology is the income approach.

Opinion Testimony by Experts

If specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert on that subject, by knowledge, skill, experience, training, or education, may testify thereto.

The facts or data upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing and must be of a type reasonably relied upon by experts in the field in forming opinions or inferences upon the subject and must be otherwise reliable, the facts or data need not be admissible in evidence. 99

The case is one that specialized knowledge from a person or persons qualified as an expert in commercial real estate appraisal in the greater St. Louis Metropolitan Area certainly would assist the trier of fact to ascertain the fair market values of the properties which are under appeal.Both Mr. Zink and Mr. McFarland are qualified by knowledge, skill, experience, training, and education on the matter of appraisal of commercial properties such as the subjects to render their expert opinions as to fair market value.See, FINDING OF FACT 20 & 22, supra.The data upon which each appraiser relied were of the types reasonably relied upon by appraisers in valuing commercial properties such as the subjects.The data are deemed to be otherwise reliable for use in the present appraisal problems. 100

Usable Area – Rentable Area

Usable Area – “The actual occupiable area of a floor or an office; computed by measuring the finished surface of the office side of corridor and other permanent walls, to the center of partitions that separate the office from adjoining usable areas, and to the inside finished surface of the dominant portion of the permanent out building walls.The usable area of a floor is equal to the sum of all usable areas of that floor.No deductions are made for columns and projections necessary to the building.”101

Rentable Area – “1. The amount of space on which the rent is based; calculated according to local practice. 2.The tenant’s pro rata portion of the entire office floor, excluding elements of the building that penetrate through the floor to areas below.The rentable area of a floor is fixed for the life of a building and is not affected by changes in corridor sizes or configuration.Rentable area is recommended for measuring the total income-producing area of a building and for computing a tenant’s pro rate share of a building for purposes of rent escalation.Lenders, architects, and appraisers use rentable area in analyzing the economic potential of a building.On multi-tenant floors, both the rentable and usable area for any specific office suite should be computed.The rentable area of a floor is computed by measuring to the inside finished surface of the dominant portion of the permanent building walls, excluding any major vertical penetrations of the floor.No deductions should be made for columns and projections necessary to the building.102 >

A supposed foundational difference in the appraisals of Mr. Zink and Mr. McFarland was the employment of the terms net usable versus net rentable area.Mr. Zink in his appraisals used the term net rentable area 103 Mr. McFarland calculated for the two properties together a net rentable area and a net usable area.The “net rentable” areas utilized by Mr. Zink were 33,165 square feet for the property at 400 1st Capitol Drive and 48,218 square feet for the property at 330 1st Capitol Drive. 104 This is a total of 81,383 square feet.Mr. McFarland found the “net usable” area for the two buildings to be 81,383 square feet. 105

In plain language from the above definition, useable area is the space that is actually being rented, or is the subject of a lease.Likewise, under definition “1” of rentable area it is the space that is rented.As applied to the subjects, the terms usable area and rentable area, under these definitions, have no meaningful difference.It is apparent that in the Zink appraisal the term net rentable area, for each property, was the same as the net usable area, for each property, as reported on the rent roll.

The McFarland appraisal utilized a “rental” area for the combined properties based on figures from the Gray Design Group, which totaled 94,142 square feet.This was based on the total calculated areas for the two buildings under Basic Rentable Office Area from the Gray Design Group document. 106 The Gray “calculations are based on drawings provided by others and not field verified by Gray Design Group.” 107The calculated areas for rentable areas, provided in the Gray documents, are reflective of definition “2” as given above.They do not reflect the actual and historic amount of office space on which the rent is based for each individual office in each building.Nor do the Gray calculations establish the actual and historic amount of office space on which the rent is based for the total area in each building.The Gray calculations were developed as a result of an attempt to recalculate the office space of the two subjects in 2008. However, no action was taken to alter the rent roll and accordingly, the rent roll is reflective of what is actually used as the usable and rentable areas for the buildings. 108

Using the term net rentable area 109 as developed by the Gray calculations and relied upon by Mr. McFarland, a tenant has the right to the use of the common areas, such as the lobby, restrooms, elevators and hallways.The tenants in each of the subject buildings also had use of the common areas even though the total rent was calculated on a useable area basis.Changing the basis of the lease from net usable area to net rentable area does not give the tenant any rights to use of the premises that it did not already have.The effect would be to increase the square footage listed in the lease to which the price per square foot is applied.A tenant paying its set per square foot rental would receive no corresponding benefit from changing from usable to rentable area.However, applying the price per square foot to the larger rentable area under the McFarland methodology would result in a rent increase.

The quite practical application of using rentable area as advocated by Respondent would be that one would take the total annual rent, divide it by the rentable square footage per the Gray calculations for each lease and thus arrive at a new per square foot amount for each lease.The net effect on the income stream for either or both properties would be zero.Tenants would be paying the same annual rent and Complainant would be receiving the same total annual rent.The income stream would not change.In other words, it would be an exercise in futility since it does nothing to establish a different income stream. 110

What the undisputed facts dictate is that as of January 1, 2011 the hypothetical perspective purchaser of the property at 400 1st Capitol would know that the annual gross income for the occupied areas was $459,204.24.That would equate to $24.34 per square foot of the occupied area ($459,204.24 ÷ 18,863 = $24.34).If the investor/purchaser for some reason wanted to know what the rent calculated to on a total occupied office area under the square footage provided by the Gray chart might be, he would find it to be $20.61 ($459,204.24 ÷ 22,283 = $20.61).In like manner, the annual gross income for the occupied area of 330 1st Capitol was $804,252.60 or $23.50 per square foot of the occupied area ($804,252.60 ÷ 34,221 = $23.50).The square foot gross rent would be $18.21 ($804,252.60 ÷ 44,155 = $18.21), if the figures from the Gray chart are used.

As to the use of the terms by the respective appraisers, it is clear that Mr. Zink used the “usable” area in the subject properties to be also the “rentable” area. 111It is likewise concluded from the appraiser’s comparable office rentals that he used a lease area or what would be the usable area for the comparable properties. 112 In Mr. McFarland’s appraisal he utilized four rental comparables.Each had a “rentable square feet” for each of the four leases that he reported.However, the report fails to establish if the term “rentable square feet” was what is defined under definition 1 or 2 cited above.

Appraisers rely upon data that are reported from various sources in developing their appraisals.What the unknown individual who provided the data in the first place or the unknown individual who actually entered the data into the document used by an appraiser may have reported as “rentable” or “leased” area may actually be “usable” area or “rentable” area under definition 1 above.It might, however, be something different.It could be reflective of hallways, service or storage areas, or other common areas not reflected in the actual square footage that is given in any particular lease.

Therefore, for purposes of this Decision and concluding a value under the income capitalization approach, the terms net rentable, net usable, rentable or usable areas, as applied to the subject properties are deemed to be one in the same, irrespective of what the definitions might be as utilized in the Gray calculations, since those areas were not shown to have ever been the basis for the operation of either of the subject properties.

Usable/Rentable Area – 400 1st Capitol Drive

The total area in this building that has actually and historically been the leased area consists of 33,165 square feet.This is the area that is the actual occupiable area of the office building.It is the sum of the actual occupiable areas of the individual offices on each of the four floors of the building.It is likewise the amount of space on which the rent is based. 113 No evidence exists to establish that the per square foot rental rates have been or as of January 1, 2011 were based on any other area.

Usable/Rentable Area – 330 1st Capitol Drive

The total area in this building that has actually and historically been the leased area consists of 48,218 square feet.This is the area that is the actual occupiable area of the office building.It is the sum of the actual occupiable areas of the individual offices on each of the four floors of the building.It is likewise the amount of space on which the rent is based. 114 No evidence exists to establish that the per square foot rental rates have been or as of January 1, 2011 were based on any other area.

Market Rents

Zink Comparable Office Rentals

Mr. Zink used five comparable office rentals for his income approach for each property.Four of the rentals were the same in each appraisal.The fifth comparable in each appraisal consisted of lease data from the other property in these appeals.That is for the property at 400 1st Capitol, he utilized as his fifth lease comparable, data from 330 1st Capitol.For the property at 330 1st Capitol, he relied on lease data for the property at 400 1st Capital as his fifth comparable.

The range of rents on a per square foot lease basis for the 400 1st Capitol property was from $19.20 to $24.72, with a median of $23.87 and an average of $23.52 on eleven separate leases.The actual average for the property at 400 1st Capitol for the leased area was $24.34, as calculated above.

For the 330 1st Capitol property the range was $19.20 to $25.00, with a median of $24.28 and an average of $23.24 on eleven separate leases.The actual average for the property at 330 1st Capitol for the leased area was $23.50, as calculated above.

McFarland Comparable Office Rentals

Mr. McFarland based his income analysis on four comparable office rents.The range of rents on a rentable square foot basis 115  was from $16.00 to $24.50, with a median of $21.16 and an average of $20.71.The average for the combined properties if the actual income was applied to the Gray rental office space, as calculated above, would be $19.41.

Summary and Conclusion

Even though the appraisers used the term rentable area in different ways, under either interpretation of the term, the actual rent of each subject for its occupied area falls in the range of the market data provided by each appraiser.The fact is that, depending on which calculation one might use, the rent for each of the subject’s falls in the range of what each appraiser deemed to be the market range.There is no relevance to the fact that the rents of the subjects on a per square foot calculation come in above or below the averages of the averages determined by Zink and McFarland.

The rates for each of the subjects are, in fact, part of the market.The average for each of the properties or the combined properties falls within the range established by each appraiser’s rental comps under each of their assumptions and calculations.Rental markets are not static.Rental rates and expenses are all moving targets at any given point in time.These factors can and do fluctuate from one day to the next depending on what the market is doing.What the rent roll of any property at any point in time provides is a picture that illustrates this simple but critical fact.For one to take a group of rental rates or expenses from a select group of comparable properties and thereby establish a range, the median and average for those properties and then apply that to a subject without consideration of what the property being appraised is actually doing as of the valuation date is to ignore that the property being appraised is part of the market.An arbitrary allocation of a set amount as the “market” is to ignore that the market is composed of a variety of ranges, medians and averages depending upon what comparables one selects for analysis.

Furthermore, no evidence was forthcoming to establish to the trier of fact that any of the leases for either of the subject properties did not constitute at the time entered into that the rates were anything other than within the overall market for similar properties.In point of fact, the Zink and McFarland data are consistent that the subject leases for both properties come within the market, as each established from their selected comparables.

Complainant Proves Value

In order to prevail, Complainant must present an opinion of market value and substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 2011. 116 There is no presumption that the taxpayer’s opinion is correct. The taxpayer in a Commission appeal still bears the burden of proof.The taxpayer is the moving party seeking affirmative relief.Therefore, the Complainant bears the burden of proving the vital elements of the case, i.e., the assessment was “unlawful, unfair, improper, arbitrary or capricious.”117 A valuation which does not reflect the fair market value (true value in money) of the property under appeal is an unlawful, unfair and improper assessment.

Complainant’s evidence in each appeal established a prima facie case to rebut the presumption of correct assessment by the Board and to establish the values concluded by Mr. Zink.The McFarland appraisal did not provide sufficient basis for the Hearing Officer to reject the Zink appraisals.Nor, after detailed review of the appraisal evidence and consideration of the arguments advanced in the respective parties’ briefs, was the Hearing Officer persuaded that the McFarland appraisal was representative of the values of the two properties as they existed under the fiscal factors and economic conditions that existed with respect to each property as of January 1, 2011.

Potential Gross Income

The utilization of a $23.00 per square foot of net usable area to establish the potential gross income of each of the properties by Mr. Zink is an accurate reflection of the actual operation of the subject.Simple logic dictates that a prospective purchaser is going to look to the actual and historic performance of the properties.See, FINDINGS OF FACT 27 & 28, supra.A purchaser is going to understand that the leases in place as of January 1, 2011 were not based on some area calculations by an architectural firm that had never been utilized by the owner.Instead the income stream was established on a per square foot rental applicable to the net usable area or the rentable area when what is intended is the acre actually the subject of the lease.Accordingly, the utilization of the per square foot amounts applied to the rentable area as calculated by the Gray group was not appropriate and did not reflect the historic leasing practice for the two properties.It was not an accurate unit measurement for the income stream.Mr. Zink made slight additions to the rental income for Additional Income based upon the historic performance of the two properties. 118  McFarland had no addition for Miscellaneous Income.

Vacancy & Collection Loss Rate

The Zink stabilized vacancy of 20% found its basis in the All Office – St. Charles Submarket data for which detailed information and explanation was provided. 119 In addition, the most recent history of each of the subjects, established that both properties had experienced an overall upward trend in vacancy capping as of January 1, 2011 at 43.1% and 29.3% respectively.See, FINDINGS OF FACT 27 & 28, supra.The vacancy rate used in the McFarland appraisal was 14% based on information reported for the St. Charles County office submarket 120

The historical indications are for a continued upward trend in vacancy.The property manager has reported difficulty leasing the property due to alternative properties that are located to the west of the subjects.There simply is no logic, nor evidence present in the record, that will support a conclusion that both properties would in the foreseeable future drastically reverse course and increase occupancy from 57% and 71% respectively, to 86% as postulated by the McFarland appraisal.The solution presented as a foundation of the McFarland appraisal that an increase in rental rates will increase the occupancy rate simply defies logic.The Hearing Officer finds the vacancy of 20% to be more persuasive, notwithstanding that both subjects were a significant distance from achieving that level of occupancy as of January 1, 2011.Both appraisers agreed that a 1% collection loss would be appropriate.

Effective Gross Income

The effective gross income (EGI) concluded by Mr. Zink was 603,349 (Appeal 11-32949) and $880,014 (Appeal 11-32950), or a combined EGI of $1,483,363.This is reflective of how this property has historically performed.See, FINDINGS OF FACT 27 & 28, supra.Mr. McFarland’s EIG was $1,819,017 for the combined properties.A simple reality check against the actual performance of the property shows that the McFarland appraisal significantly overstates the EGI for the properties.

In 2008, when the vacancy rates of the two properties were only 11.6% and 10.3%, superior to the 14% employed by Mr. McFarland, the EGI for the two properties was only $1,697,648 ($760,022 and $937,626, respectively). 121 In other words, the McFarland conclusion of value is based upon an assumption that the properties should be considered by a prospective purchaser as outperforming the EIG of the best year in the last three prior to January 1, 2011 by $121,369.However, when the hypothetical investor looks at the most recent year (2010), it would be discovered that the combined vacancy rate has mushroomed to 22.5%, with a combined EIG of only $1,415,817 ($562,470 and $853,347, respectively). 122The McFarland opinion of value assumes a vacancy rate for his January 1, 2011 analysis that would in fact only be 62% of what the properties had operated at in the prior year, and yet the projected EGI would be 128% of the actual EGI for 2010.

Based upon the foregoing, the Hearing Officer is persuaded that the EGI utilized in the McFarland appraisal cannot be supported by either the actual operating history of the properties, the market data, or basic rational reasoning.

Expenses

Turning to the matter of the expenses 123  that are to be deducted from the EGI, the two appraisers came in with much closer dollar amounts for this item of the income approach.The Zink appraisals provide a total combined expense for the two properties of $784,161 ($305,780 and $478,381, respectively). 124 The McFarland appraisal utilized expenses of $734,463.Both amounts fall within the range of actual expenses excluding real estate taxes and ground rent for the period from 2008 through 2010.The stabilized expense based on the prior three years was $791,153. See, FINDINGS OF FACT 27 & 28, supra.Therefore, the Zink conclusion as to the amount to deduct for allowable expenses came closer to the historic performance of the property.In addition, the Zink market expense data provides support for this item.Mr. McFarland placed some reliance on the historical expenses for the subjects from years 2009 and 2010, as well as the budget amounts for 2011.The Zink appraisal expenses come in at just under $7,000 below this stabilized historic expenses, or less than a 1% variance.The McFarland expense amount is 6.9% below the stabilize expenses.Accordingly, the amount for expenses in the Zink appraisal is deemed to be more persuasive and more reflective of what an investor would consider when seeking to arrive at a purchase price for the properties.

Net Operating Income

The Zink appraisal of the property in Appeal 11-32949 concluded a net operating income (NOI) of $297,569 and an NOI of $401,633 for the property in Appeal 11-32950.These two amounts provide a combined NOI of $699,202.The McFarland appraisal concluded an NOI for the two properties combined of $1,082,544.As previously addressed, the variance is attributable to the EGI and the vacancy rate employed by Mr. McFarland.As presented above, when the concluded McFarland NOI is viewed against the stabilized NOI which the two properties have achieved in the prior three years, the well informed investor would quickly realize that the conclusion of $1,082,544 simply overstates what could reasonably be expected from the properties.See, FINDINGS OF FACT 27 & 28, supra.The stabilized NOI, exclusive of real estate taxes, for the combined properties was $759, 393.This includes the performance of the subject properties in 2008 when both were occupied at a level of just under 90%.Given vacancies as of January 1, 2011 of 43% and 29% respectively for Complainant’s two properties, the conclusion advanced by the McFarland appraisal that the combined properties would produce an NOI at a level of 143% of what had been achieved for the prior three years, when the vacancy for the combined properties had average just above 16% is unrealistic.The well informed investor would be quick to realize that the properties purchased on January 1, 2011 would not be able, based on their actual economic history, to even achieve the stabilized NOI.

Capitalization Rate

Both Mr. Zink and Mr. McFarland agreed that the overall or going-in capitalization rate of 9 % was appropriate.There was a difference between the appraisers as to the amount to be added as the effective tax rate (ETR).To calculate the effective tax rate in his appraisals, Mr. Zink used the 2011 tax rate of $7.276135.This calculated to an effective tax rate of 2.33%.125 Mr. McFarland used the 2010 tax rate of $6.9427.This calculated to an effective tax rate of 2.22%.126 Therefore, the respective Adjusted Capitalization Rates were 11.33% and 11.22%.

When the NOI’s for the two properties of $297,569 and $401,633 are capitalized at 11.33% the resulting indicated values are $2,626,381 and $3,544,863.  127 When the NOI’s for the two properties of $297,569 and $401,633 are capitalized at 11.22% the resulting indicated values are $2,652,130 and $3,579,616.

While some might consider the difference in the resulting values to be de minimis 128 given that the variances only equate to differences of $25,749 and $34,753 or .0097%, the Hearing Officer is of the opinion as between the two ETR that the utilization of the 2010 tax levy is appropriate.It is understood that both appraisers were performing retrospective appraisals.However, for the hypothetical purchase as of January 1, 2011, developing a pro forma, the utilization of the 2011 levy to calculate the ETR would not be possible, since that levy would not be set until some nine or ten months after the valuation date.Therefore, the Hearing Officer concludes that the ETR of 2.22% based on the 2010 tax levy is appropriate.

Deduction for Cost to Finish Shell Space – Appeal 11-32949

A prospective purchaser of the property at 400 1st Capital Drive would recognize the need and cost to finish out Suites 305 and 403.This cost ($115,000) would therefore be deducted from the indicated value to arrive at the final estimate of market value.

Conclusion of Values

The capitalization of the subject properties respective NOI’s ($297,569 and $401,633) at 11.22% provides the indicated values of $2,652,130 and $3,579,616.The deduction of the cost to finish the shell space provides the adjusted value of $2,537,130, rounded to $2,537,100.The indicated value for the property in Appeal 11-32959 is rounded to $3,579,600.

Evidence of Increase in Value

In any case in St. Charles County where the assessor presents evidence which indicates a valuation higher than the value finally determined by the assessor or the value determined by the board of equalization, whichever is higher, for that assessment period, such evidence will only be received for the purpose of sustaining the assessor’s or board’s valuation, and not for increasing the valuation of the property under appeal. 129 Under the Commission rule just cited and Supreme Court decision 130 the assessed value cannot be increased above $1,445,640 in Appeal No. 11-32949 and the assessed value cannot be increased above $1,136,000 in Appeal No. 11-32950.

Mr. McFarland valued the two properties as a single property at a concluded value of $8,900,000 or a total assessed value of $2,848,000.This is an assessed value that is $266,360 above the combined assessed values of the subject properties.Accordingly, any probative value that could be given to the conclusion of value for the combined properties could only apply to a value of $8,627,470, the combined appraised value based upon the values affirmed by the Board.

Valuation of Properties Combined

Mr. McFarland, after consultation and discussion with the Assessor, appraised the two properties as a single property based on “the principle of continuity of use.” 131 The Hearing Officer incorporates by reference, as if fully set out herein, his rulings in his Orders dated 9/11/13 and 9/30/13 in which he addressed in detail the matter of the valuation of the two properties as one.The Hearing Officer having found no authoritative appraisal source to substantiate the position taken by Respondent that the two properties should be appraised combined, finds no merit to that position.The appropriate approach to the appraisal problems was to establish the fair market value for each, not for a combined property.

ORDER

The assessed valuation for the subject properties as determined by the Assessor and sustained by the Board of Equalization for St. Charles County for the subject tax day are SET ASIDE.

The assessed value for the subject property in Appeal No. 11-32949 for tax years 2011 and 2012 is set at $811,870.

The assessed value for the subject property in Appeal No. 11-32950 for tax years 2011 and 2012 is set at $1,145,470.

Application for Review

A party may file with the Commission an application for review of this decision within thirty days of the mailing date set forth in the Certificate of Service for this Decision.The application shall contain specific facts or law as grounds upon which it is claimed the decision is erroneous.Said application must be in writing addressed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, and a copy of said application must be sent to each person at the address listed below in the certificate of service.

Failure to state specific facts or law upon which the application for review is based will result in summary denial. 132

Disputed Taxes

The Collector of St. Charles County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an Application for Review, unless said taxes have been disbursed pursuant to a court order under the provisions of Section 139.031.8, RSMo.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed.Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED this 15th day of May, 2014.

STATE TAX COMMISSION OF MISSOURI

_____________________________________

W. B. Tichenor

Senior Hearing Officer

1.  The value as of January 1, 2011 remains the value as of 1/1/12 unless there is new construction and improvement to the property.Section 137.115.1 RSMo

2.  TR. 3: 18 – 22

3.  Email from Woody to Tichenor, dated 3/24/14 – 11:53 AM

4.  Complaint for Review of Assessment – 11-32949; Board of Equalization Decision, dated 8/9/11 – 11-32949; Exhibit A – 11-32949 – Summary of Salient Facts; Exhibit 1 – Summary of Important Data & Conclusions

5.  Complaint for Review of Assessment – 11-32950; Board of Equalization Decision, dated 8/9/11 – 11-32950; Exhibit A – 11-32950 – Summary of Salient Facts; Exhibit 1 – Summary of Important Data & Conclusions

6.  For purposes of this Decision the terms net rentable, net usable, rentable and/or usable areas shall be deemed to be the actual and historical square footage used as the basis of the leases for this property.See, Usable Area – Rentable Area, infra.

7. Exhibit A – 49, Photo, p. iv; Improvements Analysis, p. 27; Shell/Unfinished Space, p. 30; Exhibit B – 49; p. 15:20 – p. 16:12.

8.  Exhibit A – 11-32949 – Summary of Salient Facts; A detailed description and photographs are found in Exhibit A – 11-32949, pp. ii – vi; p. 24 – 31; A detailed description and photographs of the 11-32949 property and 11-32950 property are found in Exhibit 1, pp. 5 – 13; 15 – 16; 35 – 41; 43 – 54

9.  For purposes of this Decision the terms net rentable, net usable, rentable and/or usable areas shall be deemed to be the actual and historical square footage used as the basis of the leases for this property.See, Usable Area – Rentable Area, infra.

10.  Exhibit A – 11-32950 – Summary of Salient Facts; A detailed description and photographs are found in Exhibit A – 11-32950, pp. ii – vi; p. 24 – 31; A detailed description and photographs of the 11-32949 property and 11-32950 property are found in Exhibit 1, pp. 5 – 13; 15 – 16; 35 – 41; 43 – 54

11. BOE Decision dated 8/9/11 – 11-32949; Exhibit A – 11-32949 – Tax and Assessment Data, p. 32; Exhibit 1 –Assessment and Current Taxes, p. 41

12.  BOE Decision dated 8/9/11 – 11-32950; Exhibit A – 11-32950 – Tax and Assessment Data, p. 32; Exhibit 1 –Assessment and Current Taxes, p. 41

13. Douglas A. Zink: MAI, CCIM; Missouri Certified General Real Estate Appraiser, Exhibit A – 49, Cover Letter & Real Estate Appraisers Commission Certification/License.

14  Tr. 3:23 – 4:3; Tr. 15:8 – 13

15  Tr. 5:25 – 97:6

16  Douglas A. Zink: MAI, CCIM; Missouri Certified General Real Estate Appraiser, Exhibit A – 50, Cover Letter & Real Estate Appraisers Commission Certification/License.

17.  Tr. 3:23 – 4:3; Tr. 15:8 – 13

18  Tr. 5:25 – 97:6

19  Section 137.115.1, RSMo

20  Section 137.115.1, RSMo

21 Exhibit 2 – Professional Qualifications – Keith A. Hodges; Exhibit 3 – Aerial photographs of subject properties; Exhibit 5 – written direct testimony – Keith A. Hodges

22  Tr. 97:19 – 143:3

23  Order, dated 5/14/13

24  Order, dated9/11/13, pp. 1 – 3

25  Order, dated 9/11/13, pp. 4 – 6

26  Motion, dated 9/11/13

27  Email from Woody to Jennings, Tichenor & Heller, dated 9/11/13 – 8:43 PM

28  BENCH ORDER, dated 9/12/13 – 2:32 PM

29 Order Denying Respondent’s Motion to Strike Complainant’s Objections and Overruling Complainant’s Objections as to Exhibit 1

30  Tr. 143:22 – 144:9

31 Responses to Complainant’s Objections, p. 6 – “Respondent does not seek to qualify Mr. Hodges as an expert witness.”

32 The pages are unnumbered following p. 36 to p. 41.The two photographs in Exhibit 1 appear between the pages on which there is a Location Map and a Flood Hazards Map.

33  Exhibit A – 49: Addendum F – Qualifications – Douglas A. Zink; Exhibit B – 49, pp. 1 – 4; Exhibit A – 50: Addendum F – Qualifications – Douglas A. Zink; Exhibit B – 50, pp. 1-4

34  Exhibit A – 49, pp. 33 – 58; Exhibit A – 50, pp. 33 – 57; See also, Exhibits B – 49 & 50

35  Uniform Standards of Professional Appraisal Practice

36 Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute

37 Transmittal Letter, second page

38  Exhibits A – 49 & A – 50, p. 33

39  Id.

40  Exhibits A – 49 & A – 50, pp. 35 – 40

41 Exhibit A – 49, pp. 41 – 53; Exhibit A – 50, pp. 41 – 54

42  In the valuation of the property in 11-32949, Mr. Zink used as a rent comparable the property in 11-32950.Likewise in the valuation of the property in 11-32950, Mr. Zink used as a rent comparable the property in 11-32949.

43 Exhibit A – 49, p. 53; Exhibit A – 50, p. 52

44  Exhibit A – 49, p. 55

45  Exhibit A – 49, p. 55

46 Exhibit 1 – Addenda Section – Exhibit A – Qualifications; Qualifications of Keith D. McFarland; Exhibit 4, Q & A 1 – 8

47  Exhibit 1 – Certification

48 Exhibit 1, pp. 56 – 57

49  Exhibit 1, p. 59

50   Exhibit 1 pp. 85 – 98

51  Exhibit 1 – Addenda Section – Exhibit E – Area Measures – Gray Design Group; Total Basic Rental Areas: 330 First Capitol = 54,965; 400 First Capitol = 39,177 = Total Basic Rental Areas: 94,142 square feet

52 Exhibit 1 pp. 60 – 84

53  Exhibit 1 p. 84

54  Exhibit 1 p. 99

55  Exhibits A – 49 & A – 50, p. 34

56  Exhibit 1 – Reconciliation and Conclusion, p. 99

57 exhibit A – 49, p. 34; Exhibit B – 49, p. 7, Line 22 – p. 8, Line 11;Exhibit , A – 50,p. 34; Exhibit B – 50, p. 7, Lines 4 – 16

58  Exhibit A – 49; Reconciliation of Value, p. 55; Exhibit A – 50; Reconciliation of Value, p. 54; Exhibit 1; Reconciliation and Conclusion, p. 99

59  Id.

60  Exhibit A – 49 – Cover Letter

61  Exhibit A – 49; Addendum C – Operating Data December 2010 & 2009 Operating Statements, Rent Roll; Operating History Chart 2008 – 2010, p. 46; Exhibit 1 – Rent Roll, p. 63

62  Exhibit A – 49; Vacancy Conclusions, p. 23; Rent Roll Analysis, p. 44; Addendum C – Operating Data – Rent Roll; Exhibit 1 – Rent Roll, p. 63

63  Exhibit A – 49 – Operating History Chart 2008 – 2010 , p. 46; Addendum C – Operating Data – December 2010 & 2009 Operating Statements

64 id.

65  Exhibit A – 50 – Cover Letter

66 Exhibit A – 50; Addendum C – Operating Data December 2010 & 2009 Operating Statements, Rent Roll; Operating History Chart 2008 – 2010, p. 46; Exhibit 1 – Rent Roll, p. 62

67 Exhibit A – 50; Vacancy Conclusions, p. 23;Rent Roll Analysis, p. 44; Addendum C – Operating Data – Rent Roll; Exhibit 1 – Rent Roll, p. 62

68 Exhibit A – 50 – Operating History Chart 2008 – 2010 , p. 46; Addendum C – Operating Data – December 2010 & 2009 Operating Statements

69  Id.

70  Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo.

 71  Article X, Sections 4(a) and 4(b), Mo. Const. of 1945

72  Section 137.115.5, RSMo – residential property at 19% of true value in money; commercial property at 32% of true value in money and agricultural property at 12% of true value in money

73 Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958)

 74  Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959)

 75  See, Cupples-Hesse, supra.

Substantial and persuasive evidence is not an extremely high standard of evidentiary proof.It is the lowest of the three standards for evidence (substantial & persuasive, clear and convincing, and beyond a reasonable doubt).It requires a small amount of evidence to cross the threshold to rebut the presumption of correct assessment by the Board.The definitions, relevant to substantial evidence, do not support a position that substantial and persuasive evidence is an extremely or very high standard.

“Substantial evidence: Evidence that a reasonable mind would accept as adequate to support a conclusion; evidence beyond a scintilla.”Black’s Law Dictionary, Seventh Edition, p. 580

The word scintilla is defined as “1. a spark,2. a particle; the least trace.” Webster’s New World Dictionary, Second College Edition.Black’s definition at 1347 is “A spark or trace <the standard is that there must be more than a scintilla of evidence>.”There must be more than a spark or trace for evidence to have attained the standard of substantial.Once there is something more than a spark or trace the evidence has reached the level of substantial.Substantial evidence and the term preponderance of the evidence are essentially the same.“Preponderance of the evidence.The greater weight of the evidence; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”Black’s at 1201 Substantial evidence is that a reasonable mind would accept as adequate to support the conclusion.Preponderance is sufficient to incline a fair and impartial mind to one side of the issue rather than the other, i.e. support the proposed conclusion.

 76  brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975)

 77  St. Joe Minerals Corp. v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Children’s Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993)

 78  Daly v. P. D. George Company, et al, 77 S.W.3d 645, 649 (Mo. App E.D. 2002), citing, Equitable Life Assurance Society v. STC, 852 S.W.2d 376, 380 (Mo. App. 1993); citing, Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798, 801-803 (Mo. 1973)

79 Hermel, supra

 80  Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; See also, Real Estate Valuation in Litigation, J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary.

 81 Exhibit A – 49, p. 2 & Exhibit A – 50, p. 2 – Purpose of the Appraisal; Exhibit 1 – p. 19 – Definition of True Value in Money

82  Section 138.430.2, RSMo

83 tr. 67:13 – 69:11 – Examination of Mr. Zink; Tr. 132:7 – 137:6 – Examination of Mr. McFarland

84  St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977); St. Louis County v. STC, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad Company v. STC, 436 S.W.2d 650 (Mo. 1968)

 85 St. Louis County v. Boatmen’s Trust Co., 857 S.W.2d 453, 457 (Mo. App. E.D. 1993); Vincent by Vincent v. Johnson, 833 S.W.2d 859, 865 (Mo. 1992); Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. banc 1981)

 86 See, Nance v. STC, 18 S.W.3d 611, at 615 (Mo. App. W.D. 2000); Hermel, supra;Xerox Corp. v. STC, 529 S.W.2d 413 (Mo. banc 1975).

 87 St. Joe Minerals Corp. v. STC, 854 S.W.2d 526, 529 (App. E.D. 1993); Aspenhof Corp. v. STC, 789 S.W.2d 867, 869 (App. E.D. 1990); Quincy Soybean Company, Inc., v. Lowe, 773 S.W.2d 503, 504 (App. E.D. 1989), citing Del-Mar Redevelopment Corp v. Associated Garages, Inc., 726 S.W.2d 866, 869 (App. E.D. 1987); and State ex rel. State Highway Comm’n v. Southern Dev. Co., 509 S.W.2d 18, 27 (Mo. Div. 2 1974).

 88  Comparables used by Mr. Zink are designated with a number & Z;Comparable used by Mr. McFarland are designated with a number & M

89 Net Rentable Area as shown in the data sheets of the appraisal.There is no evidence to establish what the term Net Rentable Area on a given data sheet actually means.In some instances it is reflected as the same as Gross Building Area.

90 Square Foot Sale Price calculated on the Net Rentable Area shown on the data sheets.

91 Net Operating Income as reported on the data sheets, if actually reported.

92  Square Foot Net Operating Income

93 Net Usable/Net Rentable Area- historic and actual office area leased or available for lease

94  Gray Calculations for Total Rentable Office Area

95  Calculated as the average from the actual NOI for 2008, 2009 & 2010 and the pro forma January 1, 2011 NOI as reported and presented in Exhibits A – 49 & A – 50

96 NOI per square foot of Zink rental area and McFarland rental area: Z/M

97 TR 86:25 – 87:7 – Mr. Zink placed primary reliance on the income approach.

98 TR 139:3 – 5 – Mr. McFarland did not rely on the sales comparison approach for his final conclusion of value.

99  Section 490.065, RSMo; State Board of Registration for the Healing Arts v. McDonagh, 123 S.W.3d 146 (Mo. SC. 2004); Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-505, pp. 325-350; Wulfing v. Kansas City Southern Industries, Inc., 842 S.W.2d 133 (Mo. App. E.D. 1992).

 100  The fact that a state certified real estate appraiser utilizes given data, by its self, establishes prima facie that it is reliable.Otherwise the appraiser would not be relying on such facts and information.No evidence presented provide a foundation for the Hearing Officer to conclude that the data employed by either appraiser could not be considered to be reliable as presented, developed and used in the given appraisals.

101 The Dictionary of Real Estate Appraisal, Third Edition, Appraisal Institute, p. 382; source BOMA (Building Owners and Managers Associationstandard)

102  Id. p. 303; source BOMA (Building Owners and Managers Associationstandard)

103  Exhibits A – 49 & A – 50 – Improvements Analysis, p. 27

104 id

105  Exhibit 1, p. 16

106  Exhibit 1, p. 16; Addenda Section – Exhibit E – Area Measures – Gray Design Group; 330 1st Capitol:Total Basic Rentable Office Area – 54,965; 400 1st Capitol: Total Basic rentable Office Area – 39,177

107  Exhibit 1 – Addenda Section – Exhibit E

108 TR. 76:6 – 78:17

109  Or more correctly as state in the Gray charts – Total Basic Rentable Office Area

110  TR. 75:8 – 76:5

111  TR 31:1 – 37:23

112 Exhibit A – 49: Summary of Comparable Office Rentals, p. 41 – properties are listed with NRA (SF) or net rentable area in square feet and then Lease Area (SF) or lease area in square feet.Exhibit A – 50: Summary of Comparable Office Rentals, p. 41 – properties are listed with NRA (SF) or net rentable area in square feet and then Lease Area (SF) or lease area in square feet.

113  TR 63:16 – 25

114 Id.

115 It is unclear as to whether the reported data for “rentable” square feet in Exhibit 1 would mean the actual leased area or the rental area as might be calculated under the Gray formulas for each of the McFarland rent comps.This is because there is no way to know from either the appraisal report or the appraiser’s testimony what the person providing the information might had meant by the term.

116  Hermel, supra

 117  See, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003).Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App. 1991)

 118  Operating History for each of the two properties shows additional income – Exhibit A – 49, Operating History Chart, p. 46;Exhibit A – 50, Operating History Chart, p. 46

119   Exhibit A – 49, Market Analysis, pp. 21 – 23; Exhibit A – 50, Market Analysis, pp. 21 – 23, source for both reports CoStar – a data source generally utilized by and relied upon by real estate appraisers.

120  No source was provided and no underlying analysis was presented as was in the Zink appraisals.

121 Exhibit A -49: Vacancy Conclusions, p. 23 and Operating History Chart, p. 46; Exhibit A -50: Vacancy Conclusions, p. 23 and Operating History Chart, p. 46

122 id.

123 Expense amounts provided do not include the real estate taxes, as that factor is addressed by the addition of an effective tax rate to the capitalization rate.Nor did either appraiser use the actual ground lease rent in their expense analysis.

124 Exhibit A – 49: Operating Expense Analysis, pp. 46 – 48; Exhibit A – 50: Operating Expense Analysis, pp. 46 – 48

125 Exhibit A – 49: Overall Capitalization Rate – Conclusion and Adjusted Capitalization Rate, p. 52;Exhibit A – 49: Overall Capitalization Rate – Conclusion and Adjusted Capitalization Rate, p. 52.

126 Exhibit 1 – Assessment and Current Taxes, p. 41; Conclusion – Capitalization, p. 82.

127 The Estimated Market Value provided in Exhibit A – 49, p. 53 was $2,626,760.The Estimated Market Value provided in Exhibit A – 50, p. 52 was $3,545,374.The Hearing Officer ran the calculation (dividing the respective NOI figures for each property by 11.33%) and arrived at the two amounts shown.The Hearing Officer made the calculation 3 times to triple-check the matter.It is the conclusion of the Hearing Officer that the Estimated Market Values reported in the appraisals are a result of an error in calculation that may have occurred with the computer program utilized for the preparation of the appraisal reports.

128 de minimis non curat lex – The law does not notice or concern itself with trifling matters.

129 Section 138.060, RSMo; 12 CSR 30-3.075

 130 The Supreme Court of Missouri has interpreted Section 138.060.The Court stated:

“Section 138.060 prohibits an assessor from advocating for or presenting evidence advocating for a higher ‘valuation’ than the ‘value’ finally determined by the assessor. … . Because the legislature uses the singular terms ‘valuation’ and ‘value’ in the statute, however, it clearly was not referring to both true market value and assessed value.While the assessor establishes both true market value and assessed value, which are necessary components of a taxpayer’s assessment, as noted previously, the assessed value is the figure that is multiplied against the actual tax rate to determine the amount of tax a property owner is required to pay.The assessed value is the ‘value that is finally determined’ by the assessor for the assessment period and is the value that limits the assessor’s advocacy and evidence.Section 138.060.By restricting the assessor from advocating for a higher assessed valuation than that finally determined by the assessor for the relevant assessment period, the legislature prevents an assessor from putting a taxpayer at risk of being penalized with a higher assessment for challenging an assessor’s prior determination of the value of the taxpayer’s property.”State ex rel. Ashby Road Partners, LLC et al v. STC and Muehlheausler, 297 S.W.3d 80, 87-88 (Mo 8/4/09)

131 Exhibit 4: Q & A 36

132  Section 138.432, RSMo