STATE TAX COMMISSION OF MISSOURI
|CITY OF ST. LOUIS/HOMER G. PHILLIPS APARTMENTS,||)
|v.||)||Appeal No. 18-20001|
|)||Parcel/locator No. 36750000150|
|MICHAEL R. DAUPHIN, ASSESSOR,||)|
|CITY OF ST. LOUIS, MISSOURI,||)|
DECISION AND ORDER
The decision of the City of St. Louis Board of Equalization (BOE) sustaining the assessment made by Respondent Michael R. Dauphin, Assessor, City of St. Louis, (Respondent) is SET ASIDE. Complainant City of St. Louis/Homer G. Phillips Apartments (Complainant) did not present substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE. Respondent presented substantial and persuasive evidence rebutting the presumption of correct assessment by the BOE.
Complainant appeared by counsel Richard Dvorak.
Respondent appeared by counsel Meg Bruyns.
Case heard and decided by Hearing Officer Amy S. Westermann (Hearing Officer).
Complainant appealed on the ground of overvaluation. Respondent initially set the true value in money (TVM) of the Subject Property at $8,018,947 (assessed value $1,523,600), as residential property, as of January 1, 2017. Complainant appealed the 2017 assessment to the BOE, and the BOE reduced the TVM to $7,235,800 (assessed value $1,374,800), as of January 1, 2017. Subsequently, Respondent set the TVM of the Subject Property at $7,235,800 (assessed value $1,374,800), as residential property, as of January 1, 2018. The BOE valued the Subject Property at $7,235,800 (assessed value $1,374,800), as residential property, as of January 1, 2018. Complainant thereafter appealed the BOE’s 2018 valuation to the State Tax Commission (STC).
The value as of January 1 of the odd numbered year remains the value as of January 1 of the following even numbered year unless there is new construction or improvement to the property. Section 137.115.1. The STC takes this appeal to determine the TVM for the Subject Property on January 1, 2018, under the economic conditions as they existed on January 1, 2017.
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
FINDINGS OF FACT
- Jurisdiction. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the BOE.
- Evidentiary Hearing. The parties presented their witnesses and exhibits at an Evidentiary Hearing on April 11, 2019, 1520 Market Street, City of St. Louis, Missouri. The parties requested a briefing schedule and subsequently filed their post-hearing briefs on May 28, 2019, and on June 3, 2019.
- Identification of Subject Property. The Subject Property is identified by map parcel number 36750000150, further identified as 2601 Whittier Street, St. Louis, Missouri.
- Description of Subject Property. The Subject Property contains an apartment building subject to a Low-Income Housing Tax Credit (LIHTC) and operating under a Land Use
Restriction Agreement (LURA). (Exhibit 8; WDT Siegworth) The Subject Property’s land is owned by the City of St. Louis. (Id.)
The Subject Property is situated on 5.34 acres of land improved by a hospital that was converted into senior-living (for individuals aged 55 years and older) apartments. (Exhibit A; WDT Roth) The improvements consist of one six- to seven-story, multi-family building constructed in 1933. (Exhibit A) The building was rehabilitated in 2003 through the use of the LIHTC. (Id.) The Subject Property has 220 units and 153,910 square feet of net rentable area. (Id.) The average size of the units is 700 square feet. The unit mix is 156 one-bedroom units and 64 two-bedroom units. (Id.) The units include dishwashers and emergency call systems in the bathrooms and bedrooms. (Id.) Some units are handicapped accessible; have linen and coat closets; have kitchen pantries; have walk-in closets; and have over-sized windows. (Id.) The Subject Property amenities include gated-access; on-site third-party security; a social room with a kitchen and dining area; a fitness room; on-site laundry on each floor; a library; a computer lab; a sun deck with seating area; storage lockers; and a chapel. (Id.) Tenants have the option to pay for third-party provided meals; salon/barber and personal care services; and a convenience store. (Id.)
The Subject Property is governed by the LURA, which requires the units to be leased to tenants whose income does not exceed 60% of the area median income (AMI) adjusted for family size. (Exhibit A; Exhibit 8) According to the federal Department of Housing and Urban Development (HUD), the federal maximum allowable rents for the City of St. Louis effective March 2016 to April 2017 were $878 for a one-bedroom unit and $1,053 for a two-bedroom unit. (Exhibit A) As of January 1, 2017, the actual average rents for the Subject Property were $618 for a one-bedroom unit and $798 for a two-bedroom unit. (Id.)
- Assessment. Respondent set the TVM of the Subject Property at $7,235,800 (assessed value $1,374,800), as residential property, as of January 1, 2018. The BOE valued the Subject Property at $7,235,800 (assessed value $1,374,800), as residential property, as of January 1, 2018.
- Complainant’s Evidence. Complainant presented the following exhibits:
|Exhibit A||Appraisal Report of Tyler Siegworth (Siegworth)||Admitted|
|Exhibit B||Written Direct Testimony (WDT) of Siegworth||Admitted|
Siegworth is a Missouri licensed and certified general real estate appraiser employed by Valbridge Property Advisors/Shaner Appraisals, Inc. (WDT Siegworth) Siegworth is designated MAI. (Id.) Siegworth also is a certified appraiser in Kansas. He holds a bachelor’s degree in real estate finance. (Exhibit A) His experience includes performing marketability studies and appraisal reports for multi-family properties in Iowa, Kansas, Missouri, and Nebraska. (Id.) His assignments have included market rate, Section 8 (HAP), Section 42 (LIHTC), age-restricted, and student housing projects. (Id.)
Siegworth testified that he developed the income capitalization approach to conclude an opinion of value because “market participants do not use the sales or cost methods to value a [LIHTC] property.” (Id.) Siegworth testified that LIHTC property generally is characterized by lower operating income, high administration and management expenses, and prolonged illiquidity. (Id.) Siegworth further testified that he considered Section 137.076 concerning the assessor’s use of the income-based approach for assessing LIHTC property. (Id.)
On cross examination, Siegworth testified that the LURA was an encumbrance upon the Subject Property in that it is a limitation on the property imposed by the government. Siegworth testified that he did not inspect comparable properties but gave the most consideration to market data.
On re-direct examination, Siegworth testified that he has completed approximately 50 appraisals in St. Louis, including for proposed projects in the downtown area, the Delmar Loop area, and the mid-town area. Siegworth further testified that he has driven by some of Respondent’s comparable properties since 2015. Siegworth testified that he did not consider some of Respondent’s comparables because he did not believe they were truly comparable in that he could not provide a location adjustment to the sale price given that the quality of a comparable can vary by location. Siegworth testified that he reviewed other rent-restricted properties and their historical operating data. Siegworth testified that he gave the most weight to market-extracted LIHTC properties with a LURA because market participants who buy and sell properties use properties like the Subject Property as an investment, which requires a higher cash flow. Siegworth testified that the Subject Property’s specific location within the City of St. Louis influenced the capitalization rate he assigned because the location is inferior to most other rent-restricted properties.
The appraisal report analyzed four comparable rental properties in the City of St. Louis. (Exhibit A, p. 52) The comparable properties all were LIHTC senior housing. (Id.) The comparable properties were built between 2001 and 2017; had one-bedroom and two-bedroom units; had rent rates averages ranging from $484 to $717 for a one-bedroom unit and from $549 to $771 for a two-bedroom unit; and had vacancy rates ranging from 1% to 8%. (Id.) From this analysis, the appraisal report concluded that the “estimated restricted rent [of the Subject Property] to be1.1% more than the existing Section 42 contract rents.” (Exhibit A, p. 63) The appraisal report further concluded that the estimated average restricted rent for the Subject Property was $677 per unit, $0.97 per square foot, and $1,788,240 for all 220 units. (Id.)
According to the appraisal report, Siegworth:
gave most weight to the historical income and expenses in our expense estimates. . . . [and] relied upon published expense data from third-party survey data, as well as four expense comparables from Section 42 properties in the region. Since the purpose of this assignment is to determine the fee simple estate of the subject property with consideration given to the existing Land Use Restriction Agreement (LURA), we have projected operating expenses based on a typical restricted operation and have excluded any operational efficiencies or lack of common operating expenses from the year one projection.
(Exhibit A, p. 65) The following tables are from the appraisal report:
|Effective Gross Income Analysis (EGI)|
|Total||Per Unit||Per SF||% of PGI||% Change|
|Profit and Loss – 2014||$1,707,152||$7,759.78||$11.09||98.3%||–|
|Profit and Loss – 2015||$1,665,795||$7,572||$10.82||94.7%||-2.4%|
|Profit and Loss – 2016||$1,682,758||$7,649||$10.93||95.0%||1.0%|
|Effective Gross Income||$1,694,357||$7,702||$11.01||94.8%||.07%|
(Exhibit A, p. 64)
|Effective Gross Income Analysis (EGI)|
|Total||Per Unit||Per SF||% of EGI|
|Potential Gross Income||$1,788,240||$8,128||$11.62||105.5%|
|Less: Vacancy & Collection Loss at 7.0%||($125,177)||($569)||($0.81)||-7.4%|
|Less: Concessions at 0.25%||($4,471)||($20)||($0.03)||-0.3%|
|Less: Loss to Lease at 0.0%||$0||$0||$0.00||0.0%|
|Plus: Ancillary Income at 2.0%||$35,675||$163||$0.23||2.1%|
|Effective Gross Income||$1,694,357||$7,702||$11.01||100.0%|
(Exhibit A, p. 65)
According to the appraisal report, the Subject Property’s historical net operating income (NOI) from 2014 to 2016 was $664,289; $630,639; and $642,237 respectively. (Exhibit A, p. 66) After analyzing the operating expense data of four comparable properties located in the State of Kansas and in Kansas City, Missouri, the appraisal report concluded that the Subject Property’s expenses were higher than those of comparable properties. (Exhibit A, p. 72) From the analysis of comparable properties versus the Subject Property, the appraisal report estimated a stabilized NOI for the Subject Property of $555,483. (Exhibit A, p. 73) The appraisal report then projected an average NOI of $621,483 based upon the Subject Property’s historical profit and loss data excluding real estate taxes and replacement reserves. (Exhibit A, p. 74)
Using the Band of Investment method, the appraisal report concluded a capitalization rate of 8.10%. (Exhibit A, p. 77) Using the Market Extraction method, the appraisal report concluded a capitalization rate of 8.25% to 8.75%. (Id.) According to a market survey, in the first half of 2017, the average capitalization rate for Class C urban multi-family properties in the City of St. Louis ranged from 7.50 to 8.50%. (Respondent’s Exhibit 19, p. 44) The appraisal report concluded an unloaded capitalization rate for the Subject Property of 8.50%. (Exhibit A, p. 77) Siegworth testified that he added a 1.57% effective tax rate, resulting in an overall capitalization rate of 10.07%. (Tr. 36; Exhibit A, p. 78)
Siegworth concluded a TVM for the Subject Property of $5,500,000, or $25,000 per unit, as of January 1, 2018. (WDT Siegworth)
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2017, to January 1, 2018.
- Respondent’s Evidence. Respondent presented the following exhibits:
|Exhibit 1||Commercial Data Sheet for Subject Property||Admitted|
|Exhibit 2||Income and Expense Summary for Subject Property for 2014, 2015, 2016||Admitted|
|Exhibit 3||2014 Income Statement for Subject Property||Admitted|
|Exhibit 4||2017 Net Operating Income for Subject Property||Admitted|
|Exhibit 5||2018 Income Value Worksheet for Subject Property||Admitted|
|Exhibit 6||Memorandum from STC dated July 14, 2015, regarding Section 137.076.2, effective August 28, 2015||Admitted|
|Exhibit 7||STC Assessor’s Manual, Section 7.10, Subsidized Housing, revised July 14, 2015 and stating income approach shall be used to value property with rent limitations or other requirements or restrictions set by federal or state government||Admitted|
|Exhibit 8||LURA governing Subject Property dated December 1, 1999||Admitted|
|Exhibit 9||Comparable Properties Table||Admitted|
|Exhibit 10||Certificate of Value (COV) 5830 Selber Court||Admitted|
|Exhibit 11||COV 527 N. Vandeventer||Admitted|
|Exhibit 12||COV 1000-26 Washington Avenue||Admitted|
|Exhibit 13||COV 3900-3906 Lindell Boulevard and 229-233 North Vandeventer Avenue||Admitted|
|Exhibit 14||COV 3853-3865 Forest Park Avenue, The Standard||Admitted|
|Exhibit 15||Sale Listing for 1204 North 8th Street, Collins Terrace Apartments||Admitted|
|Exhibit 16||COV 5540, 5548, 5560, 5621 Delmar Boulevard||Admitted|
|Exhibit 17||COV 1500-1504 Menard Street||Admitted|
|Exhibit 18||COV 440-4418 McPherson Avenue||Admitted|
|Exhibit 19||CBRE North America Cap Rate Survey, First Half, 2017||Admitted|
|Exhibit 20||Cushman & Wakefield St. Louis Multi-family Research Market Insight Report, First Quarter, 2017||Admitted|
|Exhibit 21||Cushman & Wakefield St. Louis Multi-family Research Market Insight Report, Fourth Quarter, 2017||Admitted|
|Exhibit 23||Written Direct Testimony (WDT) of Chris Roth||Admitted|
|Exhibit 24||Written Rebuttal Testimony (WRT) of Roth||Admitted|
Roth is employed by Respondent as Real Property Appraiser II and appraises commercial property on behalf of Respondent. (WDT Roth) Roth has worked as residential appraiser and commercial appraiser for Respondent since 2002. (Id.) Roth holds an associate degree in technology and has worked as a drafter supporting engineers and architects for the City of St. Louis and in the private sector. (Id.) Roth has taken real estate appraisal courses and continuing education courses in real estate appraisal. (Id.) Roth worked part-time supporting appraisers in the offices of David A. Roth and Associates from 1998 to 2015. (Id.) Roth testified that he is responsible for valuing approximately 300 apartment complexes in the City of St. Louis, from the “worst neighborhoods” to “better areas.” Roth testified that he uses the cost, sales, and income approaches to concluding value. Roth valued the Subject Property as part of his work duties for Respondent.  (Id.)
Roth testified that he prepared a valuation for the Subject Property using the instructions provided by the STC to assessors in Missouri. (WDT Roth; Exhibits 6 and 7) Roth testified that Complainant’s tax representative had provided Respondent with the actual income and expense data for the Subject Property, which Roth analyzed, but he did not prepare a traditional appraisal. (WDT Roth)
According to Exhibit 2, Complainant’s tax representative reported EGI for the Subject Property of $1,707,102 for 2014; $1,664,794 for 2015; and $1,682,245 for 2016. (Exhibit 2) Complainant’s tax representative reported NOI for the Subject Property of $613,496 for 2014; $578,972 for 2015; and $591,072 for 2016. (Exhibit 2)
Roth testified that the Subject Property is Class B property. (Testimony; also see Exhibits 19 and 24) According to a market survey, in the first half of 2017, the average capitalization rate for Class B urban multi-family properties in the City of St. Louis ranged from 6.00 to 6.75%. (Respondent’s Exhibit 19, p. 44) Other information, namely a history of apartment building sales in the City of St. Louis occurring between February 2014 and April 2017, showed three sales of subsidized housing with actual capitalization rates ranging from 5.61% to 7.69%. (Exhibit 9) Roth testified that the actual capitalization rates were the quotient of the actual net income of the properties divided by their sale prices. (WRT Roth) However, Roth testified that, for ad valorem tax purposes, Respondent uses a “9.0% average overall market cap rate for subsidized housing.” (WRT Roth) On cross examination, Roth testified that a 9.0% standard capitalization rate for subsidized housing was justified because “Section 42 properties are . . . good income” that appears consistent from year to year. (Tr. 68)
Roth testified that he reviewed the market data and the sales data and utilized a 7.4% average market capitalization rate, a 1.6% effective tax rate, and a 9.0% overall capitalization rate in his valuation of the Subject Property. (WDT Roth; Exhibits 2 and 9) Roth divided the reported NOI for the years 2015, 2015, and 2016 by the overall capitalization of 9%, which yielded an indication of TVM of $6,816,622.22 for 2014; $6,433,022.22 for 2015; and $6,567,467 for 2016. (Exhibit 2) The average value, rounded, was $6,606,000. (Id.)
Roth concluded a TVM for the Subject Property of $6,606,000, as of January 1, 2018. (WDT Roth)
- Presumption of Correct Assessment Rebutted—Value Established. The evidence was substantial and persuasive to rebut the presumption of correct assessment by the BOE. The TVM of the Subject Property as of January 1, 2018, is set at $6,606,000 (assessed value $1,255,140).
CONCLUSIONS OF LAW AND DECISION
The STC has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary, or capricious, including the application of any abatement. The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the BOE, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious. Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4.
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. Article X, Sections 4(a) and 4(b), Mo. Const. of 1945. The constitutional mandate is to find the true value in money for the property under appeal. By statute, real property and tangible personal property are assessed at set percentages of true value in money: residential property at 19%; commercial property at 32%; and agricultural property at 12%. Section 137.115.5.
Investigation by Hearing Officer
In order to investigate appeals filed with the STC, 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. Section 138.430.2. 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. Id.
Presumption In Appeal
There is a presumption of validity, good faith, and correctness of assessment by the County Board of Equalization. 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). This presumption is a rebuttable rather than a conclusive presumption. It places the burden of going forward with some substantial evidence on the taxpayer – the complainant. When some substantial evidence is produced by the complainant, “however slight”, the presumption disappears and the Hearing Officer, as trier of facts, receives the issue free of the presumption. United Missouri Bank of Kansas City v. March, 650 S.W.2d 678, 680-81 (Mo. App. 1983), citing to State ex rel. Christian v. Lawry, 405 S.W.2d 729, 730 (Mo. App. 1966) and cases therein cited. The presumption is not evidence of value. 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. Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).
The Complainant’s Burden of Proof
A presumption exists that the assessed value fixed by the BOE is correct. Rinehart, 363 S.W.3d at 367; Cohen, 251 S.W.3d at 348; Hermel, Inc., 564 S.W.2d at 895. “Substantial and persuasive controverting evidence is required to rebut the presumption, with the burden of proof resting on the taxpayer.” Cohen, 251 S.W.3d at 348. Substantial evidence can be defined as such relevant evidence that a reasonable mind might accept as adequate to support a conclusion. Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). Persuasive evidence is evidence that has sufficient weight and probative value to convince the trier of fact. Cupples Hesse Corp., 329 S.W.2d at 702. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975). See also, 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).
There is no presumption that the taxpayer’s opinion is correct. Generally, a property owner, while not an expert, is competent to testify to the reasonable market value of his own land. Cohen, 251 S.W.3d at 348-49; Carmel Energy, Inc. v. Fritter, 827 S.W.2d 780, 783 (Mo. App. W.D. 1992). “However, when an owner’s opinion is based on improper elements or foundation, his opinion loses its probative value.” Carmel Energy, Inc., 827 S.W.2d at 783. A taxpayer does not meet his burden if evidence on any essential element of his case leaves the STC “in the nebulous twilight of speculation, conjecture and surmise.” See Rossman v. G.G.C. Corp. of Missouri, 596 S.W.2d 469, 471 (Mo. App. E.D. 1980).
To obtain a reduction in assessed value based upon an alleged overvaluation, the complainant must prove the true value in money of the subject property on the subject tax day. Hermel, Inc., v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978). True value in money is defined as the price that the subject property would bring when offered for sale by one willing but not obligated to sell it and bought by one willing or desirous to purchase but not compelled to do so. Rinehart v. Bateman, 363 S.W.3d 357, 365 (Mo. App. W.D. 2012); Cohen v. Bushmeyer, 251 S.W.3d 345, 348 (Mo. App. E.D. 2008); Greene County v. Hermel, Inc., 511 S.W.2d 762, 771 (Mo. 1974). True value in money is defined in terms of value in exchange and not in terms of value in use. Stephen & Stephen Properties, Inc. v. State Tax Commission, 499 S.W.2d 798, 801-803 (Mo. 1973). In sum, true value in money is the fair market value of the subject property on the valuation date. Hermel, Inc., 564 S.W.2d at 897.
“’True value’ is never an absolute figure, but is merely an estimate of the fair market value on the valuation date.” Drury Chesterfield, Inc., v. Muehlheausler, 347 S.W.3d 107, 112 (Mo. App. E.D. 2011), citing St. Joe Minerals Corp. v. State Tax Comm’n of Mo., 854 S.W.2d 526, 529 (Mo. App. E.D. 1993). “Fair market value typically is defined as the price which the property would bring when offered for sale by a willing seller who is not obligated to sell, and purchased by a willing buyer who is not compelled to buy.” Drury Chesterfield, Inc., 347 S.W.3d at 112 (quotation omitted).
In order to prevail, the 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 the relevant tax date. Hermel, supra. There is no presumption that the complainant’s opinion is correct. The taxpayer in an STC appeal still bears the burden of proof because 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.” 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). A valuation which does not reflect the true market value of the property under appeal is an unlawful, unfair, and improper assessment.
Respondent’s Burden of Proof
Respondent, when advocating a value different from that determined by the original valuation or a valuation made by the BOE, must meet the same burden of proof to present substantial and persuasive evidence of the value advocated as required of the Complainant under the principles established by case law. Hermel, Inc., 564 S.W.2d at 895; Cupples-Hesse, 329 S.W.2d at 702; Brooks, 527 S.W.2d at 53.
Weight to be Given Evidence
The Hearing Officer is not bound by any single formula, rule, or method in determining true value in money and 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. 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).
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 deemed necessary when viewed in connection with all other circumstances. Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. W.D. 1991). The Hearing Officer, as the trier of fact, is not bound by the opinions of experts but may believe all or none of the expert’s testimony or accept it in part or reject it in part. Exchange Bank of Missouri v. Gerlt, 367 S.W.3d 132, 135-36 (Mo. App. W.D. 2012).
Opinion Testimony by Experts
An expert’s opinion must be founded upon substantial information, not mere conjecture or speculation, and there must be a rational basis for the opinion. Missouri Pipeline Co. v. Wilmes, 898 S.W. 2d 682, 687 (Mo. App. E.D. 1995). The STC cannot ignore a lack of support in the evidence for adjustments made by the expert witnesses in the application of a particular valuation approach. Drey v. State Tax Commission, 345 S.W. 2d 228, 234-236 (Mo. 1961), Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W. 3d, 341, 348 (Mo. 2005).
The testimony of an expert is to be considered like any other testimony, is to be tried by the same test, and receives just so much weight and credit as the trier of fact may deem it entitled to when viewed in connection with all other circumstances. The Hearing Officer, as the trier of fact, has the authority to weigh the evidence and 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 may accept it in part or reject it in part. Beardsley v. Beardsley, 819 S.W. 2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W. 2d 605, 607 (Mo. 1981); Scanlon v. Kansas City, 28 S.W. 2d 84, 95 (Mo. 1930).
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.
Section 490.065; State Board of Registration for the Healing Arts v. McDonagh, 123 S.W.3d 146 (Mo. banc 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).
Standard for Valuation
Section 137.115 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. 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). True value in money is defined in terms of value in exchange and not value in use. 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).
Methods of Valuation
Proper methods of valuation and assessment of property are delegated to the STC. It is within the purview of the Hearing Officer to determine the method of valuation to be adopted in a given case. See, Nance v. STC, 18 S.W.3d 611, 615 (Mo. App. W.D. 2000); Hermel, Inc., 564 S.W.2d at 897; Xerox Corp. v. STC, 529 S.W.2d 413 (Mo. banc 1975). 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. St. Joe Minerals Corp, 854 S.W.2d at 529; 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. 1974).
“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.” Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005), citing St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977). “Each valuation approach is applied with reference to a specific use of the property—its highest and best use.” Snider, 156 S.W.3d at 346-47, citing Aspenhof Corp., 789 S.W.2d at 869. “The method used depends on several variables inherent in the highest and best use of the property in question.” Snider, 156 S.W.3d at 347.
In the past, when valuing subsidized housing, the STC has attempted to look at actual income, actual expenses, financing terms, and market capitalization rates in order to try to account for risks and benefits associated with this unique type of real property, recognizing that subsidized properties do not tend to sell and costs tend to be inflated, making sales and cost approaches difficult.
The income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property. The income approach is based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use. The property may be valued using actual rents and expenses and looking to the market to develop a capitalization rate. The legislature has given us specific direction on the issue of valuing subsidized property. Section 137.076.2 RSMo (2015) provides:
- In establishing the value of a parcel of real property, the county assessor shall use an income based approach for assessment of parcels of real property with federal or state imposed restrictions in regard to rent limitations, operations requirements, or any other restrictions imposed upon the property in connection with:
(1) The property being eligible for any income tax credits under section 42 of the Internal Revenue Code of 1986, as amended;
(2) Property constructed with the use of the United States Department of Housing and Urban Development HOME investment partnerships program;
(3) Property constructed with the use of incentives provided by the United States Department of Agriculture Rural Development; or
(4) Property receiving any other state or federal subsidies provided with respect to the use of the property for housing purposes.
For the purposes of this subsection, the term “income based approach” shall include the use of direct capitalization methodology and computed by dividing the net operating income of the parcel of property by an appropriate capitalization rate not to exceed the average of the current market data available in the county of said parcel of property. Federal and state tax credits or other subsidies shall not be used when calculating the capitalization rate. Upon expiration of a land use restriction agreement, such parcel of property shall no longer be subject to this subsection.
In this appeal, both parties presented substantial evidence to support their opinions of the TVM of the Subject Property as of January 1, 2018. Substantial evidence is that which is relevant, adequate, and reasonably supports a conclusion. Cupples Hesse Corp., 329 S.W.2d at 702. However, upon close inspection, Complainant’s evidence of value was not both substantial and persuasive. Persuasive evidence is that which causes the trier of fact to believe, more likely than not, the conclusion advocated is the correct conclusion. Id.
To conclude a value, Complainant’s appraisal report projected estimates of a stabilized NOI based upon historical income and expenses – which were then analyzed against comparable properties. Complainant thereafter applied a market-based capitalization rate based upon a conclusion that the Subject Property is classified as Class C, or highest risk, property due to its location. Complainant’s evidence, however, acknowledges that the improvements are considered Class B.
The STC is cognizant that Section 137.076.2 requires the “assessor” to utilize the income approach when assessing subsidized housing. The legislature set forth this method for assessors; Complainant was not required to follow it on appeal. Complainant did not use the actual income and expenses of the subject property.
Though not required to do so, Respondent presented substantial and persuasive evidence to support an opinion of TVM. First, Respondent utilized the Subject Property’s actual income and expenses, which had been provided by Complainant’s tax representative. Second, for ad valorem tax purposes, Roth applied an overall capitalization rate of 9.0%, the same rate that is categorically applied to all subsidized housing in the City of St. Louis. The overall capitalization rate was appropriate under the circumstances. Roth determined an average market capitalization rate of 7.4% for the Subject Property. Roth based the capitalization rate on the following factors: the Subject Property is valued as Class B property; the market data in Exhibit 19 indicated that Class B property should be valued using a capitalization rate ranging from 6.00% to 6.75%; and the sales data in Exhibit 9 indicated that rent-restricted apartment buildings had a capitalization rate ranging from 5.61% to 7.69%. (Exhibit 9) Roth then added an effective tax rate of 1.6%, resulting in an overall capitalization rate of 9%. This is the same rate that is applied to all subsidized housing within Respondent’s jurisdiction. Respondent is required to apply “an appropriate capitalization rate not to exceed the average of the current market data available in the county of said parcel of property.” Section 137.076.2. Roth applied the overall capitalization rate to the actual NOI for 2014, 2015, and 2016 to determine an indication of value for each of those years, then averaged the indications of value for 2014, 2015, and 2016 to conclude the TVM of the Subject Property. (Exhibit 2)
The assessed valuation for the Subject Property as determined by the BOE for the subject tax day is SET ASIDE. The assessed value of the Subject Property for tax year 2018 is set at $1,255,140 ($6,606,000 TVM).
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., Section 138.432.
The Collector of the City of St. Louis, 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 8th day of July, 2019.
STATE TAX COMMISSION OF MISSOURI
Amy S. Westermann
Senior Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 8th day of July, 2019, to: Complainants(s) counsel and/or Complainant, the county Assessor and/or Counsel for Respondent and county Collector.
 All statutory references are to RSMo 2000, as amended, unless otherwise indicated.
 Complainant pre-filed additional exhibits, but, following an initial objection from Respondent and subsequent discussion of the parties, those exhibits were specifically designated by Complainant at the Evidentiary Hearing as not being offered into evidence.
 The Appraisal Report was co-authored by Bernie Shaner (Shaner), a Missouri licensed certified general appraiser, designated MAI and SRA. (Exhibit A) Shaner did not testify in this appeal.
 Exhibit 22 was withdrawn.
 Roth is not a Missouri licensed certified appraiser. However, in Missouri, an employee of a local, state, or federal agency who performs appraisal services within the scope of his or her employment is not required to be a licensed or certified appraiser unless the local, state, or federal agency requires the employee to be registered, licensed, or certified to perform appraisal services. See Section 339.501.5.