Grady Hotel Investments LLC v. David Cox, Assessor Platte County

January 16th, 2018

STATE TAX COMMISSION OF MISSOURI

 

GRADY HOTEL INVESTMENTS, LLC )
)
             Complainants )
)
v. ) Appeal No 16-79001
)
DAVID COX, ASSESSOR )
PLATTE COUNTY, MISSOURI, )
)
             Respondent )

 

DECISION AND ORDER

 

HOLDING

 

Decision of the Platte County Board of Equalization (BOE) is SET ASIDE. The evidence presented was substantial and persuasive evidence to rebut the presumption of correct assessment by BOE.

Grady Hotel Investments, LLC (Complainant), appeared by counsel Lowell Pearson.

David Cox, the Assessor of Platte County (Respondent), appeared by counsel Ferdinand Niemann.

Case heard and decided by Senior Hearing Officer John Treu (Hearing Officer).

ISSUE

            Complainant appealed, on the ground of overvaluation, the decision of the Platte County BOE. Complainant contends the property’s true value in money (TVM) is $0.

The Commission takes this appeal to determine the TVM for the subject property on January 1, 2015. 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 and improvement to the property. Section 137.115.1 RSMo

Evidence Presented

Complainant’s Evidence.   Complainant offered into evidence the following:

Exhibit Description
Written Direct Testimony (WDT) Thomas Slack (Slack), Certified General Real Estate Appraiser
WDT Randy Meyer (Meyer), CFO Parent Company of Complainant
WDT David Long (Long), Deputy Dir. of Kansas City Aviation Dept.
Exhibit A Qualification of Slack
Exhibit B Appraisal of Slack
Exhibit C Purchase and Sale Agreement of April 29, 2015
Exhibit D Quitclaim Deed of August 5, 2015
Exhibit E Portion of Assessor Manual
Exhibit F Lease and Concession Agreement of October 14, 2007
Exhibit G 2015 Second Amendment to Lease and Concession Agreement
Exhibit H 2016 Real Estate Property Tax Receipt
Exhibit I Federal Aviation Administration (FAA) Assurances
Exhibit J Federal Aviation Authority Order 5190.6 (b)
Exhibit K Respondent’s 2016 Valuation Analysis for BOE
Exhibit L Slack Appraisal Review
Rebuttal WDT Slack

 

Complainant presented the testimony and appraisal report of Thomas Slack (Slack), Certified General Real Estate Appraiser, and Exhibits supporting his determination of value.

The subject property is an improvement on land. The improvement is a hotel at the Kansas City Airport. The hotel consists of two towers: (1) 9 story tower constructed in 1974; and (2) 6 story tower constructed in 1988. The hotel has 384 rooms, meeting space, restaurant, business center, indoor pool and fitness center.

The land in which the hotel is located is leased from the City of Kansas City, Missouri (City). Pursuant to “Definitions. L” of the (original) Lease and Concession Agreement (the “Original Lease” or Exhibit F[1]), “Leasehold Improvements” means, collectively all improvements located on and within the Leased Premises. Pursuant to the first “[t]herefore clause in the Second Amendment to the Lease and Concession Agreement (as amended, the “Lease”), the Definitions therein are the same as the Original Lease unless defined differently. Pursuant to Section 501 of the Lease, title to the Leased Premises shall remain and are at all times in the City. Pursuant to Section 503 of the Lease, title to “[a]ll Leasehold Improvements approved by the City and any city-approved additions and alterations to these Leasehold Improvements shall become and remain the property of Lessee until the expiration or termination of this Agreement.” Pursuant to Section 508 of the Lease, Lessee shall have the right to mortgage or otherwise encumber its interest without the consent of the City.

Slack testified that in a prior agreement with the City, the hotel was required to make approximately $6,000,000 of improvements between 2008 and 2014.   The renovations were to be made to the guest rooms, restaurant, ballroom and meeting space, roof and exterior.

The subject property was purchased in 2015 for $8,500,000. The appraiser concluded that the purchase price is appropriately allocated to the interest in the real property (hotel) because the fixtures, furniture and equipment (FF&E) would be replaces and the cost of the replacements would be approximately $16,850,000.   In addition to the $16,850,000 of FF&E, the buyer was obligated to pay $3,781,000 for real property improvements.  The City required that Complainant enter into a 20-year franchise license agreement as a Marriott Hotel as of the date of mutual execution of the Lease, and continue to operate the Hotel under a franchise license agreement pursuant to the terms of Section 802 of the Lease. Exhibit G, § 507. The City and its authorized officers, employees, agents, contractors, subcontractors and other representatives shall have the right to enter upon the parcel for the following purposes: (i) inspect the parcel during normal business hours after the City has given Complainant reasonable notice to determine whether Complainant has complied and is complying with the terms and conditions of the Lease and (ii) perform maintenance and to make repairs in any case where Complainant is obligated, but has failed to do so, after the City has given Complainant reasonable notice to do so, in which event, Complainant shall reimburse the City for the reasonable cost thereof promptly upon demand. Complainant, at its expense, is required to maintain the Property in a good and safe condition. Complainant may not assign the Lease without first obtaining the written approval of the Director of the Kansas City Aviation Department (Director). Upon default by the Complainant, Director may declare the Lease terminated in its entirety and may exercise all rights of entry and re-entry, with or without process of law, and all right, title and interest of Complainant in and to the Lease and the Property shall expire.

Complainant also presented the testimony of Randy Meyer (Meyer), the Chief Financial Officer of the parent company of Complainant. Meyer testified he has been intimately involved in over sixty acquisitions and dispositions of properties. Meyer testified that Complainant has only a leasehold interest in the land and the improvement. Meyer testified that Host Hotels & Resorts, L.P. (Host) previously had a Lease and Concession Agreement with the City, which provided Host with a leasehold interest in the improvement. Meyer testified that Complainant and Host subsequently entered into a purchase and sale agreement, dated April 29, 2015, whereby Complainant purchased all of Host’s interest. Meyer testified a quitclaim deed was executed and recorded transferring Host’s interest to Complainant.

Complainant additionally presented the testimony of David Long (Long), the Deputy Director of Aviation for the Kansas City Aviation Department. Long testified he was very familiar with the terms of the Second Amendment to the Lease and Concession Agreement, due to his position as Deputy Director leading the Commercial Development Division of the Kansas City Aviation Department. Long testified that the City owns the subject property and that Complainant has a leasehold interest in the land and improvement.

Respondent’s Evidence. Respondent offered into evidence the following:

Exhibit Description
WDT Respondent
WDT, Exhibit A Respondent’s TVM and Information on Subject Property
WDT, Exhibit B BOE Appeal
WDT, Exhibit C Letter to BOE from Marriott International, Inc.
WDT, Exhibit D Pictures of Subject Property
WDT, Exhibit E Second Amendment to Lease and Concession Agreement

 

Respondent testified at the hearing. The Respondent testified that the TVM of the property for 2016 was $11,222,000. He testified that the owner provided information regarding the property including the purchase price of $8,500,000 and that improvements were made to the property of $1,200,000 in 2015-2016. (Respondent’s Exhibit C)

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 this appeal is proper. Complainant timely appealed to the State Tax Commission from the decisions of the BOE.
  2. Evidentiary Hearing. The Evidentiary Hearing occurred on September 18, 2017, in Kansas City, Missouri.
  3. Identification of Subject Property. The property in question is Parcel 17-5.0-22-000-000-001.001. The Subject Property is commonly known as the Marriot Hotel at KCI (hotel) and has an address of 775 N. Brasilia Ave Kansas City, Missouri 64153. The hotel consists of two towers: (1) 9 story tower constructed in 1974; and (2) 6 story tower constructed in 1988. The hotel has 384 rooms, meeting space, restaurant, business center, indoor pool. Whirlpool and fitness center.
  4. Assessment. The property was classified as commercial real property and valued as follows:
Assessor Land Assessor Improvement Total BOE
$0 $13,447,000 $13,447,000 $13,447,000

 

  1. Airport Location. Subject property is located on land at the Kansas City International Airport. The land is owned by the City. The City is a political subdivision of the State of Missouri, therefore making it exempt from the payment of real property taxes in accordance with Missouri Constitution article X § 6.
  2. Purchase Price of the Possessory Interest. The subject property was purchased in 2015 for $8,500,000 all of which is attributable to the real property.
  3. Cost Paid. Complainant, pursuant to an agreement with the City, has agreed to expend $3,781,000 on the real property. In 2015-2016, the costs incurred were $1,200,000.
  4. TVM. The TVM of the subject property for 2016, is $7,300,000, a commercial assessed value of $2,336,000. (see Method of Valuation)

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 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, RSMo.

Presumption In Appeal

            There is a presumption of validity, good faith and correctness of assessment by the BOE. 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). The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the BOE’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).

Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse, supra. 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.   Brooks v. General Motors Assembly Div., 527 S.W.2d 50, 53 (Mo. App. 1975).

Complainant’s Burden of Proof

In order to prevail, a Complainant must present an opinion of TVM and substantial and persuasive evidence that the proposed value is indicative of the TVM of the subject property. Hermel, supra. There is no presumption that Complainant’s opinion is correct. The Complainant still bears the burden of proof in a STC appeal. Complainant 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).

Section 137.115.1 RSMo.

Section 137.115.1 RSMo states in part:

“…  The true value in money of any possessory interest in real property in subclass (3), where such real property is on or lies within the ultimate airport boundary as shown by a federal airport layout plan, as defined by 14 CFR 151.5, of a commercial airport having a FAR Part 139 certification and owned by a political subdivision, shall be the otherwise applicable true value in money of any such possessory interest in real property, less the total dollar amount of costs paid by a party, other than the political subdivision, towards any new construction or improvements on such real property completed after January 1, 2008, and which are included in the above-mentioned possessory interest, regardless of the year in which such costs were incurred or whether such costs were considered in any prior year….”

Method of Valuation

Section 137.115.1 RSMo sets forth a methodology for valuing certain properties. The method requires the finding:

  1. Property is located in, on or lies within the airport boundary having FAR Part 139 certification;
  2. Airport is owned by a political subdivision;
  3. Complainant has a possessory interest in the commercial property;
  4. The valuation is the true value in money of the possessory interest in real property; and
  5. Less total dollar amount of costs paid by a party, other than the political subdivision, toward any new construction or improvements on the real property completed after January 1, 2008.

 

Property is Located within the Airport Boundary having FAR Part 139 Certification

 

The Kansas City International Airport is a Class I, FAR Part 139 certified airport.

 

Airport is Owned by a Political Subdivision

 

City of Kansas City, Missouri is a municipal corporation. (Exhibit F)

 

Complainant Has a Possessory Interest in Subject Property

Respondent contends, even if Section 137.115.1 RSMo is constitutional, it is not applicable due to Complainant’s interest in the property. Respondent contends that Complainant has a fee interest in the Hotel and such interest does not qualify it for valuation under Section 137.115.1 RSMo. Complainant contends it has only a leasehold interest in the Hotel.

Respondent acknowledges that Complainant has only a leasehold interest in the land owned by the City, both because there is not a deed conveying the land and because the Lease clearly states “[u]nless otherwise provided in the Lease, title to the Leased Premises, but not the Leasehold Improvements, whether existing or installed by Lessee as part of the Lease, shall remain and are at all times in the City.” Exhibit G (Lease, Section 501). Differently, title to “[a]ll Leasehold Improvements approved by the City and any city-approved additions and alterations to these Leasehold Improvements shall become and remain the property of Lessee until the expiration or termination of this Agreement.” Exhibit G (Lease, Section 503).

A possessory interest is defined as: (1) an interest of a person in an article of property arising from a physical relationship to the article of such nature as to confer on him or her a degree of physical control over it, coupled with the intent so to exercise such control as to exclude the general public from use of it; (2) the right to occupy and use any benefit in a transferred property, granted under lease, licenses, permit, concession, or other contract; and, (3) a private taxable interest in public tax-exempt property. Possessory Interest, Glossary for Property Appraisal and Assessment, Second Edition, International Association of Assessing Officers (2013).

Whether the Complainant’s interest is a leasehold interest or a fee simple is irrelevant, as the Complainant, regardless if holding the property as a leasehold or fee simple, has a possessory interest in the real property, in that, Complainant may occupy and use the property. Hence, Section 137.115.1 RSMo. is applicable.

TVM of the Possessory Interest in Real Property

The TVM of the possessory interest in the subject property is $8,500,000 – the purchase price of the interest in 2015 by the Complainants.

Less Costs Paid after January 1, 2008.

 

The cost paid by any party toward new construction or improvements completed after January 1, 2008 is $1,200,000. Slack testified that prior agreements may have required costs for construction or improvements of $6,000,000, but he did not have records for such expenditures. The Respondent testified to expenditures by the Complainant of $1,200,000.

Using the methodology found in 137.115.1 RSMo, the TVM of the subject property is $7,300,000. (TVM [$8,500,000] – Cost [$1,200,000]).

Constitutionality of a Statute

 

Respondent contends that Section 137.115.1 RSMo. is unconstitutional. The State Tax Commission will not address the point raised. “Deciding constitutional issues is beyond the authority of an administrative agency…” Fayne v. Department of Social Services, 802 S.W.2d 565, 567 (Mo.App.1991)Duncan v. Missouri Board for Architects, Professional Engineers and Land Surveyors, 744 S.W.2d 524, 530–31 (Mo.App.1988) “Administrative agencies lack the jurisdiction to determine the constitutionality of statutory enactments. City of Joplin v. Industrial Commission of Missouri, 329 S.W.2d 687 (Mo. banc 1959).

 

ORDER

The assessed valuation for the subject property as determined by the BOE, for the subject tax day, is set at $2,336,000; TVM of $7,300,000.

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, RSMo.

Disputed Taxes

The Collector of Platte 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 16th day of January 2018.

 

STATE TAX COMMISSION OF MISSOURI

John J. Treu

Senior Hearing Officer

 

Certificate of Service

 

I hereby certify that a copy of the foregoing has been emailed on this 16th day of January, 2018 to:

 

Chris.Kline@huschblackwell.com; ferd@christiedev.com; ferdinandniemann@yahoo.com; Lowell.Pearson@huschblackwell.com; Charles.Renner@huschblackwell.com; david.cox@co.platte.mo.us and county Collector.

 

Jacklyn Wood

Legal Coordinator

[1] All references to Exhibits refer to Complainant’s Exhibits, unless specifically stated otherwise.