STATE TAX COMMISSION OF MISSOURI
| HDH, LLC | ) | |
| ) | ||
| Complainants, | ) | |
| ) | ||
| v. | ) | Appeal No. 17-20080 |
| ) | ||
| STEPHEN CONWAY, ASSESSOR | ) | |
| CITY OF ST. LOUIS, MISSOURI, | ) | |
| ) | ||
| Respondent. | ) |
DECISION AND ORDER
HOLDING
The assessment made by the Board of Equalization of City of St. Louis (BOE) is SET ASIDE. Substantial and persuasive evidence was presented to rebut the presumption of correct assessment by the BOE to establish the true value in money (TVM) for the subject property on January 1, 2017, was $51,835,940.
HDH, LLC, (Complainant) appeared by counsel Denyse Jones.
Stephen Conway, Assessor, City of St. Louis, Missouri (Respondent) appeared by counsel Megan Bruyns.
Case heard and decided by Senior Hearing Officer John Treu (Hearing Officer).
ISSUE
Complainant appealed on the ground of overvaluation. Respondent initially set the TVM of the subject property, as commercial property, at $61,628,750. The BOE set the TVM at $61,628,750. 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 RSMo. The State Tax Commission (STC) takes this appeal to determine the true value in money (TVM) of the subject property on January 1, 2017.
EVIDENCE
The Complainant submitted the following written direct testimony (WDT) and exhibits with the corresponding rulings made:
| Exhibit | Description | |
| WDT | Gary Andreas (Andreas) | Admitted |
| Rebuttal WDT | Andreas | Admitted |
| Surrebuttal WDT | Andreas | Admitted |
| A | Complaint for Review of Assessment | Admitted |
| B | Appraisal Report of Andreas | Admitted |
| C | Financial Statement | Admitted |
| D | Tax Bills | Admitted |
| E | Tax Receipt | Admitted |
| F | Portion of Redevelopment Code | Admitted |
| G | Abatement Documents | Admitted |
| H | 2016/2-17 U.S. Franchise Fee Guide | Admitted |
| I | Tax Receipt | Admitted |
| J | Excerpt of Publication | Admitted |
Subject property is a full-service hotel with 670 rooms. The property consists of two towers, one constructed in 1976 and the other constructed in 1981. The improvements are located on 2.079 acres. A second parcel of .343 acres supports the subject property. Complainant owns the hotel and leases the land upon which the hotel was constructed.
Andreas testified on behalf of Complainant. Andreas is a Missouri Certified General Real Estate Appraiser. He is a principal in H&H Financial Group, Inc. and leads its hospitality practice. He has specialized in real estate consulting and appraisal since 1977.
Andreas’ appraisal report utilized the Rushmore method to value the subject property, a commercial hotel development. Andreas calculated an effective gross income (EGI) based upon anticipated 2017 cash flow, including as an expense land lease payments. He made deductions for both return on personal property and return of the personal property to remove the personal property value component of the subject property. He also made a four percent deduction to account for a reserve for replacement for structural improvements. Andreas calculated a capitalization rate of 9.26% utilizing the band of investment technique to which he added the effective tax rate of 3.39% to reach a loaded capitalization rate of 12.65%. Based upon such Adreas opined a TVM of $45,860,000 prior to any abatement which the subject property may be subject to. At Page 47 of Exhibit B Andreas attributes $823,475 to two land leases which are for the 2.079 acre subject parcel and the second parcel of .343 acres which supports the subject property. Exhibit D shows that the subject parcel consist of 2.079 acres with the other parcel consisting of .343 acres.
The Respondent submitted the following exhibits with the corresponding rulings made:
| Exhibit | Description | |
| WDT | Ryan Brennan (Brennan) | Admitted |
| 1 | Appraisal Report of Brennan | Admitted |
| 2 | Rebuttal Testimony of Brennan | Admitted |
| 3 | Case Except | Admitted |
| 4 | Tax Bills | Admitted |
| 5 | Tax Returns | Admitted |
| 6 | Complainant’s First Interrogatories | Admitted |
| 7 | Complainant’s First Request for Production | Admitted |
Brennan testified on behalf of Respondent. Brennan is a Real Property Appraiser II for the City of St. Louis Assessor’s Office. Brennan is not a licensed appraiser. Brennan completed one hundred and twenty hours of appraisal course work at St. Louis Community College at Meramec and has attended appraisal continuing education.
Brennan’s appraisal report also utilized the Rushmore method to value the subject property. Brennan relied upon the Pricewaterhouse Coopers 1st quarter 2017 investor survey and an article by Stephen Rushmore in 2005 to make his business value adjustments, his personal property adjustments, his reserve for replace for structural components and his capitalization rate.
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 STC.
- Evidentiary Hearing. The evidentiary hearing occurred on July 17, 2018 in the City of St. Louis Law Department’s conference room in the City of St. Louis, Missouri.
- Identification of Subject Property. The subject property is identified by parcel or locator number 6464-00-0020-0, 1 South Broadway Street, City of St. Louis, Missouri.
- Description of Subject Property. The subject property is operated as the Hilton St. Louis at the Ballpark Hotel, a hotel. The improvement consists of a commercial hotel developed on an approximately 2.079 acre tract, improved by a full-service hotel with 670 rooms. The hotel complex includes a twenty five story tower with a roof top bar and an eighteen story tower built on a common three story base. The improvement contains a gross area of approximately 578,338 square feet. The east tower opened in 1976 and the west tower was completed in 1981. Complainant owns the improvements on the subject property. Complainant leases the land which the subject property is located upon and an adjoining parcel which is not subject to this appeal.
- Assessment. Respondent set a TVM for the subject property of $61,628,750 ($5,795,937 land value, $55,832,813 improvement value) and classified it as commercial.
- Board of Equalization. BOE made a determination of TVM for the subject property of $61,628,750 ($5,795,937 land value, $55,832,813 improvement value) and classified it as commercial.
- Presumption of Correct Assessment Not Rebutted. The evidence presented was substantial and persuasive to rebut the presumption of correct assessment by the BOE and establish a TVM of $51,835,940.
CONCLUSIONS OF LAW AND DECISION
Jurisdiction
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, RSMo.
Burden of Proof
A presumption exists that the assessment 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. The taxpayer in a STC 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.” Westwood Partnership, 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).
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, 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
The facts upon which an expert’s opinion is based, like the facts sufficient to support a verdict, must measure up to the legal requirements of substantiality and probative force; the question of whether such opinion is based on and supported by sufficient facts or evidence to sustain the same is a question of law for the court. Robinson v. Empiregas Inc. of Hartville, 906 S.W.2d 829 (Mo.App. 1995). The STC cannot ignore a lack of support in the evidence for adjustments made by an 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).
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. 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. 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.
TVM of Entire Parcel
It is the TVM of the entire subject parcel of both the land owner and the improvement owner that must be determined by the STC. The form of ownership of the subject property is generally not a factor of value when determining true value in money. Meadowbrook Country Club v. State Tax Commission, 538 S.W.2d 310, 312 (Mo.1976). It is the value of the property and not the value of the owner’s interest in it that is to be taxed. State ex rel. Marquette Hotel Investment Company v. State Tax Commission, 282 Mo. 213, 221 S.W. 721 (banc 1920).
Section 137.075 RSMo (“Every person owning or holding real property or tangible personal property on the first day of January, including all such property purchased on that day, shall be liable for taxes thereon during the same calendar year.”). Section 137.115, RSMo 1994, 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). Consequently, in order to prevail, Complainants must present an opinion of market value and substantial and persuasive evidence the proposed value is indicative of the market value of the subject property on January 1, 1999. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978).
Valuing Hotel or Motel Property
In the real estate appraisal industry, the market value of a hotel is considered to consist of four components (1) value of the land; (2) value of the improvements; (3) value of the business or going concern and franchise affiliation; and (4) value of the furniture, fixtures and equipment (i.e. personal property). John Hancock Mutual Life v. Stanton, 51 STC Proceedings and Decisions, 1996, p. 394. Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal, January, 1993, p. 17. Hotels and motels are almost always valued by an income capitalization approach that takes the property’s stabilized net income and capitalizes it into an estimate of market value. The stabilized net income is intended to reflect the anticipated operating results of the hotel over its remaining economic life, given any or all applicable stages of buildup, plateau, and decline in the life cycle. Therefore such stabilized net income excludes from consideration any abnormal relation of supply and demand and any transitory or nonrecurring conditions that may result in unusual revenues or expenses of the property. The process of deriving the stabilized net income for a lodging facility requires the appraiser to look into the future and estimate operating revenues and expenses. This is accomplished by forecasting or predicting trends in historical performance based on the hotel’s current position in an economic life cycle.
Discussion
The STC recognizes the Rushmore Approach for the valuation of hotel properties. Such methodology has been recognized by state and federal courts, and by hotel owners and assessors’ offices, as the most appropriate approach for valuing hotel properties. The valuation methodology was developed by Stephen Rushmore, MAI, FRICS, CHA. Mr. Rushmore has been extensively published on the valuation of hotels and motels. The Rushmore methodology has been the leading standard for valuation of hotels for over twenty years. The Rushmore methodology excludes the value of any income derived from fixtures, furniture and equipment (FF&E) and adjustments are made for replacement of the property and for a return on the FF&E. The Rushmore method also deducts the expenses for items such as management fees, franchise fees and marketing to address the value derived from the business component.
Both Andreas and Brennan utilized the Rushmore methodology in their appraisal reports. Andreas possesses extensive experience in valuing hotels. Andreas made market based calculations specific to hotel properties like the subject property. The Hearing Officer found the Andreas appraisal to be persuasive. However, Andreas applied an above the line adjustment for return on replacement in his TVM calculation, which was also accounted for after capitalization under his formula. Andreas also failed to account for the land value of the subject property. By deducting land lease payments Andreas TVM opinion was improperly lowered. Based upon the evidence before the Hearing Officer, the proper calculation under the Rushmore methodology is as follows:
| Effective Gross Income (EGI) | $ 15,027,900 | |||
| (minus) Franchise Fee | $ 3,339,392 | |||
| (minus) Management Fee | $ 1,706,736 | |||
| (minus) Reserve for Replacement for Personal Property | $ 2,392,857 | |||
| (minus) Reserve for Replacement for Real Property | $ 1,706,736 | |||
| Book Value Fixtures, Furniture and Equipment multiplied by Personal Property Capitalization Rate | $ 80,157 | |||
| NOI | $ 5,802,022 | |||
| (divided by) Cap Rate | $ 0.1265 | |||
| TVM Real Property Improvement | $ 45,865,790 | |||
| TVM Land [1] | $ 5,970,150 | |||
| TVM of Parcel | $ 51,835,940 |
The Brennan appraisal was less reliable and less persuasive. Brennan is not a licensed appraiser. Brennan applied more generalized information than did Andreas.
ORDER
The assessment for the subject property as determined by the BOE is SET ASIDE. The value for the subject property for tax year 2017 is set at $51,835,940 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, RSMo.
Disputed Taxes
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 September 18, 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 sent electronically or mailed postage prepaid this September 18, 2018, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.
Jacklyn Wood
Legal Coordinator
[1] Andreas attributed $823,475 to two land leases on two adjoining parcels (Ex. B, Pg. 47 and Ex. D). The TVM of the two land leases is calculated by dividing the attributed amount by Andreas’ capitalization rate ($823,475/.1265 (cap rate) = 6,509,683.70). The two parcels consist of 2.079 acres (subject property) and .343 acres (other) for a total of 2.422 acres. The TVM of the subject land is calculated by dividing the subject property acreage by the total acreage and then multiplying this amount by the TVM of the two parcels together 2.079/2.422 x $6,509,683.70=$5,970,150). The Assessor and BOE set a land TVM of $5,795,937. Brennan opined a land TVM land of $6,339,300.