HEI St. Louis LLC v. Bushmeyer (SLCY)

May 4th, 2012

State Tax Commission of Missouri






v.) Appeal Number 10-20056











Decision of the St. Louis City Board of Equalization sustaining the assessment made by the Assessor is SET ASIDE.True value in money for the subject property for tax year 2010 set at $29,301,950, classified as commercial property.Complainant appeared by Counsels Thomas J. Campbell and Robert Droney, St. Louis, Missouri.Respondent appeared by Assistant City Counselor Rich Kismer.Evidentiary hearing was conducted by Hearing Officer Maureen Monaghan.


Complainant appeals, on the ground of overvaluation, the decision of the St. Louis City Board of Equalization, which sustained the valuation of the subject property.The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2009.[1]The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.


1.Jurisdiction.Jurisdiction over this appeal is proper.Complainant timely appealed to the State Tax Commission from the decision of the St. Louis City Board of Equalization.A hearing was conducted on April 5, 2012, at the St. Louis City Administration Building, St. Louis, Missouri.

2.Assessment.The Assessor appraised the property at $46,500,000, assessed commercial value of $7,440,000[2].The Board sustained the assessment.[3]

3.Subject Property.The subject property is located near Busch Stadium, at 318 S. 9th Street, St. Louis, Missouri.The property is identified by locator number 0425-00-0010-1.The subject tract consists of 68,607 square feet.It is improved by a multi-building, full-service 255 room hotel containing a gross area of approximately 325,587 square feet operating as a Westin Hotel.The hotel was purchased by the Complainant in October 2007 for $53,500,000.

4.Complainant’s Evidence.Complainant submitted the following exhibits which were received into evidence:




Self-Contained Appraisal – Gary P. Andreas[4] – $17,200,000


Written Direct Testimony – Gary P. Andreas


Complainant also submitted the following exhibits on rebuttal:




Written Direct Testimony – Thomas Dolan


HEI Income and Expense Calculations

D-1 Revisions to Exhibit D


HIE Appraisal Recalculations

E-1 Revisions to Exhibit E


Complainant’s Historical and Projected Operating Results


Gary P. Andreas / Rushmore Approach$25,000,000

5.Respondent’s Evidence.Respondent submitted the following exhibits which were received into evidence:




Summary Appraisal – Adam Woehler[5] – $39,000,000


Written Direct Testimony – Adam Woehler


Revisions to Exhibit 1

6.Highest and Best Use:The highest and best use of the property as improved is continued use as an upscale, full-service hotel.

7.Sales of Hotels Neither party’s appraiser developed a sales comparison approach.Complainant reviewed sales of hotels to develop a capitalization rate.

8.Cost ApproachNeither party’s appraiser developed the cost approach to value.

9.Income and Expenses.Both appraisers developed the income approach to value.The income approach to value is the most appropriate approach to value for the subject property.The Rushmore model for hotel valuation is appropriate.


Effective Gross Income


Expenses, including fees and reserves


Net Operating Income


Return on Personal Property


Adjusted Income


Cap Rate


Market Value




10.There was no evidence of new construction and improvement from January 1, 2009, to January 1, 2010; therefore the assessed value for 2009 remains the assessed value for 2010.[6]



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.[7]

Presumption in Appeals

There is a presumption of validity, good faith and correctness of assessment by the City Board of Equalization.[8]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.[9]

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.[10]True value in money is defined in terms of value in exchange and not value in use.[11]It is the fair market value of the subject property on the valuation date.[12]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.[13]


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.[14]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.[15]

Complainant Failed To Prove Value of $17,200,000

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, 2009.[16]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.”[17]

Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[18]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.[19]

Complainant failed to present substantial and persuasive evidence of value of hotel property using the Business Enterprise Approach.

Valuation of Hotels

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.[20]

The income approach is the most appropriate approach for income producing properties such as hotels.Hotels are specialized income producing properties with the income being derived from the land, improvements, personal property and the business operation.The issue in this case is the valuation of the land and improvements.Therefore, the appraisers must separate the components.

There are two valuation approaches for hotels: Business Enterprise Approach (BEA) and Rushmore.The Complainant’s appraiser, Mr. Andreas, used the BEA while the Respondent’s appraiser, Mr. Woehler, used Rushmore.Mr. Dolan, rebuttal witness for the Complainant, also endorsed Rushmore.

The Hearing Officer does not find the BEA to be appropriate for valuing a hotel.BEA, a relatively new income method of valuation, moves a disproportionate share of the hotel’s value out of the real property component and into the business and personal property components, thereby significantly reducing a hotel’s property tax assessment.

The methodology of valuation known as the Rushmore Approach is a more persuasive valuation methodology for hotels.The Rushmore Approach has been recognized by state and federal courts, the Missouri State Tax Commission, 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 wrote all five books for the Appraisal Institute on the valuation of hotels and motels.It has been the standard for valuation of hotels for over twenty years.

Rushmore excludes the value of and 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.Rushmore also deducts the expenses for items such as management fees, franchise fees and marketing to address the value derived from the business component.


The Hearing Officer finds the Respondent’s appraiser’s income approach substantial and persuasive.Minor adjustments to his calculations as suggested by Complainant’s expert Thomas Dolan were accepted.

Income:The City’s appraiser reviewed past performance of the hotel and reviewed the market.He correctly determined that an averaging of past years income would not be appropriate in this situation as the market anticipated that hotel revenues would decrease in 2009.The City’s appraiser used an average of the 2008 and 2009 information to develop an income approach to value.He then added in the income from other sources for a total income of $14,922,354.

The income determined by the City’s appraiser overestimated the expectation of a buyer on January 1, 2009.In the article cited in the appraiser’s report, a reduction of 12.5% in income was anticipated by the industry.A better estimate of room revenue would be reducing the 2008 revenue by 12%.The appraisers estimate for the remaining revenue is appropriate.

Expenses: The City’s appraiser reviewed past expenses of the hotel. The City’s appraiser’s estimation of expenses is appropriate with the suggestion by the Complainant’s rebuttal witness to address each expense line by line.

Start up Costs:Income producing properties such as office buildings and retail locations, incur one time start up costs.The properties are obtained and then the owners search for tenants, sign leases, and then maintain occupancy levels.A hotel must constantly market and sell itself in order to attain a certain level of occupancy on a regular basis. Further, hotels are constantly seeking labor due to high turnover.Due to the recurring nature of these expenses, it is not appropriate to make a calculation for the return of the startup costs.

Business Component: Management and franchise flags are important to address the on-going issues of labor and marketing and these items also represent a portion of the income stream attributed to the business component.The appropriate handling of these items is to either deduct the expenses from the income before capitalizing the income to determine value OR determine the value of the property or then deduct the capitalized cost of the business components. The deduction accounts for the going concern business component thereby removing the business value from the value attributable to the real property.Deducting the expenses both from the income and from the market value after capitalized overstates their value.

Personal Property:With the personal property component of the valuation, the appraiser makes two deductions under the Rushmore approach.The first is for the value of the personal property currently in place and the second is for a reserve for replacing the property in order to remain competitive in the future.To account for the personal property currently in place, the appraiser may do either of two calculations.The appraiser may determine the value of the entire property and then deduct the market value of the personal property so that only the market value for the land and improvements remain.Alternatively, the appraiser could remove from the income stream, any income attributed to the FF&E.The appraiser would do this my multiplying the value of the FF&E by the capitalization rate and deducting it from the income.The BEA makes both calculations resulting in an overstatement of the value of the FF&E in place.

The second deduction the appraiser must make is for the replacement of FF&E to maintain a competitive hotel.This is done with a reserve for replacement; the reserve for replacement is an expense item.

The City’s appraiser correctly handled the return of personal property to remove from the income the amount of income derived from the personal property.The figure used by the City’s appraiser was also used by Mr. Dolan in his calculations. The appraiser also included a reserve for replacement.

Capitalization Rate: A review of sales of hotels provides an appropriate capitalization rate.A review of the information provided by the appraisers indicates that a capitalization rate of 9% appropriate. Property taxes must also be considered when valuing the property.The property taxes are accounted for in the overall capitalization rate.The property is under a tax abatement which would be considered by the buyer.The overall capitalization rate, including the effective tax rate, is 10.3%.


The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for St. Louis City for the subject tax day is SET ASIDE.

The assessed value for the subject property for tax year 2010 is set at $4,688,312.50 (50% tax abatement), classified as commercial property.

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, MO65102-0146, 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 appeal is based will result in summary denial. [21]

Disputed Taxes

The Collector of St. Louis City, 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 May 4, 2012.




Maureen Monaghan

Hearing Officer


Certificate of Service


I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 4th day of May, 2012, to:Robert Droney, 101 South Hanley, Suite 1600, St. Louis, MO 63105, Attorney for Complainant; Richard Kismer, Assistant City Counselor, 314 City Hall, St. Louis, MO 63103, Attorney for Respondent; Ed Bushmeyer, Assessor, 120 City Hall, St. Louis, MO 63103; Gregory Daly, Collector, 110 City Hall, St. Louis, MO 63103.



Barbara Heller

Legal Coordinator


[1] Although the appeal is for the 2010 tax year, real property is assessed as of January 1 of each odd-numbered year and the assessment remains the same for the following even numbered year, in the absence of new construction and improvement.See, Section 137.115. 1, RSMo.


[2] Property is subject to a 50% tax abatement.


[3] Complaint for Review of Assessment


[4] Missouri Certified General Real Estate Appraiser


[5] Missouri Certified General Real Estate Appraiser


[6] Section 137.115.1, RSMo.


[7] Article X, section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo.


[8] 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)


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


[10] 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).


[11] 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).


[12] Hermel, supra.


[13] 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.


[14] 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)


[15] 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).


[16] Hermel, supra


[17] 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)


[18] See, Cupples-Hesse, supra.


[19] Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975)


[20] 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).


[21] Section 138.432, RSMo.