State Tax Commission of Missouri
| HORIZONS INDUSTRIAL V, LLC | ) | Appeal No. | 17-79040 |
| ) | |||
| Complainants | ) | ||
| ) | |||
| v. | ) | ||
| ) | |||
| DAVID COX, ASSESSOR | ) | ||
| PLATTE COUNTY, MISSOURI, | ) | ||
| ) | |||
| Respondent | ) |
DECISION AND ORDER
HOLDING
Decision of the Platte County Board of Equalization (BOE) is AFFIRMED. Horizons Industrial V, LLC (Complainant) failed to present substantial and persuasive evidence to rebut the presumption of correct assessments by the BOE.
Complainant appeared by attorney Brian Howes.
David Cox, the Assessor of Platte County (Respondent) appeared by attorney Robert Shaw.
Case heard and decided by Senior Hearing Officer John Treu (Hearing Officer).
ISSUE
Complainant initially appealed, on the grounds of discrimination and overvaluation. At the beginning of the evidentiary hearing Complainant’s counsel waived the discrimination claim. Respondent set the true value in money (TVM) of the subject at $36,083,521, commercial classification. The BOE set the TVM of the subject property at $21,867,000, commercial classification. Complainant contends the property has a TVM of $19,100,000.
The Commission takes this appeal to determine the TVM for the subject property on January 1, 2017. 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
Complainant filed the following exhibits, which were admitted into the record:
| EXHIBIT | DESCRIPTION |
| A | Appraisal by Troy Smith |
| B | AIA Agreement |
| C | Breakdown of Tenant Finish Costs |
| D | Lease Abstracts (D-1 through D-4) |
| E | First Amendment to Deed of Trust |
| F | Stipulations in 17-79036 to 17-79039 |
The subject property is 22.53 acres improved with a one story multi-tenant industrial warehouse building, constructed in 2016, containing 492,728 square feet of net rentable area, which is 86.2% occupied. The building is of concrete and steel frame construction.
Complainant presented the testimony of Brent Miles (Miles), the Vice President of Northpoint Holdings, which contracted for the building of the subject improvement. Miles testified that when soliciting bids for their buildings, the specifications are very tight, allowing for little room for bidders to add in extra cost. He testified that this is due to the fact that Northpoint is made up of engineers and former employees of the major contractors, resulting in them being a more knowledgeable buyer with knowledge of “all the tricks of trade.” Miles also testified that he guessed that Northpoint receives a discount from contractors due to the volume of buildings it contracts to be built.
Complainant’s appraiser, Troy Smith (Smith) is a Missouri State Certified General Real Estate Appraiser. Smith is a Member of the Appraisal Institute (MAI). He is a former Secretary and former Treasurer of the Kansas City Chapter of the Appraisal Institute. He has over twenty-five years of experience in appraising residential, commercial and other property in Missouri.
Smith considered all three approaches to value the subject property. Smith developed all three approaches.
Under the cost approach Smith considered the actual construction cost and the replacement costs new, both based on the principle of substitution which states that “a prudent buyer would pay no more for a property than the cost to acquire a similar site and construct improvements of equivalent desirability and utility without undue delay.” The Appraisal of Real Estate Twelfth Edition (Exhibit A, Page 33). For actual cost, Smith made various adjustment to the contracted actual construction costs of $13,371,532, including: 3% volume savings; $30/square foot for tenant improvements; 5% indirect costs; 10% entrepreneurial profit and $2,700,000 land value. Smith concluded a TVM of $19,100,000 based upon original cost. To form an opinion based upon replacement cost new, Smith utilized the Marshall Swift Valuation Service. After adding in the land value Smith concluded a TVM of $22,300,000 based upon replacement cost new. Due to the fact that the construction of the subject property had recently been completed (in 2016) Smith reconciled to a cost TVM of $19,100,000.
Under the sales comparison approach (market approach) Smith considered three comparable sales. The sales occurred between September 2014 and October 2016. The properties had sales price range of $46.47 to $72.40 per square foot. The sale properties had net operating incomes (NOI) ranging from $3.15 to $5.52 per square foot. Smith made adjustments to the sales prices for market conditions, location, size and economics, resulting in an adjusted range of $41.20 to $42.98 per square foot. Smith concluded on a TVM of $42 per square foot of net rentable area resulting in a TVM of $20,700,000.
Under the income approach, Smith considered four leases with lease rates ranging from $4.05 to $4.50 per square foot. Smith reconciled to a market rent of $4.00 per square foot to which he added $.64 per square foot for reimbursements. Smith noted that actual vacancy of the subject of 13.8%, but projected a stabilized vacancy and collection loss of 10% for the subject property. Smith developed an opinion of operating expenses after reviewing the operating performance of similar buildings. He calculated an NOI of $1,588,002. Smith then developed a capitalization rate. Utilizing the Direct Capitalization method Smith considered 3 sales with a range of rates from 6.78% to 7.9% and concluded on a capitalization rate of 7.75%. Smith also developed the Band of Investment method which indicated a capitalization rate range of 7.53% to 8.03%. Smith reconciled an overall capitalization rate of 7.75%. He added an effective tax rate of .21% for an overall opined capitalization rate (or loaded capitalization rate) of 7.96%. Based upon the foregoing, Smith opined a TVM under the income approach of $20,500,000.
Smith gave the most emphasis to the cost approach because of the recent construction of the property and based upon the principle of substitution. Smith opined a reconciled TVM of $19,100,000, as of January 1, 2017.
Respondent filed the following exhibits which were admitted into the record:
|
EXHIBIT |
DESCRIPTION |
| 1 | Appraisal by Timothy Keller |
| 2 | -No Exhibit Offered- |
| 3 | MVS Calculator Method and Story Height Multipliers |
| 4 | Dock Height Floor Adjustments |
Respondent’s appraiser, Timothy Keller (Keller) is a Missouri State Certified General Real Estate Appraiser. Keller is a Member of the Appraisal Institute (MAI). Keller is a former Chairman of the Kansas Real Estate Appraisal Board. He is a former Chairman and former President of the Kansas City Chapter of the Appraisal Institute. He has over twenty-nine years of experience in appraising residential, commercial and other property in Missouri.
Keller considered all three approaches to value the subject property. Keller developed all three approaches.
Under the cost approach, Keller utilized the replacement costs new method. To form an opinion based upon replacement cost new, Keller utilized the Marshall Valuation Service. After adding in land value of $1,960,000, Keller concluded a TVM for the subject property of $22,910,000.
Under the sales comparison approach (market approach) Keller considered four comparable sales. The sales occurred between January 2013 and October 2016. The properties sold in a price range of $38.61 to $48.19 per square foot. Keller made adjustments for market conditions, age and size, resulting in an adjusted TVM value range of $40.95 to $48.19 per square foot. Keller found comparables #2 and #4 to be the most similar to the subject property. The comparables had adjusted sale prices of $48.19 per square foot and $46.47 per square foot. Keller concluded on a TVM of $47 per square foot resulting in a TVM of $23,100,000.
Under the income approach, Keller considered five existing contract leases with lease rates ranging from $3.40 to $5.99 per square foot and five market leases with lease rates ranging from $4.20 to $5.69 per square foot. Keller made adjustments to the market rates for expense structure resulting in a calculated adjusted lease rate range of $3.95 to $5.19 per square foot. Keller reconciled to a market rent of $4.25 per square foot. Keller opined a vacancy and collection loss of 6% for the subject property based upon its 100% occupancy on January 1, 2017 and the overall market vacancy rate of 6.3% for buildings larger than 100,000 square feet. Keller considered five expense comparables to estimate market expenses. Keller calculated an NOI of $1,811,212. Keller then developed a capitalization rate. Utilizing the Direct Capitalization method Keller considered four sales with a range of rates from 6.40% to 7.95%. Keller reconciled an overall capitalization rate of 7.25%. He added an effective tax rate of .14% for an overall opined capitalization rate (or loaded capitalization rate) of 7.39%. Based upon the foregoing, Keller opined a TVM under the income approach of $24,510,000.
After considering all three approaches to value and considering the characteristics of each, Keller opined a reconciled TVM of $23,500,000, as of 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. An Evidentiary Hearing was held on June 14, 2018, at the Platte County Administration Building, Platte City, Platte County, Missouri.
- Identification of Subject Property. The subject property is identified by parcel/locator number 23-3.0-05-000-000-066.000. It is further identified as 4400 NW 41st Street, Riverside, Platte County, Missouri. (Exhibit A and Exhibit 1)
- Description of Subject Property. The subject property is 22.53 acres improved with a one story multi-tenant warehouse industrial building, constructed in 2016, containing 492,728 square feet of net rentable area, which is 86.2% occupied. The building is of concrete and steel frame construction. (Exhibit A)
- Assessment. Respondent valued the subject property at $36,083,521, as commercial, as of January 1, 2017.
- Board of Equalization. The BOE valued the subject property at $21,867,000, as commercial, as of January 1, 2017, thereby lowering Respondent’s valuation.
- No Evidence of New Construction & Improvement. Sufficient evidence of new construction and improvement from January 1, 2017, to January 1, 2018 and the resulting impact on TVM was not presented; therefore, the assessed value for 2017 remains the assessed value for 2018. Section 137.115.1, RSMo.
- Presumption of Correct Assessment Not Rebutted. Complainants’ evidence was not substantial and persuasive to rebut the presumption of correct assessment by the BOE.
- Summary of Valuation Approaches.
| Actual Cost | Replacement Cost | Income | Sales | Reconciled | |
| Complainant | $19,100,000 | $22,300,000 | $20,500,000 | $20,700,000 | $19,100,000 |
| Respondent | $22,910,000 | $24,510,000 | $23,100,000 | $23,500,000 | |
| Determined | |||||
| BOE TVM | $21,867,000 |
CONCLUSIONS OF LAW AND DECISION
Jurisdiction
The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the board of equalization, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious. 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 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). 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).
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).
Complainants’ Burden of Proof
In order to prevail, Complainants 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, 2013. Hermel, supra. 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.” 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).
Standard for Valuation
Section 137.115, RSMo, requires that property be assessed based upon its TVM 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).
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. 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). 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. Div. 2 1974).
Cost Approach
The cost approach may be based on either reproduction cost or replacement cost. The reproduction cost, or cost of construction, is a determination of the cost of constructing an exact duplicate of an improved property using the same materials and construction standards. The replacement cost is an estimate of the cost of constructing a building with the same utility as the building being appraised but with modern materials and according to current standards, design and layout.
The cost approach is most appropriate when the property being valued has been recently improved with structures that conform to the highest and best use of the property or when the property has unique or specialized improvements for which there are no comparables in the market.
While reproduction cost is the best indicator of value for newer properties where the actual costs of construction are available, replacement cost may be more appropriate for older properties. Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W. 3d, 341, 347 (Mo. 2005). (citations omitted).
Weight to be Given Evidence
The Hearing Officer is not bound by any single formula, rule or method in determining true value in money, but is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled. The relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide. 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 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. 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).
Discussion
In the present appeal, two appraisals were presented, one by each party. Each appraiser developed all three approaches to value. There were sufficient sales to develop the sales comparison approach. There was sufficient market information for the development of the income approach. The property’s recent construction, being built in 2016, make the cost approach a viable approach for determination of TVM.
Regarding Smith’s actual cost approach, Smith underestimated the cost of improvements incurred in 2016 by $1,201,731[1], resulting in his actual cost rising from $19,100,000 to approximately $20,300,000. Additionally, Smith’s actual cost appraisal method assumed that general market participants would be able to limit their cost in the same manner as Complainant. However, Miles testified that Complainant hires engineers and former employees of major contractors, which allows them to tighten the specifications of their building proposals and limit the extra cost in construction as they know “the tricks in the trade.” The Hearing Officer is not persuaded that Complainant’s particular actual cost are necessarily representative of the market participants.
Both Smith’s and Keller’s replacement cost new calculations of TVM exceed the TVM of the subject property determined by the BOE. The remaining approaches bracket the BOE’s determination of TVM. Smith’s income and sales valuations constitute 93.7% and 94.66% of the TVM of the subject property determined by the BOE. Keller’s income and sales valuations constitute 112.09% and 105.64% of the TVM of the subject property determined by the BOE.
In considering Smith’s replacement cost as the best indicator of TVM and factoring in his income and sales value conclusions, Complainant’s appraisal supports the valuation of the BOE. After also considering the persuasiveness of Keller’s appraisal, including the fact that Keller’s replacement cost conclusion of $22,910,000 was the lowest of all of his valuation methodologies, the presumed correct valuation of the BOE is further bolstered.
The BOE TVM of $21,867,000 was not rebutted. Both parties evidence independently support the BOE TVM.
| Actual Cost | Replacement Cost | Income | Sales | ||
| Complainant | $19,100,000 | $22,300,000 | $20,500,000 | $20,700,000 | |
| Complainant Corrected | $20,300,000 | ||||
| Respondent | $22,910,000 | $24,510,000 | $23,100,000 | ||
| Average | $22,605,000 | $22,505,000 | $21,900,000 | ||
| Determined | |||||
| BOE TVM | $21,867,000 |
ORDER
The assessed valuation for the subject property as determined by the BOE for Platte County for the tax year 2017 is AFFIRMED.
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 July 20, 2018.
STATE TAX COMMISSION OF MISSOURI
John Treu
Senior Hearing Officer
Certificate of Service
Delivery or Notice of the information contained in this Order was made via email or U.S. Postage on this 20th day of July, 2018, to the following:
bhoweslaw@yahoo.com; rhshaw@mcginness-shaw.com; stephen.magers@co.platte.mo.us; spalmer@co.platte.mo.us
Jacklyn Wood
Legal Coordinator
[1] Tenant improvement cost in 2016 of 1,484,640 (Exhibit C) minus $444,180 estimated tenant improvement cost (Exhibit A, Page 29) times 5% indirect cost and times 10% entrepreneurial profit (Exhibit A, Page 29).