STATE TAX COMMISSION OF MISSOURI
|KEN-KC II, LLC 3.97%||)||Appeal No. 19-32040|
|)||Parcel/locator No. 18301000200600|
|CATHY RINEHART, ASSESSOR,||)|
|CLAY COUNTY, MISSOURI,||)|
DECISION AND ORDER
Ken-KC II, LLC 3.97% (Complainant) appeals the Clay County Board of Equalization’s (BOE) decision finding the true value in money (TVM) of the subject property on January 1, 2019, was $5,000,000, with an assessed value of $1,600,000. Complainant claims the property is overvalued and proposes a value of $4,650,000. Complainant did not produce substantial and persuasive evidence establishing overvaluation. The BOE’s decision is affirmed.
Complainant was represented by counsel Richard Dvorak. Cathy Rinehart, Assessor of Clay County, Missouri, (Respondent) was represented by counsel Patricia Hughes. The evidentiary hearing was conducted on July 1, 2020.
FINDINGS OF FACT
- Subject Property. The subject property is located at 4101 N. Kentucky Avenue, in Kansas City, Missouri. The parcel/locator number is 183010002006.
The subject property is a 485,698 square-foot lot improved with an investment-grade B or B+ warehouse with approximately 154,000 square feet of net leasable area, including 24 dock doors. The improvement was constructed in 2005. As of January 1, 2019, 27,723 square feet (or 18% of the net leasable area) was vacant.
- Respondent and BOE. Respondent classified the subject property as commercial and determined the TVM on January 1, 2019, was $5,688,200. The BOE classified the subject property as commercial and independently determined the TVM on January 1, 2019, was $5,000,000.
- Complainant’s Evidence. Complainant testified the TVM of the subject property on January 1, 2019, was $4,650,000. Complainant submitted the following exhibits:
|Exhibit A||Appraisal of Bernie Shaner (Shaner)||Admitted|
|Exhibit B||Written Direct Testimony of Shaner||Admitted|
|Exhibit C||Rent Rolls 2015-2018||Admitted|
|Exhibit D||Statement of Income 2015-2018||Admitted|
|Exhibit E||Certificate of Liability Insurance||Admitted|
|Exhibit F||Management Agreement||Admitted|
|Exhibit G||Repair Estimates||Admitted|
|Exhibit I||Agreement Relating to Co-Ownership||Admitted|
|Exhibit N||Complaint and BOE Decisions||Admitted|
Shaner developed the sales comparison approach and the income approach to value. He noted that the area is seeing a vacancy rate of 10.2% based upon CoStar; however, upon cross-examination, Shaner acknowledged he made a mistake in reading the chart and that the vacancy rate was 9% or potentially lower on January 1, 2019. He stated vacancy rates are on the rise.
Under his sales comparison approach, Shaner utilized three comparable properties, with adjusted sales prices per square foot of $41.54, $25.02, and $44.17. He made adjustments for conditions of sale, after-sale expenditures, market conditions, location, size, age/condition, and clearance height. Utilizing $40.00 per square foot, Shaner opined a TVM under the sales comparison approach of $6,155,000.
Under the income approach, Shaner analyzed the subject property’s rent rolls and did a market rent analysis, income analysis, vacancy analysis, expense analysis, and capitalization rate analysis. He utilized five comparables for his market rent analysis. He made adjustments for expense structure, tenant space, age/condition, clearance height, and whether the property was subject to tax abatement. Shaner stated a property subject to tax abatement can command a higher lease rate on a triple-net basis than one that is not subject to tax abatement, as the tenant will be willing to pay a higher per square foot amount because they will not be responsible for real estate taxes. In-kind, a lessor can offer leases at lower rates per square foot on a gross lease basis as the lessor will not be responsible for paying real estate taxes.
Shaner concluded on a market rent rate of $3.50 per square foot. As stated above, Shaner concluded on a vacancy rate of 12% (projecting future vacancy rate) under the assumption that the vacancy rate on January 1, 2019, was 10% which was in error. The chart utilized by Shaner shows a market vacancy rate on January 1, 2019, of between 8.25% and 9%. For expenses, Shaner utilized two comparables. They evidenced total operating expenses per square foot of $1.50 and $.69 respectively. He calculated a stabilized net operating income of $2.49 per square foot.
Shaner calculated a capitalization rate utilizing market comparables and the band of investment technique. He concluded on an 8.25% unloaded capitalization rate as he had expensed real estate taxes.
Applying the capitalization rate to the calculated net operating income, Shaner opined a TVM under the income approach of $4,635,000.
Shaner opined a reconciled value of $4,650,000.
- Respondent’s Evidence. Respondent submitted the following exhibits:
|Exhibit 1||Appraisal of Mike Shoun (Shoun)||Admitted|
|Exhibit 2||Written Direct Testimony of Shoun and Work FIle||Admitted|
Shoun evaluated the subject property. He analyzed four comparable land sales. He developed the cost approach, sales comparison approach, and income approach to value the subject property. Under the cost approach, he calculated a replacement cost new less depreciation of $7,559.000. Under the cost approach, Shoun utilized three comparable properties with sales prices per square foot of net leasable area of $45.00, $63.00, and $36.00 respectively. For Shoun’s income approach he utilized three gross lease comparables and three net lease comparables. He also looked to seven market summaries of average lease rates. As to vacancy rates, Shoun considered seven market summaries and a Clay County questionnaire showing average vacancy rates of 6.92%, 5.1%, 9.8%, 5.6%, 5.3%, 3.5%, 5%, and 6.15% respectively.
Shoun utilized the Craig Cap Rate Study and the County Questionnaire in considering an appropriate expense rate per square foot. For his capitalization rate, Shoun considered four market resources. For investment class B properties the rates were 7.25%, 7.75%, 8.25%, and 7.5%.
Ultimately, Shoun utilized a rate of $5.50 per square foot lease rate, with a 6% vacancy rate, an expense rate of $.83 per square foot, and a loaded capitalization rate of 11.75%. Under the income approach, Shoun opined a TVM of $5,663,400.
- Value. The TVM of the subject property on January 1, 2019, was $5,000,000, with an assessed value of $1,600,000.
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2019, to January 1, 2020, therefore the assessed value for 2019 remains the assessed value for 2020. Section 137.115.1.
- Summary of Valuations. The following summarizes the valuations of the BOE and in the appraisal reports:
|Sales Approach||$6,155,000 (112.3% of BOE)||$6,899,760|
|Income Approach||$4,635,000 (92.7% of BOE)||$5,663,400|
|Reconciled||$4,650,000 (93% of BOE)||$5,663,400|
- Presumption of Correct Assessment Not Rebutted. Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the BOE and establish the TVM as of January 1, 2019.
CONCLUSIONS OF LAW
- Assessment and Valuation
Pursuant to Article X, Sections 4(a) and 4(b), Mo. Const. of 1945 real property and tangible personal property is 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. Commercial real property is assessed at 32% of its TVM as of January 1 of each odd-numbered year. 137.115.5(1)(c). “True value in money is the fair market value of the property on the valuation date, and is a function of its highest and best use, which is the use of the property which will produce the greatest return in the reasonably near future.” Snider v. Casino Aztar/Aztar Mo. Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005) (internal quotation omitted). The fair market value is “the price which the property would bring from a willing buyer when offered for sale by a willing seller.” Mo. Baptist Children’s Home v. State Tax Comm’n, 867 S.W.2d 510, 512 (Mo. banc 1993). Determining the TVM is a factual issue for the STC. Cohen v. Bushmeyer, 251 S.W.3d 345, 348 (Mo. App. E.D. 2008). The “proper methods of valuation and assessment of property are delegated to the Commission.” Savage v. State Tax Comm’n, 722 S.W.2d 72, 75 (Mo. banc 1986).
“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.” Snider, 156 S.W.3d at 346. The three generally accepted approaches are the cost approach, the income approach, and the comparable sales approach. Id. at 346-48; see also St. Louis Cty. v. Sec. Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977).
The comparable sales approach “is most appropriate when there is an active market for the type of property at issue such that sufficient data are available to make a comparative analysis.” Snider, 156 S.W.3d at 348. For this reason, the comparable sales approach is typically used to value residential property. “The comparable sales approach uses prices paid for similar properties in arms-length transactions and adjusts those prices to account for differences between the properties.” Id. at 347-48 (internal quotation omitted). “Comparable sales consist of evidence of sales reasonably related in time and distance and involve land comparable in character.” Id. at 348.
The income approach “is most appropriate in valuing investment-type properties and is reliable when rental income, operating expenses, and capitalization rates can reasonably be estimated from existing market conditions.” Snider, 156 S.W.3d at 347. “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.” Id. “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.” Id. (internal quotation omitted). “When applying the income approach to valuing business property for tax purposes, it is not proper to consider income derived from the business and personal property; only income derived from the land and improvements should be considered.” Id.
The hearing officer is the finder of fact and determines the credibility and weight of the evidence. Kelly v. Mo. Dep’t of Soc. Servs., Family Support Div., 456 S.W.3d 107, 111 (Mo. App. W.D. 2015). The finder of fact in an administrative hearing determines the credibility and weight of expert testimony. Hornbeck v. Spectra Painting, Inc., 370 S.W.3d 624, 632 (Mo. banc 2012). “It is within the purview of the hearing officer to determine the method of valuation to be adopted in a given case.” Tibbs v. Poplar Bluff Assocs. I, L.P., 599 S.W.3d 1, 9 (Mo. App. S.D. 2020). 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.
- Complainant’s Burden of Proof
The BOE’s valuation is presumptively correct. Rinehart v. Laclede Gas Co., 607 S.W.3d 220, 227 (Mo. App. W.D. 2020). To prove overvaluation, a taxpayer must rebut the BOE’s presumptively correct valuation and prove the “value that should have been placed on the property.” Snider, 156 S.W.3d at 346. The taxpayer’s evidence must be both “substantial and persuasive.” Id. “Substantial evidence is that evidence which, if true, has probative force upon the issues, and from which the trier of fact can reasonably decide the case on the fact issues.” Savage, 722 S.W.2d at 77 (internal quotation omitted). Evidence is persuasive when it has “sufficient weight and probative value to convince the trier of fact.” Daly v. P.D. George Co., 77 S.W.3d 645, 651 (Mo. App. E.D. 2002); see also White v. Dir. of Revenue, 321 S.W.3d 298, 305 (Mo. banc 2010) (noting the burden of persuasion is the “party’s duty to convince the fact-finder to view the facts in a way that favors that party”). A taxpayer does not meet his burden if the 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. 1980).
- Complainant Fails to Prove TVM
Complainant failed to present substantial and persuasive evidence to establish the TVM of the subject property as of January 1, 2019. Complainant offered an appraisal where Shaner developed the sales comparison approach and the income approach. Under the sales comparison approach, he opined a TVM of $6,155,000. Under the income approach, he opined a TVM of $4,635,000. He opined a reconciled TVM of $4,650,000. The first represents 112.3% of the BOE TVM. The second represents 92.7% of the BOE TVM. The reconciled opinion of TVM represents 93% of the BOE TVM. Shaner’s income approach presumed a vacancy rate of 12%, which was not supported by any market-derived data. All of Shaner’s concluded valuations generally support the BOE TVM. Furthermore, if Shaner had utilized the market vacancy rate of 10% where he misread the chart, instead of his projected rate of 12%, a TVM of $4,829,126 would have been reached which represents 96.5% of the BOE TVM. Even if the high end of the market vacancy rate outlined in footnote 2 below were utilized, plus the extra 2% attributed by Shaner for future additional vacancy, a vacancy rate of 11% would result, changing the resulting TVM to $4,733,200 or 94.7% of the BOE TVM. The Hearing Officer is not persuaded that the original opined values of Shaner under the income approach and his reconciled TVM are supported by actual market data. Furthermore, the Hearing Officer believes the opined income approach value of Shaner, corrected for his inadvertent error, generally supports the BOE value. The opined values of Shoun, Respondent’s appraiser, additionally support the BOE value and are persuasive.
The assessed valuation for the subject property as determined by the BOE for the subject tax day is AFFIRMED.
Application for Review
A party may file with the STC an application for review of this decision within 30 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 Clay 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.
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 January 29, 2020.
STATE TAX COMMISSION OF MISSOURI
Senior Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this January 29, 2021, to: Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent and County Collector.
 Complainant timely filed a complaint for review of assessment. The State Tax Commission (STC) has authority to hear and decide Complainant’s appeal. Mo. Const. art. X, § 14; section 138.430.1, RSMo 2000. All statutory citations are to RSMo 2000, as amended.
 The chart on page 63 of Exhibit A, reflects a market vacancy rate as of January 1, 2019, of somewhere between 8.25% and 9%.
 The Hearing Officer heard the appeal and drafted this Decision and Order prior to his departure from employment with the STC.