RFS SPE2 2000 v. Muehlheausler

 

RFS SPE2 2000, LLC,)

)

Complainant,)

)

v.) Appeal Number 05-10969

)

PHILIP MUEHLHEAUSLER, ASSESSOR,)

ST. LOUIS COUNTY,MISSOURI,)

)

Respondent.)

 

ORDER

AFFIRMING HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

 

HOLDING

Upon review of the entire record, the Commission affirms the Hearing Officer Decision entered on September 25, 2008.

HISTORY

 

On September 25, 2008, Hearing Officer Maureen Monaghan entered her Decision and Order (Decision) setting aside the assessment by the St. Louis County Board of Equalization and finding true value in money for the property under appeal for tax years 2005 and 2006 to be $8,685,000, commercial assessed value of $2,779,200.

Respondent timely filed an Application for Review of the Decision.Complainant timely filed their Response.

CONCLUSIONS OF LAW

Standard Upon Review

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.[1]

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 she 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.[2]

The Commission will not lightly interfere with the Hearing Officer’s Decision and substitute its judgment on the credibility of witnesses and weight to be given the evidence for that of the Hearing Officer as the trier of fact.[3]

The Respondent filed an Application for Review of Hearing Officer’s Decision on November 10, 2008, alleging the Hearing Officer’s decision should be set aside on the grounds that:

1.                  A certificate of value filed in 2007 indicated that property sold for $25,625,914;

 

2.                  The Appraiser’s report was flawed because of wording in his limiting conditions statement;

 

3.                  Although the Respondent agrees that the Income Approach is the most appropriate methodology in this case, Respondent disagrees with the specific approach, the discounted cash flow, used by the Complainant’s appraiser.The Respondent further disagrees with Complainant’s appraiser decision on rates after his review of the market; and

 

4.                  The Complainant’s sales comparison approach indicates the value of the subject property is higher.

 

The Complainant filed a Response on December 22, 2008, stating that the Respondent failed, in its application for review, to recite any probative evidence to support any change to the findings of the Hearing Officer.The Complainant further states that at the hearing Respondent failed to present any evidence as to appropriate capitalization rates or any other evidence of probative value.

DECISION

A review of the record in the present appeal provides support for the determinations made by the Hearing Officer.There is competent and substantial evidence to establish a sufficient foundation for the Decision of the Hearing Officer.A reasonable mind could have conscientiously reached the same result based on a review of the entire record. The Commission finds no basis to support a determination that the Hearing Officer acted in an arbitrary or capricious manner or abused her discretion as the trier of fact and concluder of law in this appeal.[4]

The Respondent argues that the Hearing Officer could not have found the subject properties value on January 1, 2005, was $8,685,000 because of the sales history of the property.The subject property sold for $6,800,000 in 1993.The subject property sold in 2007.The sale in 2007 was part of a group with 32 other properties and the certificate of value allocated $25,625,914 to the subject property.Respondent argues that the allocation supports a higher value for the property.However, the amount allocated works out to $100,101 per room. Respondent’s listing of sales of hotels found sale prices ranging from $41,998 to $69,975 per room; a clear indication that the price indicated on the certificate of value involved more than the land and improvements.

The Respondent argues that the Complainant’s appraisal is not credible because of language used in the Terms and Limitations of Engagement section of his report.Appraisers are not provided unlimited time, money and experts to conduct all tests and analysis on a property.They are required to use their education and experience to make judgments.Presentation of rebuttal evidence and cross-examination of the expert is required to demonstrate the lack of credibility or lack of soundness of the expert’s opinion.

The Respondent also takes issue with the income approach as developed by the Complainant’s appraiser.The appraiser, a State Certified General Real Estate Appraiser, a certified USPAP Instructor and a member of the Appraisal Institute, testified that the ten-year discounted cash flow most accurately reflects the actions of a hotel buyer.Further, the Complainant’s appraiser cited to Stephen Rushmore, a recognized expert in this field, as his source for use of this methodology.According to the appraiser, Mr. Rushmore presented seven techniques that can be used in the acquisition and appraisal of hotels.The techniques produced almost identical values.

In determining a discount rate, the appraiser looked to several sources to determine an appropriate rate that would consider the subject’s income stream, absorption period, and degree of investment risk.Although the discount rate used by the appraiser was at the higher range, the appraiser did provide sources for his rate and the rate selected was within the range presented.No other evidence was presented as to the appropriate discount rate to use in valuing the subject property.

Lastly, the Respondent argues that the Complainant’s sales comparison approach indicates a higher value.A sales comparison approach is not the most reliable method for valuing hotel properties.Developing a comparable sales approach to value is difficult because sales of hotels typically do not involve the land and improvements only.The sales typically involved furniture, fixtures, equipment, other properties and contracts with franchises.The Complainant’s appraiser found sales of $6 million, $9.5 million and $21 million for a range from $29,688 per room to $53,435 per room.The Complainant’s appraiser states that he relied on the income approach and the sales comparison approach was only used as a check on his conclusions under the income approach.His valuation determination under the income approach does fall within the range determined by the sales comparison approach.

ORDER

The Commission upon review of the record and Decision in this appeal, finds no grounds upon which the Decision of the Hearing Officer should be reversed or modified.Accordingly, the Decision is affirmed.The Decision and Order of the hearing officer, including the findings of fact and conclusions of law therein, is incorporated by reference, as if set out in full, in this final decision of the Commission.

Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the mailing date set forth in the Certificate of Service for this Order.

If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts unless disbursed pursuant to Section 139.031.8, RSMo.

If no judicial review is made within thirty (30) days, this decision and order is deemed final and the Collector of St. Louis County, as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal.

SO ORDERED April 21, 2009.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Jennifer Tidwell, Commissioner

Charles Nordwald, Commissioner

 

 

DECISION AND ORDER

 

HOLDING

 

Decision of the St. Louis County Board of Equalization sustaining the assessment made by the Assessor is SET ASIDE.True value in money for the subject property for tax years 2005 and 2006 is set at $8,685,000, commercially assessed value of $2,779,200.

Complainant appeared by Counsel, Jerome Wallach.

Respondent appeared by Counsel, Paula J. Lemerman, Associate County Counselor.

Case heard and decided by Hearing Officer Maureen Monaghan.

ISSUE

The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2005.

SUMMARY

Complainant appeals, on the ground of overvaluation, the decision of the St. Louis County Board of Equalization, which sustained the valuation of the subject property.The Assessor determined an appraised value of $12,013,100 (assessed value of $3,844,190, as commercial property).Complainant proposed a value of $8,400,000 (assessed value of $2,688,000).A hearing was conducted on August 29, 2008, at theSt. LouisCountyGovernmentCenter,Clayton,Missouri.

The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.

Complainant’s Evidence

Complainant placed in to evidence the testimony of Mr. Ernest Demba, Missouri Certified General Appraiser.The appraiser testified as to his appraisal of the subject property.The following exhibits were received into evidence:

Exhibit A.Appraisal Report of Ernest Demba

Exhibit BWritten Direct Testimony of Ernest Demba

Exhibit CRebuttal Evidence Letter by Ernest Demba

Exhibit DRebuttal Evidence, Excerpts from Stephen Rushmore

 

Respondent’s Evidence

Respondent placed into evidence the testimony of Ms. Nancy McGrath, Missouri Certified Residential Appraiser and appraiser forSt. LouisCounty.The following exhibits were received into evidence:

Exhibit 1Industrial review Document

Exhibit 2Certificate of Value

Exhibit 3Deed

Exhibit 4Agreement of Purchase andSale

Exhibit 5Purchase Price Allocation Schedule

Exhibit 6Business Personal Property Declaration 2005, 2006, 2007, 2008

Exhibit 7Written Direct Testimony

Exhibit 9Property Improvement Plan

Exhibit 10Mortgage Equity Analysis

Exhibit 11Sales Comparison

 

FINDINGS OF FACT

1.Jurisdiction over this appeal is proper.Complainant timely appealed to the State Tax Commission from the decision of the St. Louis County Board of Equalization.

2.The subject property is located at7730 Bonhomme Avenue,Clayton,Missouri.The property is identified by parcel number 19K641285.The property consists of multi-story, masonry hotel on a 1.32 acre lot.The hotel has 256 guest rooms with additional amenities such as meeting space, ballrooms, restaurant, lounge, pool, exercise room, and parking.The hotel was built in 1965 and remodeled in 1999.It is in average condition.

3.There was no evidence of new construction and improvement from January 1, 2005, to January 1, 2006.

4.The property sold in August 1993 for $6,800,000.

5.The property sold in 2006 as part of a sale involving thirty-two properties in 18 states for $405 million; $25,625,914 was allocated to the subject property.

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.[5]

Presumptions In Appeals

There is a presumption of validity, good faith and correctness of assessment by the CountyBoardof Equalization.[6]

The presumption in favor of the Board is not evidence.A presumption simply accepts something as true without any substantial proof to the contrary.In an evidentiary hearing before the Commission, the valuation determined by the Board, even if simply to sustain the value made by the Assessor, is accepted as true only until and so long as there is no substantial evidence to the contrary.

The presumption of correct assessment is rebutted when the taxpayer, or respondent when advocating a value different than that determined by the Board, 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.[7]

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.[8]It is the fair market value of the subject property on the valuation date.[9]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.[10]

 

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.[11]

Trier of Fact

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.[12]

Opinion Testimony by Experts

If specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert on that subject, by knowledge, skill, experience, training, or education, may testify thereto.

The facts or data upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing and must be of a type reasonably relied upon by experts in the field in forming opinions or inferences upon the subject and must be otherwise reliable, the facts or data need not be admissible in evidence.[13]

The Complainant presented the testimony and appraisal report of Ernest A. Demba.Mr. Demba is a State Certified General Real Estate Appraiser, a certified USPAP Instructor and a member of the Appraisal Institute.

The Respondent presented the testimony of Nancy McGrath, a State Certified Residential Real Estate Appraiser.The Respondent’s appraiser did not submit an appraisal report.

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]

Missouricourts 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] 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. 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….” [16] This 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.

The Complainant’s expert appraiser testified that the income approach was most applicable as hotels are purchased based on actual and future expectations regarding cash flows.The appraiser used the discounted cash flow analysis in his income approach.The discounted cash flow analyzes individual income streams over a holding period which are, along with the reversionary value of the property, discounted back to present value.The appraiser testified that the ten year discounted cash flow most accurately reflects the actions of a hotel buyer.

As part of the analysis, the Complainant’s appraiser needed to discount each year’s cash flow and reversionary value into a present value.The appraiser looked to several sources to determine an appropriate rate that would consider the subject’s income stream, absorption period, and degree of investment risk.

SourceDateRate.

Hospitality Investment Surveyearly 1990s12-18%

Management Team200115-20%

Korpacz Investment Survey11-19%

Hotel & Motel Management200209-20%

Discussion with Participant200511-13%

 

The appraiser notes that discount rates have decreased from the above range as the market has strengthened significantly.The occupancy and average daily rates increased in 2004-2006 and it is expected to continue into 2007-2008. According to the appraiser, the hotel industry is coming off its strongest growth in revenue per available room in more than 20 years with a continued increase in performance expected.Although the appraiser spoke in glowing terms of the hotel industry, he used a 15% discount rate for the ten year period.In addition to the 15% discount rate, he added 2.84% for the effective tax rate.

Although the discount rate used by the appraiser appears to be at the higher range, the appraiser did provide sources for his rate and the rate selected was within the range presented.No other evidence was presented as to the appropriate discount rate to use in valuating the subject property.

The Respondent questioned the appraiser regarding his use of the discounted cash flow.The Complainant’s appraiser cited to Stephen Rushmore, a recognized expert in this field as his source for use of this methodology.However, Mr. Rushmore also states that the ten-year DCF with an overall discount rate, as used by the complainant’s appraiser, is “less reliable because the derivation of the discount rate has little support.Moreover, it is difficult to adjust the discount rate for changes in the cost of capital.”According to the Complainant’s appraiser, Stephen Rushmore presented seven techniques that can be used in the acquisition and appraisal of hotels.The techniques produced almost identical values.No other approach was suggested or developed.The expert witness testified that this methodology was appropriate.

The Complainant’s expert also provided sales of other hotel properties to support his valuation under the income approach.Developing a comparable sales approach to value is difficult because sales of hotels typically do not involve the land and improvements only.The sales typically involved furniture, fixtures, equipment, other properties and contracts with franchises.The Complainant’s appraiser found sales of $6 million, $9.5 million and $21 million for a range from $29,688 per room to $53,435 per room.

Sale of Subject

Evidence of the actual sales price of property is admissible to establish value at the time of an assessment, provided that such evidence involves a voluntary purchase not too remote in time.The actual sale price is a method that may be considered for estimating true value. The actual sales price, between a willing seller who is not obligated to sell and a willing buyer who is not compelled to buy, establishes an outer limit on the value of real property.[17]

The subject property sold for $6,800,000 in 1993.The subject property sold in 2007 as a group with 32 other properties; $25,625,914 was allocated to the subject property.

Respondent argued that the allocation supports a higher value for the property.However, the amount allocated works out to $100,101 per room.The Certificate of Value filed with the County sets the sale price at approximately $24,832,000 or $97,000 per room.Respondent sales of hotels found sale prices ranging from $41,998 to $69,975 per room.A clear indication that the sale price involved more than the land and improvements.

Complainant’s Burden of Proof

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, 2005.[18]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.”[19]

Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[20]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.[21]

The Complainant’s appraiser is a certified General Appraiser and he completed a Summary Appraisal Report of the subject property.The appraiser considered all three approaches to value.The appraiser relied on the income approach, more specifically the discounted cash flow.Although the approach has its weaknesses, it is an approach used by appraisers to value hotel property. Although the discount rate used by the appraiser appears to be at the higher end of the range, he provided sources for that rate and the rate was within the range presented.Further, the rates and sources for the rates were not challenged by the County and no evidence was presented to contradict his selection of rate.

ORDER

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

The assessed value for the subject property for tax years 2005 and 2006 is set at $2,779,200.

A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing of such decision.The application shall contain specific 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. [22]

The Collector of St. Louis County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending a 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 25, 2008.

STATE TAX COMMISSION OFMISSOURI

Maureen Monaghan

Hearing Officer