State Tax Commission of Missouri
v.)Appeal Number 07-52008
CHRISTOPHER D. ESTES, ASSESSOR,)
COLE COUNTY, MISSOURI,)
AFFIRMING HEARING OFFICER DECISION
UPON APPLICATION FOR REVIEW
On April 29, 2009, Senior Hearing Officer W. B. Tichenor entered his Decision and Order (Decision) setting aside the assessment by the Cole County Board of Equalization and setting the true value in money for the property under appeal at $12,000,000, assessed commercial value of $3,840,000.
Respondent timely filed (5/29/09) his Application for Review of the Decision.By Commission Order Complainant was given until and including July 1, 2009, to file Response.Complainant timely filed (7/1/09) 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.
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.
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.
Respondent’s Grounds for Review
Respondent asserts the following grounds for review:
1.The Decision is void and of no effect in that it was not issued within 60 days of the conclusion of the hearing or date on which the last brief was filed.
2.The Decision is unsupported by competent, persuasive and substantial evidence upon the whole record; is unauthorized by law; is arbitrary, capricious and unreasonable; and involves an abuse of discretion.
3.The Hearing Officer failed to properly apply the presumption that an assessment by a County Board of Equalization is presumed correct unless the taxpayer presents substantial and persuasive evidence that the assessor’s value is erroneous and of the value that should have been placed on the subject property.
4.The Hearing Officer erred in determining that Complainant produced persuasive and substantial evidence that the highest and best use of the Property is the subdivision of the building into smaller multi-tenant units and removal of the mezzanine rather than the Property’s current use as an owner-occupied mega distribution warehouse.
5.The Hearing Officer erred in concluding that Complainant presented substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization and established a true value in money under the cost approach of $14,700,000.
6.The Hearing Officer erred in concluding that Complainant presented substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization and established a true value in money under the income approach of $12,500,000.
7.The Hearing Officer erred in concluding that Complainant presented substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization and established a true value in money under the comparative sale approach of $12,000,000.
8.The Hearing Officer erred in dismissing or incorrectly stating Respondent’s appraiser’s approaches to valuation and that they failed to establish a market value for the property.
9.The Hearing Officer erred in failing to carry out his duty to investigate pursuant to §138.430, RSMo.
10.The Hearing Officer erred by creating a Jurisdictional Exception when valuing owner-occupied, built-to-suit, commercial properties in that appraisers will be required to value such properties on a standard other than their own true value in money under §137.115, RSMo.
Discussion of Points Presented
Decision Void and of No Effect Argument
Respondent contends that the Decision is void and no effect.He seeks to sustain and reinstate the value approved by the Board of Equalization because the decision was untimely under §138.431.5, RSMo.This point fails because Respondent’s remedy, if any, for an untimely decision was to seek relief in circuit court, as per the holding in Smith v. Morton.
Under the provisions of §138.431.5, all decisions issued by the Commission or its hearing officers shall be issued no later than sixty days after the hearing or the date on which the last party files its brief, whichever event later occurs.The last brief in this matter was filed on January 21, 2009, and the Decision was issued April 29, 2009, more than sixty days after the last brief was filed.Respondent contends that failure to comply with §138.431.5 renders the Decision null and void.The contention is based on §536.100, RSMo and its provision for review of certain administrative decisions.
The facts in this case fall squarely within the Smith v. Morton ruling.The remedy established by Smith for an untimely decision is relief in circuit court to compel agency action or removal of the case to court for decision. Respondent did not seek the prescribed remedy before the circuit court when the Hearing Officer did not issue the Decision within sixty days of the filing of the final brief.There is no requirement that Complainant seek the remedy in order to maintain its appeal before the Commission.Section 138.431.5 does not establish that the assessment made by the local board of equalization is to be sustained in the event no decision is issued within the sixty day time limit.
Respondent’s argument based on §536.100 does not apply to the Commission proceeding.This section of law covers an agency or board “established to provide independent review of the decisions of a department or division that is authorized to promulgate rules and regulations under this chapter.”The State Tax Commission is not an agency established to review decisions of departments or divisions of state government authorized to promulgate rules and regulations under Chapter 536.The Hearing Officer acting as agent for the Commission was not reviewing the decision of a department or division authorized to promulgate rules and regulations under Chapter 536.The board of equalization of Cole County is not a department or division authorized to promulgate rules and regulations under Chapter 536.Therefore, the sixty day provision of Section 536.100 is not applicable to proceedings before the Commission and thereby does not control the present Decision.
The Decision was valid and effective as issued by the Hearing Officer.
Decision Unsupported, Unauthorized and Abuse of Discretion Argument
Respondent argues that the Hearing Officer valued the Complainant’s Property in a hypothetical state failing to recognize the Property’s market value.Respondent’s argument is a misstatement of the determinations and conclusions reached by the Decision.The Hearing properly analyzed in detail highest and best use under both the Complainant’s and Respondent’s appraisals.He then made a conclusion of value based upon evidence in the record as applicable under the highest and best use of the property for a hypothetical sale on January 1, 2007.The Hearing Officer went on to address the challenge which Respondent raised in his Post-Hearing Brief, which is now reasserted.
The point Respondent argues goes to the Standard for Valuation that must be applied in appeals before the Commission.Respondent is arguing that property must be valued based on its current use by the owner.However, that is not the applicable standard.The Hearing Officer correctly found that “no legal authority exists for valuation of the Scholastic Property under a theory of value in use.”He properly found that “value in exchange, as opposed to value in use, is the recognized valuation standard in Missouri.”Value in exchange and value in use are two very different concepts and, although they may overlap, it will often be the case that a property may have considerable use value to the current owner, but a much lower value in the market place.However, it is in the market place where value must be found.The Scholastic Property fits this pattern as demonstrated by the examination of the market conditions faced by this property by Complainant’s expert.His highest and best use analysis supported by the Industrial Market Survey clearly show the challenges confronted by the Scholastic Property in the market place.This does not mean that there is no market for the Scholastic property, but rather that the market value may be less than the value to its current user.
Complainant’s appraiser assumed a hypothetical sale of the unencumbered interest in the fee simple property with a willing buyer and seller in an open market transaction.The Hearing Officer agreed that the valuation assumes a hypothetical sale rather than an actual sale of the property and he correctly concluded that this approach resulted in an estimate of the fair market value (i.e., exchange value) for the Scholastic property.To conclude otherwise would result in overvaluation of properties that, if sold, may not be used for the same purpose or by the same user as they are at the time of valuation.There is a critical distinction between valuing a property at its current use (i.e. continued use as a distribution warehouse) versus valuing it based upon its value to the current user (i.e., Scholastic).The Hearing Officer understood this distinction and correctly determined that “[a] proper ad valorem valuation cannot be performed resting upon the assumption that the owner of the property being appraised will not vacate the premises and therefore will not sell.”
Improper Application of Board Presumption Argument
Respondent asserts the Hearing Officer failed to properly apply the presumption of correct assessment by the Board.The record does not support Respondent’s claim.The Hearing Officer addressed in detail the Complainant’s burden to rebut the presumption of correct assessment by the Board.A review of the analysis in the Decision on this point provides a sound basis for the determinations and conclusions reached on this matter by the Hearing Officer.
The argument Respondent puts forth under this point goes to the elements of proof in an appeal before the Commission.Respondent alleges error in that the Hearing Officer placed the burden of rebutting Complainant’s valuation on Respondent.Once a complainant, as the moving party, has rebutted prima facie the presumption of correct assessment and established value, then clearly the obligation to present evidence to rebut the complainant’s prima facie case rests on the respondent.The Hearing Officer found Complainant’s evidence established its prima facie case.He further determined Respondent’s evidence did not rebut Complainant’s prima facie case.
The Hearing Officer conducted an exhaustive review of each of the parties’ valuation evidence.His conclusion was that Complainant met the burden of proving the value of the subject property by substantial and persuasive evidence.The Hearing Officer properly set forth the controlling law with regard to the presumptions and burden of proof.The record is replete with evidence of market transactions analyzed by Complainant’s expert to establish value.The Hearing Officer correctly concluded such evidence met the standard of substantial and persuasive evidence to both rebut the presumption of correct assessment by the Board and to establish the true value in money for the property under appeal.There is no basis to conclude that the Hearing Officer erred in his application of the facts to the controlling law on the matter of presumption of correct assessment or burden of proof.
Highest and Best Use Conclusion in Error Argument
Respondent argues that the Hearing Officer erred in determining that the highest and best use of the property is to remove the mezzanine and subdivide the facility into smaller multi-tenant units.The crux of Respondent’s argument on this point is essentially the same as advanced in the argument under the point headed Decision Unsupported, Unauthorized and Abuse of Discretion, supra.It is also the assertion Respondent presented in his post-hearing brief which was addressed in detail by the Hearing Officer.
Respondent contends the property’s highest and best use is its current use.Complainant agrees with Respondent that current use as a distribution warehouse is the highest and best use.The Hearing Officer so concluded relying upon competent evidence in the record.As previously discussed, Respondent’s argument is in error based upon a misunderstanding of valuation of a property at its current use as opposed to valuing it at its value to the current user.
Complainant’s expert offered a detailed analysis of the highest and best use of the Scholastic Property.The Hearing Officer found that his valuation “melded the proper standard of value with the highest and best use analysis desired from appropriate market forces.Conversely, the highest and best use analysis by Respondent’s expert was based on the limited analysis of whether it was reasonably probable to assume that Complainant will vacate the property in the foreseeable future.The result is an improper determination of highest and best use based on the current user of the property (versus the property’s current use) by Respondent.Respondent’s value is not market value; it is the value of the Scholastic property to a particular user and it does not reflect the amount that could be obtained for the property in the market place.
The Hearing Officer properly rejected Respondent’s argument that the decision in Exide Technologies v. Markt was controlling in this appeal.That is so because the property in Exide was a special use property and the Scholastic Property is not.Indeed, the discussion in the Exide decision regarding highest and best use, as well as value in exchange, demonstrates why it is appropriate to value the Scholastic Property, a mega-distribution center that is not a special purpose property, based on typical exchange value methodology.The more relevant decision in this appeal is 3M Company v. Schauwecker where the Commission ruled that a large single-use industrial property with multiple load-bearing walls located in an adjoining county in rural Missouri should be valued based on the market for similar buildings which have been divided into smaller units.That is precisely the method Complainant’s expert used to value the Scholastic Property that is similar in many respects to the property in 3M Company.
Cost Approach Analysis In Error Argument
Respondent’s fifth argument is that the Hearing Officer erred in concluding that Complainant presented substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization and established a true value in money under the cost approach of $14,700,000.The Commission is not so persuaded.The individual points
There is no benefit to further burden this Order by restating the analysis of the Hearing Officer.The Hearing Officer correctly determined that significant probative weight be given to the value concluded by Complainant’s expert given the underlying foundation for value under the proper highest and best use analysis.The Hearing Officer provided a comprehensive comparison of the cost approach presented by each appraiser and addressed each of the challenges raised by Respondent.None of the points presented by Respondent relative to the conclusions and determinations made by the Hearing Officer with regard to the cost approach provides a basis to overturn or modify the Decision.
Income Approach Analysis In Error Argument
Respondent next asserts the Hearing Officer erred in concluding that Complainant presented substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization and established a true value in money under the income approach of $12,500,000.As with Respondent’s argument on the cost approach, the Commission does not find that the Hearing Officer erred in his analysis and conclusions regarding the income approach.The eleven points set out under this argument were also discussed at length by the Hearing Officer.The Hearing Officer responded to each point Respondent has advanced.There is no basis upon which the Commission can conclude that the Hearing Officer erred in his analysis of the income approach to value.
Sale Comparison Approach Analysis In Error Argument
The seventh argument Respondent makes is that the Hearing Officer erred in concluding that Complainant presented substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization and established a true value in money under the comparative sale approach of $12,000,000.The Commission finds no error by the Hearing Officer in his review and determinations applicable to the sale comparison approach to value.As with Respondent’s cost and income approach arguments a series of sub-arguments are put forth.As with the Hearing Officer’s analysis of the other two valuation methodologies, the substance of each of the Respondent’s challenges was extensively and comprehensively addressed in the Decision.
Analysis of Respondent’s Approaches In Error Argument
Respondent next claims the Hearing Officer erred in dismissing or incorrectly stating Respondent’s appraiser’s approaches to valuation and that they failed to establish a market value for the property.There is no reason or explanation present in the Application for Review on this point.There is nothing suggested as to where in the exhaustive analysis of Ms. Trail’s appraisal the Hearing Officer erred.The Hearing Officer’s analysis and conclusion are well supported by the evidence and the analysis set forth throughout the Decision.A blanket assertion of Hearing Officer error absent an explanation of specific points provides nothing for the Commission to review.Because Respondent provides no specific facts or law in support of this argument, this allegation provides no basis upon which the Decision may be modified or overturned.
Failure to Investigate Argument
Respondent alleges the Hearing Officer erred in failing to carry out his duty to investigate pursuant to §138.430, RSMo.Like the eighth assertion, Respondent did not provide any further or specific explanation as to this claim.Respondent does not assert what the Hearing Officer was required to investigate that he did not investigate.The Commission does not find the argument persuasive.
The cited statute does not impose a “duty to investigate” on the Hearing Officer.The statute provides the Commission “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, … of the property.” Emphasis added.The statute goes on to state that the decision may be based upon inquiry and evidence of the parties, or the decision may be based “solely upon evidence presented by the parties to the commission.”It is clear that the Hearing Officer based his decision on the evidence in the record and felt no need for any additional investigation.Indeed, the Decision covering fifty-six pages with one hundred and twenty-eight footnotes demonstrates the great length to which the Hearing Officer went to review, consider and analyze the evidence in order to carry out his duty to find true value in money based on the evidence and the law.The Commission finds no error on the part of the Hearing Officer under Respondent’s ninth argument.
Jurisdictional Exception Argument
Respondent finally asserts the Hearing Officer erred by creating a Jurisdictional Exception when valuing owner-occupied, built-to-suit, commercial properties in that appraisers will be required to value such properties on a standard other than their own true value in money under §137.115, RSMo.This argument like the eighth and ninth claims put forth by Respondent has no explanation or discussion of exactly where the Hearing Officer’s analysis of the three approaches to value and the supporting evidence in this case was in error.
It is assumed Respondent is using the term jurisdictional exception as it is used in the Uniform Standards of Professional Appraisal Practice (“USPAP”).There is nothing in the Decision that creates a jurisdictional exception.Section 137.115 requires the Scholastic Property be value at its true value in money.The Hearing Officer concluded the true value in money for the property based upon the substantial and persuasive evidence presented by Complainant.The valuation developed in Complainant’s appraisal and analyzed in depth throughout the Decision rested upon the proper application of USPAP standards.No jurisdictional exception exists or was established from the Decision.Respondent’s argument provides no justification for overturning the 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 Decision rests upon an appraisal developed in accordance with the recognized standards for valuation of property for ad valorem tax purposes.Each valuation approach was applied with reference to the property’s highest and best use.The evidence of value under each approach analyzed in the Decision provided an appropriate basis for a determination of value.No evidence was presented to rebut any of the underlying data in the appraisal.
The Commission finds no basis to support a determination that the Hearing Officer acted in an arbitrary or capricious manner or abused his discretion as the trier of fact and concluder of law in this appeal.There was a proper basis for concluding on the value for the property established in the Decision.The Hearing Officer did not err in his determinations as challenged by Respondent.
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 days, this decision and order is deemed final and the Collector of Cole 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 August 4, 2009.
STATE TAX COMMISSION OF MISSOURI
Bruce E. Davis, Chairman
Jennifer Tidwell, Commissioner
Charles Nordwald, Commissioner
DECISION AND ORDER
Decision of the Cole 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 2007 and 2008 is set at $12,000,000, commercial assessed value of $3,840,000.Complainant appeared by Counsel, Brian T. Howes, Polsinelli Shughart, Kansas City, Missouri.Respondent appeared by counsel, John A. Ruth, Newman, Comley & Ruth, Jefferson City, Missouri. Case heard and decided by Senior Hearing Officer W. B. Tichenor.
Complainant appeals, on the ground of overvaluation, the decision of the Cole County Board of Equalization, which sustained the valuation of the subject property.The Assessor determined an appraised value of $21,778,600, assessed value of $6,969,150, as commercial property.A hearing was conducted on October 7, 2008, at the Cole County Courthouse Annex, Jefferson City, Missouri.Complainant filed its Post-Evidentiary Hearing Brief on December 15, 2008.Respondent filed his Brief on January 6, 2009.Complainant filed its Response on
January 22, 2009.
The Hearing Officer, having considered all of the competent evidence upon the whole record and arguments and discussion presented in Briefs and Response, enters the following Decision and Order.
Complainant filed the following exhibits:
Self-Contained Appraisal – Allen J. Moore, MAI,
Missouri State Certified General Real Estate Appraiser
Written Direct Testimony of Allen J. Moore
Rebuttal – Marshall Valuation Service, Sec. 14, pp. 1 & 25, 2/06
Rebuttal – Cole County Assessor Informal Hearing Record.
Correction pages to Exhibit A – pp. 41 et al.
Exhibits were received into evidence.Question and Answer 52 of Exhibit B was stricken upon objection by Counsel for Respondent at hearing.Complainant’s appraiser presented his opinion of value based upon Exhibit A to be $12,000,000.
Respondent filed the following exhibits.
Appraisal – Judith Trail, Missouri State Certified General Real Estate Appraiser
Written Direct Testimony of Judith Trail
Exhibits were received into evidence.Questions and Answers 17, 21, 22, 24, 26, 29, 30 and 33 were stricken upon objections by Counsel for Complainant.Question and Answer 32 was stricken after objection at hearing.Respondent’s appraiser presented her opinion of value based upon Exhibit 1 to be $20,000,000.
FINDINGS OF FACT
1.Jurisdiction over this appeal is proper.Complainant timely appealed to the State Tax Commission from the decision of the Cole County Board of Equalization.
2.The subject property (hereinafter Scholastic Property or subject property) is located at 6336 Algoa Road, Jefferson City, Missouri.The property is identified by map parcel number 11-06-24-0002-002-003.The property consists of 49.7 acres improved with a distribution warehouse with gross area of 889,294 square feet including finished office and support areas.There is an additional 121,600 square feet of unfinished mezzanine area not included in the gross building area. The site includes paved parking areas and access drives, a portion of which are located on contiguous parcels that are not the subject of this appeal.The property is otherwise known as the Scholastic Distribution Warehouse.
3.There was no evidence of new construction and improvement from January 1, 2007, to January 1, 2008.
4.Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money as of January 1, 2007, to be $12,000,000, as established by Complainant’s appraisal.
CONCLUSIONS OF LAW AND DECISION
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.
Presumptions In Appeals
There is a presumption of validity, good faith and correctness of assessment by the CountyBoardof Equalization.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.In this instance, both experts opined a value less than that determined by the Board.Respondent’s appraisal, although opining a value different than that proposed by Complainant’s appraiser, did concur that the Board had overvalued the taxpayer’s property.
More importantly, Complainant’s evidence established that the Board had overvalued the property under appeal.The evidence presented by Complainant established an overvaluation by the Board in two ways: (1) Complainant’s direct evidence rebutted the presumption; and (2), Complainant’s rebuttal evidence established the Board was in error in setting the true value in money at $21,778,600.
It is rare for a Hearing Officer to have the evidence presented at the BOE’s hearing on the property under appeal to be presented in the Commission hearing.However, in this case Exhibit D which was used at the BOE’s hearing on 7/13/07 was presented and received into evidence.A review of Exhibits 1 and D indicates the same methodology used in Exhibit 1 had been used in Exhibit D, which resulted in an overvaluation by the BOE.
In light of the analysis of Exhibit 1, Exhibit D rebuts the presumption of correct assessment by the Board.The presumption is no longer is of any import in this case.The evidence on the issue of value submitted on behalf of Complainant met the required standard to establish the true value in money for the subject property.
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.True value in money is defined in terms of value in exchange and not value in use.It is the fair market value of the subject property on the valuation date.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.
In the present appeal the valuation date is January 1, 2007, and it is necessary to hypothecate a sale of the Complainant’s property as of that date.The property, of course, did not actually sell on January 1, 2007, but had that been the case, the sale would have established the fair market value of the property.To appraise the property based upon the fact Complainant has occupied the property from a number of years and is likely to continue to occupy it for some undetermined time into the future is improper.
To value the property relying on this factor is to value the property in its use to Scholastic, Inc.While such a valuation might prove to be the same as the purchase price a willing buyer and seller might agree to, there was no evidence presented to warrant such a conclusion.The valuation must be based upon the premise of a value in exchange, not a value in use to Scholastic.This is one of the critical factors in analyzing the two appraisal reports.
Moore Appraisal – Highest and Best Use Analysis
The approach utilized by Complainant’s appraiser was to determine what a willing buyer would pay and seller would accept for the fee simple unencumbered interest in the Scholastic property.Complainant’s appraiser assumed a hypothetical sale of the Scholastic Property with a willing buyer and seller in an open market transaction.This concept of fair market value employed by Complainant’s appraiser is synonymous with value in exchange.It presents a methodology that is proper, fair, not arbitrary or capricious and lawful under relevant Missouri legal authorities.Value in exchange, as opposed to value in use, is the recognized valuation standard in Missouri.No legal authority exists for valuation of the Scholastic Property under a theory of value in use.Complainant’s appraiser examined the market conditions faced by the Scholastic Property (i.e., exchange value) and his opinion of value was driven by a broad exhibition of transactions with hypothetical exposure of the property under appeal on the market to a pool of buyers.Mr. Moore valued Complainant’s property under the required standard of valuation.
“The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value.”
In addressing the concept of a highest and best use analysis, the Appraisal Institute has stated the following:
“Market forces create market value, so the analysis of market forces that have a bearing on determination of highest and best use is crucial to the valuation process.When the purpose of an appraisal is to develop an opinion of market value, highest and best use analysis identifies the most profitable competitive use to which the property can be put.”
“The highest and best use of a specific parcel of land is not determined through subjective analysis of the property owner, the developer, or the appraiser; rather, highest and best use is shaped by the competitive forces within the market where the property is located.Therefore the analysis and interpretation of highest and best use is an economic study and a financial analysis focused on the subject property.”
“In all valuation assignments, opinions of value are based on use.The highest and best use of a property to be appraised provides the foundation for a thorough investigation of the competitive position of the property in the minds of market participants.
The Appraisal Institute in its Thirteenth Edition of The Appraisal of Real Estate has further elaborated on this critical concept.
“The highest and best use is shaped by the competitive forces within the market where the property is located and provides the foundation for a thorough investigation of the competitive position of the property in the minds of market participants.”
“An understanding of market behavior developed through market analysis is essential to the concept of highest and best use.Market forces create market value, so the interaction of market forces that identifies the highest and best use is of crucial importance.”
A review of discussion and analysis set forth by Mr. Moore comes squarely within the foregoing directives of the Appraisal Institute.The appraiser addressed in detail each of the four components of highest and best use for the Scholastic Property as if the land were vacant and as it was improved on January 1, 2007.The analysis developed by Complainant’s appraiser on the property as improved discussed in detail the various aspects of the Scholastic building in relation to what the market would recognize as factors contributing to value or items of functional obsolescence.The entirety of the analysis is underpinned by the fact of a hypothetical sale of the property as of January 1, 2007.The conclusion reached for the highest and best use of the Scholastic Property as improved was:
“…, the highest and best use of the subject property, as improved, is for continued distribution warehouse use.The demand for larger warehouse structures in the outlying market areas is extremely limited.The configuration of the improvements would support demising the structure into smaller units to meet the local demand.In my opinion, the larger size and location in the Jefferson City market results in some functional and external obsolescence.The mezzanine area is not considered to add value to the property and would need to be removed to market the structure.It is my opinion that the cost of removing the mezzanine area and the cost to demise the building into smaller units would be deducted from the value of the property by a prospective buyer/investor.”
This conclusion was the result of an appropriate consideration to the competitive forces within the market for the Scholastic Property.The study and analysis focused on the subject property.The appraiser’s observations regarding highest and best use are based on his perceived value judgments of market participants regarding the Scholastic Property, not the value the property has to a specific user.Mr. Moore’s valuation melded the proper standard of value with the highest and best use analysis derived from appropriate market forces.
Trail Appraisal – Highest and Best Use Analysis
In contrast to the approach followed by Mr. Moore, it appears Respondent’s appraiser valued the Scholastic Property from a basis of its current use to Complainant.In making her conclusion as to the highest and best use of the property as improved Ms. Trail stated the following:
“In determination (sic) of highest and best use as improved we must consider elements affecting the site value which depend upon events or combinations of occurrences which although within the realm of possibility are not fairly shown to be reasonably probable and therefore should be excluded from consideration.”
“In making this determination consideration was given to ‘is is reasonably probable to assume that Scholastic’s (sic) would vacate the building in the foreseeable future?”
“There is no evidence that this would be a reasonable assumption.The subject is that of a build-to-suit, owner occupied mega distribution warehouse center that is built of current design and function.The owner occupant is known as the world’s largest publisher and distributor of children’s books and a leader in educational technology.The owner has additional offices and warehouse located at 2932 McCarty Street in Jefferson City that contains approximately an additional 300,000 square feet.”
“Taking into consideration that the subject site is in compliance with the physical and legal requirements, that it is currently improved with a distribution warehouse center that was built in stages from 1992 through 2001, that it is serving the purpose for which it was designed with no indication that this would change in the foreseeable future, it is the appraisers (sic) opinion that the highest and best use as improved would be that of the current use.”
This conclusion suggests Ms. Trail valued the subject property under Scholastic’s current use of the property.This conclusion does not state the highest and best use is as a warehouse distribution center.Rather, the conclusion indicates the value of the property must be tied to its current use by Scholastic only.This was further evidenced by Ms. Trail’s testimony discussing the subject as a “build-to-suit” property, when she asserted, “They have a limited market, but while they’re serving the highest and best use in the purpose it was designed for, that is their market value.”Ms. Trail concluded it was not “reasonably probable to assume” that Scholastic will vacate the property in the “foreseeable future.”
It appears Ms. Trail based her conclusion of highest and best use on a subjective analysis of whether there was any likelihood that Scholastic would vacate the property in the foreseeable future.This conclusion illustrates a valuation in use to Scholastic.The resulting valuation cannot be based upon what a willing buyer and seller would agree to in a hypothetical sale on January 1, 2007.It is irrelevant whether it is likely that Scholastic will abandon the property in the foreseeable future.
To conduct an appraisal based upon such a conclusion for the highest and best use of the property (i.e. the current owner will not sell) is to abandon a valuation determined under the required standard of what a willing buyer and seller would agree to as a purchase price.Ms. Trail erroneously performed her appraisal from the position that Scholastic isn’t going to sell the property.This skewed the conclusion of value reached.
Respondent’s Challenge on Highest and Best Use
Respondent mischaracterizes Mr. Moore’s conclusion relative to the highest and best use of the subject property under the requisite hypothetical sale.Respondent claims that Complainant’s appraiser did not consider the highest and best use to be its current use.As addressed above, Moore concluded the highest and best use as improved is for continued use as a distribution warehouse.
The difference in the Moore and Trail analysis lies in the assumptions regarding the potential user or users of the property based on market demand.Complainant’s expert analyzed Scholastic Property’s highest and best use and his conclusion properly specified both the use (continued use as a distribution warehouse) and who would be the most likely purchaser or user of the improved property (buyer who would subdivide the building into smaller units to meet local demand).These conclusions found solid support as addressed above.Respondent offered no evidence to establish in a hypothetical sale the most likely user would be an owner-occupant.The Moore highest and best use conclusion is based upon and supported by an analysis of the market.The Respondent’s conclusion is based upon the mistaken assumption that Scholastic will not vacate (and therefore will not sell) the property under appeal.
Finally, Respondent’s argument on the in-exchange value versus in-use value based on the decision in Exide Technologies is not well founded.The property in Exide was determined to be a special use property.The Scholastic Property is not a special use property.The Exide discussion does not provide any substance regarding highest and best use in the present case.
Standard for Valuation – Conclusion
The Moore appraisal rested upon a proper highest and best use analysis and valuation standard.The Trail appraisal was in error because of the mistaken highest and best use analysis, and the resulting standard of valuation could not comport with the recognized and mandated standard.A proper ad valorem valuation cannot be performed by resting upon the assumption that the owner of the property being appraised will not vacate the premises and therefore will not sell.
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.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.
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.It is always appropriate in appeals before the Commission on the issue of true value in money to have the benefit of the opinion of an expert, ground in recognized and established valuation methodologies.
The weight to be given the written appraisal, written direct testimony and oral testimony of any given expert witness will vary from hearing to hearing.There is no simple formula the Hearing Officer can apply in every case which results in a certain amount of probative value being assigned to one party’s evidence versus the other party’s evidence.Weight to be given evidence varies in every case and may vary within a case on a point by point or approach by approach basis. In some instances when the trier of fact is presented opinions of value from two appraisers, there may be little or nothing that weighs stronger for one or the other.In such cases, the Hearing Officer is within sound discretion to place equal weight on each opinion and conclude value at the mid-point between the two poles set by the experts.
In the present appeal, there are significant differences in the appraisals and testimony of the two appraisers.As previously addressed, the underlying foundation for value under the analysis of highest and best use requires significant probative weight be given to the Moore appraisal.
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.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.The Moore appraisal developed each of the three standard approaches to value.The Trail appraisal developed two of the standard approaches to value.
There are instances in which a given appraiser will deem it not necessary for various reasons to develop each of the approaches to value.That is, of course, within the discretion of the appraiser.Some properties do not lend themselves to a given valuation methodology for any number of reasons.The appraisal problem for the Scholastic property can properly be addressed relying on the development of each of the approaches to value.
It is recognized that the cost approach is not typically given weight by market participants.When properly developed, this approach generally provides the higher end of the indicated value for a given property.A review of the Moore and Trail cost approaches establishes a number of similarities, as well as differences in the methodologies as they were developed.
Historic Costs Analysis
Both appraisers did an analysis of the historic costs for the construction of the Scholastic facility.The historic cost for the various six phases of construction of the facility was the same in both the Moore and Trail methodology.However, the multipliers utilized to trend the historic costs to Cost New as of January 2007 differed significantly.
Mr. Moore explained that he used the comparative cost multiplier from Marshall Valuation Service (MVS).MVS provides multipliers for both Kansas City and St. Louis, but not for Jefferson City.However, the Jefferson City multiplier for a Class S building is 88.9% of the Kansas City multiplier.Therefore, the appraiser used the comparative multipliers for Kansas City for the various dates of construction adjusted downward to account for the lower costs of construction in Jefferson City.This procedure resulted in a total cost new as of January 2007 for the Scholastic facility of $30,952,949.The compares very favorably with the replacement cost new calculation of $30,000,000.This is a variance of less than 3% between the two estimates.
Ms. Trail also trended the historical costs.However, no explanation was provided as to the source for the comparative multipliers used.No evidence was presented to establish that the multipliers are representative of the Jefferson City area or for some other area of the state.Absent verification that the multipliers were appropriate for the Jefferson City area, the trended cost of $37,515,640 overstated the cost new as of January 2007.The replacement cost new developed by Ms. Trail resulted in a value of $33,088,810.The percentage variance calculates to 13.4%.
Historical Cost Analysis – Summary
The Moore historical cost procedure provided detailed explanation for the source and the adjustment made to the multipliers.The small degree of variance between the historical cost analysis indicated value and the replacement cost new value provides added validity to the process employed by Complainant’s appraiser.
The Trail procedure failed to provide background information to establish the source for the multipliers and what if any adjustment was made, and if so, the basis for them.The variance between the replacement cost new and the trended cost of nearly 14% casts doubt on the probative benefit of the historical cost analysis of Respondent’s appraiser.
Replacement Cost New Analysis
Complainant’s appraiser provided a succinct, yet detailed explanation of how he arrived at the replacement cost new value relying on data from MVS.Moore accounted for the various amenities within the Scholastic facility.He valued the structure as a Class S, mega warehouse.After making all adjustments and applying appropriate multipliers a cost new of $32 per square foot was adopted for the 889,294 square feet of the facility.Cost new for paving and other site improvements was calculated.His final conclusion of replacement cost new for the Scholastic building and site improvements was $30,000,000.
Respondent’s appraiser also considered the warehouse to be a Class S structure.Ms. Trail applied a very similar methodology as Mr. Moore to arrive at a replacement cost new for the structure and site amenities of $33,088,810.However, the Trail technique differed in two very important facets.
Ms. Trail separated out 34,600 square feet of building area for office area.She then valued the office area at a per square foot value of $48.76, instead of valuing it as part of the overall per square foot cost for the Scholastic building.This resulted in an additional value of $1,687,096 for office space.Ms. Trail testified the subject fits the description of a mega distribution warehouse that has only 1% – 5% interior build out for offices, lunchroom and restrooms, which is the standard established for mega warehouses under Marshall Valuation Service.A Class S – Average Mega Warehouse includes Interior Finish – Some good offices, interior finish and floor, break room, good flat slab – within the square foot factor of $27.75.
The 34,600 area being considered by MVS within the square foot cost factor for structures like the subject should have been included in the general calculation for the facility and not separated out and valued at a higher per square foot amount.The Trail appraisal erroneously determined a separate and higher cost estimate for the office space.Ms. Trail’s Final Square Foot Cost of $33.87, when applied to the subject’s 867,400 square feet produces a basic structure cost new of $29,378,838.When the cost new of the other site improvements calculated by the appraiser ($757,953) are then added, the replacement cost new for the Scholastic facility is $30,136,791.This is a variance of only $135,791 or only .00456% of the value determined by Complainant’s appraiser.
Ms. Trail determined a replacement cost new for the 100,850 square feet of mezzanine area that exists in the Scholastic building as an “other improvement.”The valuation of the mezzanine space is not appropriate in the cost approach.The appraiser admitted she did not include this in the square footage of the structure.She did not include it in her calculations under the income approach.Ms. Trail testified that had she done a sales comparison approach to value, the mezzanine space would not have been included.
The justification given for inclusion of the mezzanine in the cost approach was “Because it’s part of the structure.” Although conceding the space has no value under the income or sales comparison approaches, Ms. Trail reasons that it has value in the cost approach because “you wouldn’t build something that didn’t have value.”By including space that would not be included in value under the income and sales comparison approaches, the appraiser constructed a reproduction cost, not a replacement cost.To properly address this factor, an additional deduction for functional obsolescence should have been made.
Simply because something is a part of the structure does not mean it is to be included in a replacement cost calculation.The fact the mezzanine space was constructed in 1995 does not establish that the market for a warehouse facility, such as Scholastic’s, twelve years later would dictate construction of the space.If the amenity is not something which would be constructed in a mega distribution warehouse being built in 2007, then it should not be included in the cost analysis.
Replacement cost estimates cost to construct using contemporary design and layout.This eliminates some existing functional obsolescence.Although the Scholastic building as constructed in 1995, with the mezzanine space, may have been functionally adequate for the market at that time, it is not established that it remains so in 2007.The fact that Scholastic uses the space is not the critical factor.The question is whether the market in the hypothetical sale required under the standard for valuation under a proper highest and best use analysis would attribute value to the mezzanine space.Mr. Moore found no market demand for mezzanine space in mega warehouse facilities.
Accrued Depreciation Analysis
After the replacement cost new is calculated, it is necessary to analyze the factors of physical, functional and economic depreciation that need to be applied to achieve a valid estimate of present worth of the property.
Complainant’s appraiser employed the market extraction methodology to address the depreciation aspect of the appraisal problem.Market extraction is accepted as a valid appraisal tool.The technique is a means of extracting total depreciation from comparable sales.Mr. Moore provided a detailed explanation of the process and analysis of his procedure in arriving at a conclusion for the accrued depreciation factor to be applied under the cost approach.
The appraiser extracted depreciation rates of 8.4%, 5.2% and 4% per year from the sale of properties comparable to the Scholastic facility.He concluded on a 5% per year rate.Based upon his effective age estimate of 11 years for the subject, the total depreciation was 55% of the replacement cost new of 30,000, 000 for the building and site improvements.The resulting replacement cost new less depreciation was $16,500,000.To this Mr. Moore added the estimated cost of $500,000 to remove the mezzanine.This was appropriate to account for addressing this obsolescence in this manner.This resulted in the depreciated value for the improvements of $13,000,000.
Respondent’s appraiser provided detailed explanation of depreciation in general and methods of measuring depreciation.Although Ms. Trail provided information in her appraisal relative to Marshall Swift and Cole County Commercial Depreciation Tables, there was no evidence she relied upon them.Absent supporting documentation that factors developed for a depreciation table are representative of the subject market, citations to such documents are of no real benefit.
The depreciation methodology employed was the economic age life method.This method involves an arithmetic calculation.The appraiser makes a conclusion as to the subject property’s effective age.The effective age may or may not be its chronological age.The appraiser makes a conclusion as to the typical life for the subject structure.The effective age is simply divided by the typical life.The resulting percentage represents depreciation due to age.The depreciation percentage is generally then applied as physical depreciation.Since Respondent’s appraiser did not perform a sale comparison analysis, she did not have available sales data to test her conclusions as to depreciation against what the market was reflecting for similar buildings.
Ms. Trail concluded the effective age of the Scholastic building was 12 years due to it having been constructed in stages between 1992 and 2000.She placed the typical life at 40 years.Therefore, the calculated depreciation factor was 30%.An additional factor of 10% was applied to account for functional obsolescence because of the facility having been built in stages over an eight year period.No market data was provided to support that the deduction for functional obsolescence is appropriate.
An expert’s opinion must be founded upon substantial information, and there must be a rational basis for the opinion.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. The Hearing Officer cannot ignore a lack of support in the evidence for adjustments made by the expert witnesses in the application of a particular valuation approach.
Given there is no market data to establish a basis for the adjustment for functional obsolescence, as a matter of law no probative weight can be given to the conclusion of value proffered under the Trail cost approach.In light of the substantial evidence presented by Complainant’s appraiser establishing depreciation from all factors from the market to be far in excess of the total depreciation applied by Ms. Trail, the indicated value of $20,600,000 derived from the cost approach significantly overstates the value for the Scholastic property.
Land Value Analysis
The final step in the cost approach is to add a value for the subject land to the replacement cost new less depreciation value.The most common and appropriate method for obtain the indicated land value is by use of sales of comparable land.The actual purchase of the subject land for development, if not too remote from the valuation data may also provide valuable data for this aspect of the valuation.
Mr. Moore arrived at an opinion of value for the subject land based upon four sales of vacant land.He appropriately adjusted each sale to arrive at an adjusted price per acre.That indicated price per acre was $21,000.The appraiser applied this to the entire 82.51 acres that comprise the multiple Scholastic parcels.He made an allocation of value to only the property under appeal in his Final Reconciliation of Value.
In a perfect appraisal world, an appraiser would have at his or her disposal a number of comparable sales of vacant land that were just across or just down the street from the property being appraised.These sales would also be of a size that would be within a small percentage variance from the subject’s size.However, such a perfect appraisal world does not exist.
The land sales utilized by Mr. Moore ranged in size from just under 14 acres to over 59 acres for comparison to the subjects 82.5 acres.Two of the sales, the two largest, were near Columbia, instead of in the Jefferson City area.These factors illustrate that the land sales were not perfect matches to the subject, however, they are sufficiently comparable to be adjusted within a reasonable degree to provide a basis for the land value.
The Trail appraisal relied upon one land sale, two listings of land for sale, with a sale of a 2.5 acre tract out of the second listing, and the actual purchases of the subject tracts during a period from February, 1992 to July, 1995.Notwithstanding the sale and listing data provided, the final conclusion of the value of the subject land was based upon the purchases of the subject land, adjusted at 40% upward to arrive at a trended land value.The relevant data on the Scholastic land purchases is as follows:
Ms. Trail adjusted the sales for time at 4% x 12 years = +40% x $8,488 = $3,395 + $8,488 = $11,883.The first error in this methodology is that 4% x 12 = 48%.Therefore, assuming without finding, a 4% time adjustment was correct, and assuming, without finding, a 12 year time period was correct, the adjustment factor to be applied to the average per acre sale price of $8,488 would be 48%.This would provide a trended per acre land value of $12,560.Therefore, the land value under the Trail methodology would be understated by $560 per acre or approximately $27,826.
However, the more serious problem with the technique used relates to the 4% factor and the 12 year period.There is no market data upon which the conclusion can be reached that from 1992 and 1995 to 2007 the subject’s land value increased at only a factor of 4% per year.The sale and listing data provided by Ms. Trail appears to rebut that conclusion.The other error is the use of a 12 year adjustment period.That time period can only relate to the 25.03 acres purchased in July 1995.The largest tract of 58.65 acres was purchased nearly 15 years prior to the valuation date.That sale price should have been trended 15 not 12 years.
The trend analysis lacks sufficient underlying data to establish its validity.The land value concluded by Ms. Trail is not probative on this critical element of the cost approach.
Respondent’s Challenges to the Moore Cost Approach
Respondent takes issue with the following aspects of Complainant’s cost approach: (1) treatment of mezzanine area; (2) depreciation calculation; and (3) trending of historical costs by local multipliers.
The issue relative to the mezzanine area has been addressed above.Respondent’s assertion that Mr. Moore erred in not including it in the cost approach and then deducting the cost of removal is not well founded.Respondent’s own appraiser concluded the mezzanine area did not add value.Ms. Trail omitted the area from her income analysis and admitted that had she performed a sales comparison approach, the area would have likewise been omitted from that approach.Ms. Trail’s position was that the market would only recognize the value for the footprint of the building.Complainant’s appraiser properly addressed this factor in his cost approach.
The depreciation calculation, as noted above, was based on a well recognized and accepted methodology.The use of Sales 1, 2 and 3 was clearly appropriate as the appraiser deemed these to be most comparable due to their locations being in areas of Missouri most similar to Jefferson City, among the sale properties utilized.Respondent’s criticism of the use of Sale 3 based on the issue of lack of dock doors fails to acknowledge that the appraiser acknowledged this and accounted for it in his calculations.
Trending Historical Costs
Finally, Respondent alleges the Moore appraisal was “deficient because it made inappropriate adjustments by trending historical costs by local multipliers.”Respondent asserts the adjustments did not comport with Marshall Valuation Service, Section 98, page 5.The Hearing Officer first notes that in the cross-examination of Mr. Moore this matter was addressed.However, Counsel for Respondent did not provide Mr. Moore with a copy of the cited MVS document and point out what if any provision had not been followed.Accordingly, the Hearing Officer has no basis from the evidence to conclude any error on the part of the appraiser.
More important, the allegation is a misstatement of the testimony of Mr. Moore.The appraiser’s testimony on this point was as follows:
(Mr. Ruth)“Q.And I – I was just – they had said in this that since historical costs are already local in nature, do not use local multipliers.
(Mr. Moore)A.Well, I may have misspoke.What we – What we use the multiplier for – If I said we use the local multiplier, we did not do that.We adjusted the sale forward to arrive at a replacement cost today, the date of the appraisal because these were older construction costs.And we adjusted that trending factor downward slightly because the property is in Jeff City, and our trending multiplier is – the only ones we had were from Kansas City.Okay.And I didn’t think the cost would trend as fast and as high in Jeff City as it would in Kansas City, so I made an adjustment for that.That’s – And that’s on my judgment.And I did talk to Septagon who built this building and asked them the same and they said yeah, you know, your material costs may go up about the same, but your labor costs won’t.”
In addition to his historic cost analysis, Mr. Moore also developed an indicated value under MVS, as discussed above.There is no merit to this allegation of the Respondent.
Cost Approaches – Conclusion
Based upon the foregoing review and analysis, the indicated value determined by Complainant’s appraiser provided substantial and persuasive evidence to both rebut the presumption of correct assessment and to establish that the true value in money of the subject property as of January 1, 2007, would not be in excess of $14,700,000.
A comparison of the income approaches developed by each appraiser establishes that substantial weight can be given to the Moore appraisal.Complainant’s appraiser concluded that with a hypothetical sale of the subject on January 1, 2007, it was most likely that an investor purchaser of the Scholastic property would demise the 889,294 square foot facility into smaller rental units to meet local market demand.This conclusion was supported by Mr. Moore’s detailed Industrial Market Study.It was likewise borne out from the sales rental data utilized in his income approach.
Ms. Trail’s income analysis is essentially based upon assuming a single tenant for the entire facility.Since her highest and best use analysis was grounded in her determination that Scholastic will not vacate the facility in the foreseeable future, the only conclusion to be reached is that the Trail income value is predicated upon a sale and lease back scenario.There is no market evidence of owners of property similar to Scholastic selling and then leasing back a facility such as the property under appeal.
No market research was provided to rebut Mr. Moore’s market study supporting the very likely concept of demising the 889,000 square feet into two or smaller rental units.The evidence fails to establish a Mid-Missouri market for a single tenant occupying an 889,000 square foot facility or a sale-lease back possibility.
Potential Gross Income
Mr. Moore arrived at a per square foot rental of $2.75, assuming the small rental units dictated by his market analysis.This rental amount was derived from his consideration of rental data from 12 properties in markets similar to and that would compete with Jefferson City. The rental data ranged from $2.25 to $3.07 per square foot on a net basis and from $2.94 to $3.34 on a modified gross and gross basis.The Moore appraisal provided sound market data and reasoned analysis to arrive at his per square foot rental rate.His concluded Potential Gross Income of $2,445,559 was well supported.
Ms. Trail presented charts showing Missouri (10) and Multi-State (20) Rental Listings.The Missouri listings were for warehouses ranging in size from 91,986 to 534,600 square feet.This is additional data supporting Mr. Moore’s conclusion that the most likely rental market for the subject is to subdivide the facility into smaller rental units.Respondent presented no evidence of rental by a single tenant of 889,000 square feet.The Missouri listings were for areas significantly smaller than the subject.
The per square foot rental rates for the Missouri properties ranged from $2.00 to $5.74, with a mean of $3.70, median of $3.85 and mode of $3.95.However, with the exception of a single rental listing from Mexico, the other 19 properties were located in either Kansas City or the St. Louis metropolitan area.The multi-state listings provide little useful information given that there is no information from which the Hearing Officer can conclude what, if any, of the 20 different locales from which the data is drawn are sufficiently similar to the Mid-Missouri market as to provide comparable data.The data fails to establish use by any single tenant of an space of 889,000 or more square feet.The range of values was from $2.50 to $4.00.
The explanation as to how Respondent’s appraiser arrived at her rental value of $3.00 per square foot is as follows:
“The statistical testing of rental information collected of various distribution and industrial warehouses arrived at a range of $3.31 to $3.95 per square foot as that being expected from the market.Giving consideration that these are asking rents it is felt that the subject would warrant a minimum rent of $3.00 per square foot.”
The Hearing Officer is faced with the immediate problem of having no demonstration of a range of $3.31 to $3.95 from the data found on pages 46-49 of the Trail appraisal. Ms. Trail recognizes that since she is relying on listing data, that the actual rent which might be negotiated could be less than asking.Nevertheless, assuming a range from $3.31 to $3.95 listing rates, it is unclear exactly how the conclusion of minimum rent of $3.00 can be established and supported, in the absence of market data to demonstrate that actual rental rates are generally 10% to 30% below listing rates.The use of listing data instead of actual rental data and the unsubstantiated conclusion for the rental rate is unpersuasive to establish potential gross income.Furthermore, the Respondent’s evidence did not establish that a space of nearly 900,000 square feet would lease to a single tenant for $3.00 per square foot.
Based upon his examination and analysis of the rental market, Mr. Moore was able to conclude a stabilized vacancy rate of 20%.The market data provided by the appraiser supports that this is an appropriate vacancy rate for the subject.
Ms. Trail’s vacancy allowance of 5% was not based on any market data.The conclusion was predicated upon the following:
“As of the date of the appraisal the subject property is 100% owner occupied and there is no indication that vacancy would occur in the near future.As consideration is given to the life of the improvements it is felt appropriate to allow for a stabilized 5% vacancy factor in calculating the value by the income approach.”
This conclusion further emphasizes the mistaken assumption that formed the basis of the Trail appraisal.Respondent’s appraiser concludes a vacancy allowance ground in her denial of a hypothetical sale.The standard of value has its foundation in a sale of the property.That simply means that hypothetically the property is or will be vacated, unless there is market data to establish that a sale-lease back is reasonable and likely.No such evidence is to be found in this record.Therefore, tying the vacancy rate to the property being “100% owner occupied and there is no indication that vacancy would occur in the near future” is in conflict with the required standard of value.
The appraisers agreed that under the income approach the Scholastic property would be leased under a triple-net lease (sometimes simply referred to as a net lease).Mr. Moore provided a detailed analysis and explanation under this point and concluded on Total Expenses & Reserves of $252,773, which calculates to 13% of the Effective Gross Income.Ms. Trail allowed a 12% deduction from her Effective Gross Income, or $302,567 for expenses. The analysis set forth in Complainant’s appraisal provides important information as to how the appraiser arrived at the expense allocations in light of the assumed 20% vacancy.
The next element of the income approach that must be determined is the overall rate by which the Net Operating Income (NOI) is to be capitalized to arrive at the indicated value.Consistent with the overall methodology employed by Complainant’s appraiser, Mr. Moore provided a detailed explanation of his determination of the overall rate.The appraiser utilized the overall rates from two of his comparable sales.In addition, a review was made of reported rates and band of investment data for warehouses and distribution centers from nationally reported source relied upon in the appraisal industry.
Complainant’s appraiser concluded on a capitalization rate of 11% to which he added 0.355% to account for the Effective Tax Rate (ETR).In the triple net lease situations, the lessee, not the owner is responsible for real estate taxes.Therefore, unlike in other lease situations the ETR would not be added to the capitalization rate.Only the portion of real estate taxes that would be the responsibility of the owner should be accounted for in an adjusted ETR.
This factor illustrates the detail employed by Mr. Moore in his appraisal.Because the income valuation is under a triple net lease scenario the taxes for which the owner would be responsible would only be that portion allocated to him for any vacant portions of the facility.Therefore, Mr. Moore properly applied only 20% of the total ETR to arrive at his overall rate of 11.4%.
Respondent’s appraiser developed her overall rate from the band of investment method.Ms. Trail concluded on a capitalization rate of 9.23 from the band of investment calculations.This fell within the range from Mr. Moore’s data source and just slightly above the 9.18% provided as the average rate from the 4th Quarter of 2006.However, unlike Complainant’s appraiser, Ms. Trail did not provide the basis for the factors that she utilized in the band of investment method.Ms. Trail then added the full ETR to arrive at an overall rate of 11.13%.Since the Trail income analysis was ground in the appraiser’s conclusion of only a 5% vacancy, the owner would not have been responsible for the entirety of the taxes under a triple net lease.He would have only had 5% of the taxes as his expense.Therefore, the EFT should have been adjusted downward to account for this, as Mr. Moore did in his calculations.
The overall rate of 11.4% concluded by Mr. Moore was well documented and supported as the appropriate rate to be applied to the NOI to provided an indicated value under the income approach.
The Moore income approach being based upon appropriately derived market rental data, vacancy and expense data and applying a well support overall rate resulted in an indicated value of $15,000,000.The value conclusion of $19,900,000 presented by Respondent’s appraiser suffers from various problems previously addressed.
Finally, Mr. Moore properly addressed two critical adjustments that were required after the NOI had been capitalized.Those two adjustments were cost for removal of the mezzanine improvements and cost of demising the facility into smaller rental units.Given the market data presented by Mr. Moore it was appropriate that a deduction be made for these costs, as any prudent investor-purchaser would take this into account in formulating his purchase price.The total deduction for these factors was $2,636,447.This deduction produces an indicated value under the income approach of $12,364,000, which the appraiser rounded to $12,500,000.
Respondent’s Challenges to the Moore Income Approach
The challenges presented by Respondent to the Moore Income Approach are identified as follows: (1) faulty assumption on highest and best use; (2) vacancy rate and (3) cost to demise.
Highest and Best Use
The highest and best use argument has been addressed in detail and need not be repeated again.It is noted that Respondent’s argument ignores the fact that all of the rental data relied upon by Mr. Moore were of facilities significantly smaller than the Scholastic Property’s 889,000 square feet.In point of fact, the lease data demonstrated an active market for properties having the following rental areas: 286,000, 152,467, 29,484, 125,000, 125,000, 313,000, 542,600, 156,600, 96,000, 275,000, 25,000, 500,000, 102,000, 386,950, 556,287, and 420,000.Of the sixteen different leased areas only three are 500,000 or more square feet in area.The range is from only 25,000 to 556,287, with the mean being only 255,675, and the median being 215,800.As a percentage comparison of the subject’s space, this market data establishes rental units ranging from only 2.9% to 62.6% of the subject, with a mean of 28.8% and a median of 24.3%.
The Trail listing data also demonstrates the market is for space significantly smaller than the Scholastic facility.The range of square foot space is from 75,000 to 534,600, with a mean of only 232,120 and a median of 197,500.As a percentage comparison of the subject’s space, The Trail market data establishes rental units ranging from only 8.5% to 60.2% of the subject, with a mean of 26.2% and a median of 22.3%.The multi-state data provided by Ms. Trail does include industrial warehouse space for two facilities in excess of 900,000 square feet and distribution warehouse space for two listings in excess of 800,000 square feet.The remaining sixteen offerings all fall within a range of 323,490 to 745,000.The critical deficiency in this listing data is the failure of Ms. Trail to establish that the four facilities above 800,000 square feet would only be leased to a single tenant or whether a subdivision of the area for lease to two or more tenants would also be part of the market.The overwhelming evidence from the remaining sixteen properties only provides further support for the conclusions of highest and best use drawn by Mr. Moore that the demand for warehouse space is for units significantly smaller than 800,000 plus square feet.
Rent Comparables in Excess of 500,000 Square Feet
Respondent points out that Mr. Moore relied on two properties with 500,000 and 556,287 square feet of area and there was no evidence that either of these properties had to be demised into smaller units.The criticism begs the question.Since these two properties are respectively approximately 56% and 63% the size of the subject, they demonstrate a market for units smaller than the subject’s 889,000 square feet.It is reasonable to conclude based on these two illustrations selected by Respondent that the Scholastic property could expect to have to be leased to at least two tenants, assuming that within the mid-Missouri market tenants could be found requiring approximately 300,000 to 500,000 square feet of space.
Quite simply, these illustrations do not rebut Mr. Moore’s conclusion on highest and best use, but validate it.This record is void of any evidence to establish any likelihood of a single tenant in the mid-Missouri market utilizing the entire Scholastic Property space.There is ample market evidence to demonstrate a demand for space units smaller than 889,000.
Respondent next draws into question the vacancy rate employed by Mr. Moore.This argument is based on Mr. Moore failing “to account for the fact that, in its current state, the Property has never been vacant.”The question of whether the subject has ever been vacant is irrelevant.The question assumes, erroneously, no hypothetical sale as of the valuation date.This argument is based upon Ms. Trail’s mistaken highest and best use analysis that Scholastic will not vacate the property in the foreseeable future.
Operating under the assumption of a sale on the valuation date, which is the appropriate and required standard for valuation, it is unlikely the property will be completely rented when it would be purchased.It will take time to lease up the facility.More importantly, there is sound market data to support the vacancy rate concluded by Mr. Moore.The loss of income during the absorption period for the subject under the hypothetical sale must properly be accounted for in the income analysis, as was done by Complainant’s appraiser.There is absolutely no market data that refutes his conclusion.The fact that the subject is owner-occupied does not qualify as market data on vacancy rates for lease distribution warehouses.
Cost to Demise
Respondent’s final criticism of the Moore income approach is addressed toward his deduction of an estimated cost of configuring the subject facility into smaller rental units, which would include the removal of the mezzanine area.The argument is only supported by the contention of no market data to support rental of smaller units.As has been addressed the market lease and listing data from both Mr. Moore and Ms. Trail establish the market for rental of warehouse space is for units far smaller than the subject’s 889,000 plus square feet.
Therefore, under the required hypothetical sale analysis, the market for leasing the subject is in units which potentially could range from approximately 25,000 to 500,000 square feet.That market dictates demising the Scholastic building into smaller units.Any knowledgeable investor will take that into account when determining the purchase price.Accordingly, the indicated value under the income approach properly must be adjusted downward to account for the cost of remodeling the facility into smaller rental units.
Respondent contends the Moore appraisal is deficient because it provided for the cost to remove the mezzanine area under the income approach.Respondent points to one of the rent comparables utilized by Mr. Moore in which there was mezzanine area constructed for additional rent of $1.75 per square foot.The first point of response is that both appraisers are in agreement that the subject’s mezzanine area under the income approach should not be considered in the rentable area.Therefore, Respondent’s argument runs contrary to his own expert’s reasoned conclusion.Since the mezzanine as agreed to by both appraisers was not included as part of the gross rentable area under the income approach, the conclusion of Mr. Moore to account for its cost of removal is consistent with what the informed investor would do in the hypothetical sale of the subject.
As to the addition in June 2007 of 52,760 of two level heated storage area to a building in Moberly, Missouri, the evidence is simply non-existent to arrive at a conclusion that that area is in any way comparable to the existing mezzanine area in the Scholastic building.The Moore appraisal identified that there was an addition as just described.The sole reference in the record to identify this as “mezzanine” space is in the following exchange on cross-examination.
Mr. RuthQ. … Was – Was that – Was that constructed as a mezzanine?
There is nothing further on which the Hearing Officer can reasonably conclude any degree of similarity to the subject’s existing mezzanine area.Mr. Moore’s assumption does not establish to what degree the two level area added to the Moberly facility was comparable to the Scholastic facility.There are a variety of possible factors related to the reason for the construction of the two level area at the Moberly property.This one instance does not establish a market for mezzanine space.
Furthermore, the Lessee at the Moberly facility is Scholastic.It appears that Scholastic is able to utilize warehouse space that has lower eave heights than is otherwise in demand in the market.The utilization of Scholastic of mezzanine space at another facility does not establish that it is part of the market for distribution warehouses in general.
The market data established the eave heights for warehouse space run from the upper 20 foot to 40 foot range.Such space rents for more per square foot than mezzanine space which may be only 15 feet or less in height.It was appropriate for the appraiser to account for the cost to remove the mezzanine.
Income Approaches – Conclusion
The foregoing review and analysis establishes that the indicated value determined by Complainant’s appraiser provided substantial and persuasive evidence to both rebut the presumption of correct assessment and to establish that the true value in money of the subject property as of January 1, 2007, would not be in excess of $12,500,000.The Respondent’s value conclusion under the income approach lacks persuasive merit due to the various problems and deficiencies heretofore addressed.
Sales Comparison Approach
Ms. Trail did not perform a sales comparison approach to value due to the fact she was unable, with the resources at her disposal, to discover any comparable sales locally or statewide.The failure to present this approach does not establish that it was inappropriate for the present appraisal problem.The sales utilized by Mr. Moore established that there was sound market data of relevant sales from which to conduct the sales comparison approach to value.The omission of a sales comparison approach seriously undermines Respondent’s opinion of value.Typically, the sales comparison approach provides the most credible indication of value for owner-occupied commercial and industrial properties.If no comparable sales exist, Respondent’s appraiser should have questioned whether a market for the subject property exists at all.
Complainant’s appraiser concluded a value under the sales comparison methodology utilizing a group of seven sales.The sale properties were large build-to-suit, owner-occupied distribution warehouses.The sales occurred after lengthy exposure to the market.The investor purchasers subdivided and leased the properties.In other words, the action generally involved with these seven sale properties is supportive of the conclusion of highest and best use concluded by Mr. Moore.In addition, the appraiser provided information on four additional sales as evidence of market activity and trends in prices paid.An alternative valuation based upon the analysis of improved sales utilizing building values only was also performed.Detailed analysis was provided on the process employed to arrive at a conclusion of value for the subject under the sales comparison approach of $12,000,000.
It is readily understood in the sales comparison approach, especially on a property such as the Scholastic property, that it is impossible to find identical properties for comparison.The standard for the appraiser is not to locate properties identical to the property being appraised, but to find sales properties sufficiently similar to serve as comparables.The properties selected by Mr. Moore are sufficiently similar to meet the requirement of comparability.Adjustments made by the appraiser were appropriate for the present appraisal problem.
Respondent’s Challenges to Moore’s Sales Comparison Approach
The challenges or issues Respondent raised with regard to the sales comparison approach are identified as: (1) lack of local market sales; (2) qualitative versus quantitative analysis; (3) sales after foreclosure; (4) sale by auction; (5) lack of adjustments; and (6) vacant property.
Lack of Local Sales
Respondent asserts the sales comparison approach should be rejected when there is a lack of comparables in the market on which to base a determination.While that is correct as a general statement, it is not applicable to the present appraisal problem.Simply because there are no 800,000 plus square foot distribution warehouse properties that have recently sold in Jefferson City does not lead to a rejection of this approach.The market for the hypothetical sale of the Scholastic Property on January 1, 2007, would not be restricted to Jefferson City or even to mid-Missouri.The potential pool of investors who would consider the purchase of the property would extend beyond mid-Missouri.
It is clearly recognized and understood under sound appraisal practice that the sales comparison methodology can provide a valuable tool for the appraiser.
“The sales comparison approach is applicable to all types of real property interests when there are sufficient recent, reliable transactions to indicate value patterns or trends in the market.For property types that are bought and sold regularly, the sales comparison approach often provides a supportable indication of market value.When data is available, this is the most straightforward and simple way to explain and support an opinion of market value.”
Mr. Moore located sufficient sales data to develop this approach to value.Respondent seeks to impose an appraisal straight jacket on this approach essentially because identical or nearly identical properties to Scholastic were not found in Missouri.Such a standard is not only unreasonable, it has no basis in sound appraisal practice.It is not identical properties that must be found.It is sales of properties sufficiently similar to the property being appraised to provide a basis for analysis, adjustment and comparison.That was achieved in the present appeal by the sales properties presented by Complainant’s appraiser.Furthermore, it is sound appraisal practice to develop the approach, even though there may be some level of limitation in a given case.
“At times the use of the sales comparison approach is limited, but comparable sales analysis remains a significant and essential part of the valuation process.Although appraisers cannot always properly identify and quantify how the factors affecting property value are different, they can still analyze comparable sales to support the conclusions of the other approaches, i.e., develop a value bracket for the value indications derived from the cost and income capitalization approaches.In addition, comparable sales analysis can provide information used in the other approaches such as overall capitalization rates for the income capitalization approach or depreciation estimates for the cost approach.”
Complainant’s appraiser admitted there is a level of weakness to the sales comparison approach due to the limited number of physically comparable properties in the local market.Emphasis added.However, this limited weakness is not a basis for rejection of the entire sales comparison approach and certainly not the appraisal.The sales provided from the Moore market data provides a strong basis to support a mid-Missouri market for rental units ranging in size from as little as 25,000 to as much as 500,000 or more square feet in area.Respondent’s criticism is not persuasive.
Qualitative Versus Quantitative Analysis
Respondent next finds fault with Mr. Moore utilizing a qualitative analysis in his sales comparison approach, instead of a quantitative analysis.It is first important that the two terms as applied to appraisal practice are properly understood.
The terms qualitative techniques and quantitative techniques are defined as follows:
Quantitative techniques – Techniques used to derive quantitative adjustments to comparable sale prices in the sales comparison approach.See also, graphic analysis, paired data analysis, statistical analysis; trend analysis.
Another way to understand qualitative analysis is that the analysis is related to or involved in comparisons based on qualities.On the other hand a quantitative analysis is related to or involved in comparisons subject to a measurement.For purposes of the present matter the critical factor is that both types of analysis are valid tools in the appraisal process under a sales comparison methodology.
Respondent’s presents a bootstrap argument on this point.It is asserted that Mr. Moore “admitted that he ‘could have’ performed a quantitative analysis, but that a qualitative analysis just seemed ‘more accurate.’ ”Respondent then concludes the appraiser “should have avoided a qualitative analysis.”A reading of the cross-examination on this point does not establish that Mr. Moore could have necessarily performed a quantitative analysis relative to each of the seven sales utilized.The question as posed was to the effect that the appraiser was not able to make a quantitative analysis relating to adjustments with regard to sale number 7.Mr. Moore did not deny the assertion that he was not able to make such an analysis.He provided a generally non-responsive answer that explained because of a lack of information relative to that market he felt the qualitative analysis was superior and appropriate.He did not state with regard to Sale 7 that he had sufficient data to do make quantitative adjustments.
In point of fact, there is no evidence to establish that a valid paired sales analysis on any of the various factors of comparability was possible.The thirteen factors of comparability provided in the Moore adjustment grid are seldom, if ever susceptible to mathematical adjustments derived from paired sales and other market data analysis.Most often on commercial properties appraisals the appraisal evidence will present a qualitative and not a quantitative analysis.In those instances when an appraiser will make a percentage or dollar adjustment for some element of comparability it is hardly ever documented by any sort of market data to establish that the percentage or dollar adjustment is what the market would recognize.In short, it has generally been the case that a qualitative analysis provides a superior methodology.
Qualitative analysis recognizes the difficulty of expressing market adjustments with mathematical precision.The qualitative analysis provides a classification of sales considered inferior and superior to the property being appraised, or for one of the elements of comparability.The adjusted prices for the inferior and superior properties bracket the value of the subject.This provides a probably range of values.The results obtained by bracketing the subject between inferior and superior comparables will usually be reliable. A conclusion of value can be properly concluded from the range of values established.
Complainant’s sales comparison approach relying on a qualitative analysis of the elements of comparability was appropriated developed and provided a suitable range of inferior and superior properties to bracket an indicated value for the subject.Respondent’s criticism on this point is not persuasive to reject the approach to value as developed.
Sales After Foreclosure
Respondent challenges the use of Sales 1, 2 and 7 by Mr. Moore on the ground that they “sold under foreclosure.”Although Mr. Moore at page 49 of his appraisal described these two properties as having “sold under foreclosure” the sales relied upon were not foreclosure sales for the properties.Foreclosure is the legal proceeding which terminates a mortgagor’s interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property.A foreclosure sale is the sale of the mortgaged property, authorized by a court decree or a power-of-sale clause, to satisfy the debt.
Sales 1, 2 and 7 were not foreclosure sales.Mr. Moore, under cross-examination on Sales 1 and 2, established a sound basis for utilization of these sales as market transactions.Counsel for Respondent’s questioning did not address the issue of whether Sale 7 was a foreclosure sale.The undisputed facts with regard to these sales establish that they were not foreclosure sales.
A professional realtor specializing in this type of property marketed the property.Property was on the market for 900 days.Marketing time was considered normal by the appraiser.No indication of adverse market conditions on the property due to the owner/seller being a bank.Mr. Moore explained his notation as to condition of sale that it did not mean the sale was a foreclosure sale.He further testified he consider the sale to be an arm’s-length transaction based on the method of marketing and the time it was marketed.The sale represented normal market conditions for that property.The financing was cash payment.No rebuttal evidence was presented establishing that this sale was not an arm’s-length transaction between a willing buyer and willing seller.
Property had not actually been foreclosed, contrary to the notation on the information grid presented by Mr. Moore.The owner was going out of business.It was marketed for three years at prices nearly double what it sold for.When efforts to sell for three years failed, it was auctioned.The property had adequate exposure to the market and involved a willing buyer and willing seller.The financing was cash payment.No rebuttal evidence was presented establishing that this sale was not an arm’s-length transaction between a willing buyer and willing seller.
The Appraiser noted this was an arm’s-length transaction.It was apparently a sale after foreclosure.Mr. Moore was not questioned relative to this sale.It was marketed through a broker.The sale was a cash transaction.No rebuttal evidence was presented establishing that this sale was not an arm’s-length transaction between a willing buyer and willing seller.
Analysis of Respondent’s Claim
There are several points of analysis relative to Respondent’s claim that these sales are not proper to be used as comparables because they “sold under foreclosure.”First, Respondent’s argument misrepresents the facts by equating the sales to foreclosure sales.None of the sales qualify as foreclosure sales.Any attempt to equate them to foreclosure sales is simply misleading and in error.
Lack of Authoritative Source
Respondent fails to present any authority or source to support the proposition that a sale by a prior mortgagee, now owner, is not a market, arm’s-length transaction.The reliance by Respondent on Snider v. Casino Aztar on this point provides nothing of substance to establish that the three sales under consideration are not market transactions.Snider clearly does not establish as a rule of law that simply because a bank sells a property after foreclosure that the sale is not an arm’s-length transaction.No other authority was presented to establish the proposition that these sales do not qualify as market transactions.
Theory Not Established By Evidence
The argument in support of the claim is that banks that foreclose on property are not in the business of buying and selling real estate for profits, but are only looking to cover losses on the mortgage.A bank purchasing a property in foreclosure is certainly acting to protect its economic interests.However, no facts were presented to establish that once a bank has title to the foreclosed property that it intentionally acts to sell it at a greatly reduced price and not attempt to realize as much of a profit as the market will produce.
The mantra “a sale after foreclosure is not a market sale” doesn’t equate to evidence.The present record contains no evidence to support the theory a bank does not attempt to achieve a profit on properties being sold after foreclosure.To follow such a line of reasoning, one would have to conclude that banks aren’t in business to make a profit.No evidence was presented providing a basis to conclude that the banks involved in Sales 1 and 7 acted in any manner that was inconsistent with a knowledgeable willing seller giving adequate exposure to the market in order to obtain the highest price possible for the properties.As to Sale 2 which was not a sale by a bank, there is no evidence that the owner failed to act to obtain the best price the market would established.
There is no evidence to conclude that Sales 1, 2 and 7 are not market transactions.A contention presented by a party is not evidence.It is speculation.Such will not support the conclusion that it was improper to utilize these sales in this appraisal process.
Presumption of Voluntary Sale Not Rebutted
As a matter of law, absent contrary evidence there exists the presumption that the sale prices for these transactions were freely fixed and not under any compulsion.
“The party seeking to admit comparable sales evidence bears the burden of showing that the sale was voluntary.(citation omitted)This burden is discharged prima facie, however, because the law presumes the sale price was “freely fixed and not under compulsion.” (citation omitted)The burden then shifts to the opposing party to produce evidence that the sale was not voluntary. (citation omitted)”
Therefore, the presumption is that the prices obtained Sales 1, 2 and 7 were freely and voluntarily determined, and were, in fact, arm’s-length transactions.Respondent failed to present any evidence to rebut that presumption.Therefore, the presumption remains and establishes that it was not improper to utilize these sales in the appraisal.
Sales After Foreclosure – Summary
Respondent’s contention is not supported by any authoritative source, or evidence and it is contrary to the presumption under the law that the sales in question were voluntary sales.There is no basis to reject the use of Sales 1, 2 and 7.
Sale By Auction
Respondent attacks Sale 2 because it was sold at auction.Like the contention relating to sales after foreclosure, this attack lacks any support from an authoritative source or any evidence to establish that the auction was not an arm’s-length transaction.The criticism of the use of this sale ignored the fact that extensive efforts at marketing the property had been undertaken but had failed.The criticism is not well founded.It was not error for the appraiser to utilize this sale.
Lack of Adjustments
The next assertion put forth by Respondent is the failure of Mr. Moore to make adjustments to the various sales to account for overall inferior or superior comparability.Qualitative comparison involves the relationship between the subject property and properties inferior, comparable or superior to it without recourse to quantification.
The Improved Sale Adjustment Grid developed by Mr. Moore properly illustrates those areas where quantitative adjustments are to be made.Specifically, if the appraiser determines dollar adjustments are warranted for property rights, financing terms, conditions of sale, or market conditions those adjustments are to be made.
Mr. Moore made no adjustments as to property rights, as five of the sales were fee simple and the other two were partially leased at the time of sale.There is no evidence that any adjustment to sale price was needed relative to the leased fee property rights.No adjustments were made for financing terms as all sales were for cash.No adjustments for condition of sale were warranted, as there is no evidence of any special conditions imposed by any seller in any of the comparable sales.Mr. Moore did adjust Sale 3 and Sale 6 for market conditions due to his determination that such an adjustment was warranted.
The portion of the adjustment grid which listed the elements of comparability does not require monetary adjustments.The appraiser identifies which elements are inferior or superior to the subject.If no such indication is made, the subject and the comparables are considered comparable for that factor.A dollar adjustment was made to Sale 3 to account for functional utility which was cured after purchase by a renovation.A detailed explanation was provided for this.
Complainant’s appraiser correctly applied qualitative comparison techniques to conclude the range of inferior properties at $5.86 to $8.97 per square foot (Sales 1 & 2), one comparable property (Sale 3) at $12.35 and a range of superior properties (Sales 4, 5, 6 & 7) at $7.97 to $24.94.Extensive analysis of the qualitative comparison of each comparable sale to the subject property was provided.The conclusion of value of $14 per square foot for the Scholastic Property was based on an appropriately developed qualitative analysis of the adjusted sales and the value bracket developed.
Respondent’s criticism on this point provides no basis for rejecting the conclusion of value determined under the sales comparison approach as developed by Mr. Moore.
Respondent took issue with the fact that Complainant’s appraiser used properties that were vacant at the time of sale.The reasoning applied generally is that since the property being appraised is not vacant, it is inappropriate to rely on sales of properties that are not occupied.
To advance this argument Respondent has to ignore the standard of valuation.A hypothetical sale is the foundation upon which the determination of value is to be made.Unless the property being appraised is under a long term lease as of the valuation date, the hypothetical sale is always of the subject being vacated.
In the present case there is no evidence to support a valuation based upon Scholastic selling the property on a lease back basis.No market data was provided by Respondent that such would occur.Therefore, the idea that the property would sell and remain occupied by Scholastic is improper.
Respondent provides no authority from any recognized appraisal source that for the present appraisal problem the use of a vacant property is improper or prohibited.For purposes of this appraisal problem, it must be assumed the property is on the market prior to the valuation date and that it is vacant, because no long term lease exists.It is irrelevant to the appraisal process for selecting comparable properties that the subject is occupied and the sale properties were vacant.
The property may be assumed vacant for any number of reasons – owner has moved its operation and is closing the facility, owner has gone out of business for whatever reason and the property is for sale, property has been foreclosed and the former lender, now owner has listed the property for sale.However, the hypothetical condition of a sale on the valuation date is not inconsistent with relying on sales of comparable properties that were vacant at the time of sale.The most appropriate comparable sales for owner-occupied commercial property will most generally always be vacant properties as opposed to properties under long term leases.
Miscellaneous Criticisms of Complainant’s Sales Comparison Approach
Respondent’s Brief addressed other points he believed presented problems concerning the validity of the Moore appraisal.After reviewing the entirety of Respondent’s Brief against the actual evidentiary record, there is no basis upon which the Hearing Office can reasonably, or should rationally reject the Complainant’s sales comparison methodology.
Sales Comparison Approach – Conclusion
The Moore appraisal presented a sales comparison methodology based on sound and adequate market data.The analysis was well reasoned.The conclusion of value of $12,000,000 was well supported.The various claims of alleged deficiencies made by Respondent against Complainant’s sales comparison approach are shown to be not well founded.None of them individually or collectively provide any reasonable grounds to not give substantial weight to this approach to value.
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, 2007.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.”
Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.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.
The evidence placed on the record by Complainant met the required standard.The burden of proof was met.Complainant established an overvaluation by the Board.The evidence of value developed under each of the approaches provided the appropriate basis for a determination of true value in money.Complainant proved the true value in money for the Scholastic Property as of January 1, 2007 to be $12,000,000.
The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for Cole County for the subject tax day is SET ASIDE.
The assessed commercial value for the subject property for tax years 2007 and 2008 is set at $3,840,000.
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.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.
The Collector of Cole 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 April 29, 2009.
STATE TAX COMMISSION OFMISSOURI
W. B. Tichenor
Senior Hearing Officer
 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).
 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).
 Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Lowe v. Lombardi, 957 S.W.2d 808 (Mo. App. W.D. 1997); Forms World, Inc. v. Labor and Industrial Relations Com’n, 935 S.W.2d 680 (Mo. App. W.D. 1996); Evangelical Retirement Homes v. STC, 669 S.W.2d 548 (Mo. 1984); Pulitzer Pub. Co. v. Labor and Indus. Relations Commission, 596 S.W.2d 413 (Mo. 1980); St. Louis County v. STC, 562 S.W.2d 334 (Mo. 1978); St. Louis County v. STC, 406 S.W.2d 644 (Mo. 1966).
 “All decisions issued pursuant to this section or section 138.432 by the commission or any of its duly assigned hearing officers shall be issued no later than sixty days after the hearing on the matter to be decided is held or the date on which the last party involved in such matter files his or her brief, whichever event later occurs.”
 “Any person who has exhausted all administrative remedies provided by law and who is aggrieved by a final decision in a contested case, whether such decision is affirmative or negative in form, shall be entitled to judicial review thereof, as provided in sections 536.100 to 536.140, unless some other provision for judicial review is provided by statute; provided, however, that nothing in this chapter contained shall prevent any person from attacking any void order of an agency at any time or in any manner that would be proper in the absence of this section. If the agency or any board, other than the administrative hearing commission, established to provide independent review of the decisions of a department or division that is authorized to promulgate rules and regulations under this chapter fails to issue a final decision in a contested case within the earlier of:
(1) Sixty days after the conclusion of a hearing on the contested case; or
(2) One hundred eighty days after the receipt by the agency of a written request for the issuance of a final decision, then the person shall be considered to have exhausted all administrative remedies and shall be considered to have received a final decision in favor of the agency and shall be entitled to immediate judicial review as provided in sections 536.100 to 536.140 or other provision for judicial review provided by statute. In cases, whether contested or not, where the law provides for an independent review of an agency’s decision by a board other than the administrative hearing commission and further provides for a de novo review of the board’s decision by the circuit court, a party aggrieved by the agency’s decision may, within thirty days after it receives notice of that decision, waive independent review by the board and instead file a petition in the circuit court for the de novo review of the agency’s decision. The party filing the petition under this section shall be considered to have exhausted all administrative remedies.”
 DECISION, Cost Approaches – Historic Costs Analysis (pp. 14 – 15); Replacement Cost New Analysis (pp. 15 – 17); Accrued Depreciation Analysis (pp. 18 – 20); Land Value Analysis (pp. 20 – 22); Respondent’s Challenges to the Moore Cost Approach, pp. 22 – 24.
 DECISION, Trail Appraisal – Highest and Best Use Analysis, pp. 9 – 10; Historic Costs Analysis – Trail Procedure, p. 14; Replacement Cost New Analysis – Trail Procedure, pp. 15 – 17;Accrued Depreciation Analysis – Trail Procedure, pp. 19-20;Land Value Analysis – Trail Procedure, pp. 21 – 22;Income Approaches – Potential Gross Income, pp. 26 – 27;Vacancy Allowance, pp. 27 – 28;Expenses, p. 28;Overall Rate, p. 29;Trail Data – p. 31.
 Subsection 2 of the statute provides.“In order to investigate such appeals, the commission 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. The commission may make its decision regarding the assessment or valuation of the property based solely upon its inquiry and any evidence presented by the parties to the commission, or based solely upon evidence presented by the parties to the commission.”
 USPAP 2008-2009 Definitions – an assignment condition that voids the force of a part or parts of USPAP when compliance with part or parts of USPAP is contrary to law or public policy applicable to any assignment.
 Hermel, Inc. v. STC, 564 S.W.2d 888 (Mo. 1978); Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Holt v. Clarke, 965 S.W.2d 241 (Mo. App. W.D. 1998); Smith v. Morton, 890 S.W.2d 403 (Mo. App. E.D. 1995); Phelps v. Metropolitan St. Louis Sewer Dist., 598 S.W.2d 163 (Mo. App. E.D. 1980).
 Complainant’s Appraiser did not include the mezzanine area in his approaches to value.See, Exhibit A, Cost, Sales and Income Approaches; Respondent’s Appraiser included the mezzanine in her cost approach, but not in her income approach.See, Exhibit 1, Cost and Income Approaches.
 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).
 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).
 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; Exhibit A, p. 4; Exhibit 1, p. 6.
 The Appraisal of Real Estate – Twelfth Edition, Appraisal Institute,(2001) p. 305; See also: The Dictionary of Real Estate Appraisal – Third Edition, Appraisal Institute, 1993, p 171; Real Estate Appraisal Terminology – Revised Edition, Society of Real Estate Appraisers, 1984, pp.126-127; Real Estate Valuation in Litigation, J. D. Eaton, MAI, 1982, pp. 62-82.
 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).
 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).
 Section 490.065, RSMo; State Board of Registration for the Healing Arts v. McDonagh, 123 S.W.3d 146 (Mo. SC. 2004); Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-505, pp. 325-350; Wulfing v. Kansas City Southern Industries, Inc., 842 S.W.2d 133 (Mo. App. E.D. 1992).
 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).
 Moore used 889,294 total square feet, Trail used 884,700 total square feet.The Hearing Officer has not attempted to reconcile the different areas.For purposes of addressing the two approaches, the square footage used by an individual appraiser is applied to the discussion for that appraiser’s approach.
 See,The Appraisal of Real Estate – Thirteenth Edition, Appraisal Institute, Chapter 17 – Cost Approach, specifically Reproduction Cost versus Replacement Cost, pp. 385-386; Chapter 19 – Depreciation Estimates, specifically Functional Obsolescence, pp. 434-435.
 Mean – average; Median – the value of the middle number of items arranged or arrayed a according to size; Mode – the most frequent, or typical, value in an array of numbers.The Dictionary of Real Estate Appraisal – Third Edition.
 A net lease under which the lessee assumes all expenses of operating the property including both fixed and variable expenses.The Dictionary of Real Estate Appraisal – Third Edition; Also, Real Estate Appraisal Terminology – Revised Edition, Net Lease; The Appraisal of Real Estate- Thirteenth Edition, pp. 451.
 In State Tax Commission appeals, the term Overall Rate encompasses the Capitalization and Effective Tax Rates. See, Real Estate Appraisal Terminology – Revised Edition, Capitalization Rate and Effective Tax Rate.
 Exhibit 1. p. 50; Tr. 55:5-7 – “So, like in the income approach, it would not have been included.If I had done a sales comparison approach, it would not have been included.The footprint of the area, but not the mezzanine.”
 Exhibit A, pp. 45 & 46: Location, Land Area, Gross Bldg Area, Finished Bldg are, Net Rentable Area, Quality, Condition/Effective Age, Basement, Eave Height, Functional Utility, Parking Type/Surface, Parking Spaces, Other Features.
 Arm’s-length – Of or relating to dealings between two parties who are not related or not on close terms and who are presumed to have roughly equal bargaining power; not involving a confidential relationship. – Black’s Law Dictionary – Seventh Edition.
 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).