Villa Roma III LP Et al v. Scott Shipman, Assessor St. Charles County

December 26th, 2018

STATE TAX COMMISSION OF MISSOURI

 

VILLA ROMA III, LP, )  
and ) Appeal Nos. 17-32692 through 17-32715
EUGENE DICKHERBER, SALLY DICKHERBER, DAVID R. SANFORD, LINDA K. SANFORD, & JOHN D. SANFORD, )

)

)

)

and

Appeal Nos. 17-32716 through 17-32722

              Complainants, )  
v. )  
  )  
SCOTT SHIPMAN,  ASSESSOR, )  
ST. CHARLES COUNTY, MISSOURI,

Respondent.

)

)

 

 

DECISION AND ORDER

 

HOLDING

 

The decisions of the St. Charles County Board of Equalization (BOE) with regard to these appeals are AFFIRMED, in part, and SET ASIDE, in part.  Villa Roma III, LP; Eugene Dickherber; Sally Dickherber; David R. Sanford; Linda K. Sanford; and John D. Sanford (referred to collectively as Complainants) did not present substantial and persuasive evidence to rebut the presumption of correct assessments by the BOE.  Scott Shipman, Assessor, St. Charles County, Missouri, (Respondent) presented substantial and persuasive evidence to rebut the presumption of correct assessments by the BOE.

Complainants appeared by Counsel Patrick W. Keefe.

Respondent appeared by Counsel Amanda Jennings.

Case heard and decided by Senior Hearing Officer Amy S. Westermann (Hearing Officer).

 

ISSUE

Respondent and the BOE, respectively, set the true value in money (TVM) of the subject properties, as residential property, as of January 1, 2017, as follows:

Appeal No. Parcel/Locator No. Assessor’s value BOE’s value
17-32692 032150A000 $178,277 $178,277
17-32693 032160A000 $178,277 $178,277
17-32694 032170A000 $178,277 $178,277
17-32695 032180A000 $178,277 $178,277
17-32696 032190A000 $178,277 $178,277
17-32697 032200A000 $178,277 $178,277
17-32698 032210A000 $178,277 $178,277
17-32699 032220A000 $178,277 $178,277
17-32700 032230A000 $178,277 $178,277
17-32701 032240A000 $178,277 $178,277
17-32702 032250A000 $178,277 $178,277
17-32703 032260A000 $178,277 $178,277
17-32704 032270A000 $178,277 $178,277
17-32705 032280A000 $178,277 $178,277
17-32706 032290A000 $178,277 $178,277
17-32707 032300A000 $178,277 $178,277
17-32708 032310A000 $178,277 $178,277
17-32709 032320A000 $178,277 $178,277
17-32710 032330A000 $178,277 $178,277
17-32711 032340A000 $178,277 $178,277
17-32712 032350A000 $178,277 $178,277
17-32713 032360A000 $178,277 $178,277
17-32714 032370A000 $178,277 $178,277
17-32715 032380A000 $178,277 $178,277
Total Valuation for Villa Roma III $4,278,648 $4,278,648
17-32716 082800A000 $152,809 $152,809
17-32717 082810A000 $152,809 $152,809
17-32718 082820A000 $152,809 $152,809
17-32719 082830A000 $152,809 $152,809
17-32720 082840A000 $152,809 $152,809
17-32721 082850A000 $152,809 $152,809
17-32722 082860A000 $152,809 $152,809
Total Valuation for Villa Roma II $1,069,633 $1,069,633

 

Complainants appealed to the State Tax Commission (STC) on the ground of overvaluation.  The STC takes these appeals to determine the TVM for the subject properties as of January 1, 2017, under the economic conditions as they existed on January 1, 2017.  The value as of January 1 of the odd numbered year remains the value as of January 1 of the following even numbered year unless there is new construction or improvement to the property.  Section 137.115.1[1].

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

FINDINGS OF FACT

  1. Jurisdiction. Jurisdiction over this appeal is proper.  Complainants timely appealed to the State Tax Commission.
  2. Evidentiary Hearing. The issue of overvaluation was presented at an evidentiary hearing on May 3, 2018, at the St. Charles County Government Administration Building in St. Charles, Missouri.
  3. Identification of Subject Properties. The subject properties are identified as follows:
Appeal No. Parcel/Locator No. Address
17-32692 032150A000 901 Broadmoor Lane
17-32693 032160A000 909 Broadmoor Lane
17-32694 032170A000 917 Broadmoor Lane
17-32695 032180A000 925 Broadmoor Lane
17-32696 032190A000 933 Broadmoor Lane
17-32697 032200A000 941 Broadmoor Lane
17-32698 032210A000 949 Broadmoor Lane
17-32699 032220A000 957 Broadmoor Lane
17-32700 032230A000 965 Broadmoor Lane
17-32701 032240A000 973 Broadmoor Lane
17-32702 032250A000 981 Broadmoor Lane
17-32703 032260A000 989 Broadmoor Lane
17-32704 032270A000 990 Broadmoor Lane
17-32705 032280A000 982 Broadmoor Lane
17-32706 032290A000 974 Broadmoor Lane
17-32707 032300A000 966 Broadmoor Lane
17-32708 032310A000 958 Broadmoor Lane
17-32709 032320A000 950 Broadmoor Lane
17-32710 032330A000 942 Broadmoor Lane
17-32711 032340A000 934 Broadmoor Lane
17-32712 032350A000 926 Broadmoor Lane
17-32713 032360A000 918 Broadmoor Lane
17-32714 032370A000 910 Broadmoor Lane
17-32715 032380A000 902 Broadmoor Lane
17-32716 082800A000 2200 N. 4th Street
17-32717 082810A000 2208 N. 4th Street
17-32718 082820A000 2216 N. 4th Street
17-32719 082830A000 2224 N. 4th Street
17-32720 082840A000 2232 N. 4th Street
17-32721 082850A000 2204 N. 4th Street
17-32722 082860A000 2248 N. 4th Street

 

  1. Description of Subject Properties. The subject properties consist of two apartment complexes held under common ownership.  The subject properties known as Villa Roma II (Appeal Nos. 17-32716 through 17- 32722) are smaller and newer than the subject properties known as Villa Roma III (Appeal Nos. 17-32692 through 17-32715).  Villa Roma II was built in the 1960s while Villa Roma III was built in the 1950s.

Villa Roma II consists of 1.143 acres (49,794 square feet) of land improved by an apartment complex.  (Exhibit A; Exhibit 1)  The apartment complex consists of 28 units in seven, one-story four-plex buildings.  (Exhibit A; Exhibit 1)  All 28 units contain 425 square feet[2], one bedroom and one bathroom, and the exterior construction is brick veneer.  (Exhibit A; Exhibit 1)  One of the units is used as the apartment complex office, and a second unit is used as a storage unit, leaving 26 rentable units.  (Exhibit A; Exhibit 1)  As of January 1, 2017, the apartment complex has not been significantly updated since its construction.  (Exhibit A)

Villa Roma III consists of 4.78 acres (208,045 square feet) of land improved by an apartment complex plus .67 acres improved by a swimming pool, laundry facility, garages, and two storage buildings.  (Exhibit A; Exhibit 1)  The apartment complex consists of 96 units in 24, one-story four-plex buildings.  (Exhibit A; Exhibit 1)  All 96 units contain 620 square feet[3], two bedrooms and two bathrooms, and the exterior construction is brick veneer.  (Exhibit A; Exhibit 1)  Approximately 30 of the units were updated as of January 1, 2017.  (Exhibit A)

  1. Assessment of the Properties. With regard to Villa Roma II (Appeal Nos. 17-32716 through 17-32722), Respondent valued those properties in the total amount of $1,069,663 as residential property.  With regard to Villa Roma III (Appeal Nos. 17-32692 through 17-32715), Respondent valued those properties in the total amount of $4,278,648, as residential property.

With regard to Villa Roma II (Appeal Nos. 17-32716 through 17-32722), the BOE valued those properties in the total amount of $1,069,663, as residential property.  With regard to Villa Roma III (Appeal Nos. 17-32692 through 17-32715), the BOE valued those properties in the total amount of $4,278,648, as residential property.

  1. Complainants’ Evidence. With regard to Villa Roma II, Complainants opined those properties had a TVM of $840,000 as of January 1, 2017.  With regard to Villa Roma III, Complainants opined those properties had a TVM of $3,600,000 as of January 1, 2017.

To support their opinions of value, Complainants offered the following exhibits:

Appeal No. Exhibit Description Ruling
17-32716 through 17-32722 Exhibit A Appraisal Report for Villa Roma II Admitted
17-32716 through 17-32722 Exhibit B Written Direct Testimony of Appraiser Joe Camerer Admitted
17-32692 through 17-32715 Exhibit C Appraisal Report for Villa Roma III Admitted
17-32692 through 17-32715 Exhibit D Written Direct Testimony of Appraiser Joe Camerer Admitted

 

Villa Roma II

Income Approach

After analyzing three comparable properties and determining that it was appropriate to use the “asking” rent for the subject property of $450 per month as the “base rent,” the appraisal report used the data specific to the subject property to calculate the following income, expenses, net operating income, and capitalization rate:

Income
Base Rent $151,200
Reimbursement Income $0
Other Income (estimated 1%) +$1,512
Potential Gross Income $152,712
Vacancy & Collection Loss (8%) -$15,271
Effective Gross Income $137,441
Expenses
Management Expense 12% $16,493
Maintenance $750/unit $21,000
Utilities $200/unit $5,600
Insurance $360/unit $10,080
Miscellaneous $0/unit $0
Reserves $100/unit $2,800
Real Estate Taxes N/A
Total Operating Expenses $55,973
Net Operating Income (NOI) $81,468
9.90410% Capitalization Rate (Overall Rate 8.5% + Effective Tax Rate 1.4041%) $3,549,838
Capitalized Value $822,750
Less:  Deferred Maintenance -$10,000
Indicated Value – January 1, 2017 $812,750

Rounded to $815,000

The appraisal report determined the capitalization rate based on the market extraction method, utilizing five rates based on these sales “used in this appraisal and other apartment complex appraisals [the appraiser had] done from this time period.”  (Exhibit A)  The rates averaged 8.5%.  (Id.)

Sales Comparison Approach

The appraisal report analyzed five comparable properties that had sold between November 2012 and March 2017.  (Exhibit A)  The sale prices of the comparables ranged from $450,000 to $14,750,700, which translated to unit prices ranging from $26,712 to $58,768 and square foot prices ranging from $39.57 to $67.11.  (Id.)  The number of units for the comparable properties ranged from 12 to 251, and the condition of the comparable properties ranged from “inferior” to “similar,” to “superior.”  The appraisal report established a “base rental income” for each of the comparable properties, then conducted an income and expense analysis, finding a capitalization rate and a GIM for each comparable.  Finally, the appraisal report concluded a GIM for the subject property that was the average of the GIMs for the comparables and determined that the cost of renovating the unit currently used as storage space would be subtracted.  The appraisal report estimated the subject property’s gross income to be $151,200 and multiplied that amount by the GIM of 5.7 less deferred maintenance of $10,000 to arrive at a value indication of $851,840, which rounded to $850,000.  (Id.)

Reconciliation

The appraisal report reconciled the sales comparison approach and the income approach, finding the sales comparison approach using a GIM analysis to be the best indicator of value in this instance, and determined the TVM of $840,000.  (Exhibit A)

Villa Roma III

Income Approach

After analyzing three comparable properties and determining the average market rent was $523.44 per month, the appraisal report used the data specific to the subject property to calculate the following income, expenses, net operating income, and capitalization rate:

Income
Base Rent $603,003
Reimbursement Income $0
Other Income (estimated 1%) +$6,030
Potential Gross Income $609,033
Vacancy & Collection Loss (8%) -$48,723
Effective Gross Income $560,310
Expenses
Management Expense 12% $67,237
Maintenance $750/unit $72,000
Utilities $300/unit $28,800
Insurance $325/unit $31,200
Miscellaneous $0/unit $0
Reserves $100/unit $9,600
Real Estate Taxes N/A
Pest Control $420
Total Operating Expenses $208,837
Net Operating Income (NOI) $351,473
9.90110% Capitalization Rate (Overall Rate 8.5% + Effective Tax Rate 1.4011%) $3,549,838
Plus: Value of storage buildings $50,000
Indicated Value – January 1, 2017 $3,599,838

Rounded to $3,600,000

 

The appraisal report determined the capitalization rate based on the market extraction method, utilizing five rates based on these sales “used in this appraisal and other apartment complex appraisals [the appraiser had] done from this time period.”  (Exhibit A)  The rates averaged 8.5%.  (Id.)

Sales Comparison Approach

The appraisal report analyzed five comparable properties that had sold between November 2012 and March 2017.  (Exhibit C)  The sale prices of the comparables ranged from $450,000 to $14,750,700, which translated to unit prices ranging from $26,712 to $58,768 and square foot prices ranging from $39.57 to $67.11.  (Id.)  The number of units for the comparable properties ranged from 12 to 251, and the condition of the comparable properties ranged from “inferior” to “similar,” to “superior.”  The appraisal report established a “base rental income” for each of the comparable properties, then conducted an income and expense analysis, finding a capitalization rate and a GIM for each comparable.  Finally, the appraisal report concluded a GIM for the subject property that was slightly higher than the average of the GIMs for the comparables and determined that storage buildings on the parcel had contributory value.  The appraisal report estimated the subject property’s gross income to be $3,557,700 and multiplied that amount by the GIM of 5.9 to arrive at a value indication of $3,607,700, which rounded to $3,600,000.  (Id.)

Reconciliation

The appraisal report reconciled the sales comparison approach and the income approach, finding the sales comparison approach using a GIM analysis to be the best indicator of value in this instance, and determined the TVM of $3,600,000.  (Exhibit C)

Other Evidence

Complainants also presented the testimony of Missouri Certified General Appraiser Joe Camerer (Camerer).  Camerer holds a Bachelor of Science degree in accounting and has completed numerous real estate valuation courses.  Camerer has been a real estate appraiser since approximately 1994, is a past associate member and former board member of the Appraisal Institute, and is a member of the St. Louis Association of Realtors and the Greater Gateway Association of Realtors in Illinois.  Camerer is certified to appraise property in Missouri and Illinois.

Camerer prepared Complainants’ appraisal reports for Villa Roma II, Exhibit A, and Villa Roma III, Exhibit C.  Camerer testified that he personally inspected the subject properties and examined documentation and information relevant to valuing the properties.  Camerer testified that he used the income capitalization and sales comparison approaches to determine the value of the subject properties and that he placed the most weight on the sales comparison approach.  Camerer testified that he did not use the cost approach because of the age of the improvements, which would require an estimate for depreciation too large and too subjective to provide a meaningful indication of value.

On cross examination, Camerer testified that he had appraised 15 apartment complexes in the year prior to the Evidentiary Hearing for purposes of tax appeals and bank loans.  The apartment complexes were in St. Louis County and in Illinois.  Camerer testified that 15% of his work was with multi-family housing.  Camerer testified that he did not include neighborhood descriptions in the appraisal reports of the subject properties because everyone who would be looking at the reports was familiar with St. Charles County.  The appraisal reports did not discuss USPAP[4]-required considerations of neighborhoods, proximity to shopping, demand, affordability.  Camerer testified that he used the county’s determination of the subject properties’ square footage after he measured the exterior of each building and compared the county’s records.  Camerer testified that the unit sizes averaged 720 square feet and that the building totaled 69,120 square feet.  Camerer testified that he did not think it necessary to calculate affordability of rents because the occupancy rates “were there” and implied demand.  Camerer testified that it was not necessary to find market rent to calculate the TVM of the subject properties because the income levels of the tenants or community did not lead to a determination of market rent.  Camerer estimated a vacancy rate but did not conduct an analysis of supply and demand.  Camerer testified that he assumed the subject properties would continue in their current use, that there was not a demand for redevelopment in the areas of the subject property, and that the continued use was not a critical issue to the determination of value because the highest and best use probably will not change.

Camerer testified that he was not aware of the sale of the apartment complex across the street from the subject properties.  Camerer testified that he obtained some information for a rental comparable from Craig’s List.com, which he might have confirmed with information from other sources.  Camerer did not talk with the management of the comparable.  Camerer did not visit at least one of the comparables.  Camerer relied on the sales comparison approach to determine the TVM of the subject properties.  However, Camerer did not make adjustments for amenities to a rental comparable with amenities because he did not believe the amenities of Villa Roma III had much value or impact on the rental rate.  Camerer did not have market data to support this presumption.

On re-direct, Camerer testified that it is most important to select similar comparable sales with regard to the rent and expense ratio.  Camerer testified that he tried to find older comparables similar to the subject properties and did not use new complexes in St. Charles County because of the limitation of not making adjustments when calculating a GIM.  Camerer testified that his sources for comparables were the MLS, Co-Star, and St. Charles County records.  Camerer repeated that he physically measured the exterior of each building of Villa Roma III, which revealed larger square footage than the square footage recorded in county records. 

  1. Respondent’s Evidence.  With regard to Villa Roma II, Respondent opined those properties had a TVM of $1,144,000 as of January 1, 2017.  With regard to Villa Roma III, Respondent opined those properties had a TVM of $4,250,000 as of January 1, 2017.

To support the opinions of value, Respondent offered the following exhibits:

Appeal No. Exhibit Description Ruling
17-32716 through 17-32722 Exhibit 1 Appraisal Report for Villa Roma II Admitted
17-32692 through 17-32715 Exhibit 2 Appraisal Report for Villa Roma III Admitted
17-32716 through 17-32722 Exhibit 3 Written Direct Testimony of Appraiser Keith M. Kramer Admitted
17-32692 through 17-32715 Exhibit 4 Written Direct Testimony of Appraiser Keith M. Kramer Admitted

 

Villa Roma II

Income Approach

After analyzing seven comparable properties and determining that market rent for the subject property was $575 per month, the appraisal report used the data specific to the subject property to calculate the following income, expenses, net operating income, and capitalization rate:

Income
Potential Gross Rent $193,200
Other Income (user fees, forfeited security deposits, damage/redecorating charges, and miscellaneous income) +$3,360
Potential Gross Income $196,560
Less Collection Loss (7.0%) -$13,759
Total Effective Gross Income $182,801
Expenses
Administrative
Management Fee 4.0% $7,312
Marketing $420
Payroll $13,530
Office & Administrative Expense $2,520
Subtotal Administrative Expense $23,782
Operating Expense
Utilities $6,888
Trash/Scavenger $2,016
Pest Control $420
Insurance $10,080
Other $0
Subtotal Operating Expense $19,404
Maintenance Expense
Decorating $1,820
Repairs $3,500
Payroll $18,250
Grounds $1,820
Other $0
Subtotal Maintenance Expense $25,390
Total Expenses Before Taxes $68,576
Taxes
Real Estate Taxes n/a
Payroll Taxes $3,814
Other $700
Subtotal Taxes $4,514
Total Expenses and Taxes $73,090
Reserve for Replacement $10,769
Total Expenses $83,859
Net Cash Flow Before Debt Service (NOI) $98,942
9.63% Capitalization Rate (Overall Rate 8.25% + Effective Tax Rate 1.383%) $1,027,100
Value by Annualized Pro Forma $1,025,000

 

The appraisal report determined the capitalization rate based on a review of three market sales, the American Council of Life Insurance survey, discussions with local investors, and the mortgage-equity analysis.  (Exhibit 1)

Sales Comparison Approach

The appraisal report analyzed four comparable properties that had sold between April 2015 and February 2017.  (Exhibit 1)  Three of the comparable properties were built between 1965 and 1970 and were similar to the subject property.  One of the comparable properties was built in 2002, consisted of “upgraded” amenities, and bore little resemblance to the subject property.  The sale prices of the comparables ranged from $450,000 to $9,800,000, which translated to unit prices ranging from $37,500 to $105,376 and square foot prices ranging from $46.30 to $110.29.  (Id.)  After applying an effective gross income multiplier (EGIM) and making market based adjustments to each comparable, the adjusted sale price per unit of the comparables ranged from $36,900 to $44,834.  (Id.)  From this data, the appraisal report estimated the subject property’s price per unit to be $40,000.  The appraisal report multiplied the price per unit by the subject property’s number of units, 28, to conclude a value of $1,120,000.  The appraisal report also multiplied an EGIM of 7.75 to the EGI found in the income approach, $182,801, to conclude a value of $1,416,706.  The appraisal report correlated the values at $1,250,000.  (Id.)

Reconciliation

The appraisal report reconciled the values determined by the income approach and the sales comparison approach, finding the income approach to be the best indicator of value in this instance, and determined a value of $1,200,000.  From this value, the appraisal report deducted $56,000 for the costs of deferred maintenance or the costs of bringing the units to a rentable condition, resulting in a final TVM of $1,144,000.

Villa Roma III

Income Approach

After analyzing eight comparable properties and determining that market rent for the subject property was $650 per month, the appraisal report used the data specific to the subject property to calculate the following income, expenses, net operating income, and capitalization rate:

Income
Potential Gross Rent $748,800
Other Income (user fees, forfeited security deposits, damage/redecorating charges, and miscellaneous income) +$16,200
Potential Gross Income $765,000
Less Collection Loss (7.0%) -$53,550
Total Effective Gross Income $711,450
Expenses
Administrative
Management Fee 4.0% $28,458
Marketing $2,880
Payroll $41,000
Office & Administrative Expense $12,000
Subtotal Administrative Expense $84,338
Operating Expense
Utilities $38,976
Trash/Scavenger $11,520
Pest Control $1,440
Insurance $30,720
Other $0
Subtotal Operating Expense $82,656
Maintenance Expense
Decorating $12,000
Repairs $21,600
Payroll $54,750
Grounds $12,000
Other $960
Subtotal Maintenance Expense $101,310
Total Expenses Before Taxes $268,304
Taxes
Real Estate Taxes n/a
Payroll Taxes $11,490
Other $2,400
Subtotal Taxes $13,890
Total Expenses and Taxes $282,194
Reserve for Replacement $36,924
Total Expenses $319,118
Net Cash Flow Before Debt Service (NOI) $392,332
9.38% Capitalization Rate (Overall Rate 8.00035% + Effective Tax Rate 1.383%) $4,181,243
Value by Annualized Pro Forma $4,180,000

 

The appraisal report determined the capitalization rate based on a review of three market sales, the American Council of Life Insurance survey, discussions with local investors, and the mortgage-equity analysis.  (Exhibit 2)

Sales Comparison Approach

The appraisal report analyzed four comparable properties that had sold between April 2015 and February 2017.  (Exhibit 2)  Three of the comparable properties were built between 1965 and 1970 and were similar to the subject property.  One of the comparable properties was built in 2002, consisted of “upgraded” amenities, and bore little resemblance to the subject property.  The sale prices of the comparables ranged from $450,000 to $9,800,000, which translated to unit prices ranging from $37,500 to $105,376 and square foot prices ranging from $46.30 to $110.29.  (Id.)  After applying an effective gross income multiplier (EGIM) and making market based adjustments to each comparable, the adjusted sale price per unit of the comparables ranged from $36,900 to $45,101.  (Id.)  From this data, the appraisal report estimated the subject property’s price per unit to be $43,000.  The appraisal report multiplied the price per unit by the subject property’s number of units, 96, to conclude a value of $4,128,000.  The appraisal report also multiplied an EGIM of 7.75 to the EGI found in the income approach, $711,450, to conclude a value of $5,513,738.  The appraisal report correlated the values at $4,500,000.  (Id.) 

Reconciliation

The appraisal report reconciled the sales comparison approach and the income approach, finding the income approach to be the best indicator of value in this instance, and determined the TVM of $4,250,000.

Other Evidence

Respondent also presented the testimony of Missouri Certified General Real Estate Appraiser Keith M. Kramer (Kramer).  Kramer is an appraiser with Keith M. Kramer Associates, Inc., a real estate appraisal company that specializes in multi-family appraisals and market studies.  (Exhibits 3 and 4)  Kramer is certified in Missouri and Illinois and has been appraising property for over 40 years.  (Id.)  Kramer’s real estate experience includes the brokerage, leasing, appraisal, and market feasibility analysis of all types of commercial properties, including apartments, shopping centers, office business parks, and retirement communities.  Kramer specializes in valuing multi-family property, including apartments throughout the United States and Puerto Rico.  (Id.)  He has prepared real estate appraisals and market/feasibility studies used in such purposes as determining the value on which to base contracts for sale or acquisition, for financing, for syndication of real estate, and for tax appeal cases.  Kramer has appeared as an expert witness in valuation, highest and best use, and zoning matters, and has previously appeared before the STC.  Kramer has served as a hearing officer for the St. Louis County Board of Equalization.  (Id.)  Kramer has participated in the training required by the U.S. Department of Housing and Urban Development (HUD) and routinely appraises properties that are HUD insured or have HUD subsidies.  Kramer also is approved by the State of Missouri Housing Development Commission (MHDC) and was recently hired to review rent comparability studies for the MHDC.  (Id.)

Kramer testified that he had personally visited both of the subject properties and had reviewed relevant information about them.  (Exhibits 3 and 4)  Kramer testified that he reviewed population growth, household formation patterns, age and income characteristics, and determined potential demand for housing in St. Charles.  He considered current occupancy levels of the subject properties as of the date of the value.  He reviewed information on other multi-family properties under construction or planned for that time period and determined economic market rents as of January 1, 2017.  (Exhibits 3 and 4)  He also interviewed market participants on occupancy and rental rates for the subject time period.  (Id.)

Kramer testified that he valued the subject properties using the income approach and the sales comparison approach.  He considered but did not use the cost approach and relied most on the income approach to determine the TVM of the subject properties.  (Exhibits 3 and 4)  In developing the income approach, Kramer was not provided with and did not review any detailed income and expense statements of the subject properties; rather, he considered the historical expenses of the subject properties and conducted a survey of eight nearby comparable apartment complexes to determine the market rent, occupancy/vacancy rate, and estimated expenses for the subject properties.  (Id.)  Kramer testified that he reviewed the rent rolls and spoke with the owner of the subject properties, who acknowledged that the rents are below market.  (Id.)  Kramer testified that the owner stated that he keeps the rents low because he does not want to create a hardship on long-time tenants by raising rent to the market rate.  (Id.)

In determining a capitalization rate to be applied to the income stream from the subject properties, Kramer examined sales of other apartment complexes in the area and current capitalization rates and yield rates acceptable to investors.  In each of the sales, Kramer extracted an overall rate based on the relationship of net income to sales price.  Kramer testified that this method is believed to be most indicative of typical investor’s attitudes towards this type of investment, and that this method automatically takes into consideration various relevant factors such as taxes, available financing, and long­term appreciation.

            On cross examination, Kramer testified that calculating a GIM was an important factor in having accurate data in the appraisal report to support a value.  Kramer testified that the sales comparison approach is meant to mirror the market and that the use of similar properties as comparables is important.  Kramer testified that a potential investor of the subject properties would be considering potential income and expenses, which could change with ownership and management philosophy.  Kramer testified that improvements would be needed if the goal is to bring the rents to market rent.  Kramer believed that the subject properties’ rents were below market based on the owner’s statements related to the nature of the tenants.  Kramer did not determine whether the tenants could absorb a dramatic increase in rent.  Kramer learned that the monthly rent of units in the apartment building across the street from Villa Roma II was $600.  Kramer testified that, in the absence of income restrictions, the owner of the subject properties could raise the rent; however, investors would look at whether raising the rent would cause a high turnover of tenants.  Kramer testified that 30 of the units in Villa Roma III had upgrades when the units turned over, e.g., paint, flooring, kitchen, and bathrooms, depending on the condition.  Villa Roma II had not been renovated.  Kramer testified that investors would not renovate all units at once but would evaluate their condition and phase in improvements.  The units in each of the subject properties were rentable “as is.”

On further cross examination, Kramer testified that his analysis did not place much weight on the comparable property in both appraisal reports that was recognized as being dissimilar from the subject properties, i.e., was built in 2002, consisted of “upgraded” amenities, and bore little resemblance to the subject property.

  1. Presumption of Correct Assessment Rebutted – Value Established. Respondent presented substantial and persuasive evidence to rebut the presumption of correct assessment by the BOE and to establish the TVM of Villa Roma II to be $1,144,00 and Villa Roma III to be $4,250,000, as of January 1, 2017.  However, the BOE’s valuation of Villa Roma II, $1,069,600, will not be increased, pursuant to Section 138.060.

CONCLUSIONS OF LAW AND DECISION

Jurisdiction

The STC has jurisdiction to hear this appeal and correct any assessment, which is shown to be unlawful, unfair, arbitrary or capricious, including the application of any abatement.  The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the BOE, and correcting any assessment that is unlawful, unfair, improper, arbitrary, or capricious.  Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4. 

Basis of Assessment

The Constitution mandates that real property and tangible personal property be assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass.  Article X, Sections 4(a) and 4(b), Mo. Const. of 1945.  The constitutional mandate is to find the true value in money for the property under appeal.  By statute, real property and tangible personal property are assessed at set percentages of true value in money:  residential property at 19%; commercial property at 32%; and agricultural property at 12%.  Section 137.115.5.

Board Presumption and Computer-Assisted Presumption

            There exists a presumption of correct assessment by the BOE.  As will be addressed below in the section describing Respondent’s Burden of Proof, there exists by statutory mandate a presumption that the assessor’s original valuation was made by a computer, computer-assisted method, or a computer program – this is known as the computer-assisted presumption.  These two presumptions operate with regard to the parties in different ways.  The BOE presumption operates in every case to require the taxpayer to present evidence to rebut it.  If Respondent is seeking to prove a value different than that set by the BOE, then it also would be applicable to the Respondent.  The computer-assisted presumption only comes into play if the BOE lowered the value of the assessor and Respondent is seeking to sustain the original assessment and it has not been shown that the assessor’s valuation was not the result of a computer assisted method.  The BOE’s valuation is assumed to be an independent valuation.

The computer-assisted presumption can only come into play in those instances where Respondent is seeking to have the valuation of the subject property returned to the assessor’s original valuation.  If in a given appeal the Respondent is offering evidence that would establish a value less than the original valuation, then the computer-assisted presumption is not applicable to that appeal.  Even if the BOE has reduced the valuation and Respondent’s evidence is offered to increase the value, but not to the level of the original valuation, the computer-assisted presumption does not come into play.

If the BOE sustained the valuation of the assessor, such does not negate the fact that the BOE presumption remains operative as to evidence which is presented by the taxpayer and Respondent.  The computer-assisted presumption only comes into play if the BOE lowered the value of the Assessor and Respondent is seeking to sustain the original assessment and it has not been shown that the Assessor’s valuation was not the result of a computer assisted method.  The Board valuation is assumed to be an independent valuation.

In the present appeals, the BOE sustained the initial valuations of Respondent.  Both Complainant and Respondent are seeking to change the BOE’s assessment; therefore, the BOE presumption applies to both Complainant and Respondent.

Complainant’s Burden of Proof

To obtain a reduction in assessed valuation based upon an alleged overvaluation, the Complainant must prove the true value in money of the subject property on the subject tax day.  Hermel, Inc., v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978).  True value in money is defined as the price that the subject property would bring when offered for sale by one willing but not obligated to sell it and bought by one willing or desirous to purchase but not compelled to do so.  Rinehart v. Bateman, 363 S.W.3d 357, 365 (Mo. App. W.D. 2012); Cohen v. Bushmeyer, 251 S.W.3d 345, 348 (Mo. App. E.D. 2008); Greene County v. Hermel, Inc., 511 S.W.2d 762, 771 (Mo. 1974).  True value in money is defined in terms of value in exchange and not in terms of value in use.  Stephen & Stephen Properties, Inc. v. State Tax Commission, 499 S.W.2d 798, 801-803 (Mo. 1973).  In sum, true value in money is the fair market value of the subject property on the valuation date.  Hermel, Inc., 564 S.W.2d at 897.

“’True value’ is never an absolute figure, but is merely an estimate of the fair market value on the valuation date.”  Drury Chesterfield, Inc., v. Muehlheausler, 347 S.W.3d 107, 112 (Mo. App. E.D. 2011), citing St. Joe Minerals Corp. v. State Tax Comm’n of Mo., 854 S.W.2d 526, 529 (Mo. App. E.D. 1993).  “Fair market value typically is defined as the price which the property would bring when offered for sale by a willing seller who is not obligated to sell, and purchased by a willing buyer who is not compelled to buy.”  Drury Chesterfield, Inc., 347 S.W.3d at 112 (quotation omitted).

A presumption exists that the assessed value fixed by the BOE is correct.  Rinehart, 363 S.W.3d at 367; Cohen, 251 S.W.3d at 348; Hermel, Inc., 564 S.W.2d at 895.  “Substantial and persuasive controverting evidence is required to rebut the presumption, with the burden of proof resting on the taxpayer.” Cohen, 251 S.W.3d at 348.  Substantial evidence can be defined as such relevant evidence that a reasonable mind might accept as adequate to support a conclusion.  Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959)Persuasive evidence is evidence that has sufficient weight and probative value to convince the trier of fact.  Cupples Hesse Corp., 329 S.W.2d at 702.  The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief.   Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975). See also, 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).

There is no presumption that the taxpayer’s opinion is correct. The taxpayer in a STC 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.”  Westwood Partnership, 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. W.D. 1991).

Respondent’s Burden of Proof

Respondent, when advocating a value different from that determined by the BOE, must meet the same burden of proof to present substantial and persuasive evidence of the value advocated as required of the Complainant under the principles established by case law.  Hermel, Inc., 564 S.W.2d at 895; Cupples-Hesse, 329 S.W.2d at 702; Brooks, 527 S.W.2d at 53.

Evidence of Increase in Value

In any case in charter counties or the City of St. Louis where the assessor presents evidence that indicates a valuation higher than the value finally determined by the assessor or the value determined by the BOE, whichever is higher, for that assessment period, such evidence will only be received for the purpose of sustaining either the assessor’s or board’s valuation and not for increasing the valuation of the property under appeal.  Section 138.060.

With regard to Villa Roma II, Respondent presented the testimony and appraisal report of Kramer in an effort to rebut the presumption of correct assessment by the BOE and to establish the fair market value of the property under appeal, as of January 1, 2017, was $1,144,000.  However, the assessed value cannot be increased above the assessor’s original valuation of $1,069,600 in this particular appeal.  See Section 138.060; State ex rel. Ashby Road Partners, LLC et al. v. STC and Muehlheausler, 297 S.W.3d 80, 87-88 (Mo. banc 2009).

Weight to be Given Evidence

The Hearing Officer is not bound by any single formula, rule, or method in determining true value in money and is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled.  The relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide.  St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977); St. Louis County v. STC, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad Company v. STC, 436 S.W.2d 650 (Mo. 1968).

The Hearing Officer, as the trier of fact, may consider the testimony of an expert witness and give it as much weight and credit as deemed necessary when viewed in connection with all other circumstances.  Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. W.D. 1991).  The Hearing Officer, as the trier of fact, is not bound by the opinions of experts but may believe all or none of the expert’s testimony or accept it in part or reject it in part.  Exchange Bank of Missouri v. Gerlt, 367 S.W.3d 132, 135-36 (Mo. App. W.D. 2012).

Methods of Valuation

Proper methods of valuation and assessment of property are delegated to the Commission.  It is within the purview of the Hearing Officer to determine the method of valuation to be adopted in a given case.   See, Nance v. STC, 18 S.W.3d 611, 615 (Mo. App. W.D. 2000); Hermel, Inc., 564 S.W.2d at 897; Xerox Corp. v. STC, 529 S.W.2d 413 (Mo. banc 1975).  Missouri courts have approved the comparable sales or market approach, the cost approach, and the income approach as recognized methods of arriving at fair market value.   St. Joe Minerals Corp. v. STC, 854 S.W.2d 526, 529 (App. E.D. 1993); Aspenhof Corp. v. STC, 789 S.W.2d 867, 869 (App. E.D. 1990); Quincy Soybean Company, Inc., v. Lowe, 773 S.W.2d 503, 504 (App. E.D. 1989), citing Del-Mar Redevelopment Corp v. Associated Garages, Inc., 726 S.W.2d 866, 869 (App. E.D. 1987); and State ex rel. State Highway Comm’n v. Southern Dev. Co., 509 S.W.2d 18, 27 (Mo. 1974).

“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.”  Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005), citing St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977).  “Each valuation approach is applied with reference to a specific use of the property—its highest and best use.” Snider, 156 S.W.3d at 346-47, citing Aspenhof  Corp., 789 S.W.2d at 869.  “The method used depends on several variables inherent in the highest and best use of the property in question.”  Snider, 156 S.W.3d at 347.

“Each method uses its own unique factors to calculate the property’s true value in money.”  Id.

Income Approach

The income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property.  The income approach is based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use.

When applying the income approach to valuing income producing property for ad valorem tax purposes, it is not proper to consider income derived from the business and personal property; only income derived from the land and improvements should be considered.  This approach is most appropriate in valuing investment-type properties and is reliable when rental income, operating expenses, and capitalization rates can reasonably be estimated from existing market conditions. The basic steps in the income approach are as follows:

  1. Estimate potential gross income;
  2. Deduct for vacancy and collection;
  3. Add miscellaneous income to get the effective gross income;
  4. Determine operating income;
  5. Deduct operating expenses from the effective gross income to determine net operating net operating income before discount, recapture and taxes;
  6. Select the proper capitalization rate;
  7. Determine the appropriate capitalization procedure to be used;
  8. Capitalize the net operating income into an estimated property value.

Property Assessment Valuation, IAAO, page 204.

Comparable Sale Approach

“The ‘comparable sales approach’ uses prices paid for similar properties in arms-length transactions and adjusts those prices to account for differences between the properties.”  Id. at 348.  “Comparable sales consist of evidence of sales reasonably related in time and distance and involve land comparable in character.”  Id. (quotation omitted).  “This approach is most appropriate when there is an active market for the type of property at issue such that sufficient data [is] available to make a comparative analysis.”  Id.

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.

 

  1. Both parties are well informed and well advised, and both acting in what they consider their own best interests.

 

  1. A reasonable time is allowed for exposure in the open market.

 

  1. Payment is made in cash or its equivalent.

 

  1. Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.

 

  1. The price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction.

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.

 

Discussion

In these appeals, both parties presented substantial evidence to support their opinions of the TVM that should have been placed on the subject property as of January 1, 2017.  Substantial evidence is that which is relevant, adequate, and reasonably supports a conclusion.  Cupples Hesse Corp., 329 S.W.2d at 702.  However, upon close inspection, only Respondent’s evidence of value was also persuasive.  Persuasive evidence is that which causes the trier of fact to believe, more likely than not, the conclusion advocated is the correct conclusion.  Id.

These appeals essentially amounted to a battle of the appraisal reports and the appraisers.  Camerer placed the most weight on the sales comparison approach while Kramer placed the most weight on the income approach.  Given the few number of sales of similar apartment complexes over a period of five years leading up to the relevant tax date and given that the purchaser of the subject property almost certainly would be utilizing the subject properties for income purposes, Respondent’s decision to utilize the income approach to determining value is more persuasive under the circumstances.  Also persuasive was the fact that Kramer specializes in valuing multi-family property, including apartments.  Kramer convincingly testified that he considered the historical expenses of the subject properties and conducted a survey of eight nearby comparable apartment complexes to determine the market rent, occupancy/vacancy rate, and estimated expenses for the subject properties.  Kramer reviewed the rent rolls and spoke with the owner of the subject properties.  Importantly, the owner of the subject properties acknowledged that the rents are below market because he does not want to create a hardship on long-time tenants by raising rent to the market rate.  No evidence was presented to establish that the rent was restricted by any government low-income housing agreement or age-related housing program.  Therefore, Kramer determined market rent based on the rents charged by similar market participants to estimate a proper starting point from which to calculate expenses and to arrive at an opinion of TVM.

ORDER

The value of the subject property known as Villa Roma II as determined by the BOE is AFFIRMED, $1,069,600 TVM ($203,224 assessed value) as residential property.[5]  The value of the subject property known as Villa Roma III as determined by the BOE is SET ASIDE and is set at $4,250,000 TVM ($807,500 assessed value) as residential property.

Application for Review

A party may file with the STC an application for review of this decision within thirty days of the mailing date set forth in the Certificate of Service for this Decision.  The application shall contain specific facts or law as grounds upon which it is claimed the decision is erroneous.  Said application must be in writing addressed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, and a copy of said application must be sent to each person at the address listed below in the certificate of service.

            Failure to state specific facts or law upon which the application for review is based will result in summary denial. Section 138.432, RSMo

Disputed Taxes

The Collector of St. Charles 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 December 26th, 2018.

STATE TAX COMMISSION OF MISSOURI

Amy S. Westermann

Senior Hearing Officer

 

Certificate of Service

I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 26th day of December, 2018, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.

 

Jacklyn Wood

Legal Coordinator

[1] All statutory references are to RSMo 2000, unless otherwise noted.

[2] Complainants’ Exhibit A stated that each unit contained 685 square feet.  The square footage recorded by St. Charles County, 425, is adopted for purposes of these appeals.

[3] Complainants’ Exhibit A stated that each unit contained 720 square feet.  The square footage recorded by St. Charles County, 620, is adopted for purposes of these appeals.

[4] Uniform Standards of Appraisal Practice.

[5] With regard to Villa Roma II, Respondent’s evidence established a higher valuation than the value finally determined by the BOE and higher than the value previously determined by Respondent.  However, the TVM of Villa Roma II cannot be increased above the BOE’s valuation.  Section 138.060.