STATE TAX COMMISSION OF MISSOURI
| VILLAGE COOPERATIVE OF THE NORTHLAND,
Complainant(s), |
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) ) ) ) |
Appeal No. 20-79001
Parcel/locator No: 19-2.0-09-400-002-001.000 |
| v. | ) | |
| ) | ||
| DAVID COX ASSESSOR,
PLATTE COUNTY, MISSOURI, |
)
) |
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| Respondent. | ) | |
DECISION AND ORDER
Village Cooperative of the Northland (Complainant) appeals the Platte County Board of Equalization’s (BOE) decision finding the true value in money (TVM) of the subject property on January 1, 2020, was $11,805,668, classified as residential. Complainant claims the property is overvalued and proposes a value of $9,100,000. Complainant did not produce substantial and persuasive evidence establishing overvaluation. The BOE’s decision is AFFIRMED.[1]
Complainant was represented by counsel Chris Mattix. Respondent was represented by counsel Stephen Magers. The evidentiary hearing was conducted on May 12, 2021, via WebEx.
FINDINGS OF FACT
- Subject Property. The subject property is located at 2651 NW Barry Road, Kansas City, in Platte County, Missouri. The parcel/locator number is 19-2.0-09-400-002-001.000. The subject property consists of 4.23 acres of land improved by a 52‐unit, three-story apartment building with 115,744 square feet of gross area and 66,940 square feet of rentable area. The building includes a basement parking garage with 62 parking spaces. An outdoor surface lot contains 37 parking spaces. Construction of the apartment building was completed in 2018. The total cost of construction excluding cost of site acquisition was $11,605,441. Occupancy is restricted to residents aged 62 years and older. (Exhibit A; Exhibit 2)
The residents live in individual “cooperative” units with square footage ranging from 873 square feet to 1507 square feet with an average unit size of 1,288 square feet. Unit floor plans include 1 bedroom/1 bathroom; 1 bedroom/1 bathroom plus den; 1 bedroom/1.5 bathrooms plus den; 2 bedrooms/1 bathroom; 2 bedrooms/2 bathrooms; 2 bedrooms/2 bedrooms plus den. (Exhibit A) The subject property is not a subsidized housing complex and is not a condominium complex. The subject property is a cooperative corporation in which each unit owner holds stock in the cooperative corporation. Stockholders receive a proprietary lease on a specific unit and are obligated to pay a monthly maintenance charge representing the proportionate share of operating expenses and debt services on any underlying mortgage, which is paid by the corporation. Occupancy rights for the units are transferred through the title transfer of the proprietary lease. The subject property is owned by the corporation, and there are no individual deeds for individual units. (Exhibit A; Exhibit 6) The subject property is secured by a mortgage in the amount of approximately $9,876,000. (Exhibit 3) As of January 1, 2019, 48 of the 52 shares of the cooperative corporation were sold for a total of $7,153,000. (Exhibit 2) The individual prices of the sold shares ranged from $91,000 to $173,000. (Exhibit 2) As of October 30, 2020, 11 months following the taxation date, the total lease rent for occupied units was $79,245 per month. (Exhibit 7)
Standard features for the units include personalized interior selections and upgrades; high-efficiency refrigerator, microwave, dishwasher, oven, and garbage disposal; kitchen island or peninsula with breakfast bar; roll-out cabinet shelving; oversized shower with adjacent corner seat in the master bath and tub/shower combination in secondary baths; full-size washer and dryer in the laundry room; lever-handle lock-sets; solid wood trim and baseboards; a storage room with shelving; window blinds; carpet and luxury vinyl tile flooring; telephone and television outlets in the kitchen, living room, and bedrooms; low-E insulated double-pane windows; low-VOC interior finishes; maintenance-free private balcony; high-efficiency heating and cooling that is separately metered and ventilated; two central re-circulating high-efficiency water heaters; and sound reduction construction. (Exhibit D)
Standard features for the subject property include: an elevator; oversized parking spaces with storage; remote control garage entry; car wash bay and vacuum station; visitor parking; bike racks and bike trails; raised garden beds and landscaping; and outdoor barbeque grill and fire pit. (Exhibit D) The subject property includes security and safety features, such as secured entry at all access points; monitored fire and carbon monoxide systems; and security camera monitoring protection. (Exhibit D) The subject property also includes social and common area features, such as a community room with full-size kitchen; Club Room and private dining room; reading areas and mail station; artwork in common areas; a fitness room; a hobby room; and patio area seating. (Exhibit D) Some amenities, such as cable television, require an additional fee paid by the residents to the cooperative.
Complainant markets the subject property as a “maintenance free living option . . . that combines all the benefits of home ownership without the hassles of home maintenance.” (Exhibit D) In marketing materials, the subject property is further described:
We feel that the [Complainant] provides the best Value for independent ownership living. This unique model of living provides a low-cost entry into the cooperative as a member and stable way to minimize your future living expenses. [Complainant] is set up as a not-for-profit, member owned and operated cooperative.
The Lifestyle that you can enjoy at the [Complainant] is one of ease, along with many great amenities to enhance your life. Our spacious, open floor plans range from 873 – 1,507 square feet and all one-level living. Other great amenities include: Underground Heated Parking, Community Room, Club Room, Guest Suite, Exercise Room, Reading Areas, and more!
One of the things we hear from Members at our other Village Cooperative locations is that the Village Cooperative gives them peace of mind and provides for No Worries. Our Members live in a safe and secure environment, have staff available to take care of anything that needs to be repaired, and can take long vacations without worrying about their home using our “While You Are Away” Services.
(Exhibit D) The subject property also offers member-organized community activities, including cards and board games, potlucks, movie nights, Bible and book studies, themed parties, continuing education seminars, and exercise groups. (Exhibit D)
- Respondent and BOE. Respondent classified the subject property as residential and determined the TVM on January 1, 2020, was $11,251,892. The BOE classified the subject property as residential and independently determined the TVM on January 1, 2020, was $11,805,668.
- Complainant’s Evidence. Complainant presented testimony from Troy Smith, (Complainant’s Appraiser) an appraiser with 28 years of experience, including experience valuing multi-family residential apartments, condominiums, and residential housing cooperatives. Complainant’s Appraiser holds the MAI designation from the Appraisal Institute. Complainant’s Appraiser testified that his opinion of the TVM of the subject property as of January 1, 2020, was $9,100,000. Complainant’s Appraiser testified he had conducted an on-site appraisal of the subject property on November 30, 2020. Complainant introduced the following exhibits:
| Exhibit | Description | Ruling |
| A | 2019 Appraisal Report of Complainant’s Appraiser (Complainant’s Appraisal Report)
|
Admitted |
| B | Written Direct Testimony (WDT) of Complainant’s Appraiser | Admitted |
| C | Rebuttal Evidence of Amenities of Additional Properties
|
Admitted |
| D | Rebuttal Evidence regarding Subject’s Amenities | Admitted |
Complainant’s Appraiser utilized two valuation approaches to appraise the subject property: the comparable sales approach, which concluded a value of $9,000,000; and the income approach, which concluded a value of $9,100,000. Complainant’s Appraiser reconciled the two approaches to conclude a TVM of $9,100,000, as of January 1, 2020. (Exhibits A and B) Complainant’s Appraiser found the highest and best use of the subject property “as improved” was its current use as senior housing. (Exhibit A)
Using the comparable sales approach, Complainant’s Appraiser utilized comparable condominium unit sales within the subject property’s market that reflected prices “ranging from $112,500 to $280,000 per unit with an average price of $163,530 per unit, and from $108 to $207 per square [foot] with an average price of $156 per square foot.” (Exhibits A and B) Complainant’s Appraiser considered the comparables to be generally superior to the subject property but did not make any market-based adjustments to account for specific differences between the comparables and the subject property. Using the income approach, Complainant’s Appraiser “utilized expense comparables and published comparable expense data to estimate an anticipated net operating income” to find a value of $9,100,000. (Exhibits A and B) Complainant’s rebuttal evidence in Exhibits C and D were pictures and descriptions of amenities of properties from Respondent’s Exhibit 2.
Using the income approach, Complainant’s Appraiser utilized “competitive apartment properties” to determine market rents, ancillary income, and a vacancy rate for the subject property’s various types of units. Complainant’s Appraiser reconciled the market rents to determine a total potential gross rental income of $989,800 per year and a 5% vacancy rate. Complainant’s Appraiser utilized 2019 operating data provided by Complainant to project expenses for 2020 and to project total expenses, including replacement reserves, of $309,041 and a net operating income of $636,989. Complainant’s Appraiser applied an overall adjusted capitalization rate of 6.97% derived from local sales and comparisons to national investor surveys to estimate a value of $9,100,000.
During the Evidentiary Hearing, Complainant’s Appraiser testified that the cost approach was not utilized because the other approaches were more reliable and because investors of property similar to the subject property do not rely on the cost approach to determine value. Complainant’s Appraiser testified that the ownership structure of the subject property is relevant to its value. Complainant’s Appraiser testified that sales of condominium units would most accurately represent the value of cooperative property. Complainant’s Appraiser testified that his appraisal report did not include a comparison grid to show the adjustments for differences between the comparables and the subject property because a conclusion of value can be based on qualitative analysis of data. [2] Complainant’s Appraiser did not utilize data from other senior housing complexes to compare to the subject property. Complainant’s Appraiser testified that inferior finishes and amenities might make a difference to an investor, and typical senior living facilities have “exorbitant” amenities such as pools, spas, beauty salons, restaurants, and nurses. Complainant’s Appraiser testified that the subject property has modest amenities similar to the comparable properties in the appraisal report. Complainant’s Appraiser testified that, given the quality, location, and amenities of the subject property, the opinion of TVM would not have changed even if the comparables had been exclusively senior housing facilities.
- Respondent’s Evidence. Respondent presented testimony from Robert Marx (Respondent’s Appraiser), a Missouri certified appraiser with over 46 years of experience in the Kansas City area. Respondent’s Appraiser holds the MAI and SRA designations from the Appraisal Institute, a real estate broker’s license, and appraisal licenses in Kansas and Colorado. Respondent’s Appraiser also has had advanced training in statistical methods of valuation. Respondent’s Appraiser has conducted over 100 appraisals of multi-family properties in the 10 years preceding the Evidentiary Hearing in this appeal. Respondent’s Appraiser testified he had conducted an on-site inspection of the subject property in preparing his appraisal report. Respondent’s Appraiser testified that his opinion of the TVM of the subject property as of January 1, 2020, was $11,800,000. Respondent’s Appraiser found the highest and best use of the subject property “as improved” was its current use as senior housing. (Exhibit 2) Respondent submitted the following exhibits:
| Exhibit | Description | Ruling |
| 1 | WDT of Respondent’s Appraiser | Admitted |
| 2 | Appraisal Report of Respondent’s Appraiser | Admitted |
| 3 | Mortgage Interest attached to subject property | Admitted |
| 4 | Certified Copy of Deed | Admitted |
| 5 | Itemized Costs of Construction | Admitted |
| 6 | Occupancy Agreement | Admitted |
| 7 | Rent Roll | Admitted |
| 8 | Complainant’s Responses to Respondent’s First Request for Production of Documents and First set of Interrogatories to Complainant | Admitted |
| 9 | Complainant’s Responses to Respondent’s First Request for Admissions and Second set of Interrogatories to Complainant | Admitted |
Respondent’s Appraiser utilized all three approaches to determining value: the cost approach (resulting in a value of $11,900,000); the comparable sales approach (resulting in a value of $11,800,000); and the income approach utilizing the direct capitalization method (resulting in a value of $11,800,000). (Exhibit 2)
Using the cost approach, Respondent’s Appraiser utilized Complainant’s actual costs of construction. (Exhibit 2, pp. 61- 66; Exhibit 5) Respondent’s Exhibits 3, 4, and 5 all concern the cost approach to value, including the individual ownership rights of the shareholder-residents, mortgage information related to the subject property’s value, and the construction contract with cost to build and its relation to the subject property’s value.
Using the comparable sales approach, Respondent’s Appraiser utilized recent sales of six comparable properties. Respondent’s Appraiser chose comparables that were economically similar to the subject property in that they had similar amenities and compete for tenants at similar income levels. Adjustments were made for market conditions, location, and unit size, age, quality, and condition. The adjusted prices per unit of the comparable properties ranged from $207,404 to $255,380. (Exhibit 2) All of the comparables were chosen as comparables “because they have the same or very similar highest and best use” to the subject property. (Exhibit 1) Respondent’s Appraiser concluded an opinion of value for the subject property per unit of $227,000, within the range of values for the comparables. (Exhibit 2)
Using the income approach, Respondent’s Appraiser noted that the subject property is owner-occupied as a cooperative and is not rented to tenants. (Exhibit 2) Respondent’s Appraiser utilized Complainant’s “rent roll” documenting each shareholder-resident’s ongoing maintenance charge for their share of operating expenses and mortgage debt service, which totaled $79,880 per month. (Exhibit 2) Respondent’s Appraiser utilized comparables similar to the subject property, three of which were in the same market segment as independent living, senior housing apartments. (Exhibit 2) All of the comparables were located in close proximity to the subject property and were recent construction. From this data, Respondent’s Appraiser determined market rent, other income, and a vacancy rate for the subject property using the net rentable area. Respondent’s Appraiser determined a total potential gross rental income of $1,164,756 per year and a 10% vacancy rate. Respondent’s Appraiser annualized data from a monthly statement provided by Complainant to project effective gross income of $1,365,715, total expenses of $307,531, and a net operating income of $793,163. Complainant’s Appraiser applied an overall adjusted capitalization rate of 6.72% derived from market extraction and survey data to estimate a value of $11,800,000.
During the Evidentiary Hearing, Respondent’s Appraiser testified that amenities are not determinative of value and that it is difficult to parse the specific advantages of granite countertops over synthetic marble or modern laminate surfaces. Respondent’s Appraiser testified that no adjustment were made for differences in amenities between the comparable properties and the subject properties in the comparable sales approach because the adjustments were not needed and condition was more important than amenities. Respondent’s Appraiser testified that the subject property is an ideal improvement with minimal depreciation. Respondent’s Appraiser testified that the market speaks for itself, and cooperative communities are an emerging property type for which market-based financing and public incentives to build are available.
- Value. The TVM of the subject property as of January 1, 2020, was $11,805,668, with an assessed value of $2,243,076.
CONCLUSIONS OF LAW
- Assessment and Valuation
Pursuant to Article X, Sections 4(a) and 4(b), Mo. Const. of 1945 real property and tangible personal property is assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass. Article X, Sections 4(a) and 4(b), Mo. Const. of 1945. Residential real property is assessed at 19% of its TVM as of January 1 of each odd-numbered year. Section 137.115.5(1)(a). “True value in money is the fair market value of the property on the valuation date, and is a function of its highest and best use, which is the use of the property which will produce the greatest return in the reasonably near future.” Snider v. Casino Aztar/Aztar Mo. Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005) (internal quotation omitted). The fair market value is “the price which the property would bring from a willing buyer when offered for sale by a willing seller.” Mo. Baptist Children’s Home v. State Tax Comm’n, 867 S.W.2d 510, 512 (Mo. banc 1993). Determining the TVM is a factual issue for the STC. Cohen v. Bushmeyer, 251 S.W.3d 345, 348 (Mo. App. E.D. 2008). The “proper methods of valuation and assessment of property are delegated to the Commission.” Savage v. State Tax Comm’n, 722 S.W.2d 72, 75 (Mo. banc 1986).
“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.” Snider, 156 S.W.3d at 346. The three generally accepted approaches are the cost approach, the income approach, and the comparable sales approach. Id. at 346-48; see also St. Louis Cty. v. Sec. Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977).
The comparable sales approach “is most appropriate when there is an active market for the type of property at issue such that sufficient data are available to make a comparative analysis.” Snider, 156 S.W.3d at 348. For this reason, the comparable sales approach is typically used to value residential property. “The comparable sales approach uses prices paid for similar properties in arms-length transactions and adjusts those prices to account for differences between the properties.” Id. at 347-48 (internal quotation omitted). “Comparable sales consist of evidence of sales reasonably related in time and distance and involve land comparable in character.” Id. at 348.
The cost approach may be based on either reproduction cost or replacement cost. The reproduction cost, or cost of construction, is a determination of the cost of constructing an exact duplicate of an improved property using the same materials and construction standards. The replacement cost is an estimate of the cost of constructing a building with the same utility as the building being appraised but with modern materials and according to current standards, design and layout. The cost approach is most appropriate when the property being valued has been recently improved with structures that conform to the highest and best use of the property or when the property has unique or specialized improvements for which there are no comparables in the market. While reproduction cost is the best indicator of value for newer properties where the actual costs of construction are available, replacement cost may be more appropriate for older properties. Snider, 156 S.W.3d at 347.
The income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property. 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 business property for tax purposes, it is not proper to consider income derived from the business and personal property; only income derived from the land and improvements should be considered. 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 initial step in applying the income approach is to find comparable rentals and make adjustments for any differences. Snider, 156 S.W.3d at 347.
- Evidence
The hearing officer is the finder of fact and determines the credibility and weight of the evidence. Kelly v. Mo. Dep’t of Soc. Servs., Family Support Div., 456 S.W.3d 107, 111 (Mo. App. W.D. 2015). The finder of fact in an administrative hearing determines the credibility and weight of expert testimony. Hornbeck v. Spectra Painting, Inc., 370 S.W.3d 624, 632 (Mo. banc 2012). “It is within the purview of the hearing officer to determine the method of valuation to be adopted in a given case.” Tibbs v. Poplar Bluff Assocs. I, L.P., 599 S.W.3d 1, 9 (Mo. App. S.D. 2020). The hearing officer “may inquire of the owner of the property or of any other party to the appeal regarding any matter or issue relevant to the valuation, subclassification or assessment of the property.” Section 138.430.2. The Hearing Officer’s decision regarding the assessment or valuation of the property may be based solely upon his inquiry and any evidence presented by the parties, or based solely upon evidence presented by the parties. Id.
- Complainant’s Burden of Proof
The BOE’s valuation is presumptively correct. Rinehart v. Laclede Gas Co., 607 S.W.3d 220, 227 (Mo. App. W.D. 2020). To prove overvaluation, a taxpayer must rebut the BOE’s presumptively correct valuation and prove the “value that should have been placed on the property.” Snider, 156 S.W.3d at 346. The taxpayer’s evidence must be both “substantial and persuasive.” Id. “Substantial evidence is that evidence which, if true, has probative force upon the issues, and from which the trier of fact can reasonably decide the case on the fact issues.” Savage, 722 S.W.2d at 77 (internal quotation omitted). Evidence is persuasive when it has “sufficient weight and probative value to convince the trier of fact.” Daly v. P.D. George Co., 77 S.W.3d 645, 651 (Mo. App. E.D. 2002); see also White v. Dir. of Revenue, 321 S.W.3d 298, 305 (Mo. banc 2010) (noting the burden of persuasion is the “party’s duty to convince the fact-finder to view the facts in a way that favors that party”). A taxpayer does not meet his burden if evidence on any essential element of his case leaves the STC “in the nebulous twilight of speculation, conjecture and surmise.” See, Rossman v. G.G.C. Corp. of Missouri, 596 S.W.2d 469, 471 (Mo. App. 1980).
- Complainant Did Not Prove Overvaluation.
Here, both Complainant and Respondent presented substantial evidence, but Respondent’s evidence was both substantial and persuasive and supports the BOE’s value.
The evidence established that the subject property is a cooperative in which the residents themselves, not absentee owners, are the shareholders of the cooperative. The subject property is, therefore, owner occupied and not merely rented to tenants. The evidence did not establish that the shareholders-residents are investors seeking to earn an income stream from the purchase of shares in the subject property; rather, the evidence established that the shareholders-residents made what is essentially an equity deposit to become a member of the cooperative, allowing them to reside in the subject property, and then continue to pay a monthly maintenance fee to cover their proportionate shares of the cooperative’s expenses. The subject property is marketed to persons aged 62 and older, who likely are or will become retired from employment during their residency, as a safe and secure home in which the shareholders-residents can partake in the numerous amenities available both within the individual units and offered by the cooperative with none of the traditional responsibility associated with home ownership, i.e., a care-free lifestyle. This type of ownership likely carries an intrinsic value, at least to the shareholders-residents, but not easily quantified by the three approved approaches to valuing property.
Under the circumstances, both appraisers considered the subject property to be somewhat similar to but not exactly an investment property, so both appraisers utilized the income approach with support from the comparable sales approach to determine the TVM of the subject property as of January 1, 2020. However, Complainant, the party with the burden of proof, relied on comparisons to properties that were neither senior living facilities nor cooperatively owned by the residents, and Complainant did not establish that the availability or lack of certain amenities was determinative of TVM.
First, while Complainant’s comparables were somewhat similar to the subject property in terms of exterior appearance and some amenities, the evidence established that Complainant’s comparables did not require a “buy in” from shareholders-residents plus payment of a proportionate monthly maintenance fee. Complainant’s comparables were either condominium units or rental units. Respondent’s evidence, on the other hand, included some comparables that were senior living apartment complexes.
Second, to the extent Complainant argued that comparison to only non-senior living apartment complexes was appropriate because the subject property did not have the “exorbitant” amenities of some other senior living facilities, the argument is contradicted by Respondent’s evidence establishing that age-restricted senior living complexes with at least some similar amenities were available for comparison. Market-based adjustments could have been made to Complainant’s comparables to account for differences in amenities if the amenities were determinative of TVM, but no such adjustments were made.
CONCLUSION AND ORDER
The BOE decision is affirmed. The TVM of the subject property as of January 1, 2020, was $11,805,668, with an assessed value of $2,243,076.
Application for Review
A party may file with the Commission an application for review of this decision within 30 days of the mailing date set forth in the certificate of service for this decision. The application “shall contain specific detailed grounds upon which it is claimed the decision is erroneous.” Section 138.432. The application must be in writing, and may be mailed to the State Tax Commission, P.O. Box 146, Jefferson City, MO 65102-0146, or emailed to Legal@stc.mo.gov. A copy of the application must be sent to each person 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.
Disputed Taxes
The Collector of Platte County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an application for review, unless said taxes have been disbursed pursuant to a court order under the provisions of section 139.031.
SO ORDERED October 8, 2021.
STATE TAX COMMISSION OF MISSOURI
Amy S. Westermann
Chief Counsel
Certificate of Service
I hereby certify that a copy of the foregoing has been electronically mailed and/or sent by U.S. Mail on October 8, 2021, to: Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent and County Collector.
Elaina Mejia
Legal Coordinator
[1] Complainant timely filed a complaint for review of assessment. The State Tax Commission (STC) has authority to hear and decide Complainant’s appeal. Mo. Const. art. X, Section 14; section 138.430.1, RSMo 2000. All statutory citations are to RSMo 2000, as amended.
[2] During cross examination of Complainant’s Appraiser, Respondent made an oral motion to strike Complainant’s comparable sales approach on the ground that it constituted conjecture given that Complainant’s Appraiser had no knowledge of the property interest held by the owners of the comparable properties as compared to the property interest held by the shareholders-residents of the subject property. The hearing officer took the motion with the case. The motion is hereby overruled.