ON
APPEAL FROM A FINAL DETERMINATION OF THE INDIANA BOARD OF TAX
REVIEW
ATTORNEYS FOR PETITIONER: BRIAN CUSIMANO ATTORNEY AT LAW
Indianapolis, IN MARILYN S. MEIGHEN ATTORNEY AT LAW Carmel,
IN
ATTORNEYS FOR RESPONDENT: BRENT A. AUBERRY BENJAMIN A. BLAIR
DAVID A. SUESS FAEGRE BAKER DANIELS LLP Indianapolis, IN
MICHAEL B. SHAPIRO HONIGMAN MILLER SCHWARTZ AND COHN LLP
Detroit, MI
WENTWORTH, J.
The
Clark County Assessor has challenged the Indiana Board of Tax
Review's final determination that lowered the assessed
value of the Meijer store in Jeffersonville, Indiana for each
of the 2008 through 2016 assessment years. Upon review, the
Court affirms the Indiana Board's final determination.
FACTS
AND PROCEDURAL HISTORY
Meijer
Stores LP owns and operates a 180, 000 square foot retail
store and a 2, 432 square foot gas station/convenience store,
both situated on one 32.42 acre parcel of land in
Jeffersonville, Indiana (the subject property). Meijer
constructed the stores in 1998/1999.
During
the years at issue, the Assessor assigned the following
assessed values to the subject property:
|
2008:
|
$12, 160, 100
|
|
2009:
|
$12, 167, 000
|
|
2010:
|
$11, 732, 600
|
|
2011:
|
$11, 732, 600
|
|
2012:
|
$10, 017, 000
|
|
2013:
|
$ 9, 904, 400
|
|
2014:
|
$10, 021, 000
|
|
2015:
|
$ 9, 966, 000
|
|
2016:
|
$ 9, 969, 100
|
(See Cert. Admin. R. at 1-2, 13-14, 26-27, 40-41,
52-53, 72-73, 86-87, 105-06, 142-43.) Believing those values
to be too high, Meijer filed appeals first with the Clark
County Property Tax Assessment Board of Appeals and then with
the Indiana Board.
In
November of 2017, the Indiana Board conducted one
administrative hearing on all of Meijer's appeals. For
purposes of the hearing, however, Meijer and the Assessor
agreed to litigate only the subject property's 2012
assessment, stipulating that the other years' assessments
could be determined by applying an agreed-upon trending
formula to the finally-determined 2012 assessed value.
(See Cert. Admin. R. at 128-29.)
The
Indiana Board Hearing: Meijer's Evidence
During
the Indiana Board hearing, Meijer presented, among other
things, an Appraisal Report, completed in conformance with
the Uniform Standards of Professional Appraisal Practice
(USPAP), that valued the subject property as of March 1,
2012. Meijer also presented the testimony of Laurence Allen,
a member of the Appraisal Institute (MAI), who prepared the
Appraisal Report ("Meijer Appraisal").
To
value the subject property, Allen first employed the sales
comparison approach.[1] Under this approach, he examined data
relating to the fee simple sales of numerous other big-box
stores that had occurred throughout the Midwest between 2006
and 2013. (See, e.g., Cert. Admin. R. at 389,
431-40, 1633-44.) After adjusting the sales prices of those
properties to account for differences in the age and
condition of their improvements, their location, as well as
the condition of the market at the time of sale, Allen used
the data to determine a probable sales price for the subject
property of $7, 570, 000. (See Cert. Admin. R. at
450-98, 1645-54, 1658.)
Allen
also employed the income approach to value the subject
property.[2]Under this approach, Allen first estimated
the subject property's net operating income using
market-based rental rates, occupancy rates, and operating
expense levels. (See, e.g., Cert. Admin. R at
1659-66.) Allen explained that he used the market-based
rental rates from existing big-box stores rather than rates
from big-box properties with "built-to-suit" leases
in place, because the former were more representative of both
occupant expectations and improvement age. (See,
e.g., Cert. Admin. R. at 564-69.) Allen then considered
investor surveys and comparable property sales and performed
a band-of-investment analysis to determine the capitalization
rate to apply against his net operating income estimate.
(See, e.g., Cert. Admin. R. at 580-84, 1666-68.)
Under his income approach, Allen estimated the 2012 value of
the subject property to be $7, 610, 000. (See Cert.
Admin. R. at 1668-69.)
Ultimately,
Allen reconciled his sales comparison and income approach
values into a final value conclusion for 2012 of $7, 600,
000. (See Cert. Admin. R. at 1676-77.) In concluding
this final value, Allen explained that he did not consider
the third generally accepted appraisal technique, the cost
approach, [3] to
be a reliable method of valuing the subject property for two
reasons. First, he stated that buyers and sellers of big-box
stores typically do not rely on the cost approach to
determine value. (See, e.g., Cert. Admin. R. at
430-31, 1631.) Second, he stated that the use of the cost
approach to value the subject property is redundant because
like most big-box retail properties, it suffered from
significant obsolescence that "is difficult, if not
impossible, to estimate without extracting from the other
approaches to value." (See Cert. Admin. R. at
590-601, 1631.) (See also Cert. Admin. R. at 415-17,
421-24, 430-31, 592-94, 597-98 (where Allen explains that
big-box properties suffer from obsolescence immediately upon
construction because they are built for their users'
exact specifications; subsequent users will never pay
"cost" for these properties because they must incur
extensive expenditures to adapt the properties to their own
use).)
The
Indiana Board Hearing: The Assessor's Evidence
During
the Indiana Board hearing, the Assessor offered her own
USPAP-certified appraisal that valued Meijer's property
for the 2012 tax year ("Assessor's Appraisal")
at $11, 200, 000. (See, e.g., Cert. Admin. R. at
1728-32.) In addition, she presented the testimony of David
Hall, MAI, the primary author of the Assessor's
Appraisal.
In his
testimony, Hall first stated that he disagreed with Allen
regarding the propriety of using the cost approach. Indeed,
Hall reasoned that the cost approach was the best
approach to value the subject property because it was
depreciating at a rate consistent with its age and suffered
from no obsolescence whatsoever. (See, e.g., Cert.
Admin. R. at 892-94, 919-20, 1849 (stating there could be no
functional obsolescence because "the subject has been
continuously occupied since completion of construction, and
[] the buildings are consistent with market norms in
construction quality, size, utility, and design"), 1850
(stating there could be no economic obsolescence because
local and national economic trends "were positively
impacting [the] demand" for properties like
Meijer's).) Under his cost approach, Hall estimated that
the subject property's 2012 market value-in-use was $11,
300, 000. (See Cert. Admin. R. at 1845-51.)
Hall
also performed an income approach to value the subject
property. In calculating net operating income, Hall, unlike
Allen, used rental, occupancy, and expense rates derived from
built-to-suit leases (i.e., leases to
first-generation users). (See Cert. Admin. R. at
971-74, 1877-80, 1882-85.) Like Allen, however, Hall
considered investor surveys and comparable property sales and
performed a band-of-investment analysis to determine the
capitalization rate to apply against his net operating income
estimate. (See, e.g., Cert. Admin. R. at 1888-91.)
Ultimately, under his income approach, Hall estimated the
2012 value of the subject property was $11, 200, 000. (Cert.
Admin. R. at 1891.)
Finally,
Hall valued the subject property using two separate sales
comparison approaches. In his first sales comparison
valuation, Hall used the leased-fee sales of occupied big-box
properties as his comparables. (See Cert. Admin. R.
at 1751-52, 1853 (asserting that the leased-fee properties
best reflected Meijer's utility because they were 100%
occupied as retail space at the time of their sale).) Hall
maintained that The Appraisal of Real Estate,
14th edition, instructed that because the
leased-fee properties were all leased at market rates, no
adjustments were necessary to account for the difference in
the type of property rights conveyed. (See, e.g.,
Cert. Admin. R. ...