APPEAL FROM A FINAL DETERMINATION OF THE INDIANA BOARD OF TAX
ATTORNEYS FOR PETITIONER: MARILYN S. MEIGHEN BRIAN A.
CUSIMANO ATTORNEY AT LAW
ATTORNEY FOR RESPONDENT: BETH H. HENKEL LAW OFFICE OF BETH
Madison County Assessor has challenged the Indiana Board of
Tax Review's final determination that reduced the
assessed value of Sedd Realty Company's River Ridge
shopping center for each of the 2009 through 2012 assessment
years. Specifically, the Assessor claims that the Indiana
Board erred by applying a capitalization rate in its income
approach that was different than the capitalization rates
offered by either of the parties. Upon review, the Court
reverses the Indiana Board's final determination.
FACTS AND PROCEDURAL HISTORY
subject property, referred to as River Ridge, is part of the
larger River Ridge Plaza retail center in Anderson, Indiana.
(See Cert. Admin. R. at 712, 717-18, 1181.) River
Ridge consists of ten buildings grouped into two main strip
shopping centers (north and south) both with corresponding
freestanding outlot improvements. (See Cert. Admin.
R. at 718, 1181, 3178 ¶¶ 8-9, 3440.) The property
has approximately 350, 000 square feet of building area, over
300, 000 square feet of leasable space, and 75 acres of land.
(See Cert. Admin. R. at 718, 1181.)
Ridge, owned by Sedd Realty Company, Sedd Anderson, LLC, Dori
Development Co., Neal Development Co., and S&I East
Development Co., (collectively, "Sedd"), was
constructed by Sidney Eskenazi over several decades beginning
in the 1960's. (See Cert. Admin. R. at 1106-34,
4453-56.) While River Ridge was located in Anderson's
primary retail corridor when it was built, retail development
has since proceeded southward causing River Ridge's daily
customer traffic and tenant occupancy to decline.
(See Cert. Admin. R. at 726, 1229, 3744, 3850-53.)
Consequently, its occupancy had fallen to 55% during the
years at issue. (See Cert. Admin. R. at 4548-49.)
Madison County Assessor valued River Ridge at $12, 469, 000
for 2009, $11, 778, 110 for 2010, $11, 968, 600 for 2011, and
$9, 950, 400 for 2012. (See Cert. Admin. R. at
1106-34, 3178 ¶ 7.) Believing those values to be too
high, Sedd filed appeals first with the Madison County
Property Tax Assessment Board of Appeals ("PTABOA")
and thereafter with the Indiana Board. (See
Cert. Admin. R. at 1-406.)
February and March of 2017, the Indiana Board conducted a
hearing on Sedd's appeals. While the parties could not
agree on the property's assessed value, they did agree
that 1) as a lower-tier shopping center, the original
assessments were too high and 2) the Assessor bore the burden
of proof with respect to the 2009 assessment. (See
Cert. Admin. R. at 3416-19, 3443, 3826-27.) Both parties
presented appraisals that valued River Ridge for each of the
years at issue using the income approach, the sales
comparison approach, but not the cost approach. (See
Cert. Admin. R. at 712-1054, 1178-2885, 3463-64, 3837-38.)
The Indiana Board afforded no weight to either parties'
sales comparison valuations, finding the analyses were not
credible. (See Cert. Admin. R. at 3220-22
¶¶ 147-52.) On appeal, neither party has challenged
Assessor's Income Approach Valuations
Assessor's appraisals were prepared by David Hall, a
member of the Appraisal Institute (MAI). (See Cert.
Admin. R. at 3432-34.) Under the income approach,
first determined River Ridge's net operating income
("NOI") for each year at issue. (See Cert.
Admin. R. at 1359, 1786, 2213, 2640, 3549-50.) Specifically,
Hall estimated River Ridge's annual potential gross
income and then subtracted the vacancy and collection losses
and total operating expenses to conclude that the NOI was
$998, 718 for 2009, $968, 610 for 2010, $966, 428 for 2011,
and $948, 725 for 2012. (See, e.g., Cert. Admin. R.
at 1355-59, 1781-88, 2209-15, 2635-40, 3549-50, 3571-80.)
Hall developed capitalization rates by averaging the rates he
extracted from 1) four selected retail sales, 2)
Pricewaterhouse Coopers (PwC) national investor surveys, 3)
the CoStar analytic survey data for Madison County, and 4) an
analysis using the band of investment method. (See,
e.g., Cert. Admin. R. at 1364, 3580-84.) Hall then
loaded each year's capitalization rate by 1.35% to
account for Sedd's share of the real estate tax expense.
(See Cert. Admin. R. at 1364, 1791, 2218, 2645,
3499-500, 3584.) Hall concluded that the capitalization rate
was 11.25% for tax years 2009, 2011, and 2012 and 11.70% for
2010. (Cert. Admin. R. at 1364, 1791, 2218, 2645.) After
applying his capitalization rates to the property's NOI,
Hall added $100, 000 to each year's value to account for
the property's 39-acre tract of surplus floodplain land.
(See Cert. Admin. R. at 1365, 1792, 2219, 2646,
3501-02, 3584.) Accordingly, Hall determined the appraised
values of River Ridge were $8, 980, 000 for 2009, $8, 380,
000 for 2010, $8, 690, 000 for 2011, and $8, 530, 000 for
2012. (See Cert. Admin. R. at 1365, 1792, 2219,