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The Assessor pointed to three things to support the sixparcels’ assessments: (1) the assessmentsthemselves, which Beckman testified were determined using a mass appraisalversion of the cost approach; (2) Beckman’s valuation opinion for the Shoppes parcels,and (3) the purported $21,000,000 allocated sale price from the 2007 portfolio sale.
To the extent that the Assessor relies on Beckman’sconclusory testimony that the parcels were assessed correctly under themass-appraisal version of the cost approach represented by the Real PropertyAssessment Guidelines for 2002 – Version A and the administrative regulationsgoverning annual adjustments, he misunderstands his burden of proof. The Assessor needed to show through the typesof market-based evidence described in the Manual that the assessments actuallyreflect the parcels’ market values-in-use. See Eckerling v. Wayne Twp. Assessor, 841 N.E.2d 674, 678 (Ind. Tax Ct.2006) (pointing to the Manual in explaining what types of evidence can be usedto demonstrate a property’s market value-in-use).
By offering Beckman’s valuation opinion and evidenceconcerning an allocated sale price for the subject property, the Assessor atleast attempted to offer market-based evidence. On closer examination, however, neither of those items is sufficiently reliableto be probative of the subject property’s market value-in-use.
The Board turns first to Beckman’s valuation opinion. Beckman analyzed the property’s value usingthe sales-comparison and income approaches. Her sales-comparison approach was almost entirely conclusory. Beckman apparently relied on some unidentifiednumber of sales or listings contained in a packet that includes information for233 properties. Of the six propertiesthat she actually highlighted, two were from out of state and had been listedfor lengthy periods without selling. Ofthe remaining four properties, the largest building was only 39,451 square feetcompared to approximately 270,000 square feet of rentable space spread amongthe subject property’s three buildings. Yet, Beckman did not explain how she adjusted any of the list or saleprices to account for differences in size, sale date or location, testifyinginstead that “there are all kinds of adjustments that fall under what we call agrid. [A]s far as that, in looking at these,I did that but it was more of a mental exercise.” Beckman testimony.
Although Beckman’s analysis under the income approach was alittle more detailed, it was still fairly cursory. And Correll pointed to problems that detractsignificantly from the reliability of her conclusions. First, Beckman relied solely on nationalsurveys to determine her capitalization rate without even examiningcapitalization rates from more local sales. And she used the survey rates for power centers even though, as Correll persuasivelyexplained, the subject property is more of a hybrid type of center.
More importantly, Beckman grossly misconstrued the impact ofproperty taxes on the subject property’s market value-in-use. Beckman did not include real estate taxes inher 25% expense ratio, and as Correll explained, the capitalization rate thatshe took from Korpacz was not loaded for taxes. Viewed in isolation, that might not be fatal to Beckman’scredibility. The record indicates thatthe subject property’s tenants were responsible for property taxes under theirleases and actually reimbursed Gateway Arthur for those taxes. Thus, taxes were not an expense, or were apass-through expense. Had Beckman simplycapitalized the property’s NOI without dealing with property taxes at all, theresulting value might not have been nearly as distorted.
But that is not how Beckman proceeded; she instead includedthe tenant reimbursements as income. Havingdone that, Beckman could no longer treat property taxes as a pass throughexpense—although Gateway Arthur received the reimbursements, it had to pay anequal amount to taxing authorities. Beckman therefore needed to account for those property taxes by loadingher capitalization rate, and her failure to do so greatly distorted her valueconclusion. Had Beckman loaded hercapitalization rate with the net tax rate that Correll used in his appraisal,she would have come up with a value of $14,387,025, which is over $4,000,000less than what she arrived at by counting property tax reimbursements as incomewhile ignoring the actual tax liability as an expense.
As to the allocated sale price, Beckman did not attempt toexplain how that allocated price related to the subject property’s value as ofthe relevant valuation date, which was more than two years before thesale. For that reason alone, the saleprice lacks probative value.
Regardless, the Assessor did not offer reliable evidence toprove what the allocated sale price actually was. The $21,000,000 figure that Beckman citedcomes from a computer printout. Thatprintout reflects data entered into a computer by an unidentified person from asales disclosure statement that no longer exists. The printout does not indicate that anyoneverified the disclosure. It alsocontains several errors and omissions, such as incorrectly listing the “sale”and “deed” dates and omitting several parcels that were included in thesale. The transfer history log attachedto the subject parcels’ property record cards lists the correct deed date, andit refers to all six parcels (although two of the parcel numbers areincomplete). But there is no evidence inthe record as to who completed the transfer log, when it was completed, or theinformation on which it was based.
Even if the Board were to credit the printout as accuratelyreflecting the price that was listed on the original sales disclosure form,there is nothing in the record about the basis underlying that allocation. As Correll testified, parties to portfoliosales have various motives when deciding what portion of the total sale pricethey will allocated to individual properties. And many of those motives do not directly relate to the property’s marketvalue-in-use. Although Beckman differedon that point, her testimony was not as persuasive as Correll’s.
At the end of the day, there are too many problems with thepurported $21,000,000 allocated sale price for the Board to give that price anyprobative weight. Indeed, even whenBeckman grossly overestimated the property’s market value-in-use by using a lowOAR and including real estate tax reimbursements in the property’s incomewithout accounting for those taxes as an expense, she still arrived at value ofonly $18,472,400, which is over $2,500,000 less than the purported $21,000,000allocated sale price.
http://www.in.gov/ibtr/files/Gateway_Arthur_2006_49-500-06-1-4-01084_et_al.pdf
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