CHARTER OAKS ASSOCIATES/ ) MREF PROPERTY IV, ) Complainant, ) ) v. ) Appeals No. 99-10552, 99-10553, ) & 99-10554 MAURICE M. GOGARTY, ASSESSOR, ) ST. LOUIS COUNTY, MISSOURI, ) ) Respondent. )
DECISION AND ORDER
HOLDING
Decision of the St. Louis County Board of Equalization sustaining the assessments made by the Assessor, SET ASIDE, Hearing Officer finds true value in money for the subject property for tax years 1999 and 2000 to be $16,331,000, assessed value of $3,102,885.
Complainant appeared by Counsel, William J. Falk, St. Louis, Missouri.
Respondent appeared by Counsel, Paula J. Lemerman, Associate County Counselor.
Case heard and decided by Chief Hearing Officer, W. B. Tichenor.
ISSUES
The Commission takes these appeals to determine the true value in money for the subject properties on January 1, 1999.
SUMMARY
Complainant appeals the decision of the St. Louis County Board of Equalization which sustained the valuations of the subject properties. The Assessor determined appraised values of $2,700, $18,000,000 and $3,358,300, respectively, for the properties under appeal (assessed values of $510, $3,420,000 and $638,080, as residential properties). A hearing was conducted on September 11, 2000, at the St. Louis County Government Center, Clayton, Missouri. At the request of Respondent, a Briefing Schedule was established after the Evidentiary Hearing. By Notice and Request dated November 1, 2000, Counsel for Complainant notified the Commission that since Respondent had not filed a Brief as per the Briefing Schedule, Complainant would not file a Brief.
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
Complainant's Evidence
The following exhibits were received into evidence on behalf of Complainant:
Exhibit A - Appraisal Report of Thomas R. McReynolds, MAI.
Exhibit B - Purchase and Sale Agreement, dated 7/6/98.
Exhibit C - Loan Commitment Letter, dated 7/7/98.
Exhibit D - Assignment and Assumption Agreement, dated 7/13/98.
Exhibit E - Special Warranty Deed, 7/13/98.
Exhibit F - Bill of Sale and General Assignment, 7/13/98.
Exhibit G - Projected Underwriting Pro Forma for 8/98 through 7/99.
Exhibit H - Multi-Family Note, 11/3/98.
Exhibit I - Rent Roll as of 1/1/99.
Exhibit J - Operating Statements for 1997; Annualized Operating Statement for 1998;
Operating Statement for 9/98 to 8/99.
Exhibit K - 1999 Monthly Operating Statement.
Exhibit L - Written Direct Testimony of Thomas R. McReynolds.
Exhibit M - Written Direct Testimony of Bruce V. Michelson, Jr.
Mr. Michelson and Mr. McReynolds testified under cross-examination, questions by the Hearing Officer and redirect examination. Mr. Michelson is Vice-President and Secretary/Treasurer of Michelson Asset Management, Inc., which manages the subject property for the Complainant.
Respondent's Evidence
The following exhibits were received into evidence on behalf of Respondent:
Exhibit 1 - Appraisal Report of Robert T. Gammon with attached exhibits 1-A, 1-B, 1-C, 1-D, 1-E, 1-F, 1-G, 1-I and 1-J.
Exhibit 3 - Written Direct Testimony of Robert T. Gammon.
Exhibit 4 - Memorandum dated 12/9/99 to Bruce Michelson & Bill Falk.
The following exhibits were offered by Respondent, but objected to by Complainant.
Exhibit 1-H Article from St. Louis Business Journal, August 10-16, 1998, p. 7.
Exhibit 2 - Appraisal Report of Keith M. Kramer.
The Hearing Officer ruled on said objections, sustaining same and excluding both exhibits. Order, dated September 1, 2000.
Mr. Gammon testified under cross-examination and redirect examination.
FINDINGS OF FACT
1. The subject properties are identified by locator numbers 16O310540 (12143 Lake Placid Drive); 17O640266 (11921 Charter Oak Parkway); 16O310531 (11900 Charter House Lane). The combined properties are known as the Charter Oak Apartments ("subject property" or "Charter Oak"). The combined properties consist of a 37.71 acre tract improved with 51, frame and brick veneer apartment buildings containing a total of 284 units. There are 124 two- bedroom garden units, 52 two-bedroom townhouse units, and 108 three-bedroom townhouse units. In addition, there is a 3,662 square foot leasing office/clubhouse building with a fitness center, business center, and an outdoor swimming pool. The apartment complex has a volleyball court, tennis courts, and surface parking for 501 automobiles plus 40 carports. The improvements were constructed in 1969 and 1970. There are twenty, 935 square foot units; eighty-eight, 1050 square foot units; sixteen, 1,100 square foot units; fifty-two, 1,210 square foot units; twenty-four, 1,854 square foot units and eighty-four, 2,270 square foot units. The average square foot area per unit is 1,503. Exhibit A, pp. 6, 7 & 19.
2. The subject properties were purchased in July, 1998, by Complainant for $21,400,000.
3. Following the 1998 purchase of the property, there was a major renovation and capital improvement program that included the installation of new windows, replacing the siding on the buildings and other major repairs and replacements. Some of this renovation was performed prior to the January 1, 1999, tax date. The evidence as to renovations performed after January 1, 1999, is insufficient for the Hearing Officer to conclude that the value for tax year 1999 would be significantly different from the value for tax year 2000 due to any renovations which took place after January 1, 1999.
4. Mr. McReynolds performed a sales comparison analysis to arrive at an indicated value for the subject property. In developing his sales comparison approach, the appraiser considered sales of eleven apartment properties, including the July, 1998, sale of the subject. The sales dates for the properties fell in a time period between January, 1998, and May, 2000. The sale properties consisted of properties having apartment units in a range from 156 to 480. The range of total building area was from 144,748 to 457,500 square feet. The average unit size of the sale properties was in a range from 923 square feet to 1,503. Exhibit A, pp. 26-44; Exhibit L, Q & A 51-57. On the basis of sales dates, number of apartments, total building area and average unit size, all of the sale properties are proper for use in a sales comparison analysis for the subject.
5. The sales price for the comparable properties ranged from $10,400,000 to $29,900,000. This calculated to a range of per unit values from $41,434 to $75,352 (subject, unadjusted sale price). The sale price per square foot ranged from $40.23 to $77.58. Mr. McReynolds concluded on a per unit value of $58,500, for the subject property, which calculates to an indicated value of $16,614,000, including personal property for each unit. In arriving at his per unit value, the appraiser took into consideration the average unit size of the subject being significantly larger than those of the comparable sales. The analysis also addressed the impact of larger unit size on the effective gross income and expenses on a per square foot basis as applied to the subject. The final concluded per unit value was based on the price per square foot and price per unit on the comparable sales most similar to the subject. Mr. McReynolds did not rely upon the July, 1998, sale of the subject in arriving at his opinion of value under the sales comparison approach. Exhibit A, pp. 26-44; Exhibit L, Q & A 59.
6. The actual effective gross income in 1999 was virtually identical to the 1998 figure. The actual net operating income for 1999 was approximately, $1,492,000, nearly $200,000 less than the 1998 net income and nearly $350,000 less than the purchaser's original forecast. The forecast upon which the purchase price of $21,400,000 was based was overly optimistic and significantly above the actual market value of the property. Exhibit A, p. 44; Exhibit M, Q & A 37 - 43; Tr. 38, Line 14 - Tr. 40, Line 19; Exhibit 4; Exhibit L, Q & A 27 - 30.
7. Mr. McReynolds also performed an income approach to arrive at an indicated value. In developing a value based on the income approach, the appraiser relied upon the income and expense history of the subject for the years 1997 and 1998 and made a forecast of income and expenses for the year 1999. The net operating incomes (including real estate taxes as an expense) for tax years 1997 and 1998 were $1,558,936 and $1,599,828 respectively. The forecast net operating income for 1999 was $1,827,751. Exhibit A, pp. 45-46; Exhibit L, Q & A 40-47.
8. Mr. McReynolds developed a capitalization rate based upon the indicated capitalization rates developed from the sales comparables utilized in the sales comparison approach. Primary reliance was placed on the rates shown for comparable sales 1, 2, 5 and 6 and resulted in a 9.75% capitalization rate. The effective tax rate of 1.25% was added to the capitalization rate to arrive at an overall rate of 11%. Exhibit A, pp. 47-51. This is an appropriate overall rate for purposes of capitalizing the net operating income. The indicated value under the income approach is $16,615,000.
9. Mr. McReynolds made a deduction for the in-place value of the personal property (refrigerators, stoves, garbage disposers in the apartments, office and exercise equipment in the club house) of $1,000 per dwelling unit or $284,000 for both the sales comparison and income approaches. Exhibit A, pp. 52-53; Exhibit L, Q & A 48 & 58.
10. Complainant's evidence was substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money for the properties combined as of January 1, 1999, to be $16,331,000.
11. The Complainant did not challenge the value of $2,700 placed on the parcel in appeal 99-10552. The allocation of the value of the subject property among the three appeals will be as follows: Appeal 99-10552 - $2,700; Appeal 99-10553 - $13,715,800; Appeal 99-10554 - $2,612,500. The allocations of value for Appeals 99-10553 and 99-10554 was based on the assessor's valuing the property in Appeal 99-10553 as 84% of the combined values of the 99-10553 and 99-10554 properties.
CONCLUSIONS OF LAW
Jurisdiction
The Commission has jurisdiction to hear these appeals and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. Article X, section 14, Mo. Const. of 1945; Sections 138.430, 138.431, RSMo. The hearing officer shall issue a decision and order affirming, modifying or reversing the determination of the board of equalization, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious. Section 138.431.4, RSMo.
Board of Equalization Presumption
There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958).
Standard for Valuation
Section 137.115, RSMo 1994, requires that property be assessed based upon its true value in money which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and bought by one who is willing or desirous to purchase but who is not compelled to do so. St. Joe Minerals Corp. v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Children's Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993). It is the fair market value of the subject property on the valuation date. Hermel, supra, at 897.
Complainant's Burden of Proof
In order to prevail, Complainant must present an opinion of market value and substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 1999. Hermel, supra, at 897. Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. 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).
Weight to be Given Evidence
The Hearing Officer is not bound by any single formula, rule or method in determining true value in money, but 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, supra.
Trier of Fact
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 he may deem it entitled to when viewed in connection with all other circumstances. The Hearing Officer is not bound by the opinions of experts who testify on the issue of reasonable value, but may believe all or none of the expert's testimony and accept it in part or reject it in part. St. Louis County v. Boatmen's Trust Co., 857 S.W.2d 453, 457 (Mo. App. E.D. 1993); Vincent by Vincent v. Johnson, 833 S.W.2d 859, 865 (Mo. 1992); Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. banc 1981).
Opinion Testimony by Experts
If specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert on that subject, by knowledge, skill, experience, training, or education, may testify thereto.
The facts or data upon which an expert bases an opinion of inference may be those perceived by or made known to the expert at or before the hearing and must be of a type reasonably relied upon by experts in the field in forming opinion or inferences upon the subject and must be otherwise reliable, the facts or data need not be admissible in evidence. Section 490.065, RSMo; Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-505, pp. 325-350; Wulfing v. Kansas City Southern Industries, Inc., 842 S.W.2d 133 (Mo. App. W.D. 1992).
Sale of Subject
Evidence of the actual sales price of property is admissible to establish value at the time of an assessment, provided that such evidence involves a voluntary purchase not too remote in time. The actual sale price is a method that may be considered for estimating true value. The actual sales price, between a willing seller who is not obligated to sell and a willing buyer who is not compelled to buy, establishes an outer limit on the value of real property. St. Joe Minerals Corp. v. STC, 854 S.W.2d 526 (App. E.D. 1993).
DECISION
Complainant's Valuation
The subject property was purchased by Complainant five months prior to the tax date of January 1, 1999. Ordinarily, such a purchase would provide a very clear and persuasive indication of value. Under the direction provided by the St. Joe Minerals case, the purchase price in July, 1998, of $21,400,000 would be the outer limit as to the value of the property. However, the evidence in these appeals demonstrates that the July, 1998, purchase price was based on assumptions, projections and anticipations not supported by the previous income and expense history of the subject property.
Irrespective of the price Complainant paid in July, 1998, the income and expense data for 1997 and 1998 does not support a value of $21,000,000 for the subject property. When adjustment is made for the real property taxes for those two years and the stream of income is stabilized, the capitalized income will not provide an indicate value which approaches the $21,000,000 amount. Based upon the data and inferences and conclusions drawn therefrom by Complainant's expert and the testimony of Complainant's representative, Mr. Michelson it is clear that the July, 1998, transaction was not indicative of the true value in money of the subject property as of January, 1999. But for the financing arrangements made relative to the loan for the purchase of the property, the evidence establishes that the purchase would not have been made in July, 1998, by Complainants at the $21.4 million figure ($20.3 million, cash equivalency).
The valuation made by Complainant's appraiser developing both the sales comparison and income approaches provides a sound basis for the conclusion of value reached by Mr. McReynolds. The income approach received the greatest weight as it appropriately should have in an appraisal of investment property such as the subject. Mr. McReynolds analysis relative to the problems concerning use of the 1998 sale under the sales comparison or income approach is appropriate, especially in light of the actual performance of the subject. The appraisal by Mr. McReynolds, relying on the income approach, gives a proper view of what a prospective investor/buyer would have considered in purchasing this property in January, 1999.
Respondent's Valuation
Respondent's appraiser elected to only perform a sales comparison approach. The sales comparison approach utilized only three sales of comparable properties. The three sales used were also utilized by Mr. McReynolds along with seven other sales. Mr. Gammon made only brief mention of the July, 1998, sale of the subject. Nothing in his appraisal report, written direct testimony or responses to cross-examination provides any indication of his reliance on that transaction to establish value. This provides a further basis that the 1998 transaction was not an appropriate indicator of value for January, 1999. The sales comparison approach developed by Mr. Gammon is simply not persuasive in light of the McReynolds' sales comparison and income analysis.
The reason given by Mr. Gammon for not developing an income approach is totally unpersuasive (I do not believe the figures available to me are indicative of normal market conditions. Exhibit 3, Q & A 16). Under cross-examination (Tr. 81 - 120), it is clear that Mr. Gammon could have made a due diligence effort to develop an income approach, but failed to do so. He had, with normal efforts put forth by appraisers addressing an appraisal problem such as the present one, or could have obtained the necessary historical income and expense data and information from which to have performed the income approach. If the data he received relative to the subject was not indicative of the market, it was his responsibility as an appraiser to determine what the market for apartment properties like the subject were and from such information arrive at an opinion of value based on the income approach. Mr. Gammon did not even attempt to demonstrate what market data lead him to believe that the past history of the subject did not reflect market rents and expenses. In short, there is nothing from Mr. Gammon's appraisal report to show that the income and expenses of the subject prior to January, 1999, were not within the market for similar apartment facilities in St. Louis County.
ORDER
The assessed valuations for the subject properties as determined by the Assessor and sustained by the Board of Equalization for St. Louis County for the subject tax day are SET ASIDE in part and AFFIRMED in part.
The assessed value for the subject property in Appeal No. 99-10552 for tax year 1999 and 2000 is set at $510.
The assessed value for the subject property in Appeal No. 99-10553 for tax year 1999 and 2000 is set at $2,606,000.
The assessed value for the subject property in Appeal No. 99-10554 for tax year 1999 and 2000 is set at $496,375.
A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing of such decision. The application shall contain specific grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial. Section 138.432, RSMo 1994.
If an application for review of this decision is made to the Commission, any protested taxes presently in an escrow account in accordance with these appeals shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of St. Louis County, as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in these appeals. If any or all protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.
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 January 9, 2001.
STATE TAX COMMISSION OF MISSOURI
W. B. Tichenor
Chief Hearing Officer