MIDLAND SHOPPING CENTER LLC	)
	)
Complainant,	)
	)
v.	)		Appeal Number 03-45015
	)
	)
SCOT VAN METER, ASSESSOR,	)
BUCHANAN COUNTY, MISSOURI,	)
	)
Respondent.	)

Neither Complainant nor Respondent presented reliable opinions of market value for the subject property. The Commission finds the true value in money of the subject property on January 1, 2003, and January 1, 2004, to be $536,870 (assessed value $171,800).

The issue in the above appeal is the true value in money on the subject property on tax days January 1, 2003 and January 1, 2004.

The property under appeal is the anchor tenant space in a strip mall located on leased land. The property, along with its adjacent stores, was originally valued by the assessor at $933,550 (assessed value $287,740). This value was approved by the Board of Equalization. However, this value includes parcels not under appeal here and the market value has not been apportioned for the Tax Commission’s benefit.

An evidentiary hearing was held on October 13, 2004, in the Buchanan County Courthouse, St. Joseph, Missouri before Luann Johnson, Hearing Officer. Complainant was represented by R. Edward Murphy, Esq. Respondent was represented by Pamela Cone, Esq. Both parties were further represented by state licensed appraisers. All exhibits submitted by the parties are received into evidence.

At hearing Complainant asserted a market value of $125,000 (assessed value $40,000). Respondent asserted a market value of $200,000 (assessed value $64,000). Both appraisers failed to use market derived vacancy rates in their calculations and, thus, understated the value of the subject property. The Commission finds that the true value of the subject property on the subject tax days was $536,870 (assessed value $171,800).

1. Jurisdiction over this appeal is proper. Complainant timely appealed from the decision of the Buchanan County Board of Equalization. Complaint for Review of Assessment. All documents submitted and marked are received into evidence, even though not formally offered.

2. The subject property is identified as parcel number 06-8.0-28-002-001-007.801, more commonly known as Midland Shopping Center, 3420 South 22^nd Street, St. Joseph, Buchanan County, Missouri. Complaint for Review of Assessment.

3. The subject is 32,029 square foot attached, one-story, Class "C" retail box anchor facility of stucco veneer and concrete block exterior construction. A metal fascia surrounds the upper portion of the building. The interior construction of the building is a steel infrastructure situated on reinforced concrete footings on a concrete slab. The infrastructure includes steel I-beams, bar joists and metal decking. The building is fully insulated. The building has a built-up flat rolled roof. Plate glass showroom windows improve the front elevation. Gutters and downspouts are metal to handle water runoff. Complainant’s Exhibit A-1, pg. 39.

The interior finish includes 2' x 4' acoustical tile ceilings, partitioned and sheet rock walls, wood stained trim, wood, ceramic tile and carpeted floors, fluorescent, spot lighting and incandescent lights. The building is equipped with his/hers restrooms to accommodate customers and employees. Complainant’s Exhibit A-1, pg. 39.

The building is approximately 30 years old and was upgraded 10 years ago. The building is what the market would expect of an older improvement of average cost, construction quality, and fair condition. It has been adequately maintained since construction and has been minimally updated since construction. Complainant’s Exhibit A-1, pg. 39; Complainant’s Exhibit A-1, pg. 49; Tr. 88.

4. The property is zoned C-3, Commercial District. The subject’s improvements and utilization both conform to the zoning ordinance. This allows for a broad spectrum of commercial uses as follows: . . .pet shops, clinics, barber shops, retail and personal services, dry cleaning services, laundries, miniature golf courses, restaurants, and many others. Complainant’s Exhibit A-1, pg. 35.

5. Market evidence suggests that this area along South 22^nd Street is in a period of stability. The district as a whole is also in a period of stability and is approximately 90% developed. New construction has been occurring at a slow pace. Within this neighborhood is St. Joseph’s secondary commercial district.

There is a good infrastructure of services and utilities available in the area. Access to major forms of transportation linkages is considered adequate. The subject neighborhood is located within reasonable distances from major metropolitan areas. There are no known trends or tendencies that would adversely affect the current trends in the area. Complainant’s Exhibit A-1, pg. 34.

6. Subject property was most recently occupied by Fleming Foods. Fleming Foods vacated the premises in 2002 after filing bankruptcy but continued to pay rent on the space through tax year 2002. Complainant’s Exhibit D, pg. 2; Complainant Exhibit F; Tr. 92. In other words, the property was rented until the tax day. Further, rental income was also high in tax year 2001. Complainant’s Exhibit F. No evidence was presented which suggested that the subject property had a history of vacancy.

7. Market vacancy is 10% to 30%. But, at the time of hearing, the only big box vacancies in all of St. Joseph were the subject property and a second property located on Mitchell Avenue. Complainant’s Exhibit A-1, pg. 64; Tr. 91, 93. Vacancy rates utilized by the appraisers are not based on market data. Tr. 81-82. Therefore said proposed vacancy rates are not credible. Because there are virtually no vacancies of this type of property in St. Joseph, the maximum supportable market vacancy for the subject property is 30%.

8. Fleming Foods was rented the subject space for $6.63 per square foot. Asking rents for similar properties are $4.00 per square foot to $6.75 per square foot. The subject property has equal utility to rent comparables but a lesser location. A reasonable, and the lowest supportable, rental rate for the subject property is $4.00 per square. Complainant’s Exhibit A-1, pg. 60; Respondent’s Exhibit 1, pg. 26; Complainant’s Exhibit A-1, pg. 45.

9. The potential gross income for the subject property is $128,116 (32,029 square feet x $4.00 per square foot = $128,116).

10. The effective gross income for the subject property is $89,682. ($128,116 potential gross income less 30% vacancy or $38,434 = $89,682.)

11. Comparable operating expense statements indicate an expense range of 12% to 23% of effective gross income or $10,761 to $20,626. Complainant’s Exhibit A-1, pg. 27. In addition to normal expenses, the subject property leases its land for a rental rate of $10,000 per year. Respondent’s Exhibit 1, pg. 27. Giving Complainant a rental deduction and the maximum possible expense allowance indicates a deduction of $30,626 for expenses and results in a net operating income of $59,056. ($89,682 - $30,626 = $59,056).

12. The correct capitalization rate is 11%. Complainant’s Exhibit A-1, pg. 67, 71; Respondent’s Ex. 1, pg. 27.

13. The true value in money of the subject property on January 1, 2003, and January 1, 2004, was $536,872, say $536,870 (net operating income divided by capitalization rate). The correct assessed value for the subject property was $171,799, say $171,800.

14. The income approach is the most reliable indicator of value for the subject property. Both appraisers attempted to prepare a cost approach to value. But, because of the age of the improvements, the cost approach is not a reliable indicator of value. Neither appraiser prepared a sales comparison approach to value.

Burden of Proof

In order to prevail Complainant must demonstrate, by substantial and persuasive evidence, that the market value of its property was $125,000 on January 1, 2003.

Substantial evidence is that evidence which, if true, has probative force upon the issues, i.e., evidence favoring facts which are such that reasonable men may differ as to whether it established them, and from which the Commission can reasonably decide an appeal on the factual issues. 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).

Section 137.115, RSMo 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 purchased by one who is desiring 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, Inc. v. State Tax Commission, 564 S.W. 2d 888, 897 (Mo. banc 1978).

In order to prevail, Complainant must prove, by substantial and persuasive evidence, that the market value of its property on January 1, 2003, was $125,000. Complainant has failed to meet its burden of proof.

While appraisal of property is as much an art as a science, there are some universally recognized guidelines that must be complied with in order to hope to approximate true value. The most fundamental of these is that market data must be used to reach an opinion of value. Both appraisers missed the mark badly choosing to make their appraisals accommodate the arguably poor management conditions rather than the market. When there are only two big box vacancies in a city as large as St. Joseph it is wholly unacceptable to articulate a vacancy rate which is 2 to 7 times higher than market. It is especially disturbing in light of the fact that this property was leased right up until the tax day. Even the property itself could not demonstrate a history of vacancy.

Complainant was requested to provide this Hearing Officer with learned treaties which would allow such a deviation from market data when determining vacancy rates. In its Post Hearing Memorandum filed November 12, 2004, Complainant cited to an article in The Appraisal Journal for the conclusion that the appraisers were utilizing "structural vacancy" rather than "cyclical vacancy" and that this is, somehow, appropriate. Counsel for Complainant did not favor us with a copy of the article and we have nowhere else seen such a distinction made nor did either appraiser discuss same in his or her testimony.

We agree with Complainant that specific factors relevant to each property must be considered when determining the appropriate vacancy rate. However, it is fundamental that all vacancy rate calculations must have some basis in reality and market data. If a property does not have a history of vacancy and the market suggests that there is an adequate demand for big box properties it is poor appraisal practice to suggest that the property should have a 70% vacancy rate.

Under our calculation of value, we have given Complainant the lowest possible rental rate allowed by market data and we have given Complainant the highest possible vacancy and expense rates allowed by the market data. In other words, the lowest value possible under the market data presented is $536,870.

The assessed value as originally determined by the Assessor and approved by the Board of Equalization, is SET ASIDE. The correct value for the subject property on January 1, 2003 and January 1, 2004 is $536,870 (assessed value $171,800). The Clerk is hereby ordered to place said new values on the tax books for tax years 2003 and 2004.

A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed 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.

If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal 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 Buchanan 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 this appeal. If any 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 December 8, 2004.

STATE TAX COMMISSION OF MISSOURI

Luann Johnson

Hearing Officer

Decision and Order dated and issued December 8, 2004, was inadvertently sent to Platte County attorney and Platte County officials instead of to the Respondent's Attorney of Record and Buchanan County officials.  Original Decision and Order in this appeal is hereby reissued as of this date.  The date for filing an Application for Review of this Decision and Order is set for thirty (30) days after this date (January 12, 2005).

SO ORDERED December 14, 2004.

STATE TAX COMMISSION OF MISSOURI

R. Randall Turley

Chief Counsel

DECISION AND ORDER

SETTING ASIDE HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

On December 8, 2004, Hearing Officer Luann Johnson entered her Decision and Order (Decision) setting aside the assessment by the Buchanan County Board of Equalization, which had sustained the value set by the Assessor. The Commission sets the true value in money for the subject property at $183,740, assessed value as commercial property of $58,800.

Complainant’s Application for Review

Complainant filed its Application for Review of the Decision. Respondent filed Response to Application for Review.

The Application for Review was based upon two points. The first ground is that the Decision is contrary to the evidence, arbitrary, capricious improper and unfair because (1) the location and physical attributes of the Midland Shopping Center are such that its actual vacancy rate is much higher than the market vacancy rate; and (2) with respect to the Midland Shopping Center, a vacancy rate that exceeds the market vacancy rate is entirely consistent with sound appraisal principles. Application for Review, Points for Review, p. 4.

The second ground is that the Hearing Officer’s decision to deny Complainant’s motion to amend its Complaint to add two parcels that had been left off the original Complaint due to a mutual mistake by the parties is unlawful, arbitrary, capricious, improper and unfair.

Respondent’s Application for Review

Respondent also filed his Application for Review. The point raised under this Application is that the Hearing Officer erred in her statement under SUMMARY on page 1 of the Decision and Order when it was stated:

"The property, along with its adjacent stores, was originally valued by the assessor at $933,550 (assessed value $287,740). This value was approved by the Board of Equalization. However, this value includes parcels not under appeal here and the market values has not been apportioned for the Tax Commission’s benefit."

1. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Buchanan County Board of Equalization.

2. The subject property is identified as parcel number 06-8.0-28-002-001-007.801. It is located at 3420 South 22nd Street, St. Joseph, Missouri. It is more commonly known as Midland Shopping Center. Complaint for Review of Assessment. The subject is located on leased land and the site is not valued in this decision. Exhibit A-1, pg. 37; Exhibit 1, pg. 6.

3. The subject property by itself was originally valued by the assessor at $933,550, assessed value of $298,740. The value attributable by the Assessor to the subject parcel was for the improvements which are the subject of this appeal and did not include any of the adjoining property identified by either parcel number 06-8.0-28-002-001-007.803 or 06-8.0-28-002-001-007.000. Complaint for Review of Assessment, BOE Decision Letter, Order Ruling on Motion to Amend Complaint, July 2, 2004.

4. The subject is a 32,029 square foot attached, one-story, Class "C" retail box anchor facility of stucco veneer and concrete block exterior construction. A metal fascia surrounds the upper portion of the building. The interior construction of the building is a steel infrastructure situated on reinforced concrete footings on a concrete slab. The infrastructure includes steel I-beams, bar joists and metal docking. The building is fully insulated. The building has a built-up flat rolled roof. Plate glass showroom windows improve the front elevation. Gutters and down spouts are metal to handle water runoff. Exhibit A-1, pg. 39.

Interior finish includes 2' x 4' acoustical tile ceilings, partitioned and sheet rock walls, wood stained trim, wood, ceramic tile and carpeted floors, florescent, spot lighting and incandescent lights. The building is equipped with his/hers restrooms to accommodate customers and employees. The building is approximately 30 years old and was upgraded 10 years ago. Exhibit A-1, pg. 39.

5. The building is what the market would expect of an older average cost construction quality and fair condition rated retail box facility. The building does not meet current market standards and taste in exterior construction design or interior layout. The building configuration and efficiency is functionally obsolete. The existing building appears to be strategically positioned, however not properly scaled. Neither does it have an efficient layout or configuration to most benefit the functional utility of the site. The subject has been adequately maintained since construction, and has been minimally updated since construction. To retrofit the building to a more modern design and configuration may be cost prohibitive primarily due to its inferior location. Because the improvements, in a leased land situation, typically revert to the owner at the land at the end of a land lease, the market is less likely to invest in the subject building. The non-flexible and inefficient use of space with inadequate density and difficulty in being retrofitted into a more modern design is another negative factor for the building. The property is located in a third tier commercial area in South St. Joseph and experiences overall lower rents and higher vacancy rates compared with first and second tier shopping centers in St. Joseph. Exhibit A-1, pg. 39 & 46.

6. The City of St. Joseph has zoned this site C-3, Commercial District. The subject’s improvements and utilization both conform to the zoning ordinance. This allows for a broad spectrum of commercial uses as follows . . .pet shops, clinics barber shops, retail and personal services, dry cleaning services, laundries, miniature golf courses, restaurants, and many others . Exhibit A-1, pg. 35.

7. The income approach is the most reliable indicator of value for the subject property. Both appraisers prepared an income approach, however, Respondent’s appraised gave little weight to this approach. Both appraisers prepared a cost approach to value. But, because of the age of the improvements, and the amount of depreciation that was applied by both appraisers the cost approach is not a reliable indicator of value. Neither appraiser prepared a sales comparison approach to value.

8. Complainant’s appraiser used a rental rate of $3.00 per square foot. Exhibit A-1. Pg. 66. Respondent’s appraiser used a rental rate of $4.00 per square foot. Exhibit 1, pg. 26. Giving equal weight to the opinion of both experts, a rental rate of $3.50 per square foot is appropriate. The potential gross income for the subject property is $112,102 (32,029 square feet x $3.50 per square foot = $112,101.50, rounded to $112,102).

9. Complainant’s appraiser arrived at a 70% vacancy rate. Respondent’s appraiser arrived at a 60% vacancy rate. The appropriate vacancy rate for the subject property, giving equal weight to the opinion of both experts, is 65%.

10. The effective gross income for the subject property is $39,235. ($112,102 potential gross income less 65% vacancy or $72,866 = $39,235.)

11. Comparable operating expense statements indicate an expense range of 12% to 23% of effective gross income. Exhibit A-1, pg. 76. In additional to normal expenses, the Complainant leases the land on which the subject building is located at a rental rate of $10,000 per year. Exhibit 1, pg. 27. Giving Complainant a rental deduction and the maximum possible expense allowance indicates a deduction of $19,024 ($39,235 x .23 = $9,024 + $10,000 = 19,024) for expenses and results in a net operating income (NOI) of $20,211. ($39,235 - $19,024 = $20,211).

12. The correct capitalization rate is 11%. Exhibit A-1, pg. 67, 71; Exhibit 1, pg. 27.

13. The true value in money of the subject property on January 1, 2003 and January 1, 2004 was $183,740. (NOI divided by capitalization rate - $20,211/.11 = $183,736.36, rounded to $183,740). The correct assessed value for the subject property was $58,800 ($183,740 x .32 = $58,796, rounded to $58,800).

Jurisdiction

The Commission has jurisdiction to hear this appeal 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 Commission may affirm, modify, reverse, or set aside the decision and order of the hearing officer on the basis of the evidence previously submitted in the case. Section 138.432 RSMo.

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, Inc. v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978).

Market Value

Market value is the most probable price in terms of money which a property should bring in competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.

Implicit in this definition is the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:

1. Buyer and seller are typically motivated.

2. Both parties are well informed and well advised, and each acting in what they consider their own best interests.

3. A reasonable time is allowed for exposure in the open market.

4. Payment is made in cash or its equivalent.

5. Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.

6. The price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction.

Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; See also, Real Estate Valuation in Litigation, J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary. Exhibit 1, p. 4.

Methods of Valuation

Missouri courts have approved the comparable sales or market approach, the cost approach (replacement or construction) and the income approach as recognized methods of arriving at fair market value. St. Joe Minerals Corp. v. STC, 854 S.W.2d 526, 529 (App. E.D. 1993); Aspenhof Corp. v. STC, 789 S.W.2d 867, 869 (App. E.D. 1990); Quincy Soybean Company, Inc., v. Lowe, 773 S.W.2d 503, 504 (App. E.D. 1989), citing Del-Mar Redevelopment Corp v. Associated Garages, Inc., 726 S.W.2d 866, 869 (App. E.D. 1987); and State ex rel. State Highway Comm’n v. Southern Dev. Co., 509 S.W.2d 18, 27 (Mo. Div. 2 1974).

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, 2003. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 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). See also, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003).

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).

No Presumption Assessor’s Value Correct

There is no presumption that the assessor’s valuation is correct. Section 138.431.3, RSMo.

Weight To Be Given Evidence

The Commission 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 Commission 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 Company v. STC, 436 S.W.2d 650 (Mo. 1968).

Expert Testimony

The Commission may consider the testimony of an expert witness and give it as much weight and credit as they may deem it entitled to when viewed in connection with all other circumstances. The Commission 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).

Complainant’s First Point on Its Application for Review

The issue on appeal to the Commission is very simply whether a 30%, 60% or 70% vacancy rate is appropriate for use in the income approach in this particular case. The Commission finds that a 65% vacancy rate for the subject property is appropriate. Both Complainant’s and Respondent’s appraisers independently concluded that due to the particular factors affecting the marketability of the subject property that a 70% or 60% vacancy rate was appropriate. On this factor of the income approach, the Commission gives equal weight to the two opinions of the appraisers.

The evidence clearly demonstrates that a willing buyer could not anticipate an income stream that will support a true value in money of $933,550 as had been established by the Assessor and sustained by the Board of Equalization. Nor based upon the stream of income for the subject property would a potential investor anticipate that a fair market value of $536,870 would be warranted. Hearing Officer Decision. The Midland Shopping Center (Midland) buildings are over thirty years old. The demand for the subject property is forecasted to be insufficient due to the fact that leasehold estates are not readily marketable in St. Joseph, especially in the retail sector. Exhibit A-1, pg. 46.

Similar properties in the St. Joseph market simply do not have the number, type and extent of negative factors that Midland has with respect to income-generating capabilities. Simply put, the subject improvement is not consistent with what a tenant or buyer would require. In other words, the demand for Midland is not the same as the demand for other anchor space facilities in the St. Joseph market. Therefore, market data as to the vacancy rates on newer and more investor attractive properties has little applicability or benefit with respect to valuing Midland.

The determination to utilize a 65% vacancy rate is consistent with sound appraisal principles. The fact that two state certified appraisers both reached conclusions of 60% and 70% vacancy when developing their income approaches provides substantial and persuasive support for the use of a 65% vacancy factor. Utilization of the concept of structural vacancy (as was discussed in Complainant’s Post-Hearing Memorandum) has been recommended in the Appraisal Journal for appraisals of property such as Midland.

Structural vacancy has been defined as "the excess supply in the market that does not meet the needs of space users - a mismatch between the attributes of the space and the needs of the space user. Unlike cyclically vacant space, this structurally vacant space will not be absorbed until it is rehabilitated and renovated." Joseph S. Rabianski, Vacancy in Market Analysis and valuation, APPRAISAL J. (Apr. 1, 2002) (Exhibit A to Application for Review). The Encyclopedia of Real Estate Appraising notes that vacancy rate calculations should account for the property’s age and the adequacy of its improvements. ENCYCLOPEDIA OF REAL ESTATE APPRAISING 431 (3d ed.).

Dr. Rabianski suggests that structural vacancy be accounted for by adding it to the market vacancy rate to arrive at an actual vacancy rate. Rabianski, at 6. In this case, weight must be given to the structural vacancy that a willing investor could expect in owning Midland. The parties’ experts - both being state licensed appraisers - agreed that a sixty to seventy percent vacancy rate is appropriate given the particular factors and conditions affecting Midland. The fact that neither appraiser used the phrase "structural vacancy" in their reports or testimony does not erase the fact that both were accounting for the actual make-up and configuration of the subject. Furthermore, the fact that both appraisers in their cost approach utilized depreciation factors of 85% (Respondent’s Appraiser) and 93% (Complainant’s Appraiser) only provides further support to establish that the Midland property suffers from significant negative factors that require substantial remodeling and reconfiguration in order to be able to compete with newer and better designed shopping centers.

It is generally understood that factors being utilized in an income approach need to reflect the appropriate market. However, in certain instances, such as the present case, a departure from market vacancy rates is grounded in proper appraisal principles. The applicable literature supports a higher vacancy rate when a property, like Midland, experiences structural vacancy - space attributes not meeting needs of potential space users. Market vacancy rates were used as a starting point, but were considered by the parties’ experts to be too low because of the location and physical attributes of Midland were not sufficient to meet the demands of potential tenants and investors. This is supported by the fact of Midland’s actual vacancy. In accordance with the concept of structural vacancy, as approved in relevant literature as a sound appraisal concept, the experts simply adjusted the vacancy rate to reflect what a willing investor could expect. In doing so, the experts committed no error and were well within sound appraisal practice.

Complainant’s Second Point on Its Application for Review

The Commission finds the second point raised by Complainant not well taken. The Hearing Officer did not err in denying the motion to amend the Complaint for Review of Assessment to include two adjoining properties which were not appealed to the Board of Equalization. This matter was addressed by the Interlocutory Ruling made by Order of the Chief Counsel on July 2, 2004. A review of the pleadings filed relative to the Complainant’s Motion to Amend and the Order of Chief Counsel provides no basis upon which either the Chief Counsel or the Hearing Officer should be reversed on this point. Accordingly, the Order of Chief Counsel and the ruling of the Hearing Officer at the evidentiary hearing denying Complainant’s motion to amend the pleadings is affirmed.

Respondent’s Point on His Application for Review

The point raised by Respondent in his Application for Review is well taken. It has been sufficiently addressed by Finding of Fact 3, supra, and the Order Ruling On Motion To Amend Complaint, dated July 2, 2004. The Hearing Officer’s summary statement that the value assigned by the Assessor to the subject parcel also included other parcels is not established by this record. This has been corrected in this Decision and Order.

The Commission upon review of the record and Decision in this appeal, finds the Hearing Officer Decision should be set aside. Accordingly, the true value in money for the subject property as of January 1, 2003 is $183,740 (as set forth in Finding of Fact 7 through 13). The assessed value as commercial property for tax years 2003 and 2004 is set at $58,800.

Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the date of the mailing of this Order. If judicial review is not taken, then this decision and order is deemed final and the Collector of Buchanan 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 this Decision and Order. If any or all protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, Complainant 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 April 14, 2005.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Sam D. Leake, Commissioner

Jennifer Tidwell, Commissioner