2. The subject property is located at 6530 NW Barry Road, Kansas City, Missouri. The property in Appeal Number 05-79016 is identified by locator number 19-3.0-07-200-00-013-000. The property in Appeal Number 05-79017 is identified by locator number 19-3.0-07-200-00-013-001.

3. The property consists of a 114,998 square foot (2.64 acres) site. The subject site is burdened by a 40 foot wide utility easement along two frontage streets. This restricts development on approximately 40,000 square feet of land, resulting in a developable land area of approximately 74,988 square feet (1.72 acres). Exhibit A, Subject-1 & 2. The site is improved by a freestanding, full service restaurant (Applebee’s), built in 1990. The building contains gross building area of 5,016 square feet (Exhibit 1, p. 13 & 14) with a seating capacity of 263. The site is further improved by asphalt, striped to accommodate approximately 137 vehicles. Exhibit A, Subject-5.

3. There was no evidence of new construction and improvement from January 1, 2005, to January 1, 2006.

4. The land is owned by Emporia West Investors, LLC and is leased to Gourmet Systems, Inc. The land was leased on February 1, 1990, to Gourmet Systems, Inc., an Applebee’s franchisee and operator. The original improvements were constructed in 1990 and the commencement date of the ground lease was September 5, 1990. The term of the ground lease is twenty years with two five-year options to extend. An Applebee’s restaurant has operated continuously on the site since its construction. Exhibit A, Subject-1.

5. The property in Appeal Number 05-79016 is the land on the ground lease, owned by Emporia West Investors, LLC. The property in Appeal Number 05-79017 is the improvements (Applebee’s building and supporting improvements) on the land owned by Tapp Development Company.

6. Complainants’ evidence was substantial and persuasive to rebut the presumptions of correct assessment by the Assessor and the Board and establish the true value in money as of January 1, 2005, to be $1,802,000 for the entire economic unit.

7. The value of the total economic unit ($1,802,000) is allocated as follows:

a. Appeal No. 05-79016 – Emporia West Investors, LLC (land) – is $1,500,000. Exhibit A, Cost-1 – Cost-3.

b. Appeal No. 05-79016 – Tapp Development Co. (improvements) – is $302,000.

CONCLUSIONS OF LAW AND DECISION

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 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.

Presumptions In Appeals

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).

The Supreme Court of Missouri has held, “A tax assessor’s valuation is presumed correct.” Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341 (Mo. 2005). Citing to Hermel, supra; and Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

In order to prevail, Complainants 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, 2005. 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).

The opinion of true value in money (fair market value) tendered on behalf of complainants for the total economic unit of the properties under appeal was $1,700,000. This opinion of value was based upon two recognized approaches to appraising property, the sales comparison and income approaches. A review of these two approaches is warranted.

Sales Comparison Approach

Complainants’ Appraisal

Exhibit A, Sales-1 – Sales-3

To arrive at an opinion of value under the sales comparison approach, Complainants’ appraiser (Robert E. Marx) relied upon sales of six restaurant properties that occurred between April 2002 and February 2005. This is an appropriate time range for determining value of the subject restaurant property for January 1, 2005. Five of the sales were in the Greater Kansas City Metro area and one sale was in Lawrence, Kansas. More specifically, one sale was located in Platte County, Missouri, one in Clay County, Missouri, two in Jackson County, Missouri, one in Johnson County, Kansas and one in Douglas County, Kansas. This is an appropriate area from which to draw comparable sales for a property such as the subject.

Mr. Marx presented a narrative description of the various factors of comparability between the subject and his sale properties. Adjustments were made for those factors of difference. Adjustments were addressed in the narrative and in the appraiser’s Sale Adjustment Grid. The adjusted prices per square foot ranged from $338.02 to $389.76. The average calculated to $361.33 and the median was $361.21. The appraiser was of the opinion the “central tendency indications of six sales to be equally good indicators of the subject’s value at approximately $360.00 per square foot, rounded.” Applying the per square foot indicated value of $360.00 to the gross building area of the subject restaurant building (4,802 square feet) resulted in a value of $1,728,720, rounded to $1,700,000.

The Marx appraisal provided a sound sale comparison analysis based on excellent sales data, with appropriate adjustments to arrive at the indicated value of $360.00 per square foot. The final conclusion of value was arrived at using an area of 4,802 as both the gross building and gross leaseable area. Respondent’s appraiser used 5,042 as both the gross building and leaseable area. The site plan shown at page 13 of Exhibit 1 shows a 4,784 square foot restaurant with a 232 square foot addition. This results in a total area of 5,016. The city review comments at page 14, of Exhibit 1 show an actual area of 5,016 square feet. There is no evidence on the record from which the Hearing Officer can conclude that the net leaseable area would be less than the actual area. Therefore, for purposes of the sales comparison and income approaches, the Hearing Officer will use 5,016 as the appropriate area.

Applying the indicated per square foot value of $360 to 5,016 square feet results in an indicated value under the sales comparison approach of $1,805,760.

Respondent’s Appraisal

Exhibit 1, pp. 36 – 54

Respondent’s Appraiser (Brian Everly) relied upon five sales in his sale comparison approach. However, two of the sales used were not appropriate for the present appraisal problem. Mr. Everly’s sale no. 2 was of a non-restaurant property (Mattress Warehouse Building). Given that the subject is a restaurant property and there were sufficient sales available, as demonstrated by the Marx sales comps, the use of this property in the sales comparison analysis was not persuasive to establish value. Furthermore, the adjusted per square foot value of this property determined by Mr. Everly was only $306.29, well below his final conclusion of value of $500 per square foot.

Of the remaining four sales, one was of a property in Florissant, Missouri, St. Louis County. The data provided on this sale was very limited. Although this property was also an Applebee’s restaurant, its location across the state from the subject is to great a difference in location from Platte County as to render the use of this sale unpersuasive in establishing fair market value. The adjusted per square foot value of this property was the only one of Mr. Everly’s properties which was above his conclusion of value of $500 per square foot.

Mr. Everly utilized as his first sales comparable the sale of a restaurant property. The adjusted per square foot value of this sale was only $134.59. In light of the other sales data in the record, this sale, although in close proximity to the subject, clearly is a low-end outlier which can be give little if any weight in arriving at fair market value.

4701 Town Circle Drive – Yahooz Restaurant

The two remaining sales that Mr. Everly used were also used by Mr. Marx in his appraisal. The sale of property at 4701 Town Circle Drive (Yahooz Restaurant – Leawood, Kansas) was adjusted by Mr. Everly to an indicate per square foot value of $389.75. Mr. Marx’s adjust per square foot value for this same property was $389.76. Therefore, this sale as adjusted by Mr. Everly was in accord with Mr. Marx’s adjustments for this property and would therefore support the Marx sales comparison approach.

9321 N. Oak Traffic Way – Kansas City, MO – Big Chill Restaurant

The other sale used by both Mr. Marx and Mr. Everly was the sale of a Big Chill Restaurant property in December 2003. The sales data sheets provided in both appraisals confirm that the sale price was $1,525,000 and that the property’s furniture, fixture and equipment was included in this price and was estimated to be $240,000. Mr. Marx made the deduction of $240,000 and utilized a sale price of $1,285,000 in his sales analysis. Mr. Everly made no deduction for FF&E and utilized and adjusted sale price of $1,902,800.

The adjusted sale price was arrived at by Mr. Everly adding $377,800 to be spent on renovations and conversion to a new restaurant. However, the cost of renovation and conversion was what the buyer was going to spend, not what the seller was going to spend and then add to the sales price. The contract sale price, including FF & E was not $1,902,800 as used by Mr. Everly in his sale adjustment grid, but $1,525,00, which when adjusted for the FF & E results in a sale price for the real property of $1,285,000 as utilized by Mr. Marx.

No weight can be given to the adjusted per square foot value ($462.04) calculated by Mr. Everly for this property, since the contract price for the real property was overstated in his sales grid, by $617,800. When the contract price for the real property only of $1,285,000 is used and adjusted as Mr. Everly did in his grid, the adjusted per square foot value is $312.02. This compares favorable to the adjusted per square foot value arrived at by Mr. Marx for this property of $338.02.

Respondent’s Sales Comparison Approach Unpersuasive

From the forgoing, no weight can be given to Mr. Everly’s conclusion of a $500 per square foot value for the subject. The Everly Sales Grid provided adjusted values of $134.59, $306.29, $312.02, $389.75 and $535.72, with Comparable 3 being correctly adjusted based on contract sale price of real property. This range provided a median of only $312.02 and an average of only $335.67. When the low-end outlier, the non-restaurant sale and the St. Louis County sale are removed the only two properties remaining provide values of $312.02 and $389.75. Both of which lend support to the conclusion of value made by the Marx sales comparison appraisal.

Complainants Prove Value under Sales Comparison Approach

Complainants presented substantial and persuasive evidence to prove a fair market value for the subject property – single economic unit – of $1,805,760.

Income Approach

Complainants’ Appraisal

Exhibit A, Income-1 – Income-7

Mr. Marx developed his income approach by relying on a survey of existing lease rates for competing properties in the subject’s market area. This survey resulted in the identification of eight properties from which rental data could be extracted for an income approach to value the subject. After adjustments to account for differences in size, location, age and condition, the appraiser concluded a stabilized base rent of $30 per square foot, plus a percentage rent of $8.18 per square foot. The calculation of the percentage rent was from an analysis of five freestanding Applebee’s restaurants. Restaurant leases are typically written calling for a base rent plus a percentage of the gross sales above a breakpoint. Therefore, for purposes of developing his income approach, Marx used a per square foot rent of $38.18 to arrive at a total potential gross income of $183,338. However, the per square foot rental was applied to 4,802, instead of 5,016. He allowed a 5% vacancy allowance producing an effective gross income of $174,171.

Restaurants typically operate under a full net lease so that the tenant pays all expenses and the owner is responsible for the cost of managing the investment. A 3% deduction for management expense and a .69% deduction for miscellaneous expenses were calculated. The net operating income came to $167,746.

The potential gross income calculated on an area of 5,106 comes to $191,510. A 5% vacancy and credit allowance produces an effective gross income of $181,935. An expense deduction of 3.69% results in a net operating income of $175,222.

The capitalization rate was derived from rates from thirteen sales of restaurants in Missouri, Kansas and Illinois. The range of rates was from 6.6% to 10.4%. The average was 8.4 and median was 8.5. The appraiser then did a comparison between the cap rate for the 13 sales and the year each property had been build. A range of 9.5% to 10% was concluded as appropriate for the subject.

At 9.5% the indicated value for the subject calculates to $1,844,442 ($175,222 ÷ .095 = $1,844,442). Using a 10% rate resulted in an indicated value of $1,752,220. ($175,222 ÷ .10 = $1,752,220). Giving equal weight to the use of each capitalization rate, the Hearing Officer concludes that an indicated value under the income approach of $1,798,330 is appropriate.

Respondent’s Appraisal

Exhibit 1, pp. 55 - 59

Mr. Everly did not perform the kind of detailed analysis to arrive at potential gross income or capitalization rate as did Mr. Marx. However, the per square foot rental concluded by Mr. Everly, based on four rent comparables was $38. This per square foot rental provides a potential gross income of $190,608 ($38 x 5,016 = $190,608). Respondent’s appraiser did not make any allowance for vacancy and credit loss. A vacancy and credit loss is reasonable and should have been applied.

The expense allowance utilized by Mr. Everly was 5%. Using this expense allowance and a 5% vacancy deduction, results in a net operating income of $171,548.

Although the appraiser presented four properties for extraction of a capitalization rate from the market, he actually relied upon only a single capitalization rate - .074. The three other properties were not utilized to arrive at the rate in any manner from the brief discussion in the appraisal. The single rate used was on a newly constructed building and an estimated net operating income. Given that the subject building was built in 1990, the reliance on a newly constructed building does not provide a sound basis to utilize the estimated cap rate on that property. Furthermore, since this was a newly constructed building with land purchase and there was no rental history from which to derive an actual cap rate, the use of an estimated cap rate can be given no probative weight.

Due the forgoing, Respondent’s indicate value under the income approach as developed does not present substantial and persuasive evidence of fair market value, nor does it provide any basis to rebut the evidence of value developed by the Marx appraisal. Applying a capitalization rate between 9.5% and 10% to the net operating income calculated relying on the $38 per square foot rental, 5% vacancy and collection loss and 5% expenses results in a value lower than that proposed by Complainants’ appraisal.

Complainants Prove Value under Income Approach

Complainants presented substantial and persuasive evidence under the income approach to prove a fair market value for the subject property – single economic unit – of $1,798,330.

Cost Approach Not Applicable

Although appraiser often develop all three approaches to value, it is not required that this be done, if in the opinion of the appraiser a given approach is not appropriate for a particular appraisal problem. In the present case, Mr. Marx elected to not develop the cost approach. The Hearing Officer concurs in the appraiser’s determination on this point.

“Due to the age of the subject improvements and the difficulty associated with accurately estimating accrued depreciation, the cost approach has not been developed as a part of this appraisal as it is not considered to be a reliable method in the valuation of the subject. Further, market participants rarely place emphasis on the cost approach in making real estate investment decisions.” Exhibit A, Cost-3.

A review of the cost approach presented by Respondent’s appraiser presents two critical problems. First, Mr. Everly arrived at land value applying a market price per square foot to the entire area of the subject, although approximately, 40,000 square feet are unusable due to the existence of easements. Mr. Marx in his appraisal properly arrived at a value relying on the actual usable area of the tract. Therefore, the Everly cost approach overstates the value of the land. No attempt was made to extract accrued depreciation from the market instead only age-life depreciation was applied. Therefore, no allowance for depreciation other than physical was accounted for. The development of both the sales and income approaches under Complainants’ sales and income data rebuts a conclusion of fair market value of $3,000,000 as propounded in Exhibit 1. Accordingly, no weight can be given to the indicated value under this methodology.

Conclusion of Value

Complainants’ evidence under the sales comparison and income approaches is substantial and persuasive to establish values of $1,805,760 and $1,798,330 respectively. Giving weight to each of the indicated values the Hearing Officer concludes on a value of $1,802,000 as of January 1, 2005, for the total economic unit of the two properties under appeal combined.

ORDER

The assessed valuation for the subject properties as determined by the Board of Equalization for Platte County for the subject tax day are SET ASIDE.

The assessed value for the subject property in Appeal Number 05-79016 for tax years 2005 and 2006 is set at $480,000.

The assessed value for the subject property in Appeal Number 05-79017 for tax years 2005 and 2006 is set at $96,640.

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 2000.

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 Platte 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.

Methods of Valuation

Complainants’ Burden of Proof

Sales Comparison Approach

Complainants’ Appraisal

Exhibit A, Sales-1 – Sales-3

Respondent’s Appraisal

Exhibit 1, pp. 36 – 54

4701 Town Circle Drive – Yahooz Restaurant

9321 N. Oak Traffic Way – Kansas City, MO – Big Chill Restaurant

Respondent’s Sales Comparison Approach Unpersuasive

Complainants Prove Value under Sales Comparison Approach

Income Approach

Complainants’ Appraisal

Exhibit A, Income-1 – Income-7

Complainants Prove Value under Income Approach

Cost Approach Not Applicable