The Law

Re-Appraising the Situation by Ron Davis A welcome bit of tax relief will go to the owner of a Minnesota shopping center property. But the reduction is not as much as the owner hoped for. The property, located in Hutchinson, is part of Hutchinson Mall and was occupied by a Kmart store until March 2002, just after Kmart filed for bankruptcy. After Kmart vacated the property, the owners leased to a furniture retailer, which, after renovations costing them $160,000, soon opened for business. That’s when the county tax assessor hit the owners with a surprise: an estimated market value on the property for 2002 of $2,926,500. Then, the assessor placed an estimated market value on the property of $2,709,000 for the following year. In response, the property owners hired their own appraiser. And he estimated that the property had a market value of $850,000 for each of those two years. The difference of approximately $2 million meant that the courts would have to decide the value of the property. In trying to find a fair solution to the impasse, the court pointed out that the owners’ appraiser made unreliable adjustments for functional utility, age and condition of the property. By the same token, the court found that the county assessor’s appraiser erred in his adjustments for the quality of the property and the building size and age, given the location, the need for repair and the attachment of the building to an enclosed shopping center. The court therefore decided that the fairest way to appraise the property is to use the income approach–that is, the value of the property based on the amount of income it would generate if leased. But the judges didn’t rule out the sales approach–that is, the value of the property if offered for sale. The court thus concluded, “The indicated value range from the sales approach is between $1,776,000 and $2,310,000. The indicated value range from the income approach is between $2,000,000 and $2,100,000. We therefore find that the market value of the property, for 2002 and 2003, is $2,100,000.... The estimated market value of $2,100,000 must be reduced by 15.1 percent to arrive at the taxable value. The reduction in value equals the difference between 95 percent of market value and the median ratio. The taxable value as of Jan. 2, 2003, is therefore $1,782,900. There was no allegation of unequal assessment for 2002.” (Developers Diversified, Ltd. v. County of McLeod, 2005 WL 2016831 [Minn.Tax Regular Div.]) Decision: August 2005 Published: September 2005