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Future Rulings Have Merit
by Michael Blahy
In a four/three split decision, the Washington County Board of Revision (“the BOR”) and Washington County auditor (“the county”) will need to reargue their real-property-valuation case against Lowe’s Home Centers, Inc./Lowe’s Home Centers, L.L.C. (“Lowe’s”), bearing in mind three recent rulings, two of which had not been decided, and one that had just been decided at the time of Board of Tax Appeals (“BTA”) decision.
The property in question is a 142,446 square foot home improvement store, built in 2002, on roughly 16 acres of property.
At the BOR hearing, Lowe’s certified appraiser, Richard G. Racek Jr. presented testimony and an appraisal report “valuing the fee-simple interest in the property”.
For the sales-comparison approach, Racek analyzed nine Ohio transactions of big-box stores, three with leases and six without leases in place. For the income approach, Racek looked at 20 properties, 11 with leases, five with asking rental rates and four leased Lowe’s stores. He made adjustments based on rent comparables, land to building ratios, condition of the building and location of the property.
Racek estimated a value of $5,700,000 as of January 1, 2013.
The BOR decided to go with the county auditor and also a certified appraiser, Thomas D. Sprout’s, report with a valuation of $9,595,570.
At the BTA hearing, Sprout said he appraised the property’s unencumbered, fee-simple interest. He found seven transactions for his sales-comparison approach. Five had leases in place, the sixth, which he thought had a lease in place was actually a buyout of a ground lease, which he testified he would not have used had he known. The seventh was a sale without a lease in place, which he gave no weight.
For the income approach, Sprout analysed eight properties with recently renewed leases for second time tenants. He too, made adjustments for market conditions, building size and condition, and rental rates.
The BTA concluded that Sprout’s appraisal provided the most competent and probative evidence of the subject property’s value. The BTA found that in contrast to Racek’s heavy reliance on second-generation sales, “Sprout’s inclusion of first-generation properties and build-to-suit properties subject to long term leases was most appropriate … found persuasive Sprout’s characterization of the property as being situated in a “regional hub. And it found that Sprout’s selection of comparable properties and his adjustments to those properties were proper.
The BTA also rejected Lowe’s’ argument that Sprout’s appraisal—especially his reliance on comparable sales of lease-encumbered properties—violated R.C. 5713.03 as amended by 2012 Am.Sub.H.B. No. 487 (“H.B. 487”), which directs county auditors to value property in its “fee-simple estate, as if unencumbered.”
Lowe’s filed a motion with the BTA to reconsider its decision in light of the Supreme Court of Ohio ruling on Steak ‘N Shake, made about a week prior to the BTA’s decision. With the appeals deadline approaching, Lowe’s decided to file an appeal to the Ohio Supreme Court, making its motion to the BTA a nullity.
At appeal, Lowe’s referenced the Steak’N Shake ruling along with two more recent rulings on Rite Aid and Lowe’s (different case, but the same property). They argued that the BTA should have disregarded Sprout’s appraisal because he placed significant reliance on sales of comparable properties with leases in place.
Lowe’s and the county differ on R. C. 5713.03. The county asserts that liens and easements constitute encumbrances, but Lowe’s asserts that a lease also constitutes an encumbrance. The Ohio Supreme Court previous decisions found that Lowe’s is correct.
In ruling, The Ohio Supreme Court said It is possible that a finder of fact might regard Sprout’s property-rights-conveyed analysis as competent and probative evidence of value, thereby permitting the conclusion that Sprout’s adjustments are in keeping Steak ‘N Shake, Rite Aid, or Lowe’s. But the difficulty here is that the BTA did not make any express findings about Sprout’s property-rights-conveyed analysis. True, the BTA found that “Sprout’s selection of comparable properties and the adjustments he made thereto … were appropriate.” … Thus, one might infer that the BTA indirectly evaluated Sprout’s property-rights-conveyed analysis. But that inference is vulnerable to challenge because the BTA’s decision does not mention Steak ‘N Shake, Rite Aid, or Lowe’s …
Continuing, Indeed, it is questionable whether the BTA regarded the adjustments as necessary at all given its citation to Cummins Property Servs., L.L.C. v. Franklin Cty. Bd. of Revision and AEI Net Lease Income & Growth Fund v. Erie Cty. Bd. of Revision. Based on those pre-H.B. 487 decisions, in which we held that a property’s sale price does not require an adjustment to account for the presence of an encumbrance in determining that property’s true value, the BTA’s decision could be read as endorsing the notion that the sales of lease encumbered properties considered in a sales-comparison approach likewise do not require adjustments to account for encumbrances.
Concluding the BTA’s key job in a battle-of-the-appraisals dispute is to weigh evidence and assess the credibility of the appraisals. [T]he BTA must engage in sufficient discussion of the evidence to permit the court on appeal to determine whether the BTA acted reasonably and lawfully. Because the BTA has yet to evaluate and weigh the property-rights-conveyed analysis contained in Sprout’s appraisal report under the appropriate legal standards, we vacate the BTA’s decision and remand the case so that the BTA can carry out this duty.
(Lowe’s Home Ctrs., Inc. v. Washington Cty. Bd. of Revision, Slip Opinion No. 2018-Ohio-1974)
Decided: May, 2018
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