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State Tax Commission of Missouri

CARAFIOLS PROPERTIES CO., Complainant, v. JAKE ZIMMERMAN, ASSESSOR, ST. LOUIS COUNTY, MISSOURI, Respondent. ) ) ) ) ) ) ) ) ) ) Appeal Nos. 09-10087 09-10089

DECISION AND ORDER HOLDING Decisions of the St. Louis County Board of Equalization reducing the assessments made by the Assessor are SET ASIDE. True value in money for the subject property in Appeal 09-10087 for tax years 2009 and 2010 is set at $147,600, commercial assessed value of $47,230. True value in money for the subject property in Appeal 09-10088 for tax years 2009 and 2010 is set at $193,520, commercial assessed value of $61,930. True value in money for the subject property in Appeal 09-10089 for tax years 2009 and 2010 is set at $478,880, commercial assessed value of $153,240. Complainant appeared by Counsel, Paul J. Puricelli, Stone, Leyton & Gershman, Clayton, Missouri. Respondent appeared by Associate County Counselor, Edward W. Corrigan. Case heard and decided by Senior Hearing Officer W. B. Tichenor.

ISSUE [1] Complainant appeals, on the ground of overvaluation and discrimination , the decisions of the St. Louis County Board of Equalization, which reduced the valuations of the subject properties. The Commission takes

these appeals to determine the true value in money for the subject properties on January 1, 2009. The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order. FINDINGS OF FACT 1. Jurisdiction. Jurisdiction over these appeals is proper. Complainant timely appealed to the State

Tax Commission from the decision of the St. Louis County Board of Equalization. A hearing was conducted on April 26, 2011, at the St. Louis County Government Center, Clayton, Missouri. The Transcript (Tr.) was received by the Legal Section of the Commission on June 16, 2011. 2. [2] Assessment . Appeal 09-10087 The Assessor appraised the property at $864,200, a commercial assessment of $276,540. [3] The Board reduced the value to $648,100, a commercial assessment of $207,390.

Appeal 09-10088 The Assessor appraised the property at $1,020,100, a commercial assessment of $326,430. The Board reduced the value to $850,000, a commercial assessment of $272,000. Appeal 09-10089 The Assessor appraised the Property at $3,305,100, a commercial assessment of $1,057,630. The Board reduced the value to $2,100,000, a commercial assessed value of $672,000.

$5,189,400/$1,660,600 Total Combined Assessors Value Total Combined BOE Value $3,598,100/$1,151,390 Total Combined Complainants Proposed Value $800,000/$256,000 Total Combined Respondents Proposed Value $4,200,000/$1,344,000

3.

Subject Property - Identification. The subject property in appeal 09-10087 is located at 12190 St. Charles Rock Road,

Bridgeton, Missouri. The property is identified by locator number 11N230491. The subject property in appeal 09-10088 is located at 12146 St. Charles Rock Road, Bridgeton, Missouri. The property is identified by locator number 11N230482. The subject property in appeal 09-10087 is located at 12100 St. Charles Rock Road,

Bridgeton, Missouri. The property is identified by locator number 11N240667. The three properties are operated as a single economic unit. It is otherwise known as Bridgeton Plaza or Bridgeton Square. The three properties shall be collectively referred to in this Decision as the subject property, subject or property under appeal. The subject is a multi-tenant community retail shopping center. 4. Subject Property Description. The subject property consists of 5.94 acres improved by a

retail center built in or around 1973 with 72,430 square feet above grade space and 23,872 square feet of below grade warehouse area. There are three buildings which make up the improvements. [4] Photographs of

the subject are found in Exhibit A, following the Summary of Important Data and Conclusions, and Exhibit 1, pp. 17 25. Detailed descriptions of the improvements are found in Exhibit A, pp. 44 48, and Exhibit 1, pp. 26 28.

5.

Subject Property Rentable Area. The subject was specifically designed for the Carafiols retail

furniture business. The specificity of the design limits its attractiveness to other tenants, and the lower level space offers little to no appeal to non-furniture retailers. This space was vacant on the valuation date and has been for some time. There was no market for the lower level space as there was superior quality space on the market as of the valuation date that has not been leased. There has been no leasing inquiry activity that has lead to any negotiation. The space is costly to maintain. It had no rental market as of the valuation date and is not leasable. Therefore, it is appropriate to not include it in the overall square footage for this appraisal. The appropriate rentable area to be used for income calculations is 72,430 square feet. 6. [5]

Subject Property Factors Impacting Value. The value of the subject property as of January 1,

2009, is negatively impacted by a variety of factors not necessarily shared with other properties which might be considered to be either sale or rental comparables. The property has had significant difficulty retaining and attracting tenants because of its physical characteristics and its location. The property suffers from a high large area of space that has been vacant for some time. Extraordinary attempts have been made by management to keep the tenants which the property does have and retain new tenants. There are significant physical improvements that need to be made to the property. 7. [6]

Complainants Evidence. Complainant submitted the following exhibits which were received into

the record: EXHIBIT A B C DESCRIPTION [7] Appraisal Report David J. Sebelius Written Direct Testimony Mr. Sebelius [8] Written Direct Testimony Lawrence J. Carafiol

Mr. Sebelius and Mr. Carafiol also testified at the evidentiary hearing. There was no evidence of new construction and improvement from January 1, 2009, to January 1, 2010, therefore the assessed value for 2009 remains the assessed value for 2010. [9]

Complainants evidence was substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money as of January 1, 2009, to be $820,000. See, Complainant Proves Value of $820,000, infra. 8. the record: EXHIBIT 1 2 3 DESCRIPTION [10] Appraisal Report John Kiene Cap Rate Summary Data Written Direct Testimony Mr. Kiene Respondents Evidence. Respondent submitted the following exhibits which were received into

Mr. Kiene testified at the evidentiary hearing. 9. Allocation of Value. The allocation of value based on the percentage of the value of each parcel

to the combined values as set by the Board is as follows: Appeal 09-10087 The Board value of $648,100 represents .18% of the total combined Board value of $3,598,100. Appeal 09-10088 The Board value of $850,000 represents .236% of the total combined Board value of $3,598,100. Appeal 09-10089 The Board value of $2,100,000 represents .584% of the total combined Board value of $3,598,100. 10. Conclusion of Value. The combined value of the subject properties is $820,000. See,

Complainant Proves Value of $820,000, infra. The allocation of that value between the three properties,

with their assessed values, has been calculated based upon the percentages in Finding of Fact 9, as follows: Appeal 09-10087 $820,000 x .18% = $147,600, assessed commercial value of $47,230. Appeal 09-10088 $820,000 x .236 = $193,520, assessed commercial value of $61,930. Appeal 09-10089 $820,000 x .584 = $478,880, assessed commercial value of $153,240. 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. 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. [11] Basis of Assessment The Constitution mandates that real property and tangible personal property be assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass. [12] The constitutional

mandate is to find the true value in money for the property under appeal. By statute real and tangible personal property is assessed at set percentages of true value in money. [13] In an overvaluation appeal, true value in

money for the property being appealed must be determined based upon the evidence on the record that is probative on the issue of the fair market value of the property under appeal. Presumption In Appeals There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. [14] This presumption is a rebuttable rather than a conclusive presumption. It places the burden of

going forward with some substantial evidence on the taxpayer - Complainant. When some substantial evidence is produced by the Complainant, however slight, the presumption disappears and the Hearing Officer, as trier of facts, receives the issue free of the presumption. [15] The presumption of correct assessment is rebutted when

the taxpayer presents substantial and persuasive evidence to establish that the Boards valuation is erroneous and what the fair market value should have been placed on the property. [16] Upon presentation of the

[17] Complainants evidence the presumption in this appeal disappeared. The case is decided free of the

presumption. Standard for Valuation 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 bought by one who is willing or desirous to purchase but who is not compelled to do so. defined in terms of value in exchange and not value in use. on the valuation date. [20] [19] [18] True value in money is

It is the fair market value of the subject property

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 are the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby: 1. 2. Buyer and seller are typically motivated. Both parties are well informed and well advised, and both acting in what they consider their own best interests. A reasonable time is allowed for exposure in the open market. Payment is made in cash or its equivalent. Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale. The price represents a normal consideration for the property sold unaffected by special financing [21] amounts and/or terms, services, fees, costs, or credits incurred in the transaction. [22]

3. 4. 5.

6.

Both appraisers valued the subject under the Standard for Valuation. Methods of Valuation

Proper methods of valuation and assessment of property are delegated to the Commission. It is within [23] the purview of the Hearing Officer to determine the method of valuation to be adopted in a given case. Missouri courts have approved the comparable sales or market approach, the cost approach and the income

approach as recognized methods of arriving at fair market value.

[24]

Complainants appraiser developed the [25] Respondents appraiser also

comparable sales (market approach) and the income approaches to value. utilized the sales comparison and income approaches to value. [26]

The income approach is appropriate in this

appeal to conclude value. It is most representative of what a knowledgeable investor purchaser would give for the property under appeal on January 1, 2009. 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 or 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 opinions or inferences upon the subject and must be otherwise reliable, the facts or data need not be admissible in evidence. [27] The relative weight to be accorded any relevant factor in a [28] The Hearing Officer is not bound by the opinions of

particular case is for the Hearing Officer to decide.

experts on the issue of valuation, but may believe all or none of the experts testimony and accept it in part or reject it in part. [29]

The Hearing Officer was presented with the appraisal work and testimony of each partys expert. Upon consideration and review of the appraisals and testimony of both Mr. Sebelius and Mr. Kiene, the Hearing Officer is persuaded by the conclusion of value determined under the income approach by Mr. Sebelius. Complainant Proves Value of $820,000

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, 2009. [30] There is no presumption that the taxpayers opinion is correct. The taxpayer in a Commission appeal

still bears the burden of proof. The taxpayer is the moving party seeking affirmative relief. Therefore, the Complainant bears the burden of proving the vital elements of the case, i.e., the assessment was unlawful, unfair,

[31] improper, arbitrary or capricious. Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. [32] 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. [33]

Sebelius Appraisal The appraisal report of Mr. Sebelius presented on behalf of Complainant met the evidentiary standard of substantial and persuasive. The value concluded under the Sales Comparison Approach was $800,000. The Income Approach yielded a value of $820,000. The Income Approach was the most appropriate methodology to utilize for the present appraisal problem. Mr. Sebelius recognized the actual economic condition and circumstances affecting the subject property. The hypothetical purchaser for this property on January 1, 2009, would look very closely at and be most influenced by the actual income and expenses of the Carafiol property. The recent history of the property demonstrates the significant decline in net operating income. Any prospective purchaser on January 1, 2009, would certainly understand that the income stream being purchased was a diminishing revenue source. The evidence supports a conclusion of value of $820,000 under the Sebelius income methodology. Kiene Appraisal The conclusion of value by Mr. Kiene under the income approach was not persuasive. The total projected income exceeded the actual income for 2008 by over $100,000. The appraiser opted for only a 20% vacancy even though the past history of the subject clearly established a vacancy of 40% or more. The expenses allowed by Mr. Kiene were over $114,000 less than what the actual stabilized expenses for 2006, 2007 and [34] 2008 were. The Kiene conclusion of value under the income approach greatly overvalued the subject. There is no evidence to support such deviations from the actual income and expense figures for the subjects performance. The reliance on industry norms for income, vacancy rates and expenses has its place when the valuation problem involves the development of an income approach for an owner occupied facility. However, when the property being appraised is a leased structure or structures, the industry norms will only undervalue or, as in this instance, overvalue the property. Applying industry norms to properties that are

operating above the norm in income, and below the norm in vacancy and expenses would only under value the properties. In like manner, the utilization of an industry norm to properties that are below the standard in income, but above in vacancy and expenses results in an overvaluation of such properties. As a result of the foregoing, the Hearing Officer places no probative weight on the conclusion of value under the Kiene income approach. Sales Comparison Methodologies Both appraisers developed a sales comparison approach to value. Mr. Sebelius relied upon three sales. Mr. Kiene used four sales of which two were the same as two of the Sebelius comparables. The Sebelius sales information included net operating income data for each sale. The net operating income per square foot of net rentable area for the three Sebelius sales calculates, respectively to: $7.50, $8.48 and $9.43. [35] This is compared to the net operating income per square foot of

[36] net rentable area for the subject of only $1.83. Based on that information, all three sales were significantly superior to the subject on an economic basis. In other words, the income streams which the sales comparables produced were vastly greater than the subjects income stream. This calls into question the actual comparability of the sales properties. The Kiene sales data did not provide any information as to net operating income. Accordingly, it is not possible, as to the two properties which were not also in the Sebelius approach, to make a determination as to how economically comparable these two properties were to the subject. However, the two sales which Mr. Kiene used that were also part of the Sebelius appraisal suffer from the same high level of incomparability based upon the extreme economic difference between the sales and the subject. From all of the foregoing, the Hearing Officer finds that the sales comparison approaches are not persuasive to establish value. Accordingly, no weight is given to the opinions of value concluded there under. Conclusion The income approach developed by Complainants appraiser rebutted the presumption of correct assessment by the Board and established true value in money to be $820,000.

ORDER The assessed valuations for the subject properties as determined by the Board of Equalization for St.

Louis County for the subject tax day are SET ASIDE. The assessed value for the subject property in Appeal 09-10087 for tax years 2009 and 2010 is set at $47,230. The assessed value for the subject property in Appeal 09-10088 for tax years 2009 and 2010 is set at $61,930. The assessed value for the subject property in Appeal 09-10089 for tax years 2009 and 2010 is set at $153,240. Application for Review A party may file with the Commission an application for review of this decision within thirty days of the mailing date set forth in the Certificate of Service for this Decision. The application shall contain specific facts or law as grounds upon which it is claimed the decision is erroneous. Said application must be in writing addressed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, and a copy of said application must be sent to each person at the address listed below in the certificate of service.

Failure to state specific facts or law upon which the application for review is based will result in summary denial. [37] Disputed Taxes The Collector of St. Louis County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an Application for Review, unless said taxes have been disbursed pursuant to a court order under the provisions of Section 139.031.8, RSMo. If no Application for Review is filed with the Commission within thirty days of the mailing date set forth in the Certificate of Service, the Collector, 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. 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 August 10, 2011. STATE TAX COMMISSION OF MISSOURI

_____________________________________ W. B. Tichenor Senior Hearing Officer w.b.tichenor@stc.mo.gov

Certificate of Service I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 10th day of August, 2011, to: Paul Purcelli, 7733 Forsyth Blvd., Suite 500, St. Louis, MO 63105, Attorney for Complainant; Edward Corrigan, Associate County Counselor, County Government Center, 41 South Central Avenue, Clayton, MO 63105, Attorney for Respondent; Jake Zimmerman, Assessor, County Government Center, 41 South Central Avenue, Clayton, MO 63105; John Friganza, Collector, County Government Center, 41 South Central Avenue, Clayton, MO 63105.

___________________________ Barbara Heller Legal Coordinator Barbara.Heller@stc.mo.gov

Contact Information for State Tax Commission: Missouri State Tax Commission 301 W. High Street, Room 840 P.O. Box 146 Jefferson City, MO 65102-0146 573-751-2414 573-751-1341 Fax

[1]

No evidence was filed and exchanged that would establish an intentional plan by the assessing officials to assess the properties under appeal at a ratio greater than 32% of true value in money, or at a ratio greater than the average 2009 commercial assessment ratio for St. Louis County, accordingly, the claim of discrimination as a ground for appeal was deemed to have been abandoned at the evidentiary hearing. Tr. 3:9-16 [2] Assessment figures are taken from the Complaints for Review of Assessment and the Board decision letters.

[3] [4] [5] [6] [7] [8] [9]

Commercial property is assessed at 32% of true value in money (fair market value), Section 137.115.5(1), RSMo See, Exhibit A and Exhibit 1 Summary of Important Data and Conclusions Exhibit A Improvement Data, p. 44; See Also: Exhibit B Q/A 31 & 32; Exhibit C Q/A 21 & 22 See, Exhibit C Q/A 8 26 Missouri Certified General Real Estate Appraiser Manager of Carafiols Properties Co. Section 137.115.1, RSMo. Commercial Appraiser St. Louis County Assessors Office Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo. Article X, Sections 4(a) and 4(b), Mo. Const. of 1945 Section 137.115.5, RSMo

[10] [11] [12] [13] [14]

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) [15] United Missouri Bank of Kansas City v. March, 650 S.W.2d 678, 680-81 (Mo. App. 1983), citing to State ex rel. Christian v. Lawry, 405 S.W.2d 729, 730 (Mo. App. 1966) and cases therein cited. [16] [17] [18] Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959) Exhibits A, B & C and Testimony of Complainants Witnesses at hearing

St. Joe Minerals Corp. v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Childrens Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993). [19] Daly v. P. D. George Company, et al, 77 S.W.3d 645, 649 (Mo. App E.D. 2002), citing, Equitable Life Assurance Society v. STC, 852 S.W.2d 376, 380 (Mo. App. 1993); citing, Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798, 801-803 (Mo. 1973). [20] [21] Hermel, supra.

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.

[22] [23]

Exhibit A Definition of Market Value, p. 6; Exhibit 1 Definition of Market Value, p. 7

See, Nance v. STC, 18 S.W.3d 611, at 615 (Mo. App. W.D. 2000); Hermel, supra; Xerox Corp. v. STC, 529 S.W.2d 413 (Mo. banc 1975). [24] 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 Commn v. Southern Dev. Co., 509 S.W.2d 18, 27 (Mo. Div. 2 1974). [25] [26] [27] Exhibit A Market Approach, pp. 57 67; Exhibit A Income Approach, pp. 68 89; Exhibit B Q/A 40 69 Exhibit 1 Sales Comparison Approach, pp. 40 56; Exhibit 1 Income Approach, pp. 36 39; Exhibit 3 Q/A 20 49

Section 490.065, RSMo; State Board of Registration for the Healing Arts v. McDonagh, 123 S.W.3d 146 (Mo. SC. 2004); 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. E.D. 1992). [28] 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). [29] St. Louis County v. Boatmens 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). [30] [31] Hermel, supra.

See, 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). Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App. 1991). [32] [33] [34] [35] See, Cupples-Hesse, supra. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975). Exhibit C Q/A 27 29

Exhibit A, pp. 59 64 Net Operating Income (NOI) and Net Rentable Area (NRA) for each sale is provided. NOI NRA = Per Square Foot NOI [36] [37] NOI derived under the Sebelius Income Approach of $132,374 72,430 = $1.83 Section 138.432, RSMo.