Saskatchewan Municipal Board Assessment Appeals Committee

Transcription

1 Saskatchewan Municipal Board Assessment Appeals Committee DETERMINATION OF AN APPEAL UNDER Section 216 of The Cities Act Appeal Numbers: AAC and Date and Location: June 26, 2012 Saskatoon, SK Boardwalk Equities Inc. and Co-operative D Habitation Villa Bonheur Ltee. - and - City of Saskatoon Appellants Respondent APPEARED FOR: The Appellants: The Respondent: Jesse Faith, Altus Group Limited Travis Horne Sharon Smart Bryce Trew HEARD BEFORE: David Wilkin, Chairman Jenny Lai Yu, Member Randy Markewich, Member Barry Fry, Secretary

2 APPEALS and [Page 2] These appeals are against the decisions of the Board of Revision (the Board) for the City of Saskatoon pursuant to section 216 of The Cities Act (the Act). ISSUE: Did the Board err in maintaining an assessed value that was determined based upon an effective gross income multiplier (GIM) developed with a sale (740 7 th Avenue North) which has significant variance in terms of comparability to the subject? FACTS: (1) These appeals are for three multi-family, townhouse complexes that are located in the east neighbourhood stratification in the City of Saskatoon. Edmund Park is legally described as Parcel and identified as roll number It is located one block south of 8 th Street East between Grosvenor and Louise Avenues. This development was constructed in 1956 and houses a total of 104 units. Gladmer Park is legally described as Parcels and and identified as roll number It is located two blocks south of Taylor Street East between William and Lansdowne Avenues. This development was constructed in 1954 and houses a total of 200 units. 160 Meilicke Road is legally described as Parcel and identified as roll number It is referred to as Silverwood Heights. This development was constructed in 1986 and is predominately a townhouse development which also includes a multi-residential one storey structure of 13,696 square feet. (2) The properties under appeal and their respective assessed values are as follows: Appeal Number Civic Address Assessed Value Taxable Assessment Edmund Park $ 6,713,700 $4,699, Gladmer Park $12,869,600 $9,008, Meilicke Road $ 2,079,700 $1,455,790 The retroactive base date of municipal assessments for taxation purposes in the Province of Saskatchewan is June 30, For multi-residential properties, taxable assessment is 70% of the assessed value. The Saskatchewan Municipal Board, Assessment Appeals Committee (the Committee) heard this series of appeals starting with the file for Appeal 2010-

3 APPEALS and [Page 3] Thereafter, the parties to the appeal agreed that all evidence and argument regarding similar issues be carried forward to the remaining appeal, Appeal , 160 Meilicke Road. The Committee concurred with this procedure. The parties requested that evidence or argument related to any similar issues be carried forward from Appeals and The Committee concurred with this procedure. The Committee notes that the issue of the use of 1013 Victoria Avenue by the assessor in his sales analysis addressed in the decision for Appeal is also applicable to Appeal (3) The grounds and issues of appeal to the Board for Appeal were: SECTION 2: The assessment valuation is in excess and should be lower to reflect market value. I make this appeal on the following grounds (nature of alleged error): 1. The gross income multiplier (GIM) of 7.86 applied to the subject is excessive and is not representative of the property. SECTION 3: Supporting facts: 1. The sales of th Avenue North and th Avenue North used to determined [sic] the current GIM and in turn determine the assessments are not comparable to the subject in terms of physical, location and investment characteristics. a. The property located at th Avenue North is a 4 unit four-plex, not a townhouse property type and should be removed. b. The assessor has not been consistent in the determination of the property type of 4 unit four-plexes when finding other properties, such as 107 Gropper Crescent, are lowrise in type. c. The property located [sic] th Avenue North is a 5 unit rowhouse townhouse and is significantly smaller than the subject property. d. Neither of the two sales used in the GIM calculation are in the same neighbourhood of the subject.

4 APPEALS and [Page 4] e. Neither of the two sales are of a larger complex. f. The two sale properties have substantially lower estimated market income (potential gross income) than the subject. g. The sales of large multi-residential properties (423 Pendygrasse Road, 365 Pendygrasse Road, 3850 Fairlight Drive, 1020/1040 Matheson Drive, 822 Kingsmere Boulevard, 4/10 Confederation Place) indicate a median GIM significantly lower than what is currently applied to the subject property. h. Large properties, such as the subject, are purchased by a limited segment of the market typically represented by REITs and corporate organizations, not individual owners, and react differently in the market place. 2. Other properties with more similar characteristics in terms of physical, location, and investment characteristics receive a lower GIM applied. a. Other properties large properties (such as 423 Pendygrasse Road, 365 Pendygrasse Road, 3850 Fairlight Drive, 1020/1040 Matheson Drive, 822 Kingsmere Boulevard, 4/10 Confederation Place) have lower GIM applied to determine their assessment. b. With the exception of highrise properties, all other multifamily property receives a GIM of 6.52 applied to their potential gross income to determine their assessment. c. The subject receives a 2% allowance for vacancy and bad debt while all other multifamily property types in neighbourhood 15101, including highrises, receive a 4% allowance. d. Other large multifamily complexes receive a significantly lower assessment per suite value in comparison to the subject. (4) The record of the Board for Appeal includes: a) Exhibit A1 - Notice of Appeal to the Board dated February 12, 2010 with

5 APPEALS and [Page 5] Schedule A attached; b) Exhibit B1 - Letter dated February 23, 2010 from the Board Secretary to Jesse Faith, Agent on behalf of the appellant, regarding sufficiency of the appeal; c) Exhibit A2 - Letter dated March 8, 2010, response from the Agent to the Board Secretary, regarding the sufficiency of the appeal; d) Exhibit A3 - A 25 page submission to the Board on behalf of the appellant with Appendices A to F inclusive attached; e) Exhibit A4 - Addenda submission to the Board on behalf of the appellant with Appendices 1 to 23 (pages 1 to 347) inclusive attached; f) Exhibit A5 - Eight colour photographs of townhouse sales and four Google maps; g) Exhibit A6 - A two page sales comparison analysis; h) Exhibit A7 - Copy of a Saskatchewan Court of Appeal decision, L & L Lawson Enterprises Ltd. and City of Regina and Saskatchewan Assessment Management Agency, 2008 SKCA 43; i) Exhibit R1 - A 32 page submission to the Board from the assessor with Appendices numbered 25 to 109 attached; j) Board minutes for a meeting held on April 27, 2010; and k) Board decision dated May 26, 2010 for Appeal No The parties agreed that the record was complete. (5) The decisions of the Board for Edmund Park and Gladmer Park found the following:... The Panel has not been convinced that the assessment is in error. Although sympathetic to a lack of conclusive sales evidence, the Panel finds that the Appellant has failed to provide compelling evidence of such an error, and, therefore, denies the appeal. (6) The grounds of appeal to the Committee are: 1. In finding reason for its decision, the Board failed to find, or list, the facts found to be relevant by the Board in its decision, as suggested by the Assessment Appeals Manual, as published by Saskatchewan Ministry of Municipal Affairs. 2. In finding that the appeal had failed to provide evidence that was substantially different, new or compelling as it related to this appeal or Appeal When simply concluding that the appellant has not shown that the 7.86 GIM has been erroneously

6 APPEALS and [Page 6] applied and that the proposed assessment had no merit. 4. When relying on regrettable sales when a stratification was presented which represented the subject and was not based on fictitious sales. 5. When finding the only evidence presented was the appellant s proposed change in assessment. 6. When concluding that the change in GIM was the only evidence presented. 7. When concluding it was not willing to accept the change in GIM alone based on the finding it is not possible for the Panel to be certain that the change in GIM results from size and not some other factor such as location or age, or is merely a coincidence 8. When concluding that no corroborating evidence was presented. 9. In its logic, and in turn its decision, when relying on its conclusion that the absence of evidence is evidence when stating: The Board is not stating that an observable inverse relationship between size and EGIM would be sufficient evidence, but the absence of such a relationship does not support the Appellant s argument. 10. When not speaking to the issue of comparability of the sales used to value the subject in regards to the fact that one of the two sale properties is a four unit property comparable to other low rise four-plex properties as defined by the assessor. 11. When not finding that the CMHC definition for townhouses is a variance to what is used by the City of Saskatoon. 12. When not considering the Valuation Guide for Apartments and Multi-Residential in regards to comparability of the sales. 13. When concluding the sales used to value the subject are comparable in terms of physical, locational and investment characteristics even though the parameters (variable ranges) of the [sic] did not represent the subject property. 14. In not finding that the only large townhouse sale, as defined by the assessor, is being over

7 APPEALS and [Page 7] assessed as identified by the current ASR of When neglecting to identify that the EGIM of all of the sales greater than 45 units are less than that of the current GIM calculated from the current four and five unit sales used to value the subject. 16. By concluding that the sales located at th Ave N and th Ave N are comparable to the subject property. 17. When neglecting to find that two of the suites in the four unit sales are basement suites and not ground orientated as required by the assessor to meet the definition of a townhouse. The notice of appeal to the Committee was dated June 25, 2010 and was received on June 28, During the hearing of the appeal, the agent indicated that the primary focus for his submissions would be based on the incorrect calculation of the GIM as a result of including the sale of th Avenue North which in his view is not comparable to the subject property. (7) On May 25, 2012 the Committee received a written submission from the appellant which was marked as AAC Exhibit A1 and on June 12, 2012 a written submission was received from the respondent which was marked as AAC Exhibit R1. LEGISLATION: The Cities Act: 163 In this Part: (f.1) market valuation standard means the standard achieved when the assessed value of property: (i) is prepared using mass appraisal; (ii) is an estimate of the market value of the estate in fee simple in the property; (iii) reflects typical market conditions for similar properties; and (iv) meets quality assurance standards established by order of the agency;

8 APPEALS and [Page 8] (f.2) market value means the amount that a property should be expected to realize if the estate in fee simple in the property is sold in a competitive and open market by a willing seller to a willing buyer, each acting prudently and knowledgeably, and assuming that the amount is not affected by undue stimuli; (f.3) mass appraisal means the process of preparing assessments for a group of properties as of the base date using standard appraisal methods, employing common data and allowing for statistical testing; (f.4) non-regulated property assessment means an assessment for property other than a regulated property assessment; 165(1) An assessment shall be prepared for each property in the city using only mass appraisal. (3) The dominant and controlling factor in the assessment of property is equity. (3.1) Each assessment must reflect the facts, conditions and circumstances affecting the property as at January 1 of each year as if those facts, conditions and circumstances existed on the applicable base date. (5) Equity in non-regulated property assessments is achieved by applying the market valuation standard so that the assessments bear a fair and just proportion to the market value of similar properties as of the applicable base date. 210(1) After hearing an appeal, a board of revision or, if the appeal is heard by a panel, the panel may, as the circumstances require and as the board or panel considers just and expedient: (a) confirm the assessment; or (b) change the assessment and direct a revision of the assessment roll accordingly: (i) subject to subsection (3), by increasing or decreasing the assessment of the subject property; (ii) by changing the liability to taxation or the classification of the subject property; or

9 APPEALS and [Page 9] (iii) by changing both the assessed value of the subject property and its liability to taxation or its classification. (3) Notwithstanding subsection (1), an assessment shall not be varied on appeal if equity has been achieved with similar properties. 216 Subject to subsection 196(5), any party to an appeal before a board of revision has a right of appeal to the appeal board: (a) respecting a decision of a board of revision; and (b) against the omission, neglect or refusal of a board of revision to hear or decide an appeal. 223(1) The appeal board shall not allow new evidence to be called on appeal unless it is satisfied that: (a) through no fault of the person seeking to call the new evidence, the written materials and transcript mentioned in section 220 are incomplete, unclear or do not exist; (c) the person seeking to call the new evidence has established that relevant information has come to the person s attention and that the information was not obtainable or discoverable by the person through the exercise of due diligence at the time of the board of revision hearing. 226(1) After hearing an appeal, the appeal board may: (a) confirm the decision of the board of revision; or (b) modify the decision of the board of revision in order that: (i) errors in and omissions from the assessment roll may be corrected; and (ii) an accurate, fair and equitable assessment for the property may be placed on the assessment roll. (2) If the appeal board decides to modify the decision of the board of revision pursuant to subsection (1), the appeal board may adjust, either up or down, the assessment or change the classification of the property.

10 APPEALS and [Page 10] (3) Notwithstanding subsections (1) and (2), a non-regulated property assessment shall not be varied on appeal using single property appraisal techniques. (3.1) Notwithstanding subsections (1) and (2), an assessment shall not be varied on appeal if equity has been achieved with similar properties. MARKET VALUE ASSESSMENT IN SASKATCHEWAN HANDBOOK (THE HANDBOOK): Valuation Parameters: What are the variables or factors in a valuation process?, page 2: The market value of every type of property is guided by and relates to a number of variables: 1. The physical characteristics of the property: Building size/areas; Construction style/materials; Condition of improvements; Building configuration; Site size, and; Location. 2. The supply and demand conditions in the market place. 3. Legal restrictions: i.e. zoning Every valuation process relies upon these types of inputs. Valuation Parameters: What are the valuation parameters in a valuation process?, page 3: The valuation parameters outlined in each valuation process are guides to indicate both the appropriate variables to consider in the analysis of values (i.e., the valuation formula) and the value or range of values that would be appropriate to use in the analysis. Valuation parameters are developed by considering many factors: 1. The costs of construction. 2. The income characteristics of the real estate: Rents;

11 APPEALS and [Page 11] Other income, and; Operating expenses, etc. 3. The market place: Risk profiles (i.e., capitalization rates), and; Market sales prices. Valuation Guides: Residential, Apartments/Multi-Residential, Section 2.3, pages 4 to 6 MARSHALL VALUATION SERVICE (MARSHALL): Dwellings, Multiples, Motels: Section 12, page 1 (Date: 8/2004): Row houses or town houses include all dwellings having a common wall. Costs are for end row houses or two-family dwellings, with adjustments for dwellings having two common walls. Refinements for one-, two-, or three-story units are given on the cost pages. They include the modern town houses, whether built for rental or condominium ownership (see discussion under multiple residences above). Income Valuation; Section 81, page 4 (March 2006): Market Data Use of Gross Rent Multipliers It is a common practice to quote asking prices of residential income properties on the basis of a multiple of the annual gross rent. Some buyers purchase such properties on this basis without a careful analysis of expenses and without making a sound estimate of the remaining life of the improvements. It is the net income expectancy of a residential income property that generates the value, and net income is affected by the number of vacancies and the amount of the operating expenses; but since property is sometimes bought and sold in the real estate market on the basis of gross multipliers, they are an indicator of market value. It should be thoroughly understood, however, that the reliability of a gross multiplier is dependent on the similarity in the ratio of the total expenses to the effective gross income between the comparable property and the subject property. Because of this, the reliability of a comparable sale is dependent on similarity in land, value, size, age quality, vacancies and location, as well as furnished or unfurnished status. [Committee Emphasis]

12 APPEALS and [Page 12] COMMITTEE DECISIONS: AAC , Boardwalk Reit Properties Holdings Ltd. v. City of Saskatoon CONCLUSIONS AND REASONS: [1] This Committee has received appeals against decisions of the City of Saskatoon Board of Revision, and on the basis of the presentations of the appellant and respondent, must decide if the record shows that an error has occurred. The role of the Committee is not to redo the hearing. Rather, the Committee is to review the evidence from that hearing and determine whether the Board came to the proper conclusion in rendering its decisions. Should the Committee conclude that the Board did not come to the proper conclusion based upon the evidence before it the Committee is then required to do what the Board ought to have done. The onus is upon the appellant to demonstrate to the Committee where the Board has erred. [2] The appellant submitted that th Avenue North is a four unit four-plex rather than a townhouse which is not comparable to the subject properties. It is the appellant s position that the sale of this property should not have been used by the assessor in determining the GIM for use in valuing multi-residential (townhouse) properties. [3] The appellant referenced the following townhouse definitions which are included in the record of the Board: CMHC Rental Row (Townhouse) Structure: Any building containing three or more rental units, all of which are ground oriented with vertical divisions. Owner occupied units are not included in the rental building unit count. These row units in some centres are commonly referred to as townhouses. City of Saskatoon 2009 Reassessment Commercial and Multi- Family Overview C. Market Valuation Townhouses Townhouses are ground-oriented units often with separate exterior entries to units and individual self-contained

13 APPEALS and [Page 13] electrical and heating systems. The vast majority of such units are 2 and 3 bedroom. EGIM valuation was used on any townhouses with four or more individual units on a single parcel. [4] The appellant referred to pictures of th Avenue North as found in its submission to the Board in Exhibit A4, Tab 8 at page 84 and listed the following characteristics of the property: - Two suites upstairs and two suites in the basement (It has been constructed with a common centre wall which divides the converted residence into two suites on the main floor and two suites in the basement). - Each suite has only one bedroom. - Similar to an apartment, the property shares a common entrance to access the basement suites. None of the units have separate entrances. - There is only one electrical box and one heating system for the entire building. - The property is located in the City Park Neighbourhood and was used to value townhouses in the east Saskatoon Stratification. - The zoning for the property restricts development to four units. - The property has a substantially lower estimated market income (potential gross income) than the subject properties. The subject property has an estimated potential gross income that is 98% greater than th Avenue North. Mr Faith concluded that this property is not comparable to the subject properties and that its use in determining the GIM for valuing these larger multi-residential properties is inconsistent with the requirements for comparability as expressed in the Handbook. He suggested this property better fits the definition of a low-rise residential property. [5] On questioning from the Committee, the appellant advised that he had determined from the owner and a tenant of th Avenue North that the owner pays for common

14 APPEALS and [Page 14] utilities unlike a typical townhouse where each tenant pays for their own utilities. This is not a typical townhouse. The appellant, in its submission to the Board (Exhibit A3, page 13), questions whether the parameter of type (townhouse) as defined by the assessor should be the criteria for determining comparability. [6] In support of his position the appellant referenced, in its submission to the Board, the following quote on page 118 of the second edition of the Property Assessment Valuation (IAAO) text: As in the case with all units of comparison, the quantity and quality of the available comparative data to develop the unit to establish it s reliability. The use of the GIM requires certain assumptions the subject property and the comparables are subject to the same market influences, are competitive to one another, have similar operating expenses, and have similar utility and amenities. [Committee Emphasis] [7] The appellant noted that the sales of large multi-residential properties indicate a median GIM which is significantly lower than what has been applied to the subject properties. He advised that he had proposed to the Board that the stratification of multi residential properties should be altered to provide stratification for properties with more than four units. This would result in a GIM of 7.04 (Exhibit A4, Addenda 21). He requested that the Committee find that the Board erred in determining that the subject s assessment was correct when allowing the sale of th Avenue North to remain as a townhouse sale and to maintain the 7.86 GIM applied. [8] The respondent noted that the Committee, in its decision for Appeal for the subject property, properly acknowledged its submission that the assessor s office has consistently used the Marshall definitions for classifying multi-residential properties. The townhouse definition refers to common walls rather than making a distinction between vertical and horizontal splits. In its decision, the Committee accepted the assessor s position that th Avenue North is properly classified as a townhouse. The respondent

15 APPEALS and [Page 15] submitted that the appellant has not provided any significant new evidence to support its position that th Avenue North is more comparable to low rise residential than a townhouse and that the Committee should reconfirm its 2009 decision that th Avenue North is a townhouse. [9] The Committee accepts, as it did in its decision for Appeal the respondent s position that the descriptions provided by Marshall are both appropriate for ensuring properties are correctly classed and that the assessor did not err in classifying th Avenue North as a townhouse, due to the fact that it met the criteria specified in Marshall for a townhouse. [10] In its submission to the Board (Exhibit R1, page 25), the respondent provides an analysis of Low Rise Apartment and Town House Expenses. It is noted that on average, townhouse expenses are 78% of those generated for low rise apartments on a per room basis. The expense ratio comparison based on various expenses is illustrated in Exhibit R1 on page 25. The submission explains: With apartments, it is typical for the property owner to pay all the cost of operating the facility with the exception of in-suite electricity. With townhouses, most of the utility cost is borne by the tenants, as they normally pay for heat, and since there are no common hallways there is a low cost associated with common electricity. It is clear from these analyses that the difference in operating expenses between townhouse and low-rise multi-family properties has an impact on the GIMs produced. As the assessor has chosen to use the GIM method to determine these assessed values, it would be inappropriate to fail to give consideration to the operating expense variations identified through this analysis. [11] The Handbook and Marshall require that similar or comparable properties be used in developing a GIM. The requirement goes beyond establishing common physical elements to determine a property type (low-rise or townhouse). As referenced above under Income Valuation Market Data, Marshall notes: It should be thoroughly

16 APPEALS and [Page 16] understood, however, that the reliability of a gross multiplier is dependent on the similarity in the ratio of the total expenses to the effective gross income between the comparable property and the subject property. The Committee accepts that operating expenses can have a significant impact on the sale price of a property. [12] The respondent advised that the stratification had been determined by type (townhouse) and that the operating expenses of the properties had not been considered in determining comparability for purposes of calculating the GIM for the subject neighbourhood stratification. The appellant s submission that the owner is paying for common utilities for the suites, raises an issue on how the operating expense ratio for th Avenue North can be comparable to other townhouses in the current stratification. Based on the submissions of the appellant, th Avenue North is atypical as it is not being operated like other townhouses in the stratification neighbourhood. [13] The Committee notes that the case submitted by the appellant regarding the comparability of the various attributes of th Avenue North to the subject properties is not by itself evidence that the properties cannot be considered comparable. The appellant has not provided any significant evidence on how the various attributes referenced in its submission to the Board impact value. [14] The courts have determined that the assessor has discretion, albeit not unfettered for determining comparability. The Committee acknowledges the Marshall reference above that indicates that expense ratios have a significant impact on value. This leads the Committee to accept the evidence of the appellant that the expense ratio for th Avenue North is impacted by the owner paying for common utilities and therefore the property is not being operated in a similar manner to other townhouse properties within the subject neighbourhood. The Committee considers it an atypical townhouse which is dissimilar and does not reflect the market conditions of the other

17 APPEALS and [Page 17] properties in the neighbourhood stratification. The Committee accepts the position of the appellant that the stratification of townhouses based on more than four units would address the issues of comparability. [15] For the foregoing reasons the Committee finds that the Board erred in finding that th Avenue North is comparable to other properties in the current stratification of townhouse properties for valuation purposes and therefore the sale of the property should be taken out of the calculation of the GIM for valuing townhouses with more than four units and the sales for 3850 Fairlight Drive and th Avenue North should be utilized for the purposes of determining the GIM to be applied in determining the value of townhouse properties with more than four units. DECISION: These appeals are sustained. The assessor is ordered to establish a stratification for townhouses with more than four units and to determine the GIM to be applied in valuing these properties based on the sales of 3850 Fairlight Drive and th Avenue North. The filing fees shall be returned. DATED AT REGINA, Saskatchewan this 8 th day of October, SASKATCHEWAN MUNICIPAL BOARD Assessment Appeals Committee Per: Randy Markewich Committee Chairman Per: Cathy Moberly, Director