2018 IL App (1st) 162714
Ill. App. Ct.2019Background
- Plaintiff Gateway-Walden, LLC purchased a three-building multi-tenant office property in Schaumburg; Cook County assessed it at ~$10.4M for 2011 taxes, plaintiff challenged the assessment.
- During a 2011 foreclosure, a receiver (Hyman) marketed the property; Marc Realty (via manager Nudo) negotiated and contracted to buy the property; sale closed in January 2012 for $7.3M.
- Plaintiff’s appraiser (Enloe) prepared an appraisal in December 2011 for bank underwriting valuing the property at $7.5M (using sales comparison and discounted cash flow income approach) and testified at trial.
- Defendant (Cook County Treasurer) offered an appraisal (Jackson) valuing the property at $12M as of Jan. 1, 2011 (using sales, income-capitalization/direct cap, and cost approaches) and criticized the sale and Enloe’s methods.
- Trial court admitted rebuttal testimony from Hyman and Nudo, found the January 2012 sale to be an arm’s-length transaction, credited Enloe’s valuation, and fixed fair cash value at $7.3M; defendant appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of Hyman and Nudo rebuttal testimony | Testimony rebuts Jackson’s claim that sale was not arm’s-length | Witnesses were undisclosed rebuttal witnesses and discovery violations — should be barred | Trial court did not abuse discretion; testimony was proper rebuttal and sanctions reversed on incomplete record review |
| Weight of the Jan. 2012 sale as evidence of fair market value | Recent arm’s-length sale is best and practically conclusive evidence of market value | Sale was an inside/distressed deal and not market evidence | Court upheld trial finding sale was arm’s-length and entitled to great weight; valuation set at sale price $7.3M |
| Appraiser methodology — failure to use reproduction cost | Enloe used sales comparison and income (DCRF) approaches; reproduction cost unnecessary for this marketable property | Enloe erred by not using reproduction cost approach | De novo review: no error — reproduction cost is for special-use properties and not required here |
| Use of discounted cash flow (DCF) vs. direct capitalization | DCF appropriate for multi-tenant, unstable income properties and is an accepted income-cap approach | DCF is inappropriate for tax valuations, may be circular because it includes projected taxes; direct cap preferred | Manifest-weight review: DCF is admissible and weight goes to the trier of fact; court credited Enloe’s DCF analysis |
Key Cases Cited
- People ex rel. Korzen v. Belt Ry. Co. of Chicago, 37 Ill.2d 158 (1967) (a contemporaneous arm’s-length sale is practically conclusive evidence of fair cash market value)
- Walsh v. Property Tax Appeal Board, 181 Ill.2d 228 (1998) (fair cash value = fair market value; arm’s-length sale is best evidence)
- Cook County Board of Review v. Property Tax Appeal Board, 384 Ill. App.3d 472 (2008) (discussing weight of sales evidence versus appraisal methodologies)
- La Salle Partners, Inc. v. Illinois Property Tax Appeal Board, 269 Ill. App.3d 621 (1995) (standard for reversing factual findings as against manifest weight of the evidence)
- People v. A Parcel of Property Commonly Known as 1945 North 31st Street, 217 Ill.2d 481 (2005) (trial judge’s credibility determinations entitled to deference)
- Shimanovsky v. General Motors Corp., 181 Ill.2d 112 (1998) (purpose and limits of discovery sanctions)
- United Airlines, Inc. v. Pappas, 348 Ill. App.3d 563 (2004) (income-capitalization approach appropriate for rental property; sales comparison preference explained)
- Chrysler Corp. v. Illinois Property Tax Appeal Board, 69 Ill. App.3d 207 (1979) (caution against heavy reliance on reproduction cost when market sales exist)