2018 Ohio 4750
Ohio2018Background
- Property: a 1997, 89-unit assisted-living facility in Marietta on ~7 acres; common areas and services (meals, medical assistance, memory care) comprise substantial portion of operations.
- Auditor valued the real estate at $6,042,620 for tax year 2014; HCP EMOH challenged the valuation before the Board of Revision (BOR) and then the Board of Tax Appeals (BTA).
- HCP EMOH's appraiser (Racek) valued the real estate at $3,550,000 using sales-comparison and income approaches based on apartment comparables, arguing assisted-living services distort market rents.
- County's appraiser (Bowyer) used assisted-living comparables and an income-based lease-coverage analysis to isolate real-estate cash flow, arriving at a real-estate value of about $9,100,000; BTA adopted Bowyer's appraisal.
- Key methodological dispute: whether appraisers must use apartment comparables for assisted-living facilities and whether Bowyer's lease-based comparables improperly reflected business value rather than realty value.
- Supreme Court vacated the BTA decision and remanded, finding Bowyer's inputs (leases based on business performance) fatally conflated business and real-estate value; court held BTA erred in adopting that appraisal but did not abuse discretion in rejecting Racek.
Issues
| Issue | HCP EMOH's Argument | County/BTA's Argument | Held |
|---|---|---|---|
| Whether appraisers must rely on apartment comparables when valuing an assisted-living facility | Health Care REIT and LTC require use of apartment comparables | Appraisers may use assisted-living comparables if they properly isolate realty value | Not required; case law permits but does not compel apartment comparables |
| Whether Bowyer's appraisal correctly isolated real-estate value from business value | Bowyer's lease comparables are tied to percentage-of-income leases and therefore reflect business value, not realty | Bowyer performed a lease-coverage analysis using absolute-net leases to infer real-estate cash flow | BTA erred: Bowyer's lease inputs reflected business expectations and thus tainted his real-estate valuation |
| Whether BTA correctly rejected Racek's apartment-based appraisal | Apartment comparables are appropriate; Racek adjusted differences and produced a credible realty-only value | The apartment comparables materially differ (amenities, kitchens); adjustments insufficient | BTA did not abuse discretion in rejecting Racek's comparables and adjustments |
| Remedy/proceeding on remand | Vacate and remand for proper valuation or reinstate auditor if insufficient evidence | Same; BTA has discretion to determine sufficiency | Vacate BTA decision and remand for further proceedings to determine independent valuation or reinstate auditor value if evidence lacking |
Key Cases Cited
- Health Care REIT, Inc. v. Cuyahoga Cty. Bd. of Revision, 140 Ohio St.3d 30 (lead opinion permitting apartment comparables when valuing assisted-living facilities)
- LTC Properties, Inc. v. Licking Cty. Bd. of Revision, 133 Ohio St.3d 111 (endorsing apartment buildings as comparables for congregate-care real-estate valuations)
- Dublin Senior Community Ltd. P'ship v. Franklin Cty. Bd. of Revision, 80 Ohio St.3d 455 (realty value must be kept separate from business/service value)
- Higbee Co. v. Cuyahoga Cty. Bd. of Revision, 107 Ohio St.3d 325 (valuation methods that vary with business success improperly conflate business and realty value)
- Youngstown Sheet & Tube Co. v. Mahoning Cty. Bd. of Revision, 66 Ohio St.2d 398 (BTA not bound to a single valuation method)
- Apple Group Ltd. v. Medina Cty. Bd. of Revision, 139 Ohio St.3d 434 (procedural guidance on reinstating auditor value if independent valuation lacking)