445 P.3d 297
Or.2019Background
- Property: 118,000 sq ft shopping center with a 54,000 sq ft anchor space; as of assessment date (Jan 1, 2014) anchor was vacant and three other spaces vacant, resulting in a 51% vacancy rate.
- Tax year/assessment date: 2014–15 (valuation date Jan 1, 2014).
- Procedural posture: Taxpayer appealed Multnomah County valuation to Oregon Tax Court; Tax Court adopted taxpayer's appraisal valuing property at $10.13M; Department of Revenue appealed.
- Valuation dispute: Whether the center should be valued as "stabilized" (market vacancy/rents) or "non‑stabilized" (reflecting vacancy/stabilization costs).
- Appraisals: Taxpayer’s appraiser used market rents but deducted $4.71M in projected stabilization costs and relied on non‑stabilized comparables (final $10.13M). Department’s appraiser treated property as stabilized and valued it at $17.5M.
- Tax Court findings: Vacancy and missing anchor were characteristics of the property (not owner mismanagement); deduction for stabilization costs was appropriate; fee‑simple valuation requirement satisfied.
Issues
| Issue | Plaintiff's Argument (Powell St.) | Defendant's Argument (Dept. of Rev.) | Held |
|---|---|---|---|
| Whether valuation must treat property as "stabilized" using market vacancy and rents only | Use market rents but may deduct substantiated stabilization costs because property was non‑stabilized; buyers would be opportunistic "value‑add" investors | Must value with market rents/vacancy only; deducting stabilization costs produces an owner‑specific (investment) value and improperly credits owner characteristics | Court held property properly treated as non‑stabilized; deduction for stabilization costs permitted where vacancy is a property characteristic supported by evidence |
| Whether using stabilization adjustments violates Swan Lake fee‑simple rule | Compliance with Swan Lake by using market rents; stabilization deduction does not value only owner interest because it reflects costs any buyer would incur | Deduction converts a fee‑simple valuation into an owner‑specific valuation contrary to Swan Lake | Court: Swan Lake satisfied—market rents used; deduction accounted for costs required to bring property to market and values all interests together |
| Whether First Interstate prohibits deduction producing investment value to current owner | Powell: First Interstate is inapposite because unit and highest‑and‑best use are correct; non‑stabilization affects any hypothetical seller | Dept: Relying on First Interstate, asserts court may not value property based on costs/returns tied to particular owner | Court: First Interstate distinguishable—there the unit and highest‑and‑best use differed; here non‑stabilization affects market value of the property itself |
| Standard of review / methodology selection | Valuation methodology is a fact question to be resolved by evidence; appraiser testimony supports non‑stabilized approach | Methodology should reflect hypothetical buyer/seller and typical market assumptions | Court: Methods are fact questions absent controlling law/regulation; Tax Court’s factual findings and methodology choice sustained by substantial evidence |
Key Cases Cited
- Swan Lake Mldg. Co. v. Dept. of Rev., 257 Or. 622 (1970) (fee‑simple valuation requires using market rents to value all interests, not just owner's restricted interest)
- First Interstate Bank v. Dept. of Rev., 306 Or. 450 (1988) (rejects treating grouped developer discount as market value when highest and best use is individual lots)
- Dept. of Rev. v. River's Edge Investments, LLC, 359 Or. 822 (2016) (discusses appraisal approaches and real market value concept)
- Hewlett‑Packard Co. v. Benton County Assessor, 357 Or. 598 (2015) (explains highest and best use and appraisal approaches)
- Seneca Sustainable Energy, LLC v. Dept. of Rev., 363 Or. 782 (2018) (explains income approach/discounting future income stream)
- Bayridge Assoc. Ltd. Partnership v. Dept. of Rev., 321 Or. 21 (1995) (addresses exceptions to fee‑simple valuation for certain easement interests)