Regency West Apartments LLC v. City of Racine
372 Wis. 2d 282
| Wis. | 2016Background
- Regency West Apartments (72 units) is a Section 42 (LIHTC) project subject to a 30-year LURA and WHEDA rent limits; first units placed in service Sept. 2011 and fully leased Feb. 2012.
- City of Racine assessed the property at $4,425,000 (Jan. 1, 2012) and $4,169,000 (Jan. 1, 2013); Regency West sued under Wis. Stat. § 74.37(3)(d) seeking refunds for excessive taxation.
- Racine used mass appraisal techniques and an income-capitalization approach for 2012 (using market-rate expense assumptions and a 6% base cap rate + tax load = 8.5%) and a comparable-sales approach for 2013 (relying on mostly Section 8 / market-rate comparables without adjusting for differing restrictions).
- Regency West presented an individualized income-capitalization appraisal using projected/actual subject-property income and expenses and a Section 42 market cap rate (resulting in $2.7M for 2012 and $2.73M for 2013).
- Trial court and court of appeals upheld the City assessments; the Wisconsin Supreme Court reversed, holding the City’s methodologies violated Wis. Stat. § 70.32(1) and WPAM and that Regency West overcame the § 70.49 presumption.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Racine's appraisals complied with Wis. Stat. § 70.32(1) and WPAM | City failed to use subject-specific income/expenses and appropriate market; appraisal methods did not follow WPAM | Mass appraisal and chosen methods were permissible given volume and available market data | Racine's methods did not comply with § 70.32(1)/WPAM for 2012 and 2013; reversed |
| Proper market for deriving capitalization rate for Section 42 property | Cap rate must be derived from Section 42 (subsidized) market, not market-rate properties | Cap rate from market-rate sales was reasonable and used in practice | Cap rates must reflect the subject property's market (Section 42); using market-rate cap rate was improper |
| Use of mass appraisal vs. individualized valuation for a newly opened Section 42 property | For a new, subsidized property with available projected income/expenses, assessor must use best practicable information (individualized income approach) | Mass appraisal techniques are acceptable given assessor workload and lack of stabilized historical data | Mass appraisal that ignored available subject-specific projections violated § 70.32(1); individualized projections were proper |
| Whether Section 8 / HUD comparables are "reasonably comparable" to Section 42 property for sales-comparison approach | Section 8 and Section 42 are materially different programs with different restrictions and risk; they are not reasonably comparable | Both are subsidized housing and may be treated similarly; rents looked similar in the market | Section 8 and Section 42 are not reasonably comparable as a matter of law for the sales-comparison approach; City's 2013 sales-comparison valuation was improper |
Key Cases Cited
- Walgreen Co. v. City of Madison, 311 Wis. 2d 158, 752 N.W.2d 687 (discussing WPAM goal to estimate market value subject only to governmental restrictions)
- Metropolitan Holding Co. v. Bd. of Review of City of Milwaukee, 173 Wis. 2d 626, 495 N.W.2d 314 (assessor must use actual income/expenses for subsidized housing valuation)
- Adams Outdoor Advert., Ltd. v. City of Madison, 294 Wis. 2d 441, 717 N.W.2d 803 (review limited to record before circuit court; three-tier valuation framework)
- Nankin v. Village of Shorewood, 245 Wis. 2d 86, 630 N.W.2d 141 (refund action review is a new trial; review focuses on circuit court record)
- Mineral Point Valley Ltd. P’ship v. City of Mineral Point Bd. of Review, 275 Wis. 2d 784, 686 N.W.2d 697 (capitalization-rate issues; distinguishable on facts)
- Bischoff v. City of Appleton, 81 Wis. 2d 612, 260 N.W.2d 773 (limits on sole reliance on one approach discussed in context; does not categorically bar income approach for subsidized housing)
- Trailwood Ventures, LLC v. Village of Kronenwetter, 315 Wis. 2d 791, 762 N.W.2d 841 (statutes do not permit trial court to impose an assessment higher than the one challenged)