Lead Opinion
{¶ 1} This real-property-valuation case concerns the proper valuation of a commercial building consisting of warehouse and office space for tax year 2005. The property owner disagreed with the auditor’s valuation and presented a value using the income approach as an “owner’s opinion of value” to the Franklin County Board of Revision (“BOR”), and the BOR adopted the value suggested by that approach. The Worthington City Schools Board of Education (“BOE”) appealed to the Board of Tax Appeals (“BTA”), which determined that (1) the income-approach valuation offered before the BOR did not qualify as an admissible owner’s opinion and (2) in any event, the income-approach valuation was not probative evidence of value. The BTA ordered that the auditor’s valuation be reinstated.
{¶ 2} On appeal, the property owner contends both that its income-approach valuation qualified as a valid owner’s opinion and that the BTA was not justified in its wholesale rejection of the income-approach valuation, since it had been accepted and adopted by the BOR. On both points we agree. We therefore reverse the decision of the BTA.
Factual Background
{¶ 3} At issue is a warehouse and office building encompassing 205,430 square feet on a parcel of 15.304 acres. The tax year at issue is 2005, and that year was a reappraisal year in Franklin County. The auditor set the value of the subject property at $5,650,000. Appellant, Northpointe Distribution Center, L.L.C., the property owner, filed a complaint seeking a reduction to $4,700,000, after which the BOE filed a countercomplaint seeking retention of the auditor’s valuation.
The Owner’s Income-Approach Valuation
1. General testimony
{¶ 4} At the BOR hearing held on May 5, 2008, Northpointe presented the testimony of Jason Carroll, an employee of Mid America Management Corporation (“Midamco”). Carroll testified that “the L.L.C. is a single purpose entity created to hold the property as is common in real estate investments,” and that Midamco “is the 100 percent general partner of that L.L.C.” Carroll summarized his educational and employment background: Carroll worked as an architect, then obtained an MBA in real estate from Cornell University in 2002, after which he worked in the field of real estate investment, acquisitions, and develop
{¶ 5} Carroll offered a general description of the property at issue and its market. Carroll testified that the building, which was constructed in the 1960s, was designed as a large distribution center for a single retailer but has since been divided into separate spaces to be rented out. Because of its design, several features of the property make it difficult to lease to multiple tenants. Specifically, the column spacing and ceiling heights make it difficult to divide up the space for multiple-tenant use, and it is difficult to arrange the space to afford each tenant access to a dock door. Additionally, building-space modifications are often necessary when a new tenant moves in. Asked whether the leases were triple net,
2. Specifics of the owner’s income-approach valuation
{¶ 6} Carroll testified as author or co-author of an exhibit documenting the income-approach valuation. He explained that the operating statements setting forth revenues and expenses for 2003, 2004, and 2005 were “straight off [Midamco’s] system.” Attached to the exhibit were rent rolls showing year-end occupancy for 2003, 2004, and 2005. Vacancy increased from 21 percent in 2003 to 26.5 percent in 2005. In later years, the property experienced no growth in rent, and new tenants tended to want short-term leases. Carroll gave testimony regarding the valuation, and the BOE’s counsel did not object that his testimony lacked foundation.
{¶ 7} Carroll also testified that the income figure in the valuation was derived from the attached statements documenting the actual income and expenses of the property. The income information did include net-lease reimbursements from tenants (in other words, at least some of the leases were net leases). Real estate taxes were deducted from operating expenses for valuation purposes, but no capital-improvement costs were removed. Expenses also included a $0.25 per square foot reserve for replacements, which Carroll testified was a “conservative number.”
{¶ 8} Carroll also explained that the capitalization rate had been computed using the band-of-investment method. To the rate computed by that method, he
{¶ 9} Next, Carroll explained, the capitalization rate (11.6026 percent) was applied to the average of the net incomes before interest, depreciation, and real estate taxes for 2003, 2004, and 2005, which was $517,779. The method calls for dividing the net income number by the capitalization rate to arrive at the property value: $4,460,000.
Course op Proceedings
{¶ 10} In its deliberation, the BOR found the valuation evidence “competent, credible, and probative” and adopted $4,460,000 as the property value in place of the auditor’s valuation. The BOE appealed to the BTA.
{¶ 11} At the BTA, the parties waived a hearing and presented their arguments through briefs, relying on the record developed before the BOR. The BOE — which had not objected below — argued that “the evidence [i.e., the income-approach valuation presented at the BOR] consists of an analysis that was prepared and presented by counsel,” that “[t]he property owner did not appear, nor did an officer, member or shareholder of the owner appear,” and that “[t]he only witness consisted of an employee of the company that owns the property.” Thus, the BOE argued, the evidence was not actually an owner’s opinion of value. In the alternative, the BOE argued that “[e]ven if the analysis submitted by Northpointe’s counsel had been prepared by Northpointe, the analysis falls short of providing reliable probative evidence of the subject property’s value because it was totally devoid of any supporting market data.”
{¶ 12} On August 7, 2012, the BTA issued its decision. First, the BTA declined to accept Carroll’s testimony in conjunction with the written valuation as part of the “owner’s opinion of value.” BTA No. 2008-V-670,
{¶ 13} The BTA also addressed the merits of the owner’s income-approach valuation. Noting that “the owner’s opinion of value contains no market data for income or expenses whatsoever,” relying as it does on “actual income and expenses of the subject to determine its value,” the BTA held that the owner’s opinion did “not provide competent, probative evidence of value.” Id. The BTA therefore reinstated the auditor’s determination of value.
{¶ 14} One member of the BTA dissented. The dissent compared the situation in the present case to that in Bedford Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision,
Northpointe’s Propositions of Law
{¶ 15} On appeal to this court, Northpointe sets forth three propositions of law, as follows:
[1] The BTA erred in simply reverting back to the auditor’s original assessment and by not making its own independent determination of value.
[2] The BTA erred by not finding that competent, credible and probative evidence was submitted to the BOR.
[3] It is incumbent upon an appellant challenging the decision of a board of revision to come forward and offer evidence which demonstrates its right to the value sought.
Standard of Review
{¶ 16} In reviewing the BTA’s decision in light of the propositions of law asserted by Northpointe, we are mindful that we do not sit “as a super BTA or a trier of fact de novo.” EOP-BP Tower, L.L.C. v. Cuyahoga Cty. Bd. of Revision,
{¶ 17} This appeal confronts us, however, not with a request to second-guess the manner in which the BTA evaluated the evidence but with discrete claims of legal error regarding the competence of certain evidence and the legal propriety of reverting to the auditor’s valuation, assuming that competent evidence had been presented to the BOR. Our review of these questions of law is de novo. See Akron Centre Plaza, L.L.C. v. Summit Cty. Bd. of Revision,
A Qualified Employee of the Owner of Real Estate May Give Owner-Opinion Testimony
{¶ 18} Ordinarily, testimony as to property value is not competent and admissible unless it is the professional opinion of an expert. See Tokles & Son, Inc. v. Midwestern Indemn. Co.,
{¶ 19} Indeed, “Ohio law has long recognized that an owner of either real or personal property is, by virtue of such ownership, competent to testify as to the market value of the property.” Smith v. Padgett,
{¶ 20} At the BTA, Northpointe argued that Carroll’s testimony should be admitted under the owner-opinion rule; it did not argue that Carroll had been qualified as an expert appraiser. Nor does Northpointe argue to this court that Carroll was duly qualified as an expert appraiser. Accordingly, the competence and admissibility of his testimony as an opinion of value rests upon its status as constituting an owner’s opinion of value.
1. The record contains no support for the finding that Northpointe’s counsel prepared the written valuation
{¶ 21} The BTA agreed with the BOE’s contention that the written owner’s opinion of value had been prepared by counsel, not Carroll. The question of who authored the written income-approach valuation is a quintessential fact issue, and factual determinations by the BTA ordinarily merit court deference.
{¶ 22} However, the case law does recognize the court’s duty to reverse a BTA finding when “[the record] is devoid of any evidence from which the determination could be made.” Stds. Testing Laboratories, Inc. v. Zaino,
{¶ 23} Notably, the BTA decision itself cites nothing in the record to support the finding. A review of the record, including the hearing testimony, discloses one circumstance that connects counsel to the valuation: the written income-approach valuation was submitted to the BOR with a cover letter from counsel. But the cover letter presents the written valuation as “the owner’s description and opinion of value.” Nowhere does the letter state or imply that counsel authored the valuation.
{¶ 24} Moreover, Carroll testified authoritatively regarding the written valuation at the BOR hearing and certainly implied that he was its author. Although a more fully adequate foundation could have been laid that Carroll authored the valuation,
2. Carroll’s testimony and written report were competent
{¶ 25} The BTA’s rejection of the owner’s opinion of value as competent evidence confronts us with two further issues on competence of the evidence: (1) Can Carroll qualify as giving “owner” testimony when he was employed by the member of the limited-liability company that held title to the property, rather than by the property-owning company itself? (2) May Carroll give “owner” testimony when he is neither an officer nor a shareholder of either entity?
a. A knowledgeable employee may give owner-opinion testimony
{¶ 26} The BTA cites a single case in support of rejecting Carroll’s testimony as owner-opinion testimony in this case: Tokles,
{¶ 27} In Tokles, a corporate owner of personal property that was reported stolen sued an insurance company for breach of insurance contract and bad-faith denial of coverage with respect to the theft. The corporate entity was a small, closely held, husband-wife (until divorce) corporation, and the issue was whether an officer/shareholder’s testimony was competent as evidence of the value of the personal property. The corporation sought the benefit of the owner-opinion rule, but the difficulty lay in the interposition of the corporate entity as actual direct owner of the property. The court emphasized that the crucial factor was the witness’s knowledge of the property at issue:
If an officer or shareholder of a closely held corporation is permitted to testify as to value without being qualified as an expert, it should not be solely because of his title or ownership of stock, but in the main because he, aided by his experience, has some particular means of forming an intelligent and correct judgment as to the value of the property in question beyond that which is possessed by people generally. An officer, or shareholder of a closely held corporation who has acquired knowledge of the corporate property tantamount to that of an owner by virtue of having purchased, or dealt with, the property as if he were the individual owner may testify as to its value.
{¶ 28} In Tokles, the corporation had emphasized the witness’s status as an officer and shareholder in order to establish his connection to the corporation as property owner — indeed, in Tokles the corporation was (in a nontechnical sense) an alter ego of the officers/shareholders. The BTA’s pronouncements are therefore couched in terms of officer and shareholder.
{¶ 29} But nothing in the reasoning of Tokles precludes a corporate employee from qualifying to give owner testimony. To the contrary, under Tokles it is the degree of acquaintance with the property rather than the rank within the corporate entity that is most significant. Indeed, in a company with a larger staff that is less closely held than that in Tokles, employees below the officer level may be more likely to have the intimate knowledge concerning the property that would best qualify them to give the owner-opinion testimony.
b. The employee of a corporate affiliate may give owner-opinion testimony when the corporate affiliate actually manages the property
{¶ 30} The BTA also found it significant that Carroll was employed by Midamco rather than Northpointe Distribution Center, L.L.C.: the latter owns the property, while the former owns the latter and manages the property. But for purposes of the owner-opinion rule, that is a distinction without a difference.
{¶ 31} The testimony shows that Midamco managed the property and was the owner of Northpointe, the sole purpose of whose existence was to hold title to the property for Midamco. In Tokles, the court held that “the benefit of the owner-opinion rule should not be denied to a closely held corporation which cannot speak itself but which can convey its owner-opinion by a qualified officer.”
{¶ 32} For these reasons, we reverse the BTA’s determination that Carroll’s testimony coupled with the written income-approach valuation was not competent evidence of value. Having decided that the evidence was competent, we now turn to the BTA’s consideration of its probative character.
Under the Bedford Rule, the BTA May Not Revert to the Auditor’s Value When the BOR Relied on Competent Evidence
{¶ 33} The BTA held that the owner’s opinion of value herein did not provide competent, probative evidence of value. In addition to erroneously finding that
{¶ 34} In reviewing this latter aspect of the BTA’s decision, we note that the BTA unquestionably had a duty to independently weigh all the evidence before it, which in this case consisted of evidence adduced before the BOR. See Columbus Bd. of Edn. v. Franklin Cty. Bd. of Revision,
{¶ 35} Because it found the owner’s valuation to be not probative, and because it confronted an absence of additional evidence, the BTA ordered that the auditor’s value be reinstated. While this is a logical disposition, the BTA nonetheless erred in rendering it. That is so because our decision in Bedford Bd. of Edn.,
{¶ 36} In Bedford, as here, the owner presented an owner’s opinion of value using the income approach and utilizing actual income and expenses. Even though the owner’s opinion relied entirely on income and expenses of the subject property, rather than data derived from the larger market, we held in a four-to-three decision that the BTA had erred by reverting to the auditor’s valuation inasmuch as the owner’s evidence (despite those defects identified by the BTA) had negated that valuation.
{¶ 37} Our reasoning in Bedford does not deny the BTA’s duty to independently evaluate the evidence; instead, it alters the status of the auditor’s valuation as a default in the situation where neither the property owner nor the board of education has proved a different value. We have held that although a BOE or a property owner seeking to depart from the county’s valuation must shoulder the burden of showing a different value, “the board of revision and the auditor do not themselves acquire the burden of proving the general accuracy of the appraisals
{¶ 38} Notably, however, the absence of a requirement that the auditor or board of revision offer proof of the original appraised value does not automatically mean that the property owner or the board of education may rely on that appraised value as a default. To be sure, if a board of revision makes a valuation change that is completely unsupported in the record, the BTA may not affirm or adopt it. See Columbus City School Dist. Bd. of Edn. v. Franklin Cty. Bd. of Revision,
{¶ 39} The Bedford rule is particularly applicable in circumstances like those presented here. In this case, the BOE opposed the owner’s opinion of value and could have stated before the BOR the reasons that it should not adopt that valuation, but it failed to do so. In this respect, the present case differs dramatically from Vandalia-Butler,
{¶ 40} Moreover, Northpointe actually presented Carroll as a witness before the BOR, thereby making him available for cross-examination, but the BOE’s counsel failed to use that opportunity to build a record that would have permitted the BOE to “meet its burden of proof before the BTA by showing — through cross-examination of [the witness] * * * — that the board of revision had erred when it reduced the value from the amount first determined by the auditor.”
{¶ 41} In sum, the rule from the Bedford case precluded the BTA’s reverting to the auditor’s valuation in spite of the BTA’s findings about the probative force of the evidence that Northpointe presented at the BOR. Under these circumstances, the BOR’s adopting a new value based on Carroll’s testimony “shift[ed] the burden of going forward with evidence to the board of education on appeal to the BTA.” Dublin City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision,
Conclusion
{¶ 42} We reverse the BTA’s determinations regarding the competence of Carroll’s testimony and the owner’s opinion of value offered at the BOR. Additionally, we reverse the BTA’s decision to revert to the auditor’s valuation, with the result that the BOR’s valuation of the property is reinstated.
Decision reversed.
Notes
. “Under a triple net lease, the tenant is responsible for paying utilities, maintenance, real estate taxes, and insurance.” Strongsville Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision,
. The tax additur is added to the capitalization rate, effectively discounting the value to take into account the effective tax rate imposed on the real estate. Carroll deducted the actual tax payments from expenses and then used the additur to account for the effect of real estate taxes on property value. Likewise, Carroll deducted actual mortgage payments from expenses but accounted for debt service through the band-of-investment method of developing the discount portion of the capitalization rate. See International Association of Assessing Officers, Property Assessment Valuation 219, 234-236 (2d Ed.1996).
. The BOE’s counsel at the BOR hearing could have objected to the lack of foundation, and that objection would have allowed the foundation to be more securely laid — but no objection was made.
Dissenting Opinion
dissenting.
{¶ 43} I dissent from the majority’s expansion of the owner-opinion rule to allow employees of a corporation to provide evidence of a property’s value, and I would affirm the decision of the Board of Tax Appeals that reinstated the auditor’s valuation.