Lakeshore Villa, Appellant, vs. Board of Revision of Cuyahoga County and Cuyahoga County Auditor, Appellees, and Cleveland Board of Education, Appellee. APPEARANCES: For the Appellant
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Case No. 96-J-1189 (REAL PROPERTY TAX) DECISION AND ORDER
- Fred Siegel Co., L.P.A. By: Annrita S. Johnson 3001 Bethel Road Suite 208 Columbus, Ohio 43220 - Stephanie Tubbs-Jones Cuyahoga County Prosecuting Attorney By: Saundra Curtis-Patrick Assistant The Justice Center 1200 Ontario Street Eighth Floor Cleveland, Ohio 44113 - Armstrong, Mitchell, Damiani and Zaccagnini By: Timothy J. Armstrong 1725 The Midland Building 101 Prospect Avenue, West Cleveland, Ohio 44115
For the County Appellees
For the Board of Education
Entered January 16, 1998 Mr. Johnson, Ms. Jackson, and Mr. Manoranjan concur
The Board of Tax Appeals is considering this matter pursuant to a notice of appeal filed herein by Lakeshore Villa. ("Appellant") Appellant has appealed from a decision of the
Cuyahoga County Board of Revision which determined the value of the subject real property for tax year 1994. The subject
property is located in the city of Cleveland and is identified on the auditor's records as parcel 113-01-003. The value
determined by the Cuyahoga County Auditor is as follows: TRUE VALUE Land Building Total $ 835,000 $11,365,000 $12,200,000 TAXABLE VALUE $ 292,250 $3,977,750 $4,270,000
The value determined by the Cuyahoga County Board of Revision is as follows: TRUE VALUE Land Building Total $ 835,000 $10,765,000 $11,600,000 TAXABLE VALUE $ 292,250 $3,767,750 $4,060,000
In the notice of appeal the appellant has alleged that the current market value of the property is $9,771,600 which corresponds with a taxable value as follows: TAXABLE VALUE Land Building Total $ 233,930 $3,186,130 $3,420,060
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The matter has been submitted to the Board of Tax Appeals upon the notice of appeal, the statutory transcript certified herein by the board of revision, and the evidence adduced at the hearing conducted herein. The story subject property is a HUD subsidized 560 fifteen
elevator
apartment
building
containing
apartment
units sitting upon 6.21 acres.
It is located on the northeast
side of the city of Cleveland with frontage along Lake Erie. The building was constructed in 1972, containing 446 oneIt is X-shaped The building since its
bedroom suites, and 114 two-bedroom suites.
allowing four faces to have a view of Lake Erie. has enjoyed a high stable rate of occupancy
construction.
Because the property was designed and built as
housing for the elderly, it contains extensive common area, office facilities, meeting rooms, a tenant association office, craft rooms, a recreation room, and a mail room. A
conventional housing project would not have as much non-income producing common area. The building has some areas of deferred maintenance such as the driveway which needs resurfacing, the windows, and the building's exterior brick facade. The outer face of the
building is constructed of a white glazed brick which has not weathered well. The area's severe freeze-thaw cycles cause
moisture to get trapped under the surface of the brick which forces the face of the brick to pop off. The appellant has
been unable to adequately address this problem.
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The windows have also been an ongoing problem.
The
windows are thermopane, but have been fogging on a regular basis. over Roughly sixty percent of the windows have been replaced last several years. Appellant plans to continue
the
replacing the rest as they are able, and as they are needed. We begin our analysis by noting that a party who asserts a right to a decrease in the value of real property has the burden of proving his right to the value asserted.
Cleveland Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision (1994), 68 Ohio St.3d 336. The appellant has the burden of coming
forward with evidence which proves the value claimed in his appeal. If the appellant presents competent and probative
evidence of value, other parties asserting a different value then have the corresponding burden of providing evidence which rebuts appellant's evidence of value. Springfield Local Bd. of
Edn. v. Summit Cty. Bd. of Revision (1994), 68 Ohio St.3d 493. The Supreme Court has held that the best evidence of true value in money for real estate taxation purposes is a recent sale in an arm's length transaction between a willing seller and a willing buyer. Zazworsky v. Licking Cty. Bd. of
Revision (1991), 61 Ohio St.3d 604; Conalco v. Bd. of Revision (1977), 50 Ohio St.2d 129; State, ex. rel. Park Investment Co. v. Bd. of Tax Appeals (1964), 175 Ohio St. 410. property has not been the subject of a recent sale. the Board must look to other evidence of value. The subject Therefore, Accordingly,
this Board will proceed to examine the available record and to determine value based upon the evidence before it. 4 Coventry
Towers, Inc. v. Strongsville (1985), 18 Ohio St.3d 120.
In
doing so, we will determine the weight and credibility to be accorded the evidence presented. Cardinal Fed. S. & L. Assn.
v. Cuyahoga Cty. Bd. of Revision (1975), 44 Ohio St.2d 13. The building is a federally subsidized senior citizen housing project. The Ohio Supreme Court has held that such
property is to be valued with due regard for market rents, market income, and market expenses. Alliance Towers, Ltd. v. The of Mr.
Stark Cty. Bd. of Revision (1988), 37 Ohio St.3d 16. appellant submitted the testimony and appraisal report
Charles R. Ritley to substantiate its reduction request.
Ritley concluded that the property had a value of $8,200,000 as of January 1, 1994. He arrived at this conclusion by analyzing
the property utilizing the market and income approaches to value.1 His market approach examined four elevator apartment buildings located in Cleveland and Euclid, Ohio which sold between April, 1994 and January, 1997. The price per unit The price He made
varied from a low of $13,576 to a high of $20,104. per square foot ranged from $16.58 to $24.81.
adjustments for conditions of sale, location, suite mix, actual age and condition, and size, causing his adjusted price per
1
Ohio Adm. Code 5705-3-03 (D) provides that in the absence of a recent arm's length sale, "true value in money" may be arrived at by an appraisal which considers any or all of the following recognized valuation approaches: (1) the market approach, in which recent sales of comparable properties are analyzed; (2) the income approach, in which net income from the property is capitalized; and (3) the cost approach, which adds the depreciated cost of the improvements to the land to the value of the land itself. 5
unit to range from $14,072 to $18,712.
After considering the
basic characteristics of the subject property and the condition of the market, he concluded that the indicated value of the subject property was $15,000 per unit. This produced a rounded
value of $8,400,000 via the market approach. His income approach scrutinized the property's
historical operating statements showing income and expenses for 1992 to 1994. He also examined rentals from four similar His
apartment developments in the neighborhood of the subject.
expense estimate was based on historic operating expenses for the subject as well as the expense history of similar apartment complexes in the Cleveland Metropolitan area. He made
adjustments to the comparable rentals for location, size of the units, age and condition, and utilities included. The comparable rentals for the one bedroom units
showed an unadjusted range between $.71 and $.79 per square foot, and a range of $.63 to $.71 per square foot for two bedroom suites. After adjustments, he estimated rent for the
subject at $.69 per square foot for the one bedroom units, and $.63 per square foot for the two bedroom units. This
correlated to a rental of $360 per month for the one bedroom units, and $435 per month for the two bedroom units. figure is slightly higher than the HUD rent study His which
indicated a fair market rent for the subject of $336 per month for the one bedroom units, and $420 per month for the two bedroom suites. His choice of an appropriate 6 vacancy factor was
influenced
by
the
quality
and
durability
of
the
projected
rental and by typical vacancy levels revealed by market surveys of similar properties. Based upon these factors he estimated a
six percent vacancy rate, plus two percent for collection loss allowance, totalling eight percent. from the suites, plus income from His gross potential income the laundry and vending
machines, plus income from forfeited security deposits, minus the vacancy and credit loss allowance produced a gross
effective income of $2,332,016. He next analyzed the owner's income and expense
statement as well as statements from other apartment buildings in the area to derive an expense figure. estimated expenses against the figures He also compared the contained in the
Institute of Real Estate Management ("IREM") Income and Expense Analysis for Apartment Buildings (1994), and he discussed the expense data with owners in the immediate area of the subject. He determined operating expenses to be $1,155,480 without
including real estate taxes.
He further derived a figure of He deducted the operating from his gross effective
$112,000 for replacement reserves. expenses and replacement reserves
income, producing a net operating income of $1,064,536, or $1,900 per suite. Mr. Ritley looked to the market to determine a
capitalization rate.
He examined the comparable sales used in
his market approach which had capitalization rates of 15.3 percent, 18.14 percent, 9.26 percent, and 10.9 percent. The
first two sales were to conventional buyers who purchased the 7
properties on a strictly conventional basis as an investment. The third sale was made to out of town buyers who purchased with low-income housing tax credits and tax-free revenue bond financing. ("REIT"), The fourth sale was a real estate investment trust buying by property the previous that had been Due to substantially the variable
rehabilitated
owner.
differences in each sale, he placed little emphasis on the market derived overall capitalization rates. He gave greater weight to the capitalization rate derived in the mortgage equity band of investment method. He
assumed a mortgage of nine percent as of January 1, 1994 for a term of twenty years providing a mortgage constant of 10.8 percent. The equity dividend rate was 12 percent. He decided
upon this figure upon considering the property's place in the market and its appeal to investors. He determined that the
property was not going to provide a rapidly growing income rate. But he felt that the property would stabilize after a
conversion to conventional tenancy and provide a fairly stable income stream. He accordingly multiplied 10.8 percent times a
75 percent loan-to-value ratio producing 8.1 percent as the mortgage component of the rate. To derive the equity portion
he utilized a dividend rate of 12 percent times the 25 percent equity combined component total indicating of the 3 percent. component Accordingly, and the the
mortgage
equity
component is 11.1 percent.
He then added the tax additur of
1.98 percent to produce a rounded capitalization rate of 13 percent. He next multiplied 8 the property's $1,064,536
operating
income
by
the
13
percent
capitalization
rate
to
produce a rounded value of $8,200,000 via the income approach. He decided that because properties such as the
subject are valued for their ability to produce income rather than upon a comparison of sales prices for similarly developed buildings he considered the market approach secondary to the income approach. A close correlation existed between the two
approaches to value, although the income approach was given the greater weight in his analysis. He therefore concluded that
the property had a value of $8,200,000 as of tax lien date. This conclusion included personal property which he valued at $280,000. The value for the realty alone was $7,920,000. The Board finds the testimony and appraisal report submitted by Mr. Ritley credible. He gave due regard to market
data and combined that information with the subject's operating history to produce a reasonable value as of tax lien date. Opposing counsel failed to assail his conclusions on crossexamination. submit Ritley's The burden then shifted to the other parties to and competent Neither of value evidence contradicting submitted rebutted Mr. any Mr.
probative findings.
opposing which
party have
affirmative
evidence
may
Ritley's findings, and they unsuccessfully discredited those findings upon cross-examination. The Board therefore finds and
determines based upon a preponderance of the evidence that the value of the subject property as of January 1, 1994 is as follows:
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Land Building Total
TRUE VALUE $ 835,000 $7,085,000 $7,920,000
TAXABLE VALUE $ 292,250 $2,479,750 $2,772,000
The auditor of Cuyahoga County is hereby ordered to cause his records to reflect the value determined herein for the subject real property and to assess the same in accordance therewith as provided by law. ohiosearchkeybta
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