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					                       OHIO BOARD OF TAX APPEALS

Blanchester Limited Partnership,          )          CASE NO. 2006-N-1040
                     Appellant,           )          (REAL PROPERTY TAX)
        vs.                               )          DECISION AND ORDER
Clinton County Board of Revision          )
and Clinton County Auditor,               )
                     Appellees.           )


                        For the Appellant - Karen H. Bauernschmidt Co., LPA
                                            Karen H. Bauernschmidt
                                            1370 West 6th Street
                                            Suite 200
                                            Cleveland, Ohio 44113

                        For the County    Rich, Crites & Dittmer, LLC
                        Appellees -       James R. Gorry
                                          300 East Broad Street
                                          Columbus, Ohio 43215

                  Entered October 28, 2008

Ms. Margulies, Mr. Eberhart, and Mr. Dunlap concur.

              This matter is before the Board of Tax Appeals as a result of a notice of

appeal filed August 10, 2006 by appellant, Blanchester Limited Partnership. Appellant

challenges a decision of the Clinton County Board of Revision (“BOR”).           In its

decision, the BOR determined the value of parcel number 220-019743-8 for tax year


              Counsel for appellant and counsel for appellees appeared at a hearing

before this board.    Accordingly, we proceed to consider this appeal based upon

appellant’ notice of appeal, the statutory transcript (“S.T.”), the testimony and
evidence adduced at the hearing before this board (“H.R.”), and the briefs submitted

by counsel.

                  The subject property, known as the “Sylvia Apartments,” is a thirty-six

unit subsidized rent apartment complex located in Blanchester, Ohio. The subject is

situated upon approximately 3.033 acres, and was constructed in 1989. The apartment

complex is comprised of four types of units, including twelve one-bedroom, one-bath

flats approximately 602 square feet in size, one two-bedroom, one-bath flat

approximately 736 square feet in size, twenty-one two-bedroom, one-bath townhouses

approximately 793 square feet in size, and two three-bedroom, one-bath townhouses

approximately 1,008 square feet in size.1 Amenities include separate laundry facilities,

a maintenance building, and an office. Additionally, a basketball court and children’s

play area are located on the premises.                      The subject does not have central air

conditioning, a swimming pool, or clubhouse.

                  The true and taxable values, as determined by the Clinton County

Auditor (“auditor”), are as follows:

       Parcel No. 220-019743-8                 TRUE VALUE                TAXABLE VALUE
       LAND                                        $ 108,000                     $ 37,800
       BUILDINGS                                   $ 911,300                     $318,960
       TOTAL                                       $1,019,300                    $356,760

  The appraisal report reflects a discrepancy with regard to the size of the twenty-one two-bedroom units. Pages
7 and 37 of the report indicate a size of 828 square feet for these units, while page 28 of the report, and the
appraiser’ testimony, reflect a size of 793 square feet. H.R. at 52, Ex. 1. It appears that 793 square feet is the
accurate size for these units, based upon the building layout contained in the appraisal and the appraiser’      s
testimony. Id.

                 A total true value of $720,000 was asserted by appellant in its complaint

to the BOR, and reiterated during testimony at the BOR hearing. Before the BOR,

appellant relied upon a “[p]roperty owner’ submission of documents, business

records, and opinion of value.” S.T., Ex. D. Also, Bill Shoemaker, apparently a vice-

president of the entity that owns the subject property, testified on behalf of appellant.2

Upon review, the BOR voted to retain the auditor’ value of $1,019,300 for the subject

property. S.T., Ex. E.

                 We begin our review of this matter by noting that “[w]hen cases are

appealed from a board of revision to the BTA, the burden of proof is on the appellant,

whether it be a taxpayer or a board of education, to prove its right to an increase or

decrease from the value determined by the board of revision.” Columbus City School

Dist. Bd. of Edn. v. Franklin Cty. Bd. of Revision (2001), 90 Ohio St.3d 564, at 566. In

determining value, 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.

                 It is not enough, however, to simply come forward with some evidence

of value. Neither is it sufficient to grant the requested increase or decrease merely

because no evidence is offered to challenge the claim. W. Industries, Inc. v. Hamilton

Cty. Bd. of Revision (1960), 170 Ohio St. 340; Hibschman v. Bd. of Tax Appeals

  Mr. Shoemaker’ relationship to the subject property is somewhat unclear. At the hearing before this board,
counsel for appellant noted that she believed Mr. Shoemaker was a vice-president of the company that manages
the subject property, and also is employed as a vice-president of the entity that owns the subject property. H.R.
at 7-8. The record does not specify Mr. Shoemaker’ relationship to the subject property, other than it appears
he serves in an executive capacity to appellant.

(1943), 142 Ohio St. 47. An appellant must present competent and probative evidence

to make its case. Columbus, supra, at 566.

              In the absence of a recent arm’s-length sale, as in the case before us, an

appraisal or other relevant evidence is necessary to determine the true value of real

property. First Union Real Estate Equity & Mtg. Investments v. Morrow Cty. Bd. of

Revision (1990), 53 Ohio St.3d 236; State ex rel. Park Investment Co. v. Bd. of Tax

Appeals (1964), 175 Ohio St. 410, 412. Under such circumstances, true value in

money can be calculated by applying any of three alternative methods provided for in

Ohio Adm. Code 5703-25-07:         1) the market data approach, where the value of

property is estimated through a comparison of the subject to recent sales of

comparable properties in the market area, 2) the income approach, which capitalizes

the net income attributable to the property, and 3) the cost approach, which depreciates

the improvements to the land and then adds them to the land value.

              With regard to the valuation of rent/income-restricted housing, e.g.,

subsidized housing, the Supreme Court held that when employing the income

approach, “‘economic rent is a proper consideration in a situation in which contract

rent is not truly reflective of true value in money,’ quoting Wynwood Apartments, Inc.

v. Bd. of Revision (1979), 59 Ohio St.2d 34, 37, in Canton Towers, Ltd. v. Bd. of

Revision (1983), 3 Ohio St.3d 4, 7. See, also, Berea City School Dist. Bd. of Edn. v.

Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio-4979.              Later, in

Alliance Towers, Ltd. v. Stark Cty. Bd. of Revision (1988), 37 Ohio St.3d 16, 23, the

court stated that “it is the fair market value of the property in its unrestricted form of

title which is to valued.” The court in Alliance Towers considered the valuation

process used for several apartment complexes that were operated with assistance from

the Department of Housing and Urban Development, and held that such an apartment

property must be valued, “for real property tax purposes, with due regard for market

rent and current returns on mortgages and equities.” Id. at 24.

               At the hearing before this board, appellant presented the testimony and

appraisal report of John M. Garvin, MAI, a state-certified general appraiser. No

appraisal report or appraiser testimony was offered by the appellees. Mr. Garvin, in

his testimony before this board and in his appraisal, stated that the highest and best use

of the subject property, as vacant, would be multi-family development. H.R. at 37, Ex.

1 at 32. With regard to the subject’ use as improved, the appraisal report provides

that “[t]he subject site is improved with a subsidized rent apartment project, which

conforms to a residential use consistent with permitted uses under zoning. *** There

are no alternative uses that could provide a higher present value than the subject’s

current use.    For these reasons, the existing use is considered to be maximally

productive, and the highest and best use of the property, as improved.” H.R., Ex. 1 at


               Within Mr. Garvin’ appraisal report, the income and sales approaches to

value were used to estimate the value of the subject property. The cost approach was

not utilized. The report states that “the cost approach, as a valuation methodology, is

most applicable in estimating new or nearly new construction, due to the nominal

accrued depreciation inherent in this type of property.           As the total accrued

depreciation increases in a property, the reliability of the cost approach, as an

appropriate method of valuation decreases. The subject property is approximately 16-

years old as of the tax lien date. Due to the total depreciation inherent in a 16-year old

multiple tenant income producing property, it is the opinion of the appraiser that a

depreciated cost analysis would not produce a reliable indication of the subject’s

market value as of the tax lien data [sic]. Therefore, no cost approach is included in

this appraisal report.” H.R., Ex. 1 at 34. Immediately following the discussion of the

cost approach, Mr. Garvin opined an amount of $35,000 to $40,000 per acre for the

subject property’ land value. Id. at 34, 35. The per-acre prices of the comparable

sales were adjusted downward due to Mr. Garvin’ determination that the comparable

sales were superior to the subject. As the auditor’ value of the land was listed at

$35,608 per acre, the report stated “[a]fter review of the subject market, the appraiser

does not believe the auditor’ land value is excessive.” H.R., Ex. 1 at 34.

              With regard to the sales comparison approach, the appraisal report noted,

and Mr. Garvin’ testimony supported, the lack of comparable sales near the subject

property. Also, the report stated “[t]he Sales Comparison Approach was used in this

appraisal to develop an unadjusted unit price as a check against the value derived by

the income approach.” H.R., Ex. 1 at 57. (Emphasis sic.) While three sales were

contained in the report, only one was reviewed. This was a sale of a conventional

apartment complex on May 16, 2006 for a unit price of $27,906. While the report

states that “downward adjustment to the unit sale price of $27,906/unit is warranted,”

the report concludes to a value estimate of $27,906 per unit for the subject property

based upon the sales comparison approach. H.R, Ex. 1 at 57, 63. As the subject

property contains thirty-six units, this equates to an overall value of $1,004,616. The

other two sales, occurring on October 9, 2001 and May 26, 2004, were “included as

support for the overall capitalization rate used in the Income Approach.” H.R., Ex. 1

at 61.

             Under the income approach, Mr.Garvin initially estimated potential

gross income of the subject property, using primarily rental income based upon “the

appraiser’ market investigation of economic rents and a projection of market rents for

the subject apartment units.” H.R., Ex. 1 at 37. Three rent comparables were utilized

to estimate the subject’ rent. The one-bedroom garden units, with an area of 602

square feet, were estimated to rent at $430 per month, or $61,920 per year. The two-

bedroom garden unit, with an area of 736 square feet, was estimated to rent at $495 per

month, or $5,940 per year. The two-bedroom townhouse units, with an area of 793

square feet, were estimated to rent at $515 per month, or $129,780 per year. The

three-bedroom townhouse units, with an area of 1,008 square feet, were estimated to

rent at $605 per month, or $14,520 per year. The sum of these estimated rents was

$212,160. A 7% vacancy and credit loss amount of $14,851 was subtracted from

potential gross income, based upon a survey of property managers for conventional

apartment projects. 1% of adjusted gross income, or $1,973, was added as other

income, the sources of which include laundry room charges, non-sufficient funds and

late charges, damages/cleaning charges, and forfeited security deposits. Taking into

account other income and vacancy and credit losses, effective gross income totaled

$199,282. H.R., Ex. 1 at 49.

             The appraisal report next generated an operating expense estimate.

Actual expenses of the subject property were used from 2003, 2004, and 2005. H.R.,

Ex. 1 at 49. Additionally, actual operating expense statements for conventional market

rent projects located in Columbus were reviewed. Id. Operating expense data from

the Institute of Real Estate Management, 2004 Income/Expense Analysis –

Conventional Apartments was also assembled and reviewed.                                  Expense categories

included were management expense, administrative expense, advertising, utilities,

maintenance, repair, and contract service expenses, payroll, payroll taxes, and other

employment expenses, insurance expense, and reserves for replacement. H.R., Ex. 1

at 50. Operating expenses totaled $88,264 without reserves for replacement, and

$99,064 with reserves for replacement. Id. at 54. Net operating income then totaled

$100,218. Id.

                  The methodology for developing the capitalization rate for the subject

property was based upon mortgage interest rates and terms, and equity returns as of the

January 1, 2005 effective date of the appraisal. An adjusted capitalization rate of

11.221% was concluded to by Mr. Garvin, which includes a tax additur of 1.721%.3

Using this rate, a rounded value of $893,100 was estimated for the subject property.

After subtracting $14,400 for personal property, a total value of $879,000 was opined

by Mr. Garvin through the income approach.

                  The appraisal report, noting the income-producing nature of the subject

property, accorded the most weight to the income approach to value. Therefore, Mr.

Garvin’ final estimate of value, as of the January 1, 2005 tax lien date, was $879,000.

H.R., Ex. 1 at 64.

  A capitalization rate range of 9% to 9.5% was noted in the appraisal, with specific rates of 9.308% and 9.558%
listed. H.R., Ex. 1 at 55, 56. Mr. Garvin noted that, due to the subject’ location, size and area trends, a figure of
9.5% was most appropriate for the subject property. Id. When questioned during cross-examination as to why
he used a figure in the higher end of his listed range, Mr. Garvin answered that it was due specifically to the
subject’ location. H.R. at 83, 84.

              At the outset, we agree with Mr. Garvin that, as the subject property is

approximately 16 years old as of the tax lien date, the cost approach would not be an

accurate indicator of value. Also, the subsidized nature of this property makes the cost

approach less likely to provide a precise value. This board and the Supreme Court

have previously found that, due to the nature of federally subsidized properties, the

cost approach to value may not be the most appropriate measure of value, even when

the property is only a few years old. Canton Towers, supra; Lutheran Social Services

of Central Ohio Village Housing, Inc. v. Franklin Cty. Bd. of Revision (June 10, 2005),

BTA Nos. 2003-A-1543, 1544, unreported; Dayton-Montgomery Cty. Port Auth. v.

Montgomery Cty. Bd. of Revision, 113 Ohio St.3d 281, 2007-Ohio-1948; Colonial

Village Ltd. v. Washington Cty. Bd. of Revision, 114 Ohio St.3d 493, 2007-Ohio-4641.

              In reviewing Mr. Garvin’ appraisal and testimony, we acknowledge the

difficulty in locating comparable properties in the vicinity of the subject property, due

to the subject’ rural location and subsidized nature. H.R. at 41, 42. As such, the

utility of the sales comparison approach, as expressed by Mr. Garvin, is limited due to

the absence of sales in the area. H.R. at 70-73. We therefore turn to Mr. Garvin’s

analysis of the subject property using the income approach to value.

              The record reflects that Mr. Garvin attempted to locate conventional

apartment complexes for use as rental comparables in calculating his estimate of value

under the income approach, in concert with the Supreme Court’ holdings in Alliance

Towers, supra.    H.R. at 41, 42.    Economic rent, not contract rent, was properly

analyzed. Canton Towers, supra. When only one comparable was located within the

same county as the subject, Mr. Garvin expanded his search, locating two comparables

in Butler County. Mr. Garvin testified to the various adjustments made to these

comparables, taking into account several factors to arrive at the aforementioned net

operating income amount of $100,218. H.R. at 40-65, Ex. 1 at 54. Additionally, Mr.

Garvin testified as to the details surrounding his development of the capitalization rate

for the subject property. H.R. at 66-69.

                 Upon review, we find the estimated value in Mr. Garvin’ appraisal

report, based upon the income approach, to be competent and probative evidence of

the subject property’ value.            Columbus, supra.          The various adjustments to the

comparable rental properties, and the capitalization rate, are supported by the

explanations provided in the report.             There may be certain minor inconsistencies

contained in Mr. Garvin’ report; however, the appellees have not provided an

appraisal report, appraiser testimony, or other evidence upon which they could support

the auditor’ value. As such, we find they have failed to rebut the evidence set forth

by appellant. Dayton-Montgomery Cty. Port Auth., supra.

                 It is the decision of the Board of Tax Appeals that the true and taxable

value of the subject property, as of January 1, 2005, is as follows:4

       Parcel No. 220-019743-8              TRUE VALUE               TAXABLE VALUE
       LAND                                     $108,000                     $ 37,800
       BUILDINGS                                $771,000                     $269,850
       TOTAL                                    $879,000                     $307,650

              s                                                               s
 The subject’ land value has not been changed. As mentioned above, Mr. Garvin’ appraisal report does not
dispute the land value assigned by the auditor. H.R., Ex. 1 at 34.

                   We order the Auditor of Clinton County to list and assess the subject

property in conformity with this decision and order and to carry forward the

determined values in accordance with law.



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