Decision and Order
IN THE MATTER OF AN APPEAL PURSUANT TO S. 50 OF THE ASSESSMENT ACT
CONCERNING:
AND
Assessor Of Area #10 - North Fraser Region
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Appeal Nos.: |
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Refer to as: |
0771750 BC Ltd v. Area 10 (2010 PAABBC 20100072) |
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Date of Decision: |
April 9, 2010 |
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Property: |
600 Columbia Street, City of New Westminster |
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Heard: |
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Appearances: |
John Parkes, for the Appellant |
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Guy Holeksa, Barrister and Solicitor, for the Respondent |
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Board Panel: |
Cheryl Vickers, Panel Chair John Cockwell, Panel Member |
INTRODUCTION AND ISSUE
[1] The property is a commercial office building located in downtown, New Westminster. The Appellant does not dispute that the 2007 and 2008 assessments reflect actual value, but says they are not equitable in relation to the assessments of other similar properties in the municipality. The Assessor also agrees the 2007 and 2008 assessments reflect actual value but disagrees they are inequitable.
[2] For 2007, the Appellant compares the Assessment to Sales Ratio (ASR) of the subject to two other properties to conclude the assessment of the subject is not equitable. For 2008, the Appellant says the capitalization rate used to develop the assessment is too low compared to that used for eight other similar properties and that the assessment is, therefore, not equitable. The Assessor says the property is not inequitably assessed in either year in relation to all of the office buildings in downtown New Westminster.
[3] The issue is whether the 2007 and 2008 assessments of the property are equitable; in other words, whether they bear a fair and just relationship to the assessments of other similar office properties in New Westminster. Resolution of this issue involves determining the extent of the appropriate competitive market set and the criteria for making an equitable adjustment.
FACTS
The Property
[4] The property, 600 Columbia Street, is located on the SW corner of Columbia Street (front) and 6th Street (side) and backs onto Front Street (truck route). Columbia is the main commercial and retail street in the downtown area of New Westminster.
[5] The site is 8,708 square feet and slopes down towards the Fraser River from North to South. Due to the site’s sloping nature, the office building has 4 levels above grade on Columbia Street (front) and 6 levels above Front Street (rear) for a total gross leasable area (GLA) of 33,527 square feet. The bottom two levels are used for storage and part of the lowest level operates as a second hand store. There is no parking available on this site although the City of New Westminster operates a pay parking facility almost directly south of the property with pedestrian ramp access to the sidewalk on 6th Street, beside the property.
[6] The building was constructed in 1907 and is known as the Dominion Trust Building. It is the oldest of all of the office buildings in New Westminster. It was originally constructed and used as a department store until 1985 when a major refurbishment and conversion was carried out including removal of substantial architectural detail, replacement of windows, reconstruction of the Columbia Street frontage, and installation of a passenger elevator and stairs at the north entrance. The conversion was to primarily office use on the upper four floors with ancillary storage areas on the lower floors. Currently, the property is leased to a variety of office use tenants and the building still utilizes its converted design. The upper floor offices have Fraser River views.
[7] The building is a low B Class office building (also described as B- or B/C Class). The building has one passenger elevator and one freight elevator. It has been well cared for and is structurally sound.
[8] The property is zoned Columbia Street Historic Comprehensive Development District (C-8). The intent of this district is to allow a mix of pedestrian-orientated commercial, institutional and residential uses supporting Columbia Street as a historic district. Under this zoning, the floor space ratio (FSR) shall not exceed 5.2, the building is limited to a maximum height of 70 feet, and residential use is permitted on floors 4, 5 and 6.
[9] For both the 2007 and 2008 rolls, the Assessor valued the property using the income approach. The 2007 assessment confirmed by the Property Assessment Review Panel is:
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Land: |
Class 6 - Business and Other |
$ |
1,097,000 |
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Improvements: |
Class 6 - Business and Other |
$ |
2,578,000 |
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Total Assessed Value: |
$ |
3,675,000 |
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[10] This assessment was derived using income approach parameters as follows:
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2007 Roll PVS |
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Type |
Unit SF |
Rent |
Gross Income |
Vacancy |
EGI |
Expenses |
Net Income |
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Retail |
2,754 |
$4 |
$11,016 |
8% |
$10,135 |
8% |
$9,324 |
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Offices |
30,580 |
$11 |
$336,380 |
8% |
$309,470 |
8% |
$284,712 |
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Total Inc |
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$294,036 |
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Value @ |
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8.0% |
$3,675,450 |
[11] The 2008 assessment confirmed by the Property Assessment Review Panel is:
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Land: |
Class 6 - Business and Other |
$ |
1,371,000 |
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Improvements: |
Class 6 - Business and Other |
$ |
2,865,000 |
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Total Assessed Value: |
$ |
4,236,000 |
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[12] This assessment was derived using income approach parameters as follows:
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2008 Roll PVS |
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Type |
Unit SF |
Rent |
Gross Income |
Vacancy |
EGI |
Expenses |
Net Income |
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Retail |
2,754 |
$4 |
$11,016 |
7% |
$10,245 |
7% |
$9,528 |
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Offices |
30,580 |
$11.50 |
$351,670 |
8% |
$323,536 |
8% |
$297,653 |
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Total Inc |
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$307,181 |
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Value @ |
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7.25% |
$4,236,982 |
[13] The subject sold in September 2006 (interim date) for $3,885,000. The sale closed in October 2006.
The Equity Comparables
[14] There are 16 office buildings in New Westminster, including one Class A building, one Class A/B building, nine buildings described as Class B or B/C, and five Class C buildings. They are described and assessed as follows:
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# |
Address |
Office Class |
Leasable Area (sq ft) |
Age |
2007 Assessed Value/sq ft net leasable area |
2008 Assessed Value/sq ft net leasable area |
Comparability to subject |
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1 |
628 6th St |
A |
69,739 |
8 |
$205 |
$220 |
Superior |
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2 |
555 Columbia |
B |
53,072 |
53 |
$136 |
$164 |
Superior |
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3 |
544 Columbia |
B/C |
8,226 |
75 |
$106 |
$169 |
Similar |
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4 |
435 Columbia |
B |
32,949 |
18 |
$157 |
$179 |
Superior |
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5 |
960 Quayside |
B |
59,899 |
18 |
$144 |
$188 |
Superior |
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6 |
625 5th Ave |
B |
51,080 |
43 |
$94 |
$112 |
Similar-Inferior |
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7 |
615 Agnes |
B |
81,021 |
27 |
$126 |
$161 |
Superior |
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8 |
611 Agnes |
B |
60,255 |
35 |
$125 |
$165 |
Superior |
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9 |
624 Royal |
B |
41,825 |
17 |
$96 |
$118 |
Similar-Inferior |
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10 |
422 6th St |
B/C |
14,909 |
45 |
$121 |
$144 |
Similar-Inferior |
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11 |
600 Columbia |
B/C |
33,334 |
106 |
$110 |
$127 |
Subject |
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12 |
93 6th St |
C |
10,400 |
28 |
$114 |
$146 |
Similar-Superior |
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13 |
600 Royal |
C |
11,773 |
33 |
$113 |
$146 |
Inferior |
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14 |
57 6th St |
C |
14,783 |
54 |
$109 |
$150 |
Inferior |
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15 |
522 7th St |
C |
25,183 |
33 |
$107 |
$127 |
Inferior |
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16 |
321 6th St |
C |
10,119 |
44 |
$106 |
$127 |
Inferior |
[15] Class A office buildings are the newest, best equipped spaces in superior locations, with generally larger floor plates, commanding the highest rents in an area. As can be seen above, there is only one office building in New Westminster, 628 6th Street, identified as a Class A building. Class B buildings are slightly older, lower tier buildings compared to A buildings, commanding mid-level rents between A and C rent levels. Class C buildings are the older, poorer maintained and equipped buildings, having generally smaller floor plates, with the lowest tier of rent levels compared to A and B buildings. Various publications and industry professionals can disagree on office classification. Some buildings may have characteristics of more than one class. The subject shares characteristics of both B and C buildings as do several of the other office buildings.
[16] Several of the office buildings in New Westminster sold during 2005 and 2006 including 628 6th Street, 544 Columbia Street, 435 Columbia Street, 960 Quayside, 625 5th Street, 615 Agnes and 624 Royal. Where the Assessor was aware of the sale price in advance of the 2007 roll closing, the 2007 assessments of sold properties generally reflect about 95% of their sale price. In the case of two sales, those of 960 Quayside and 615 Agnes, the sales did not close until early 2007 so the Assessor was not aware the properties had sold in advance of closing the 2007 roll. 960 Quayside was part of a three parcel transaction including a hotel and vacant lot. The 2007 assessment of 960 Quayside reflects 66% of the declared price of that property. The 2007 assessment of 615 Agnes reflects 70% of its sale price.
SUBMISSIONS AND ANALYSIS
[17] There is no dispute in this appeal that the assessed value of the property reflects its actual value in both valuation years. What is in issue is whether the assessment, although reflective of actual value is also equitable. The Board must ensure that the assessment of the property appealed reflects the lower of its actual or equitable value (Assessor of Area #09 – Vancouver v. Bramalea Limited, (1990) Stated Case 277 (BCCA)).
[18] Properties must be assessed at a value that bears a fair and just relationship to the assessed values of other similar properties in the taxing jurisdiction, having regard to the particular characteristics of individual lands and improvements and with due regard to the market and the market’s treatment of those characteristics (Bramalea, supra; Ross and Grubb v. Assessor of Area 10 – Burnaby/New Westminster (1999) Stated Case 419 (BCCA); Hilton v. Area 14 (2001 PAABBC 20014823)). For equity purposes, the assessment of a property is compared to the assessments of other similar properties trading within the same market, or with which the subject competes for market share either by way of investors or as customers for offered space. The point is to ensure that the tax burden is fairly distributed between taxpayers so that taxpayers in competition are not unduly advantaged or disadvantaged (Bramalea, supra). The Board has generally referred to the basket of comparables for the purpose of determining equity as the competitive market set (CMS).
[19] The Appellant says the CMS against which the equity of the subject should be tested is the Class B office buildings in New Westminster. The Assessor says the CMS is all of the office buildings in New Westminster.
[20] With the exception of 628 6th Avenue, the Class A building which may be in a class of its own, there is considerable overlap between the office buildings in terms of the rents they command and the characteristics of each. As the office market in New Westminster is relatively small, we find that all of the office buildings in New Westminster comprise the CMS for the purpose of determining the equity of assessment of any particular office building. We are satisfied that an investor wanting to purchase an office building in New Westminster would look at the whole of the office stock and not just the B buildings. More importantly, a prospective tenant seeking to rent office space would look at all of the available office space within a certain price range. Mr. Parkes describes the subject as a low B, a B- or a B/C building, implying that it has characteristics common to both B and C buildings and that it would compete in the market with both B and C buildings. Mr. Parkes also uses 960 Quayside, which he describes as an A/B building implying it shares characteristics with both A and B buildings, as an equity comparable in his ASR Analysis for 2007. We find the class of “similar” properties with which to compare the assessment of the subject for equity purposes is all of the office buildings in New Westminster and not just those that are classified as B buildings.
2007 Appeal – ASR Analysis
[21] The Appellant provides what the Board has described as an “ASR Analysis” for the 2007 appeal. Mr. Parkes agrees that the subject and three other Class B office properties in New Westminster have 2007 assessments that reasonably reflect their market value. He submits the “fair and just relationship ends”, however, when the subject assessment is compared to 615 Agnes and 960 Quayside, which both sold in late 2006 with the sales not completing until early 2007. Mr. Parkes applies a 1% per month time adjustment to the sales of 615 Agnes and 960 Quayside to adjust the sale prices to July 1, 2006 and calculates a time adjusted ASR for 615 Agnes of 74.6% and for 960 Quayside of 69.1%. He submits for the subject to be assessed equitably with these two properties, its assessment should be adjusted to reflect an ASR of 72%.
[22] As its name implies, an ASR is the ratio between what a property sells for in the market and its assessment, calculated as follows: ASR = assessment / selling price. An ASR analysis can provide an accurate indication of how well the Assessor is following sales in the market by increasing or decreasing the sale properties’ assessments to achieve the desired level of market value sought. What an ASR does not indicate is how accurate the assessments of the unsold properties are relative to their assessed value.
[23] Mr. Parkes’ evidence is that the assessments of the properties that sold increased by as little as 1% to as much as 110% to get the 2007 assessments close to their sale prices, whereas the assessments of the properties that did not sell, or where the Assessor was not aware of the sale, typically increased by 14% to 19%. As the assessments of 960 Quayside and 615 Agnes appear low in relation to their sale prices, Mr. Parkes suggests the assessments of all of the Class B office buildings that did not sell must also be low relative to their market value. This is not an inference we are prepared to make in the absence of appraisal evidence in support. There are many reasons why the percentage changes in assessment from one year to the next will not be the same for similar properties including that a property may have been underassessed in a previous year, inventory may have been incorrect, or significant changes may have occurred at a property from one year to the next. Mr. Parkes was not willing to produce supporting evidence with respect to which properties increased by 14% and which by 19%, or to otherwise support his statement that this was the “typical” increase in value from 2006 to 2007. The Board has on many occasions expressed that differences in the percentage increase in assessments from one year to the next does not demonstrate that properties are not assessed equitably in relation to each other. In the absence of appraisal evidence demonstrating that assessments do not reflect consistent levels of actual value, we find the percentage increase evidence unhelpful.
[24] With respect to Mr. Parkes use of 960 Quayside, we are concerned that the declared sale price of 960 Quayside may not reflect the market value of that building as it was an arbitrary declaration from a multi-property sale. Consequently, the ASR indicated by this sale price may not be an accurate reflection of assessed value to market value. Leaving this ASR out of the analysis, all we can conclude is that the Assessor underestimated the market value of 615 Agnes in setting the 2007 roll. We find this evidence does not support the contention that the assessment of the subject is inequitable.
[25] In Salient Properties v. Area 09 (2010 PAABBC 20091520) the Board affirmed the view that it should not adjust an assessment for equity on the basis of a single anomalous assessment. The Board said:
For the Board to make adjustments there must be evidence of a group of similar properties, and the assessments of those properties as a group must be looked at, not just one or two from among the group. Simply because one or two other properties may be under-assessed does not mean another property’s assessment should be adjusted. For an adjustment to be made there must be evidence that the property’s assessment is not fair and equitable compared to the group as a whole.
[26] Mr. Parkes argues both that this decision is wrong in principle and that it can be distinguished in any event. On the question of whether it can be distinguished, Mr. Parkes says the two Class B properties benefitting from lower assessments account for 140,920 square feet or 32% of the Class B office market. Leaving aside our concern about 960 Quayside, these two buildings in fact account for only 24% of the office space in the whole of the CMS. Mr. Parkes agrees that four office buildings in the CMS, including the subject, are assessed at values reasonably reflective of market value, but says two of the office buildings are assessed at approximately 72% of their market value. The Board has no evidence, however, of the relative relationship to market value of the assessments of the remaining 10 properties in the CMS. The evidence does not demonstrate that the subject is assessed at a higher relative relationship to actual value than the majority of its competitors, or that it is inequitable compared to the group as a whole, only that it is possibly inequitable with two other properties in a 16 property CMS.
[27] On the point of principle, Mr. Parkes seems to be arguing that if just one competitor is treated advantageously from a tax perspective relative to an Appellant, the Appellant should be entitled to the same advantageous treatment on the basis of the Court of Appeal’s decision in Bramalea, supra.
[28] In Bramalea, the Board increased the assessed value of the hotel that was the subject of the appeal before it on the basis of the market evidence before it. The Board concluded on the market evidence that the appropriate capitalization rate to apply to the subject hotel was 9% with the result that the Board’s conclusion of market value was approximately 20% higher than the assessed value. On appeal by way of stated case, the Court of Appeal concluded that the Board had erred in ordering that the assessed value of the subject hotel be increased without considering whether in doing so it would result in an assessment of the subject that did not bear a fair and just relationship to the assessments of the other comparable hotels. The evidence was that the assessments of the other hotels had been developed using a capitalization rate of 12%. The ratio of Bramalea is that Board ought not to increase a property’s assessed value to actual value as indicated by market evidence without considering whether, in doing so, the subject would then be assessed at a level of actual value that does not bear a fair and just relationship to the assessed values of other properties within a competitive market set. It does not stand for the proposition, as suggested by Mr. Parkes, that the Board must reduce the assessed value of a subject property to a level that bears the same relationship to actual value as a single property within a competitive market set assessed at a lower relative relationship to actual value. Bramalea also stands for the principle that there is a range of both actual and equitable values and that properties may be assessed within a range of value and still be equitable in relation to each other, and that a taxpayer is entitled to be assessed at the lower of actual or equitable value. It does not assist, however, with defining the extent of the range, how far outside a range an assessed value needs to warrant an adjustment, or how many properties need to be assessed outside of an equitable range to warrant an adjustment. What it says is that the assessment of a single property ought not to be increased to reflect actual value without considering whether the increase would put the assessed value outside of the range that would bear a fair and just relationship to the assessed values of its competitors.
[29] The Board has considered the question of whether an assessment should be reduced to reflect one or two anomalous assessments on several occasions and, with some inconsistencies (see for example: Broadway Properties et al. v. Area 09 (2009 PAABBC 20090187) has more often than not come to the conclusion that one anomaly does not create an inequity (see for example: 0707249 BC Ltd v. Area 10 (2008 PAABBC 20081271), Salient, supra, Tessaro v. Area 15 (2005 PAABBC 20051630)). If the reason for requiring equity is to ensure, as much as possible, that the tax burden is fairly distributed amongst the owners of competitive properties, reducing an assessment to a level comparable with a single anomalous assessment or a small number of assessments within a larger group, only ensures that a larger minority of taxpayers have an undue advantage with respect to a smaller majority of their competitive set, thus compounding inequity.
[30] Even if we accept that two properties in this CMS are assessed on average at 72% of their market value, in light of the evidence that four properties including the subject are assessed at a level that reflects market value, and without any market evidence against which to measure the assessments of the remaining ten properties within the CMS, we are not prepared to find that the subject assessment is inequitable.
2008 Appeal and Valuation Parameters Analysis
[31] The evidence is that the capitalization rates applied in assessing the 16 office buildings in New Westminster for the 2008 roll range from 6.25% to 7.75% as follows:
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Address |
Office Class |
Cap Rate used for 2008 Assessment |
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1 |
628 6th Street |
A |
7.0% |
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2 |
555 Columbia |
B |
6.5% |
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3 |
544 Columbia |
B/C |
6.25% |
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4 |
435 Columbia |
B |
7.5% |
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5 |
960 Quayside |
A/B |
7.0% |
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6 |
625 5th Avenue |
B |
6.75% |
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7 |
615 Agnes |
B |
7.25% |
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8 |
611 Agnes |
B |
7.25% |
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9 |
624 Royal Avenue |
B |
7.75% |
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10 |
422 6th Street |
B/C |
7.0% |
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11 |
600 Columbia |
B/C |
7.25% |
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12 |
93 6th Street |
C |
6.5% |
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13 |
600 Royal Avenue |
C |
6.5% |
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14 |
57 6th Street |
C |
6.5% |
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15 |
522 7th Street |
C |
7.5% |
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16 |
321 6th Street |
C |
7.0% |
[32] Mr. Parkes compares the 7.25% capitalization rate used to develop the assessment of the subject to the range of rates used to develop the assessment of other office buildings and concludes the assessment of the subject is inequitable. His analysis is based on the assumption that the rates applied by the Assessor to estimate potential revenue from offices and retail, vacancy and expenses, are correct and properly reflect market rates. He does not provide market evidence to support this assumption. He distinguishes the capitalization rate from the other variables of the income approach as a component that only represents elements of risk. He submits all differences between buildings have been accounted for by the Assessor’s use of market rents, vacancy and expense rates, with the relative risk of an investment the only factor to be recognized with the use of a differential capitalization rate.
[33] Mr. Parkes concludes the only factor that needs to be reflected in a capitalization rate adjustment is the effective age of the improvements. He rationalizes that there is greater risk associated with an older building with less remaining economic life and a greater likelihood of needing repairs and replacements over its remaining life. Mr. Parkes submits the subject is older than 435 Columbia, assessed using a capitalization rate of 7.5%, as well as 611 Agnes at 7.25%, and 615 Agnes at 7.25%. He argues a capitalization rate above that applied to those buildings should be applied to the subject for the subject’s assessment to be equitable in relation to them. He suggests a capitalization rate of 7.75% is appropriate.
[34] The Assessor does not agree the capitalization rate of 7.25% used to develop the subject’s assessment is out of line. Mr. Holloway submits the subject is appropriately valued by the 7.25% cap and to change the rate would create an inequity within the CMS. Mr Holloway’s evidence is that the selection of the capitalization rate for the subject involves consideration of various factors including the subject’s prominent corner location on Columbia and 6th, its zoning allowing alternative uses on the upper three floors, the city’s heritage interest in the property, the quality of the TI’s and upgrading over the years, its potential for retail use on the main floor and the recent sale of the property where there was more than one offer.
[35] We agree that the selection of a capitalization rate may reflect various factors affecting the risk of an investment. Without evidence that these factors have in fact already been considered in the selection of other income approach parameters, the Board is not willing to assume that they are inappropriate considerations for the selection of a capitalization rate. There is no market evidence before us to support Mr. Parkes’ proposition that all of the other components of value in the assessment of the New Westminster office buildings adequately account for the various differences in the buildings other than age, leaving age as the only risk factor needing to be adjusted with a capitalization rate. In the absence of market evidence against which to assess the Assessor’s choice of all parameters, an analysis of any one parameter in isolation does not demonstrate that an assessment is inequitable. Without evidence to suggest whether use of a particular parameter is or is not likely to indicate a value that reflects market value, there is insufficient evidence with which the Board can conclude that use of any one parameter is likely to result in the development of an inequitable assessment.
[36] The Board has reiterated on a number of occasions that an analysis of one valuation parameter in isolation or other parameters and market evidence does not demonstrate inequity: Salient, supra; West 8th Holdings v. Area 09 (2009 PAABBC 20092165), Lupa Holdings v. Area 08 (2009 (PAABBC 20091692); 0707249, supra; Broadway Properties, supra; KBK No 97 Ventures v. Area 09 (2009 PAABBC 20092163)). As has been said by the Supreme Court of British Columbia in Wal-Mart Canada Inc. v. Assessor of Area #26 – Prince George, et al. (2005) Stated Case 492, it is not the use of a capitalization rate that is different from the rate applied to other properties that supports a claim of inequity, but whether the calculation of actual value using that rate results in a value that does not bear a fair and just relation to the actual values of other properties. That issue cannot be determined by looking at capitalization rates or any other valuation parameter in isolation of other parameters or of market evidence. As the Board has said, “Equity comparisons are most readily and successfully made by reviewing the outputs of the valuation process, not the inputs (Hilton v. Area #14 (2010 PAABBC 20100005).
[37] The Appellant agrees that the subject’s 2008 assessment reflects actual value. If the assessment were to be changed by application of a higher capitalization rate, it would no longer reflect actual value but would reflect a value that is lower than actual value. There is no evidence before us to conclude that, although different capitalization rates were used to develop the assessments of other properties, other properties within the CMS are actually assessed below market value on the 2008 roll requiring the assessment of the subject to be reduced below actual value to be equitable.
[38] We find the evidence before us does not establish that the subject is assessed inequitably in comparison to other properties in the CMS for the 2008 roll.
CONCLUSION
2007
[39] We conclude the subject assessment is equitable compared to other office buildings in New Westminster. The Appellant’s analysis indicating that two properties within the CMS were possibly assessed at relatively lower ratios of their market value compared to the subject does not demonstrate that the subject’s assessment is inequitable in relation to the majority of the CMS.
2008
[40] We conclude the subject assessment is equitable compared to other office buildings in New Westminster. A Valuation Parameters Approach, isolating the capitalization rate from other parameters without reference to market evidence, does not demonstrate that the assessed value of one property does not bear a fair and just relation to the assessed values of other similar properties.
ORDER
[41] The Board confirms the decisions of the 2007 and 2008 Property Assessment Review Panels as follows:
2007-10-00216:
|
Land: |
$ |
||
|
Improvements: |
$ |
||
|
Total Assessed Value: |
|
$ |
3,675,000 |
|
Land: |
Class 6 - Business and Other |
$ |
1,371,000 |
|
Improvements: |
Class 6 - Business and Other |
$ |
2,865,000 |
|
Total Assessed Value: |
|
$ |
4,236,000 |