Decision and Order
IN THE MATTER OF AN APPEAL PURSUANT TO S. 50 OF THE ASSESSMENT ACT
CONCERNING:
AND
Assessor Of Area #14 - Surrey/White Rock
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Appeal Nos.: |
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Refer to as: |
Belkorp Properties v. Area 14 (2009 PAABBC 20091290) |
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Date of Decision: |
January 6, 2009 |
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Property: |
13221 76 Avenue, City of Surrey |
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Heard: |
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Submissions: |
From the Appellant received October 13 & October 30, 2009 |
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From the Respondent received October 9 & October 30, 2009 |
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Board Panel: |
Cheryl Vickers, Panel Chair |
INTRODUCTION
[1] The property that is the subject of this appeal comprises 4.96 acres improved with an industrial warehouse building and a paved asphalt area, located at 13221 76 Avenue, Surrey (the Property). The Appellant submits its 2008 and 2009 assessments are inequitable in relation to the assessments of other similar properties in the municipality. The Appellant says this inequity arises because of the capitalization rate applied to develop the Property’s assessment and because of the inclusion of a value for excess land. The Assessor disagrees, but recommends a reduction in the assessed value to account for an error in the leasable area used to develop the assessment.
ISSUE
[2] The issue is whether the 2008 and 2009 assessment reflects the Property’s actual or market value as of July 1, 2007 and whether the assessment is equitable in relation to the assessments of other similar properties in the municipality.
FACTS
[3] The Property is located at the northeast corner of 132nd Street and 76th Avenue in the East Newton Industrial Park. It is improved with an industrial warehouse building made up of an older area originally constructed in 1961, and a newer area constructed in 1975, with a combined rentable area of 60,000 square feet for a site coverage of approximately 29%.
[4] As of October 31, 2007 approximately 1.045 acres of the site, or 45,520 square feet, was paved with asphalt, fenced off, and rented to Translink for vehicle parking.
[5] The site is zoned for industrial use with a maximum site coverage of 60%, and is designated for industrial use in the City of Surrey’s Official Community Plan.
[6] As of the relevant valuation date, the older warehouse space of 33,000 square feet was leased for $4.50/sq foot and the newer space of 27,000 square feet was leased for $5.50/sq foot. The paved area occupied by Translink was leased for $1.58/sq ft.
[7] The Property was assessed for the 2008 and 2009 rolls using a combination of the income and cost approaches. The Assessor determined the value of the warehouse land and improvements using the income approach, applying an economic rent of $5.00/sq ft to the warehouse space, 3% vacancy and expense allowances and a 7% capitalization rate. (The Assessor used 62,098 square feet in this calculation. The parties agree the correct rentable area is 60,000 square feet.) Using the cost approach, the Assessor determined a depreciated value for the yard improvements (paving, fencing and lighting) of approximately $30,800 and value for excess land of approximately $914,000.
[8] The 2008 and 2009 assessment of the Property is as follows:
Land: |
Class 5 - Light Industry |
$ |
3,658,000 |
Class 6 - Business and Other |
$ |
914,000 |
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Improvements: |
Class 5 - Light Industry |
$ |
514,000 |
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Class 6 - Business and Other |
$ |
30,800 |
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Total Assessed Value: |
$ |
5,116,800 |
MARKET VALUE AND EQUITABLE VALUE
[9] As the submissions in this appeal, as well as others before the Board from time to time, tend to confuse the concepts of actual, or market, and equitable value and inappropriately blur the analysis of each, I will digress for a moment to review the concepts and the applicable law.
[10] The Assessment Act requires that a property be assessed at its actual or market value as of a specified valuation date. The Act gives the Board the power to reopen the whole question of a property’s assessment to ensure accuracy and that assessments are at actual value applied in a consistent manner in a taxing jurisdiction, or in other words, that they are fair and equitable (Assessor of Area 09 – Vancouver v. Lount (1995) Stated Case 353 (BCCA)). A taxpayer is entitled to be assessed at the lower of actual value or equitable value (Assessor of Area 09 – Vancouver v. Bramalea Limited, et al (1990) Stated Case 277 (BCCA)). Equity requires some consistency of approach to the valuation of similar properties, but it does not necessarily require that properties be valued at the same per unit amount or using the same valuation inputs. Properties must be assessed at a value that bears a fair and just relationship to the assessed values of other properties, but still 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; Ross and Grubb v. Assessor of Area 10 – Burnaby/New Westminster (1999) Stated Case 419 (BCCA); Hilton v. Area 14 (2001 PAABBC 20014823)).
[11] The task of the Assessor is to assess properties at actual or market value. In an appeal, the Board must determine whether an assessment reflects the property’s market value as of the specified valuation date. When faced with evidence, however, that although reflective of market value, the assessment may not bear a fair and equitable relationship to the assessment of other similar properties, and in the absence of evidence to account for any dissimilarity or to justify a difference in assessment, the Board must ensure that the assessment of the property appealed reflects the lower of its actual or equitable value.
[12] In determining whether an assessment is equitable, the Board has considered two approaches. The first method, which I will call the “ASR Analysis”, is to compare the ratios of assessed value to market value of the subject assessment and the assessments of other similar properties. If the evidence establishes that the assessments of other similar properties are, on average, something less than 100% of their actual value, the assessment appealed may also be reduced to a similar percentage of market value.
[13] The second method, which I will call the “Valuation Parameters Analysis”, compares the inputs used to develop the assessment of the subject and other similar properties. In the absence of evidence to account for any dissimilarity in the inputs used to develop the assessments, the Board may conclude that use of an inconsistent input would result in a determination of value that does not bear a fair and just relationship to the value determined for a similar property.
[14] In either analysis, it is important not to confuse concepts of market value and equitable value; market value being that value determined from an analysis of market evidence, and equitable value being that value determined from a comparison of the assessments of similar properties having due regard to whether differences can be adequately accounted for with market evidence. Market value is determined without regard to equity or the assessment of other similar properties. Equitable value is determined from an analysis of the assessments of other similar properties but can never be determined without regard to the market.
EVIDENCE AND ANALYSIS
[15] Mr. Parkes, on behalf of the Appellant, provides an assessment analysis to conclude an equitable value for the Property; the Assessor produces a market value appraisal, prepared by Linda Richards, estimating the market value of the Property. Mr. Parkes, on behalf of the Appellant and Doug Williamson, on behalf of the Assessor, provide rebuttal submissions.
[16] As a preliminary matter, both parties objected to material included in the rebuttal submissions of the other party. I am disregarding the objectionable material in both submissions. The objectionable material in Mr. Parkes’ rebuttal is not responsive to the Assessor’s case and is not in the nature of rebuttal, but is evidence that bolsters the Appellant’s original case and should have been provided earlier. I am disregarding the evidence of “Miscellaneous Comparables” at pages 2 and 3 and the chart and first full paragraph at page 4. The objectionable material in the Assessor’s rebuttal is simply not relevant. I am disregarding the references at pages 10 and 12 to the 2009 “unfrozen roll” and the “unfrozen roll ASR’s”, and the 2009 assessments in the Addenda.
Actual Value
[17] The only evidence of actual, or market, value before me is that provided by the Assessor. Mr. Parkes’ assessment analysis is not an appraisal and does not provide an estimate of the market value of the property.
[18] Linda Richards, on behalf of the Assessor, provides an appraisal report appraising the Property as of July 1, 2007. Ms. Williams determines the value of the site as vacant, and the value of the excess land, on an analysis of nine sales of vacant industrial land in Surrey occurring between May 2007 and December 2007. The sites range in size from 0.603 acres to 10.155 acres and in price from $18.36/sq ft to $35.22/sq ft. Considering the size and location of the sales in relation to the subject, she estimates the Property’s land value as of July 1, 2007 at $22.50/sq ft, or $980,100/acre, for a total estimated site value of $4,861,000.
[19] To value the Property using the income approach, Ms. Richards determines economic rent of $5.00/sq ft for the warehouse space on an analysis of eight warehouse leases including the two leases of the subject warehouse space. She determines economic rent of $1.50/sq ft for the paved area on an analysis of four land leases including the Translink lease of the subject paved area.
[20] Ms. Richards analyzes the sales of six industrial warehouse properties in Surrey and determines a range of economic capitalization rates of 2.5% to 7.0%. She compares the land size, leasable area, site coverage and age of the improvements for each of the sale comparables to the Property, considers the time of sale, and concludes an overall capitalization rate to apply to estimate market value for the subject using three variations of the income approach.
[21] The first method is to value the Property by considering all sources of potential gross income and applying an appropriate capitalization rate. Ms. Richards concludes the appropriate capitalization rate to value the Property on this basis is 6.5%. Applying $5.00/sq to the warehouse space and $1.50 to the paved area, vacancy and expense allowances of 3%, and a 6.5% capitalization rate results in an estimate of value of $5,331,000.
[22] The second method is to value the Property by considering the net income from the warehouse building only and applying an appropriate capitalization rate that reflects the existence of an excess land component. Ms. Richards concludes the appropriate capitalization rate to value the Property on this basis is 5.5%. Use of this method results in an estimate of value of $5,132,000.
[23] The third method is to value the subject by capitalizing the net income from the industrial building only, applying an appropriate capitalization rate, and then adding additional land value for 1.045 acres (the paved area) at the rate of $22.50/sq ft. Ms. Richards concludes the same capitalization rate applied in method 1, or 6.5%, is appropriate. She estimates the capitalized value of the warehouse land and improvements at $4,342,615 and the value of the excess land at $1,024,615, for a total estimated value of $5,367,000.
[24] Ms. Williams places most weight on the estimate of value indicated by the third method in reliance on the sales evidence of both improved and vacant sites. She notes that the range in value of all three estimates is less than 5%.
[25] Mr. Parkes argues that Ms. Richards has not done a proper analysis to identify and quantify the excess land and that there should be no addition of value for excess land. He submits that the parking income is temporary and should not be capitalized into perpetuity, and that it represents value to owner. I disagree. The use of an area of the land for another purpose demonstrates that the land is not required to support the warehouse use. The land beyond that required for the warehouse is capable of generating, and does generate, income from parking and any market value appraisal of the property must recognize the property’s potential income from all sources. The parking income is no more value to owner than the income from any other tenancy.
[26] While critical of Ms. Williams’ appraisal, Mr. Parkes has not provided a market appraisal of the Property or provided any alternative market evidence from which the market value of the Property can be estimated.
[27] On the basis of Ms. Williams appraisal, I find that the probable market value of the Property as of July 1, 2007, to be $5,300,000.
Equity
[28] Mr. Parkes, on behalf of the Appellant, provides an assessment analysis of the Property as of July 1, 2007 using both a “Valuation Parameters Analysis” and an “ASR Analysis” to determine an equitable value for the Property.
“Valuation Parameters Analysis”
[29] Mr. Parkes provides the 2008 Property Valuation Summary (PVS) parameters for five industrial warehouse properties in Surrey. The PVSs indicate that in valuing these properties for assessment purposes using the income approach, the Assessor applied a 7% capitalization rate to four of the comparables and an 8% capitalization rate to a comparable located at 13120 78A Avenue. Mr. Parkes analyzes the relative risk of the four comparables compared to the subject by comparing the properties’ site area, site coverage, building size and building age. He concludes that the capitalization rate utilized for the subject at 7% is comparable to the rate being applied to much newer, higher quality, buildings representing less risk and longer economic lifespans. He submits that for equity purposes there is no reason why the capitalization rate applied to the assessment of the Property should be less than 8%. Applying an 8% capitalization rate to the other valuation parameters used by the Assessor, indicates value for the warehouse land and improvements of $3,528,375.
[30] As an example of the blurring of market and equity in these submissions, on the basis of this conclusion of value, Mr. Parkes concludes that the highest and best use of the Property is no longer its existing use and the indicated value falls below the land value. He submits the improvements should only be assessed at nominal value in accordance with the Board’s decision in Botham Holdings Ltd et al v. Area 09 (2008 PAABBC 20072560) and that, on the basis of this analysis, the assessment should be amended as follows:
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Land |
$ |
4,572,000 |
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Improvements |
$ |
10,000 |
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Total |
$ |
4,582,000 |
[31] This is not a highest and best use analysis and confuses the concepts of market and equitable value. Highest and best use is determined with regard to the market value of the property not through the application of “equitable” valuation parameters compared to assessed land value. The highest and best use of a property is determined by a comparison of the market value of the property in its current use, determined with market derived economic rents and capitalization rates compared to the market value of the land as vacant determined by the sales of vacant land with similar potential determines the highest and best use of a property.
[32] In response to Mr. Parkes’ capitalization rate analysis generally, the Assessor’s evidence is that differences in the properties were generally accounted for in the selection of economic rent, not in the selection of the capitalization rate. The evidence indicates that the rents used in the assessment of the five comparables selected by Mr. Parkes vary from $5.00/square foot to $7.50/square foot with the older buildings being valued using the lowest rents. With respect to the application of the an 8% capitalization rate to the assessment of 13120 78 Avenue, the Assessor’s evidence is that the higher rate was applied to that property because of a declared building deficiency and expected ongoing deterioration and maintenance costs in excess of what would be normal.
[33] I am not persuaded by Mr. Parkes’ analysis that the application of an 8% capitalization rate to the valuation parameters already used in the income approach assessment of the Property would result in an equitable assessment or is required for equity. As was said in Hilton, assessing similar properties on similar considerations “does not mean the same rates must be applied in determining the assessment, but should mean that any dissimilarity can be adequately accounted for”. The Assessor’s evidence adequately accounts for the selection of an 8% capitalization rate in the assessment of 13120 78 Ave, and for the uniform application of 7% capitalization rates to other similar properties while accounting for differences in the selection of rent.
“ASR Analysis”
[34] Mr. Parkes provides sale prices of seven industrial warehouse properties that sold between June 2007 and November 2008, which when compared to the 2008 assessments of the same properties indicate ASRs ranging from 47.77% to 92.41% with an average of 66.50%. He adjusts the sale prices of the sales occurring in the last half of 2008 upwards by 15%, which adjusts the average ASR to 72.41%. Applying the average ASR of 72.41% to the Property’s assessed value of $5,116,800, Mr. Parkes concludes that an equitable assessment of the Property, using this approach, would be $3,705,000. Again, he suggests a marginal value of $10,000 should be attributed to the improvements.
[35] This analysis is unpersuasive for several reasons. First, the majority of the sales do not provide relevant evidence for a 2008 roll year ASR Analysis because they did not occur until 2008. Second, Mr. Parkes does not provide any evidence to support the time adjustment applied. Third, the conclusion of average ASR is applied to the assessed value, assuming presumably it reflects market value, rather than to a determination of market value. The evidence before me is that the market value of the Property as of July 1, 2007 was likely higher than the assessed value.
[36] The sales provided in Ms. Williams’ appraisal between February 2006 and September 2007 appropriate to an ASR analysis for the 2008 roll indicate ASR’s ranging between 91% and 105%. Two of these sales are common to Mr. Parkes’ analysis. These two sales with interim dates of February 2007 and November 2007 indicate ASR’s of 91% and 92% respectively. If an ASR of 91% is applied to the Property’s market value of $5,300,000 an equitable assessment of $4,823,000 is indicated.
[37] While concluding the market value of the Property is in excess of $5.3 million, the Assessor does not recommend the Property be assessed in accordance with Ms. Williams’ determination of actual value, but recommends reducing the 2008 and 2009 assessment from $5,116,000 to $4,945,000 as follows:
Land: |
Class 5 - Light Industry |
$ |
3,658,000 |
Class 6 - Business and Other |
$ |
914,000 |
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Improvements: |
Class 5 - Light Industry |
$ |
373,000 |
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Total Assessed Value: |
$ |
4,945,000 |
[38] The reason given for the recommended reduction is to correct the size of the leasable area and to remove the assessment for yard improvements “for equity reasons.” Dividing the Assessor’s recommended assessment into the Property’s market value indicates an assessment to market value ratio of 93.3%. On the basis of the limited relevant ASR evidence before me, I conclude that the Assessor’s recommended value would not be inequitable.
Inclusion of Excess Land
[39] The arguments with respect to excess land also tend to confuse actual and equitable value concepts. On the equity front, Mr. Parkes argues that it is inequitable to include value for excess land in the subject assessment when other properties with similar site coverage do not have excess land assessed. He points to 17855 66 Avenue with a site coverage of 32.9%. The Assessor’s evidence is that the shape and configuration of this site leaves no excess land for other uses despite the site coverage of approximately 33% and includes an aerial photo in support. I find that the dissimilarity in treatment of excess land at 17855 66 Avenue has been adequately explained by the Assessor.
[40] In response to the Assessor’s market value appraisal, Mr. Parkes argues that it would be inequitable to consider income from parking when this income was not considered in the assessment of the comparables used by the Assessor to support his land lease rate. It is not clear from the evidence whether excess land was assessed on these properties at all, or whether it was just not assessed on the basis of its rental income. What is clear from the evidence is that for the properties used as sales comparables by the Assessor to develop a capitalization rate, those properties with a similar or lesser site coverage were all assessed for excess land on the basis of a price per acre or price per square foot for the excess land area. This method is similar to the method used to develop the assessment of the subject.
[41] If the Property were to be assessed simply by capitalizing the net operating income from the buildings, and ignoring any value for excess land, the resulting value would be $4,343,000 rounded (using a 6.5% cap rate) or $4,032,000 rounded (using a 7% cap rate). Both of these values are below the market value of the land determined by Ms. Williams’ appraisal at $4,861,000. From a market value perspective, the actual value of the Property cannot be less than its value as a vacant site. From an equitable value perspective, I am satisfied that the Assessor has not treated the Property differently from other similar properties in assessing value to excess land. It does not matter how that value is calculated, as long as the result does not bear an unjust relationship to the value of other similar properties.
CONCLUSION
[42] I find the market value of the Property as of July 1, 2007 was $5,300,000. I conclude that the Assessor’s recommended assessment of $4,945,000 representing 93% of market value is not inequitable. I am not persuaded by the Appellant’s equity analyses that any further reduction to the assessed value is warranted.
ORDER
[43] The Board orders the Assessor to amend the 2008 and 2009 assessment rolls as follows:
Roll No. 14-36-326-6209-90002-1:
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FROM |
TO |
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Land: |
Class 5 - Light Industry |
$ |
$ |
3,658,000 |
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Class 6 - Business and Other |
$ |
914,000 |
$ |
914,000 |
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Improvements: |
$ |
$ |
373,000 |
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Class 6 - Business and Other |
$ |
30,800 |
$ |
0 |
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Total Assessed Value: |
$ |
$ |
4,945,000 |