IN THE OREGON TAX COURT MAGISTRATE DIVISION Property Tax
BDC/BEND SPE, LLC, ) ) Plaintiff, ) TC-MD 210180R ) v. ) ) DESCHUTES COUNTY ASSESSOR, ) ) Defendant. ) DECISION
Plaintiff appealed Defendant’s Board of Property Tax Appeals (BOPTA) Personal
Property Order and BOPTA’s Real Property Order, both dated March 9, 2021, for the 2020-21
tax year. BOPTA sustained Defendant’s roll value on Account 279959 (personal property) at
$2,274,179 and reduced Defendant’s roll value on Account 273512 (land and improvements) to
$48,725,820. (Compl at 3-4.) A trial was held remotely via Webex on October 12 and October
13, 2021. Chris Robinson, CKR Law Group, P.C., appeared on behalf of Plaintiff. Aaron
Brown, appraiser and member of the Appraisal Institute (MAI), testified on behalf of Plaintiff.
Dan Lamey, President of BPM Real Estate Group, testified on behalf of Plaintiff. Amy Heverly,
Assistant County Counsel, appeared on behalf of Defendant. Sarah Malikowski,
Commercial/Industrial Appraiser for Deschutes County, testified on behalf of Defendant.
Plaintiff’s Exhibit 1 was received into evidence without objection. Defendant’s Exhibits A, A1,
B, and C were admitted into evidence without objection. Exhibit A2 was admitted only as
evidence of Defendant’s general approach.
I. STATEMENT OF FACTS
The subject property is a four-story, 195,178-square-foot, 136-unit, independent senior
living facility situated on approximately 3.75 acres in a prime location near activities and a
DECISION TC-MD 210180R 1 medical center in Bend, Oregon. The subject property was completed in 2019 and opened for
business in September 2019. Plaintiff stipulated to Defendant’s value for the personal property,
Account 279959, at $2,274,179, and the land value portion of Account 273512 at $2,940,300, for
purposes of trial only.
The parties agree that the subject property’s large amount of common space, almost 40
percent, is higher than typical for this type of property. Brown describes the subject property as
serving a niche market for “middle[-] to upper[-]income seniors.” (Ptf’s Ex 1 at 55.) Amenities
include a bistro/café, grab and go store, fireside lounge, pool and spa room, barber shop, beauty
salon, exercise room, men’s and women’s locker/shower rooms, massage parlor, sauna,
commercial laundry and kitchen, dining room, bar/lounge, game room, yoga center, craft room,
activity room, and rooftop deck. Of the 136 units, 25 are studios averaging 526 square feet, 68
are one-bedrooms averaging 810 square feet, and 43 are two-bedrooms averaging 1,140 square
feet. 1 The parties agreed that the highest and best use of the subject property is as a senior
independent living facility.
A. Plaintiff’s approach to value
Brown testified he is an MAI and American Society of Appraisers certified appraiser
with over 20 years of experience specializing in senior living, hotels, and motels. He prepared a
retrospective fee simple appraisal of the subject property, as of January 1, 2020. He used three
approaches to first determine the stabilized value of the property—the cost, sales comparison,
and income approaches—before making further adjustments, including one to reflect the
property’s un-stabilized operation status as of the assessment date, as discussed below.
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1 Each of the referenced square footage amounts is rounded.
DECISION TC-MD 210180R 2 1. Plaintiff’s cost approach
Brown began his cost approach by analyzing five comparable land sales and concluded
the land value was $2,775,000. 2 Next, Brown used Marshall & Swift software to estimate the
replacement cost of the subject property. Brown observed that Plaintiff’s actual construction
costs of just under $53 million were high because of “delays and errors” and determined the
costs without those problems should have been approximately $45 million. (Ptf’s Ex 1 at 105.)
Using the Marshall & Swift program actually yielded an estimated replacement cost of
$33,613,068. Brown added the land value, developer’s profits, and costs for stabilization, and
arrived at a rounded value of $51.5 million. Ultimately, Brown did not place any weight on the
cost approach because it is not an approach that he believed market participants would use to
value the property.
2. Plaintiff’s sales comparison approach
In his sales comparison approach, Brown selected seven comparable sales and found a
price range of $23,724,444 to $103,985,777, without adjustment. He considered a price per
square foot calculation, a price per unit calculation, and a third method, and ultimately
determined the indicated value using the sales comparison approach was $48,100,000. Brown
did not rely heavily on the sales comparison approach because of the scarcity of individual sales
and because many of the comparable sales were portfolio sales rendering the values attributed to
each individual property as unreliable.
2 Brown’s land value analysis was rendered irrelevant by Plaintiff’s stipulation of the land value at the start of trial.
DECISION TC-MD 210180R 3 3. Plaintiff’s income approach
In his income approach, Brown selected five comparable rental properties. He estimated
a stabilized projected income of a rounded $6,725,000. He estimated projected expenses in the
range of $3,745,000 to $3,805,000 and found a reasonable average was $3,765,000. Subtracting
the expenses from income resulted in a capitalized net income of $2,825,000. Next, Brown
considered capitalization rates from seven regional sales of senior care facilities averaging 6.54
percent; however, considering several influences, he found an actual capitalization rate of 5.73
percent. Using this figure, he computed the stabilized value using two methods—one with and
one without property taxes—and arrived at a value of $48,950,000.
4. Plaintiff’s adjustments to the stabilized real market value of the subject property
In addition, Brown identified several significant issues to consider when evaluating the
subject property: first, Brown testified that the value attributable to personal property should be
deducted from the stabilized real market value; second, Brown testified that the subject property
is newly built and had recently opened for business as of the assessment date and thus, its value
must be adjusted for stabilized operations; and third, Brown highlighted the importance of
subtracting the business enterprise (intangible) value from the subject property’s stabilized value
to determine its actual real market value.
a. Adjustment for personal property
Brown testified that the sales of certain businesses, such as senior housing and nursing
home facilities, include value for personal property, which must be excluded from a valuation for
Oregon property tax purposes. Brown further testified that amenities for independent senior
living facilities are far beyond those typically found in apartment buildings (e.g., furniture, full
dining rooms, commercial kitchen, library, bar/lounge, barbershop, etc.) and are generally sold
DECISION TC-MD 210180R 4 along with the real property. Therefore, Brown subtracted the personal property items from his
determined stabilized value because those items are taxed differently and under a separate tax
account.
b. Adjustment for stabilization
Brown testified that because the subject property was new and had only recently begun
operations as of the assessment date, any business activity would not be stabilized at that time.
Based on his review, stabilized operations would consist of 95 percent occupancy and would be
realized 15 months after the date of assessment. In his review, Brown considered the expenses,
inflationary trend, and applied a discount rate resulting in an “as-is” market value of
$46,750,000.
c. Adjustment for intangible value
Brown also testified that the sales of certain businesses, such as senior housing and
nursing home facilities, include value for intangibles, such as a going concern value, which must
be excluded from a valuation for Oregon property tax purposes. Senior housing includes
services such as “meal service, housekeeping, and activities.” (Ptf’s Ex 1 at 194.) Brown
estimated that the subject property would require 37 employees to function at the level needed to
achieve stabilized value. Brown acknowledged there are “multiple schools of thought” to
account for this going concern value. (Id. at 195.) Brown chose a method of allocating the value
of the personal property “and stabilized operation costs in the Cost Approach.” (Id.) He
deducted the personal property, allocated at $1,920,000 and the stabilized operation cost
(projected in the cost approach) at $3,305,000, and arrived at a real market value of $43,725,000.
DECISION TC-MD 210180R 5 B. Defendant’s approach to value
Malikowski testified she has been a Commercial/Industrial Appraiser with Defendant for
18 years. She prepared a retrospective appraisal of the subject property as of the assessment
date, which considered all three approaches to value, but primarily relied on the sales comparison
and income approaches. Her cost approach used the ProLogic Valuation program and found a
real market value of $48,874,180, including $2,274,180 of personal property.
For the sales comparison approach, Malikowski was unable to find individual local sales
of comparable properties. Her initial results returned only a single sale of the Mt. Bachelor
Memory Care, and thus she widened her search, eliminated portfolio sales, and considered
properties to bracket the subject property because there were still too few near comparable
properties. 3 Malikowski found sales in the range of $266 to $453 per square foot, and chose
$273 per square foot, which resulted in a rounded value of $53,675,000, including personal
property. She used cost per square foot rather than cost per unit because she felt the subject
property had a higher than usual percentage of common space, which improperly skewed the
value downward.
For the income approach, Malikowski considered but rejected Plaintiff’s “pro-forma”
estimate of income and expenses and opted for those she considered to be typical in the industry.
She considered capitalization rates from thirty multi-family properties, including apartments,
because sales of independent living facilities are rare. She found an average capitalization rate of
5.45 percent, but “loaded” it with the county property change ratio and decided on an overall
3 See Appraisal Institute, The Dictionary of Real Estate Appraisal 22 (5th ed 2010) (defining “bracketing” as “[a] process in which an appraiser determines a probable range of values for a property by applying comparative analysis techniques to data such as a group of sales. The array of comparable sales may be divided into three groups–those superior to the subject, those similar to the subject, and those inferior to the subject. The sale prices reflected by the sales requiring downward adjustment and those requiring upward adjustment refine the probable range of values for the subject and identify a value range (i.e., a bracket) in which the final value opinion will fall.”).
DECISION TC-MD 210180R 6 capitalization rate of 6.4 percent. (Def’s Ex A at 29-30.) Malikowski found the value using the
income approach was $53,274,180 including the furniture, fixtures, and equipment (FF&E).
Although she acknowledged the subject property was newly opened without stabilized
occupancy, she did not make an adjustment pursuant to Defendant’s policy. Additionally, she
did not make an adjustment because the tax year under appeal is an “exception event” where the
maximum assessed value would be set and such an adjustment would create inequalities between
other businesses, such as apartment buildings, and those like the subject property.
Malikowski ultimately found the real market value of the property was a rounded $51
million, to which she added the personal property FF&E at $2,274,180.
II. ANALYSIS
The issue before the court is the real market value of the subject property for the 2020-21
tax year.
A. Real market value of the subject property, as stabilized
“Real market value is the standard used throughout the ad valorem statutes except for
special assessments.” Richardson v. Clackamas Cty. Assessor, TC-MD 020869D, WL
21263620 at *2 (Or Tax M Div Mar 26, 2003) (citation omitted). Real market value is defined in
ORS 308.205(1), 4 which states:
“Real market value of all property, real and personal, means the amount in cash that could reasonably be expected to be paid by an informed buyer to an informed seller, each acting without compulsion in an arm’s-length transaction occurring as of the assessment date for the tax year.”
The assessment date for the 2020-21 tax year is January 1, 2020. ORS 308.007; ORS
308.210. The real market value of property “shall be determined by methods and procedures in
4 The court’s references to the Oregon Revised Statutes are to 2019.
DECISION TC-MD 210180R 7 accordance with rules adopted by the Department of Revenue * * *[.]” ORS 308.205(2). The
three approaches to value that must be considered are: (1) the cost approach; (2) the sales
comparison approach; and (3) the income approach. OAR 150-308-0240(2)(a). Although all
three approaches must be considered, all three approaches may not be applicable in a given case.
Id.
Here, both parties presented evidence on all three approaches per ORS 305.427. 5 The
parties agreed that the cost approach is not a good indicator of value for this property because it
only estimates replacement cost of the improvements, whereas a typical purchaser of a senior
independent living facility would most likely focus on the potential net income. The parties also
agreed that the sales comparison approach was of secondary usefulness for the subject property
because there were too few local sales of similar properties and many of the comparable sales
were portfolios involving multiple properties for which it would be difficult to ascertain the
precise value of an individual property. Additionally, seemingly comparable properties often
involve different levels of care, such as assisted living, nursing care, or memory care. These
properties would have income from services that might be hard to compare to the subject
property, which does not have care assistance services.
The parties applied a similar methodology for determining the value of the subject
property using the income approach; they started with a hypothetical gross income, subtracted
hypothetical costs, and then divided the result by a capitalization rate. The parties’ conclusions
of stabilized values using this approach were fairly consistent; Plaintiff’s value was $48,950,000
5 ORS 305.427 provides: “In all proceedings before the judge or a magistrate of the tax court and upon appeal therefrom, a preponderance of the evidence shall suffice to sustain the burden of proof. The burden of proof shall fall upon the party seeking affirmative relief and the burden of going forward with the evidence shall shift as in other civil litigation.”
DECISION TC-MD 210180R 8 and Defendant’s value was a rounded $51 million. One difference between the parties’
calculations was estimation of the capitalization rate; Plaintiff relied on sales of senior living
facilities in an expanded geographical area to arrive at its capitalization rate, while Defendant
relied on sales of apartments and senior living facilities focused on the local area only. The court
finds that, in this case, the selection of properties of a similar nature to the subject property (i.e.,
senior living facilities) is a better fit than it would be to look to other types of businesses, such as
apartment buildings. Thus, the court finds Plaintiff’s stabilized value as of the assessment date is
more persuasive at $48,950,000.
B. Adjustments to the stabilized real market value
Plaintiff presented three issues for consideration to adjust the real market value after
reaching a conclusion on the subject property’s stabilized value: (1) whether personal property
should be deducted from the real property value because while independent living facilities are
most often sold including the personal property, they are taxed separately; (2) whether the
subject property’s value as of the assessment date should be reduced because the newly built and
operating property was not stabilized; and (3) whether there is a business enterprise value (also
referred to as “intangible value” or “goodwill”) that should be deducted.
1. Adjustment for personal property
In their respective appraisals, both parties initially accounted for the personal property
value with the appraised real property value. Plaintiff separated the personal property from its
income approach value. Neither party presented evidence that would change the nature of the
property from its roll value as personal property versus real property, thus, the character of the
property remains the same. See, e.g., Farmer’s Direct, Inc. v. Dept. of Rev., 24 OTR 399, 434
(2021) (“the classification of property as tangible personal property or real property is intensely
DECISION TC-MD 210180R 9 factual, and the court must make the determination with a full understanding of the physical
relationship between the items at issue and any real property * * *”). The court agrees that in
any sale, the personal property would be sold together with the improvements and a prospective
buyer and seller would allocate an amount for the personal property. Because Defendant
maintains separate tax roll accounts and values for the personal property and real property, which
was sustained by BOTPA, the court agrees the value of Account 279959 (personal property) at
$2,274,179 should be deducted from the stabilized value.
2. Adjustment for stabilization
The parties do not dispute that the subject property was not stabilized as of the
assessment date. Plaintiff contends that the real market value of the subject property should be
reduced because it is newly placed into service and as such, it is not stabilized, citing Powell
Street I, LLC v. Multnomah County Assessor, 365 Or 245, 445 P3d 297 (2019). In Powell Street
I, the Supreme Court held that a property which is not stabilized may affect “what a hypothetical
buyer would pay a hypothetical seller for the property on the assessment date.” Powell Street I,
LLC, 365 Or at 260. Defendant asserts the issue is more complicated because this case involves
an “exception year”—meaning this is the year the property’s maximum assessed value will be
set. Defendant argues that its policy requires ignoring the proposed adjustment because the
stabilization period is short, and the adjustment would effectively lower the taxable assessed
value for years to come. 6
6 Article XI, section 11 of the Oregon Constitution, also known as Measure 50, was adopted by the voters in 1997. AKS LLC v. Dept. of Rev., TC 5308 and 5309, 2019 WL 1768087 at *8 (Or Tax Apr 18, 2019). Before Measure 50 was adopted, property taxes were based on the property’s real market value. Id. Measure 50 created the concept of maximum assessed value and taxed property on the lesser of real market value or maximum assessed value. Id.; see also Or. Const., Art. XI, § 11(1)(f). Maximum assessed value cannot increase more than three percent per year. Or. Const., Art. XI, § 11(1)(b). However, that three percent rule is subject to several exceptions, including for “new property or new improvements to property.” Or. Const. Art. XI, § 11(1)(c)(A); see also ORS 308.146(3)(a).
DECISION TC-MD 210180R 10 The court agrees with Plaintiff that that a prudent purchaser would pay less for a property
that required an infusion of skill, cash, and time to bring it to a stabilized state. While
Defendant’s position is understandable, it is contrary to the holding in Powell Street I. The court
finds that Plaintiff’s adjustments for the costs to stabilize the subject property are persuasive.
The combined value of the subject property should be reduced by $2.2 million.
3. Adjustment for intangible value
Plaintiff argues that there is an intangible or going concern value that must be separated
out and deducted from the stabilized value of the subject property. In its appraisal, Plaintiff cites
to the fifth edition of the Appraisal Institute’s Dictionary of Real Estate Appraisal, defining
“goodwill” as “[a]n intangible asset category usually composed of elements such as name or
franchise reputation, customer patronage, location, products, and similar factors.” (Ptf’s Ex 1 at
26.)
In Boise Cascade Corp. v. Department of Revenue, 12 OTR 263 (1991), Judge Byers
considered the issue of goodwill and stated:
“goodwill is not taxable property. If goodwill exists in connection with tangible, real or personal property, it arises not from the property but from the business operation of the property. Even where goodwill is associated with property such as hotels, the concept inherently is associated with the business operation. Consequently, goodwill is an intangible asset that is not subject to taxation.”
Id. at 267 (citation omitted). More recently, this court used a similar description in Huang v.
Department of Revenue, 20 OTR 1 (2009):
“Goodwill is generally excluded from property taxation because goodwill is neither a part of real property nor tangible personal property, but instead arises from the business operations that are associated with those properties. Goodwill is the value of a business above the value of its physical assets. That value is attributable to such factors as expected profits, business location, reputation for good service, and other qualities that make the business attractive to individuals seeking its services. Because only real property and tangible personal property are assessed and taxed, and because goodwill is separate from those properties,
DECISION TC-MD 210180R 11 the value of goodwill is not included in [real market value].”
Id. at 6 (citations and footnote omitted).
In his appraisal report, Brown acknowledges the difficulty of valuing “intangibles.” His
approach allocated the “conclusions of personal property and stabilized operation costs in the
[c]ost [a]pproach.” (Ptf’s Ex 1 at 195.) Brown projected the cost to stabilize the property from
the assessment date to 95 percent occupancy at $3,305,000—of which a portion must be
deducted as intangible value. The court is not altogether clear what evidence Brown is using to
support a value of goodwill. If he is arguing that the subject property is an entity assembled with
real property, personal property, and a trained professional staff that would likely be sold as a
whole ongoing business, the court finds no evidence was presented to show that a brand-new
facility has developed a “goodwill” value. If Brown is arguing that the sale price of other senior
care facilities in the sales comparison approach necessarily included the goodwill of those
businesses, then the court finds that Plaintiff offered insufficient evidence in support of that
conclusion. The court is not persuaded that a newly built independent senior living facility that
was not part of a franchise and was not stabilized, had any goodwill value at all as of the
assessment date. Further, the costs to bring the subject property from its un-stabilized state as of
the assessment date to a stabilized one have already been deducted from the property value.
Plaintiff’s approach twice removing the same value is duplicative and unpersuasive. In Huang,
the court observed that a taxpayer must prove the value of goodwill, which may be difficult to
separate from the real property value. Huang, 20 OTR at 6. Here, Plaintiff has not met its
burden of proof under ORS 305.427 to deduct for intangible value.
DECISION TC-MD 210180R 12 III. CONCLUSION
The court finds Plaintiff’s evidence more persuasive regarding the real market value of
the subject property as stabilized at $48,950,000. The court finds that the value of the personal
property as found by BOPTA and as stipulated by Plaintiff, in the amount of $2,274,179 should
be deducted from the real property account. Because the property was not stabilized as of the
assessment date, the court finds that $2.2 million should be deducted to account for stabilized
value. Finally, the court is not persuaded by Plaintiff’s argument that the subject property had
intangible value requiring an additional deduction from the stabilized value. Now, therefore,
IT IS THE DECISION OF THIS COURT that the real market value for the 2020-21 tax
year is $44,475,821 for Account 273512 and $2,274,179 for Account 279959.
Dated this _____ day of January 2023.
RICHARD DAVIS MAGISTRATE
If you want to appeal this Decision, file a complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of this Decision or this Decision cannot be changed. TCR-MD 19 B.
This document was signed by Magistrate Richard Davis and entered on January 11, 2023.
DECISION TC-MD 210180R 13