Opinion issued December 8, 2016
In The
Court of Appeals For The
First District of Texas ———————————— NO. 01-16-00003-CV ——————————— CYPRESS CREEK FAYRIDGE, L.P., Appellant V. HARRIS COUNTY APPRAISAL DISTRICT, Appellee
On Appeal from the 281st District Court Harris County, Texas Trial Court Case No. 2013-71573
MEMORANDUM OPINION
Cypress Creek Fayridge, L.P. sued the Harris County Appraisal District,
contending that the District appraised its property at an excessive market value.
After a bench trial, the trial court found that the property’s value was $5,080,589,
consistent with the District’s appraisal, and entered judgment for the District. On appeal, Cypress Creek contends that (1) the trial court erred by improperly placing
the burden of proof on Cypress Creek to show that the appraisal was excessive; and
(2) the evidence is legally and factually insufficient to support the trial court’s
judgment.
We affirm.
BACKGROUND
Cypress Creek disagreed with the District’s determinations regarding the
market value of its low-income apartment complex for the 2013 fiscal year. See
TEX. TAX CODE ANN. §§ 42.01, 42.21 & 42.23 (West 2015). At trial, the parties
disputed both the market value of the complex and the proper method for calculating
that value. Cypress Creek advocated that its complex had a market value of
$2,210,882, while the District contended that its value was $5,080,600. Each side
relied on an expert to support its position. Both Cypress Creek and the District
moved to exclude the testimony of the other’s expert before trial. The trial court
carried those motions with the case, and neither party secured a ruling on their
respective motions.
Brian Cogburn testified for Cypress Creek. He was a licensed real estate
broker and had been for more than 30 years. Half of his experience involved low-
income housing. He prepared a broker’s price opinion with respect to Cypress
Creek’s low-income apartment complex. In Cogburn’s opinion, the market value of
2 the apartment complex for the fiscal year of 2013 was the same as its value for the
2012 fiscal year—$2,210,882.
Because Cypress Creek’s complex was under construction in 2011, no units
were available for lease, and the complex was not generating income, as of January
1, 2012. Some units became available for lease later in 2012. As of January 1, 2013,
the complex’s construction was complete, 64.5 percent of the complex’s units were
occupied by tenants, and the complex was generating income. Cogburn did not
know the occupancy rate at trial, but the property’s developer subsequently testified
that the complex was “functionally fully leased.” Almost the entire complex was
devoted to low-income housing; 148 of its 152 units are rent restricted.
In calculating the complex’s value, Cogburn relied on its audited financial
statements for the period dating from January 5, 2010 through December 31, 2012.
These statements presented a negative net operating income for the complex. Under
the income method of calculating market value, this negative net income could
reflect a market value of zero or a negative value, notwithstanding the completion
of the complex’s construction. Relying on the negative net income, Cogburn
concluded that the complex’s market value as of January 1, 2013 was no different
than in the preceding year. He opined that the difference between his valuation of
the complex and the District’s appraisal was that the District appeared “to have
projections as if the property had reached a stabilized occupancy.”
3 Cogburn conceded that he was not a licensed real estate appraiser and that his
broker’s license does not permit him to do appraisal work for pay. He agreed that
he is not an expert in appraisals and characterized his opinion of the apartment
complex’s market value as a valuation rather than an appraisal. He acknowledged
that his analysis did not comply with the Uniform Standards of Professional
Appraisal Practice.
For the District, David Brantley testified. He had worked for the District for
about seven and a half years and is a registered professional appraiser. He testified
that he used the income method of calculating the apartment complex’s market value
and his analysis complied with the Uniform Standards of Professional Appraisal
Practice. Brantley concluded that the complex’s market value for the fiscal year of
2013 was $5,080,589, which he rounded to $5,080,600.
Brantley analyzed market data and listings, sales, and rental data from in and
around the complex’s market area, including comparable low-income properties.
Brantley estimated the complex’s operating expenses by using data compiled by the
Texas Department of Housing and Community Affairs. He testified that this data
reflected the expenses typical of low-income housing of a similar size in the same
region as the complex under consideration. He did not rely on the expenses reported
in the complex’s audited financial statements for the previous year due to the
newness of the apartment complex.
4 Brantley was cross-examined about his decision to rely on typical expense
data rather than the complex’s audited financial statements, which Brantley could
not remember having reviewed. The financial statements were included in his
report, however, and he testified that, if they were included in his report, he would
have “looked at them at some point.” He agreed that he “did not rely on them
necessarily” in reaching his conclusion about the complex’s market value. Brantley
disagreed with the assertion that he simply had disregarded the audited financial
statements as being irrelevant. He testified that he “would have considered them.”
Nonetheless, he conceded that he could not say how the complex’s actual
expenses—as reflected in the audited financial statements—compared to the
TDHCA data.
The trial court made findings of fact and conclusions of law at Cypress
Creek’s request. In relevant part, the trial court found and concluded that:
Findings of Fact
* * *
8. Plaintiff offered a broker’s valuation, not an appraisal. Plaintiff’s expert recommended that the property’s 2013 assessed value be the same as its 2012 assessed value. The Court finds that Plaintiff’s evidence was not persuasive or credible.
9. HCAD’s expert used the income method of appraisal to determine the value of the property at issue. According to HCAD’s expert, after adjustments, the value of the property as of January 1, 2013, for ad valorem tax purposes, is $5,080,589.
5 10. The value of the subject property identified under Account No. 133- 047-001-0001 as of January 1, 2013, for ad valorem tax purposes, is $5,080,589.
Conclusions of Law
8. Plaintiff did not meet its burden of proof establishing a value different from that determined in the administrative process pursuant to Texas Tax Code § 42.23.
9. Plaintiff did not meet its burden to provide sufficient information to justify a reduction to the appraised value of the subject property, for the tax year in issue, pursuant to Texas Tax Code § 42.25.
10. Based on the credible evidence, the appraised value for the property for ad valorem tax purposes for the tax year 2013 should be $5,080,589.
Cypress Creek moved for a new trial, which the trial court denied.
DISCUSSION
Cypress Creek raises two issues on appeal. First, it contends that the District
carries the burden of proof for a market valuation of the complex. Unless the District
proves that its appraisal is correct, Cypress Creek argues, the trial court must render
judgment in favor of the taxpayer’s position on the property’s market value. Second,
it contends that the proof is legally and factually insufficient to support the trial
court’s finding that the market value of the apartment complex was $5,080,589
because the District’s expert assumed that the complex’s operating expenses were
6 comparable to those of other low-income apartment complexes in the same region,
rather than taking into account the complex’s actual expenses for the previous year,
which indicated a negative net income.
I. Burden of Proof and Standard of Review
The assignment of the burden of proof affects the standard of review for legal
sufficiency. A party who challenges the legal sufficiency of a finding on which it
did not bear the burden of proof must show that no evidence supports the finding.
Republic Petrol. v. Dynamic Offshore Res., 474 S.W.3d 424, 433 (Tex. App.—
Houston [1st Dist.] 2015, pet. denied). Thus, we must reject the challenge unless:
(1) there is a total absence of proof of a vital fact;
(2) the court is barred by rules of law or evidence from crediting the only
proof of a vital fact;
(3) the proof of a vital fact is no more than a scintilla of evidence; or
(4) the proof conclusively disproves a vital fact.
Id. In contrast, a party who challenges the legal sufficiency of a finding on which it
bore the burden of proof must show not only that no evidence supports the trial
court’s finding, but also that the evidence conclusively proves the contrary. Jones
v. Pesak Bros. Constr., 416 S.W.3d 618, 624 (Tex. App.—Houston [1st Dist.] 2013,
no pet.). Under this standard, we must reject the challenge unless the evidence
proves all vital facts in support of the challenger’s position as a matter of law. Id.
7 Regardless of who had the burden of proof, we consider the entire record in
the light most favorable to the trial court’s findings, crediting favorable proof and
disregarding contrary proof so long as a reasonable factfinder could do so. Republic
Petrol., 474 S.W.3d at 433; N.Y. Party Shuttle v. Bilello, 414 S.W.3d 206, 211 (Tex.
App.—Houston [1st Dist.] 2013, pet. denied). The factfinder is the lone judge of the
witnesses’ credibility and the relative weight of their testimony. Republic Petrol.,
474 S.W.3d at 433. The factfinder may believe one witness instead of another,
accept or reject any given witness’s testimony in whole or part, and resolve conflicts
in the proof. James J. Flanagan Shipping Corp. v. Del Monte Fresh Produce, 403
S.W.3d 360, 367 (Tex. App.—Houston [1st Dist.] 2013, no pet.). In an appeal from
a bench trial, the trial court’s findings of fact have the same weight as a jury verdict
and are subject to review for sufficiency of the evidence under the same standards
that are applied when reviewing a jury’s findings. Briggs Equip. Tr. v. Harris Cty.
Appraisal Dist., 294 S.W.3d 667, 670 (Tex. App.—Houston [1st Dist.] 2009, pet.
denied).
Cypress Creek contends that the assignment of the burden of proof in tax
appraisal suits is unsettled; it notes that this issue was recently before the Supreme
Court of Texas, which requested merits briefing but ultimately denied a petition for
review in a case in which the parties disputed the burden of proof. See Estate of
8 Smith v. Ector Cty. Appraisal Dist., No. 15-0995 (Tex. Sept. 2, 2016) (denying
review). Cypress Creek maintains the burden belongs to the Appraisal District.
Our court has assigned the burden of proof to the taxpayer in tax appraisal
suits. See Briggs Equip., 294 S.W.3d at 670 (taxpayer had burden to prove market
value of its inventory differed from district’s appraisal); Starflight 50, L.L.C. v.
Harris Cty. Appraisal Dist., 287 S.W.3d 741, 745–46 (Tex. App.—Houston [1st
Dist.] 2009, no pet.) (reciting test applicable when party with burden of proof
challenges legal sufficiency in suit in which taxpayer appealed from trial court’s
adverse finding); Pizzitola v. Galveston Cty. Cent. Appraisal Dist., 808 S.W.2d 244,
246 (Tex. App.—Houston [1st Dist.] 1991, no writ) (same); see also (Corp. Park
W.) Hartman Reit Operating P’ship., II v. Waller Cty. Appraisal Dist., No. 01-05-
00913-CV, 2006 WL 1766790, at *1 (Tex. App.—Houston [1st Dist.] June 29, 2006,
no pet.) (mem. op.) (reciting test applicable when party with burden of proof
9 challenges legal sufficiency in suit in which taxpayer appealed from jury’s finding
regarding equal and uniform value of real property).1
1 Many decisions rendered by other courts of appeal have, like this court’s decisions, assigned the burden of proof to the taxpayer in tax appraisal suits. See Estate of Smith v. Ector Cty. Appraisal Dist., 480 S.W.3d 796, 800–01 (Tex. App.— Eastland 2015, pet. denied) (taxpayer bears burden of proof); Galveston Cent. Appraisal Dist. v. Valero Ref.-Tex. L.P., 463 S.W.3d 177, 188 (Tex. App.—Houston [14th Dist.] 2015, pet. granted) (reciting test applicable when party without burden of proof challenges legal sufficiency in suit in which appraisal district appealed from trial court’s finding); Key Energy Servs., LLC v. Shelby Cty. Appraisal Dist., 428 S.W.3d 133, 146–47 (Tex. App.—Tyler 2014, pet. denied) (reciting test applicable when party with burden of proof challenges legal sufficiency in suit in which taxpayer appealed from trial court’s finding); Stacy Family Enters. Inc. v. Tarrant Appraisal Dist., No. 02-13-00170-CV, 2013 WL 6564299, at *2 (Tex. App.—Fort Worth Dec. 12, 2013, no pet.) (mem. op.) (taxpayer had burden in suit to correct tax rolls); Harvest Life Found. v. Harris Cty. Appraisal Dist., No. 14-11-01038-CV, 2013 WL 2456867, at *5 (Tex. App.—Houston [14th Dist.] June 6, 2013, no pet.) (mem. op.) (reciting test applicable when party with burden of proof challenges legal sufficiency in suit in which taxpayer appealed from trial court’s finding); Lack’s Stores, Inc. v. Gregg Cty. Appraisal Dist., No. 06-10-00125-CV, 2011 WL 3963013, at *4 (Tex. App.—Texarkana Sept. 9, 2011, no pet.) (mem. op.) (taxpayer has burden to show excessive valuation); Cenveo Corp. v. Dallas Cent. Appraisal Dist., 260 S.W.3d 713, 715 (Tex. App.—Dallas 2008, no pet.) (reciting test applicable when party with burden of proof challenges legal sufficiency in suit in which taxpayer appealed from trial court’s finding); Daily v. Bowie Cty. Appraisal Dist., No. 06-07- 00055-CV, 2007 WL 4178880, at *2 (Tex. App.—Texarkana Nov. 28, 2007, pet. denied) (mem. op.) (same); Hodge v. Dallas Cent. Appraisal Dist., No. 05-06- 01418-CV, 2007 WL 4098907, at *3 (Tex. App.—Dallas Nov. 19, 2007, pet. denied) (mem. op.) (same); Sears Roebuck & Co. v. Dallas Cent. Appraisal Dist., 53 S.W.3d 382, 386 (Tex. App.—Dallas 2000, pet. denied) (taxpayer had burden to prove different market value than the value appraised by district); Circle C Child Dev. Ctr., Inc. v. Travis Cent. Appraisal Dist., 981 S.W.2d 483, 485 (Tex. App.—Austin 1998, no pet.) (reciting test applicable when party with burden of proof challenges factual sufficiency in suit in which taxpayer appealed from trial court’s finding); Walker v. Appraisal Review Bd. for Guadalupe Cty. Appraisal Dist., 846 S.W.2d 14, 17 (Tex. App.—San Antonio 1992, writ denied) (taxpayer had burden of proof).
10 In this case, however, the burden of proof is not outcome determinative. Even
if we assigned the burden to the District, Cypress Creek has not demonstrated that
no evidence supports the trial court’s market-value finding. Rather, the District
adduced competent evidence that is legally and factually sufficient to support the
trial court’s findings.
II. Sufficiency of the Evidence
A. Applicable Law
Real property in Texas is subject to taxation on an annual basis. See TEX. TAX
CODE ANN. §§ 11.01(a)–(b), 21.01. Absent other statutory provision, all taxable
property is taxed based on “its market value as of January 1.” Id. § 23.01(a).
An appraisal district’s determinations of the market value of property must be
made “by the application of generally accepted appraisal methods and techniques.”
TEX. TAX CODE ANN. § 23.01(b). If it uses mass appraisal standards, the district’s
appraisal standards must comply with the Uniform Standards of Professional
Appraisal Practice. Id. In addition, the same or similar methods of appraisal must
be applied to the same or similar kinds of property, but “each property shall be
appraised based upon the individual characteristics that affect the property’s market
value, and all available evidence that is specific to the value of the property shall be
taken into account in determining the property’s market value.” Id.
11 In determining market value, an appraisal district must “consider the cost,
income, and market data comparison methods of appraisal and use the most
appropriate method.” TEX. TAX CODE ANN. § 23.0101. When, as here, the income
method of appraisal is used, the appraisal district must:
(1) analyze comparable rental data available to the chief appraiser or the potential earnings capacity of the property, or both, to estimate the gross income potential of the property;
(2) analyze comparable operating expense data available to the chief appraiser to estimate the operating expenses of the property;
(3) analyze comparable data available to the chief appraiser to estimate rates of capitalization or rates of discount; and
(4) base projections of future rent or income potential and expenses on reasonably clear and appropriate evidence.
Id. § 23.012(a). With respect to income and expense statements and cash-flow
projections, the district must consider “historical information and trends,” “current
supply and demand factors affecting those trends,” and “anticipated events such as
competition from other similar properties under construction.” Id. § 23.012(b).
With regulated low-income housing, the district also must “take into account the
extent to which that use and limitation reduce the market value.” Id. § 23.21(b).
B. Analysis
Cypress Creek contends that the District’s appraisal is not supported by
legally sufficient proof because its expert did not rely on the apartment complex’s
actual expenses in his calculation of market value. It relies on the Property Tax
12 Code’s requirement that a district base its appraisal on “the individual
characteristics” affecting the property and the “available evidence that is specific”
to its value. TEX. TAX CODE ANN. § 23.01(b). Cypress Creek additionally contends
that the District’s expert’s calculation of market value is speculative because he
assumed that the complex’s expenses were similar to those of other low-income
apartment complexes in the same region.
The Property Tax Code requires appraisal districts to appraise property “based
upon the individual characteristics that affect the property’s market value.” TEX.
TAX CODE ANN. § 23.01(b). This requirement, however, does not mandate reliance
upon a specific type of data over any other type. See, e.g., W. AH 406 Ltd. v. Cent.
Appraisal Dist. of Taylor Cty., 213 S.W.3d 544, 546–47 (Tex. App.—Eastland 2007,
pet. denied) (requiring rent and occupancy restrictions to be taken into account);
Haney v. Cooke Cty. Tax Appraisal Dist., 782 S.W.2d 349, 351–52 (Tex. App.—
Fort Worth 1989, no writ) (requiring structural damage to be taken into account).
While actual prior rental expenses are evidence of a property’s individual
characteristics, a fact finder reasonably conclude that they are not outcome
determinative when the property’s characteristics have significantly changed; i.e., as
in this case, where construction was completed on the date of the appraisal but had
not been completed throughout the year proceeding the appraisal date.
13 The Property Tax Code requires that “all available evidence that is specific to
the value of the property shall be taken into account in determining the property’s
market value.” TEX. TAX CODE ANN. § 23.01(b). Absent a contrary statutory
directive, a requirement that all evidence specific to a property be “taken into
account” is not a requirement that any piece of evidence ultimately is determinative
or must be relied upon by an appraisal district. See MERRIAM-WEBSTER’S
COLLEGIATE DICTIONARY 266 (11th ed. 2003) (defining “consider” in part as “to
take into account”); see also TEX. GOV’T CODE ANN. §§ 311.011, 312.002 (West
2013) (words and phrases to be construed according to common usage absent
technical or particular meaning; words in civil statutes to be given “ordinary
meaning” unless they are terms of art).
The statute requires that an appraisal district consider all evidence; the record
contains proof that the District’s expert did so. Brantley testified that he did not
remember whether he had reviewed the complex’s audited financial statements, but
he testified that he would have reviewed those statements if they were included with
his report. The following colloquy between Brantley and Cypress Creek’s counsel
summarizes the evidence about the degree to which the appraisal took into account
actual expenses:
Q. I’ve made mention to the audited financial statements for this particular subject property.
A. Yes, ma’am.
14 Q. And you indicated that they weren’t relevant to your analysis.
A. I never said they weren’t relevant, I just said that I didn’t necessarily rely on them completely.
Q. Okay. So let me ask: Would they have been relevant to your analysis?
A. I would have considered them.
Thus, the record contains legally sufficient evidence that Brantley took into account
the complex’s actual expenses to the extent required by the Property Tax Code. The
inconsistencies in Brantley’s testimony on this subject were the trial court’s to
resolve in its capacity as factfinder. James J. Flanagan, 403 S.W.3d at 367.
Nor was Brantley’s testimony impermissibly speculative in relying on the
TDHCA market data regarding similar complexes in the area. Under the Property
Tax Code, Brantley was required to “analyze comparable operating expense data
available” in order “to estimate the operating expenses of the property.” TEX. TAX
CODE ANN. § 23.012(a)(2). Testimony is speculative “if it is based on guesswork or
conjecture.” Nat. Gas Pipeline Co. of Am. v. Justiss, 397 S.W.3d 150, 156 (Tex.
2012). Testimony is speculative when it lacks “any evidentiary foundation.”
Szczepanik v. First S. Tr. Co., 883 S.W.2d 648, 650 (Tex. 1994) (per curiam); see
also Wal-Mart Stores, Inc. v. Merrell, 313 S.W.3d 837, 840 (Tex. 2010) (per curiam)
(expert’s testimony was speculative because it lacked “objective, evidence-based
support for its conclusions”). Brantley, however, relied on data compiled by the
15 TDHCA concerning expenses incurred by other low-income housing of similar size
in the same area in appraising market value. Brantley testified that the data he used
reflected typical expenses for this region. This constitutes legally sufficient evidence
of comparability for purposes of Section 23.012(a)(2). Cf. Harris Cty. Appraisal
Dist. v. Houston Laureate Assocs., 329 S.W.3d 52, 57–58 (Tex. App.—Houston
[14th Dist.] 2010, pet. denied) (affirming trial court’s decision that expert’s
testimony of comparability based on data obtained from appraisal district’s records
on property classifications was reliable). Brantley’s reliance on the TDHCA data
therefore was not foundationless guesswork or conjecture.
The trial court’s market-value finding is factually insufficient only if the
supporting proof is so weak that the finding is clearly wrong or manifestly unjust.
Dupree v. Boniuk Interests, Ltd., 472 S.W.3d 355, 363–64 (Tex. App.—Houston
[1st Dist.] 2015, no pet.). In a bench trial, the trial court judges the witnesses’
credibility. Id. at 364. We may not substitute our judgment for that of the trial court
if the proof at trial permits reasonable disagreement. Id.
We have rejected the complaints that Brantley’s use of the TDHCA data
concerning average operating expenses for low-income housing of similar size in
the same region is speculative or amounts to no evidence. Cypress Creek also notes
that Brantley could not identify all of the counties other than Harris County that
comprise the comparative region. The degree to which lapses in memory or gaps in
16 knowledge undermine a witness’s persuasiveness, however, is left to the factfinder
to decide. See Hailey v. Hailey, 176 S.W.3d 374, 383 (Tex. App.—Houston [1st
Dist.] 2004, no pet.) (in bench trial, “trial court may consider all the facts and
circumstances in connection with the testimony of each witness and accept or reject
all or part of that testimony”).
The trial court found that the expert testimony that Cypress Creek proffered
was not credible. The Property Tax Code requires determinations of the market
value to be made “by the application of generally accepted appraisal methods and
techniques.” TEX. TAX CODE ANN. § 23.01(b). Cypress Creek’s expert is not a
licensed appraiser, and he offered a valuation opinion that he expressly characterized
as something other than an appraisal. Cogburn maintained that Cypress Creek’s
apartment complex did not increase in market value between January 1, 2012 and
January 1, 2013, notwithstanding his acknowledgement that not a single unit was
ready to lease on the former date but that all units were lease-ready and 64.5 percent
of the units were leased on the latter date. A reasonable factfinder could find this
testimony unpersuasive.
Given the totality of the evidence and the deference due to the trial court’s
assessment of the witnesses’ credibility, the proof is not so weak as to render the
trial court’s market-value finding clearly wrong or manifestly unjust. Thus, the
17 proof is factually sufficient to support the trial court’s finding and judgment. See
Dupree, 472 S.W.3d at 363–64.
CONCLUSION
We hold that legally and factually sufficient evidence supports the trial court’s
findings. We therefore affirm the judgment of the trial court.
Jane Bland Justice
Panel consists of Chief Justice Radack and Justices Jennings and Bland