IN THE OREGON TAX COURT MAGISTRATE DIVISION Property Tax
LIGHTHOUSE SQUARE LLC, ) ) Plaintiff, ) TC-MD 160113C ) v. ) ) LINCOLN COUNTY ASSESSOR, ) ) Defendant. ) FINAL DECISION1
Plaintiff appealed the 2015–16 tax roll real market and exception values of property
identified as Accounts R236874 and R232164 (subject property).2 A trial was held on
October 26, 2016, in the Tanner Mediation Center of the Oregon Tax Court. David Emami,
MBA, appeared and testified on behalf of Plaintiff. Diana Emami, MBA, also testified for
Plaintiff. Kathy Leib, Oregon Registered Appraiser 3, appeared and testified on behalf of
Defendant. Plaintiff’s Exhibits 1 and 2 and Defendant’s Exhibits A to H were admitted without
objection. Plaintiff’s Exhibit 3 was admitted over Defendant’s objection.3
I. STATEMENT OF FACTS
The subject property was a shopping center in Lincoln City, consisting of multiple
buildings totaling 106,149 square feet on an 11.3-acre site. (Def’s Ex F at 2.) As of the
assessment date, 58 percent of that square footage was vacant. (See id.) The subject property’s
1 This Final Decision incorporates without change the court’s Decision, entered February 10, 2017. The court did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court Rule–Magistrate Division (TCR–MD) 16 C(1). 2 Plaintiff’s Complaint appealed only the former of those two accounts, which together constitute a single shopping center. At trial, Plaintiff requested leave to amend its Complaint to include the second account. The court allowed the amendment because Defendant did not object and the parties agreed that Plaintiff had appealed both accounts to the board of property tax appeals. 3 Defendant objected to the accuracy of a statement made by Plaintiff in its exhibit, but not to the exhibit’s timeliness.
FINAL DECISION TC-MD 160113C 1 net income had declined during each of the four years preceding the assessment date with the
departure of major tenants, including Goodwill Industries at the end of 2014. (Ptf’s Ex 2 at 3–6;
Def’s Ex D at 8.) Defendant had not taxed the portion of the property occupied by Goodwill
industries. As a result of that company’s departure, Defendant added exception value to the tax
roll in the amount of $525,460. (See Def’s Ex A at 15; D at 8.)
A. Plaintiff’s Evidence of Value
Plaintiff did not offer an appraisal or any written estimate of value into evidence. It
provided profit and loss statements for years 2011 through 2015, an August 2016 credit union
statement showing Plaintiff’s loan balance and two holdback accounts, a bid to replace five
rooftop heat pumps dated May 2013, a “photo log” dated December 2013 depicting a roof that
was penetrable by a screwdriver, damaged rooftop heat pumps, and other evidence of water
damage, and additional undated photographs of instances of rust and dry rot affecting the subject
property. (Ptf’s Ex 2 at 1–6, 7–8; Ptf’s Ex 1 at 50, 2–49, 51–63.)
David Emami testified to several factors tending to reduce the value of the subject
property. (See also Ptf’s Ex 1 at 1.) First, Plaintiff’s ability to lease up the subject property was
hindered by Lincoln City’s “big box ordinance,” which prevented Plaintiff from renting to
prospective major tenants. Second, the subject property’s physical characteristics limited leasing
options: different sections were at different elevations, preventing them from being combined for
larger tenants, and two sections were too narrow and deep to be divided for smaller tenants.
Third, the economy in Lincoln City was generally poor, resulting in less demand for commercial
space. And finally, the subject property’s improvements suffered from significant deferred
maintenance.
Plaintiff’s profit and loss statements included several categories of expenses, including
FINAL DECISION TC-MD 160113C 2 large expenses for the interest paid on holdback funds and for property taxes. (Ptf’s Ex 2 at 2–6.)
David Emami testified that, based on his experience as a developer, a 9.5 to 10 percent
capitalization rate was appropriate. Diana Emami testified to the result of her calculations of
value using capitalization rates of 8, 9.5, and 10 percent and the subject property’s 2014 and
2015 net income. She reached values of $3.8 million at an 8 percent capitalization rate, $3.2
million at 9.5 percent, $3.0 million at 10 percent. She reached lower values when she excluded
the income from departed tenants from her calculations. Diana Emami testified that, due to the
subject property’s age, the cost approach was not relevant in determining its value. With respect
to the sales comparison approach, she testified that her company was not aware of any shopping
centers with comparable vacancy rates being sold.
B. Defendant’s Evidence of Value
On behalf of Defendant, Kathy Leib prepared an appraisal using the income
capitalization and sales comparison approaches. In her income approach, Leib relied on the
profit and loss statements provided by Plaintiff but excluded expenses for “capitalized and
depreciated repairs,” “fire protection,” and “office expenses.” (Def’s Ex D at 1.) Leib included
property taxes from Defendant’s records as expenses because she had concluded that the figures
provided by Plaintiff were inaccurate. (Id.) Diana Emami testified that Plaintiff’s figures
included personal property tax as well as real property tax.
Leib used a capitalization rate of 8 percent. She testified that she based that number on
two sources: the capitalization rate used in a value appeal of the shopping center across the street
from the subject property, and the capitalization rate of the property she identified as most
similar to the subject property on a list of 20 shopping center sales statewide. (Def’s Exs D at
26, F at 2.)
FINAL DECISION TC-MD 160113C 3 After making her adjustments to Plaintiff’s reported yearly net incomes, Leib averaged
the incomes for years 2011 to 2014, divided by the 8 percent capitalization rate, and concluded to
a value of $7.9 million under the income capitalization approach. (Def’s Ex D at 2.)
Leib’s sales comparison approach relied exclusively on unadjusted data from the sale she
identified as most similar to the subject property out of a list of 20 shopping center sales
occurring statewide in 2013 and 2014. (Def’s Ex F at 1–4.) That “most similar” sale was of a
124,774-square-foot shopping center on an 8.79-acre site in Gresham, which sold in June 2014
for $73.33 per square foot. (Id at 2.) By multiplying the subject property’s 106,149 square feet
of rentable area by $73.33, Leib concluded under the sales comparison approach to a value of
$7.8 million. (Id. at 4.)
Although Leib’s appraisal report concluded that the income capitalization method was
the more reliable indicator of value, Leib candidly testified that she believed the results yielded
by her analysis were incorrect and that the tax roll values were “closer to reality.” Thus, she
requested the tax roll real market value of $6,264,040 and tax roll exception value of $525,460
be sustained.
Plaintiff requested a tax roll real market value of $3.3 million and a tax roll exception
value of $100,000.
II. ANALYSIS
Because Plaintiff seeks affirmative relief from this court—namely, the reduction of the
subject property’s tax roll values—Plaintiff must bear the burden of proof.
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IN THE OREGON TAX COURT MAGISTRATE DIVISION Property Tax
LIGHTHOUSE SQUARE LLC, ) ) Plaintiff, ) TC-MD 160113C ) v. ) ) LINCOLN COUNTY ASSESSOR, ) ) Defendant. ) FINAL DECISION1
Plaintiff appealed the 2015–16 tax roll real market and exception values of property
identified as Accounts R236874 and R232164 (subject property).2 A trial was held on
October 26, 2016, in the Tanner Mediation Center of the Oregon Tax Court. David Emami,
MBA, appeared and testified on behalf of Plaintiff. Diana Emami, MBA, also testified for
Plaintiff. Kathy Leib, Oregon Registered Appraiser 3, appeared and testified on behalf of
Defendant. Plaintiff’s Exhibits 1 and 2 and Defendant’s Exhibits A to H were admitted without
objection. Plaintiff’s Exhibit 3 was admitted over Defendant’s objection.3
I. STATEMENT OF FACTS
The subject property was a shopping center in Lincoln City, consisting of multiple
buildings totaling 106,149 square feet on an 11.3-acre site. (Def’s Ex F at 2.) As of the
assessment date, 58 percent of that square footage was vacant. (See id.) The subject property’s
1 This Final Decision incorporates without change the court’s Decision, entered February 10, 2017. The court did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court Rule–Magistrate Division (TCR–MD) 16 C(1). 2 Plaintiff’s Complaint appealed only the former of those two accounts, which together constitute a single shopping center. At trial, Plaintiff requested leave to amend its Complaint to include the second account. The court allowed the amendment because Defendant did not object and the parties agreed that Plaintiff had appealed both accounts to the board of property tax appeals. 3 Defendant objected to the accuracy of a statement made by Plaintiff in its exhibit, but not to the exhibit’s timeliness.
FINAL DECISION TC-MD 160113C 1 net income had declined during each of the four years preceding the assessment date with the
departure of major tenants, including Goodwill Industries at the end of 2014. (Ptf’s Ex 2 at 3–6;
Def’s Ex D at 8.) Defendant had not taxed the portion of the property occupied by Goodwill
industries. As a result of that company’s departure, Defendant added exception value to the tax
roll in the amount of $525,460. (See Def’s Ex A at 15; D at 8.)
A. Plaintiff’s Evidence of Value
Plaintiff did not offer an appraisal or any written estimate of value into evidence. It
provided profit and loss statements for years 2011 through 2015, an August 2016 credit union
statement showing Plaintiff’s loan balance and two holdback accounts, a bid to replace five
rooftop heat pumps dated May 2013, a “photo log” dated December 2013 depicting a roof that
was penetrable by a screwdriver, damaged rooftop heat pumps, and other evidence of water
damage, and additional undated photographs of instances of rust and dry rot affecting the subject
property. (Ptf’s Ex 2 at 1–6, 7–8; Ptf’s Ex 1 at 50, 2–49, 51–63.)
David Emami testified to several factors tending to reduce the value of the subject
property. (See also Ptf’s Ex 1 at 1.) First, Plaintiff’s ability to lease up the subject property was
hindered by Lincoln City’s “big box ordinance,” which prevented Plaintiff from renting to
prospective major tenants. Second, the subject property’s physical characteristics limited leasing
options: different sections were at different elevations, preventing them from being combined for
larger tenants, and two sections were too narrow and deep to be divided for smaller tenants.
Third, the economy in Lincoln City was generally poor, resulting in less demand for commercial
space. And finally, the subject property’s improvements suffered from significant deferred
maintenance.
Plaintiff’s profit and loss statements included several categories of expenses, including
FINAL DECISION TC-MD 160113C 2 large expenses for the interest paid on holdback funds and for property taxes. (Ptf’s Ex 2 at 2–6.)
David Emami testified that, based on his experience as a developer, a 9.5 to 10 percent
capitalization rate was appropriate. Diana Emami testified to the result of her calculations of
value using capitalization rates of 8, 9.5, and 10 percent and the subject property’s 2014 and
2015 net income. She reached values of $3.8 million at an 8 percent capitalization rate, $3.2
million at 9.5 percent, $3.0 million at 10 percent. She reached lower values when she excluded
the income from departed tenants from her calculations. Diana Emami testified that, due to the
subject property’s age, the cost approach was not relevant in determining its value. With respect
to the sales comparison approach, she testified that her company was not aware of any shopping
centers with comparable vacancy rates being sold.
B. Defendant’s Evidence of Value
On behalf of Defendant, Kathy Leib prepared an appraisal using the income
capitalization and sales comparison approaches. In her income approach, Leib relied on the
profit and loss statements provided by Plaintiff but excluded expenses for “capitalized and
depreciated repairs,” “fire protection,” and “office expenses.” (Def’s Ex D at 1.) Leib included
property taxes from Defendant’s records as expenses because she had concluded that the figures
provided by Plaintiff were inaccurate. (Id.) Diana Emami testified that Plaintiff’s figures
included personal property tax as well as real property tax.
Leib used a capitalization rate of 8 percent. She testified that she based that number on
two sources: the capitalization rate used in a value appeal of the shopping center across the street
from the subject property, and the capitalization rate of the property she identified as most
similar to the subject property on a list of 20 shopping center sales statewide. (Def’s Exs D at
26, F at 2.)
FINAL DECISION TC-MD 160113C 3 After making her adjustments to Plaintiff’s reported yearly net incomes, Leib averaged
the incomes for years 2011 to 2014, divided by the 8 percent capitalization rate, and concluded to
a value of $7.9 million under the income capitalization approach. (Def’s Ex D at 2.)
Leib’s sales comparison approach relied exclusively on unadjusted data from the sale she
identified as most similar to the subject property out of a list of 20 shopping center sales
occurring statewide in 2013 and 2014. (Def’s Ex F at 1–4.) That “most similar” sale was of a
124,774-square-foot shopping center on an 8.79-acre site in Gresham, which sold in June 2014
for $73.33 per square foot. (Id at 2.) By multiplying the subject property’s 106,149 square feet
of rentable area by $73.33, Leib concluded under the sales comparison approach to a value of
$7.8 million. (Id. at 4.)
Although Leib’s appraisal report concluded that the income capitalization method was
the more reliable indicator of value, Leib candidly testified that she believed the results yielded
by her analysis were incorrect and that the tax roll values were “closer to reality.” Thus, she
requested the tax roll real market value of $6,264,040 and tax roll exception value of $525,460
be sustained.
Plaintiff requested a tax roll real market value of $3.3 million and a tax roll exception
value of $100,000.
II. ANALYSIS
Because Plaintiff seeks affirmative relief from this court—namely, the reduction of the
subject property’s tax roll values—Plaintiff must bear the burden of proof. See ORS 305.427.4
To bear that burden, Plaintiff “must establish by competent evidence what the appropriate value
of the property was as of the assessment date in question.” Woods v. Dept. of Rev., 16 OTR 56,
4 The court’s references to the Oregon Revised Statutes (ORS) are to 2013.
FINAL DECISION TC-MD 160113C 4 58–59 (2002). Examples of competent evidence include “appraisal reports and sales adjusted for
time, location, size, quality, and other distinguishing differences, and competent testimony from
licensed professionals such as appraisers, real estate agents and licensed brokers.” Yarbrough v.
Dept. of Rev., 21 OTR 40, 44 (2012). Taxpayer testimony is deficient where it relies on “lay
opinion, expert statements offered out of court without the possibility for cross examination, and
a lack of documentary evidence showing market data relating to the value of the subject
property.” Id. at 45.
In this case, the evidence submitted by Plaintiff did not include any market data relating
to the subject property’s value. Plaintiff relied exclusively on photographic evidence and the
subject property’s profit and loss statements. Plaintiff attempted to compensate for the lack of a
market-derived capitalization rate by offering the testimony of an experienced developer
regarding the likely capitalization rate in the subject property’s locale. However, in such matters
“[p]ersonal conclusions with no basis in actual market data are entitled to little or no weight.”
McKee v. Dept. of Rev., 18 OTR 58, 64 (2004). Plaintiff presented no evidence at all of the
correct exception value of the subject property. Plaintiff’s evidence is not sufficient to establish
the real market value or the exception value of the subject property.
Jurisdiction remains with the court to determine the correct real market value on the basis
of the evidence. ORS 305.412. Yet Defendant’s appraisal provided little basis for a roll
correction. Defendant’s sales comparison approach relied exclusively on a list of unadjusted and
unanalyzed sales comparables from across the state. Defendant’s income capitalization approach
did not include market data to establish the subject property’s net operating income. Defendant’s
capitalization rate was set to equal a single unadjusted sale in Gresham. Defendant’s appraiser
acknowledged the deficiencies in her report when she testified that she did not believe her report
FINAL DECISION TC-MD 160113C 5 yielded the correct value. The evidence before the court is therefore insufficient for a
determination of the subject property’s real market value.
III. CONCLUSION
Plaintiff did not bear its burden of proof, and the evidence before the court is insufficient
to determine the real market value of the subject property. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is denied.
Dated this day of March, 2017.
POUL F. LUNDGREN MAGISTRATE
If you want to appeal this Final 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 the Final Decision or this Final Decision cannot be changed. TCR-MD 19 B.
This document was filed and entered on March 2, 2017.
FINAL DECISION TC-MD 160113C 6