IN THE OREGON TAX COURT MAGISTRATE DIVISION Property Tax
PHILLY, LLC, ) ) Plaintiff, ) TC-MD 240189G ) v. ) ) HOOD RIVER COUNTY ASSESSOR, ) ) Defendant. ) DECISION
Plaintiff appealed the 2023–24 real market value of a health club undergoing renovations
as of the assessment date.1 Plaintiff was represented at trial by Alex Robinson of CKR Law
Group and called Owen Bartels, MAI, as a witness. Defendant was represented by Dominic
Carollo and Julie Poage of Carollo Law Group and called Anne Pulis-Tappouni, PhD (Critical
Studies), MAI, as a witness. The two experts’ appraisal reports were admitted as Plaintiff’s
Exhibit 1 (PE 1-126) and Defendant’s Exhibit A (DE 1-127).
I. STATEMENT OF FACTS
The subject account (subject) is the southern of two adjacent tax lots on which the Hood
River Athletic Club is sited. (PE 20-22.) It contains the improvements value for the entire club
building, as well as its own land value. The parties’ appraisers agreed in valuing the subject by
subtracting the northern lot’s land value from the total value of both lots together.2 Plaintiff
purchased the subject and the adjacent northern lot in December 2021 for $2,500,000 in a “cash,
arm’s-length, off-market transaction.” (DE 33; PE 11.)
///
1 The property at issue is identified as Account 9453 in Defendant’s records. 2 Dr. Tappouni’s appraisal assignment did not distinguish the two tax accounts; she stated her agreement with Mr. Bartels’s method of deducting land value at trial.
DECISION TC-MD 240189G 1 of 19 A. Physical Features and Renovations
The subject has been owner-occupied and operated as a health club since it was built in
1985. (DE 33; PE 24.) The club is housed in two connected structures totaling about 53,146
square feet:3 the tennis center (about 60 percent of the square footage) and the main building
(about 40 percent). (PE 24-25, 29; DE 38-42.) The tennis center is “an open-span, metal framed
warehouse building” without windows, heat, or air conditioning, looked over by a mezzanine
with an observation deck and a childcare room. (PE 29-30; DE 39-42.) The main building is
constructed around a grassy courtyard and contains workout rooms, locker rooms, and a lobby
area with a café and commercial kitchen. (PE 25-30, DE 38-42.) The club is served by a
parking lot with 52 or 55 spaces.4 (PE 32; DE 37.) As of the assessment date, its pool and hot
tub had been decommissioned and were slated for removal.
The main building was undergoing renovations on the assessment date. Work done from
2022 to 2023 included the addition of a new main entry façade, new lighting, upgraded flooring,
cabinets, and countertops in the lobby and kitchen areas, and conversion of racquetball and
squash courts into general fitness areas. (PE 24-28; DE 42.) Significantly, the renovations
included decommissioning and removing the subject’s swimming pool and hot tub, which “had
been causing moisture penetration problems throughout the structure.” (PE 24; DE 10.) The
renovations had mainly been completed by the assessment date, with the exception of removing
the decommissioned pool and converting the space into another workout room. (DE 42.) The
total contracted cost for the renovations, including work yet to be completed on the assessment
date, was $1,589,701.79. (DE 64.)
3 The court accepts Plaintiff’s square footage because Defendant’s “approximately 49,025 square feet” is taken from floor plans that “do not represent ‘as-builts.’” DE 38. 4 Mr. Bartels lists 55 spaces; Dr. Tappouni lists 52.
DECISION TC-MD 240189G 2 of 19 The appraisers divided on how much value the renovations added to the subject.
According to Mr. Bartels, many of the renovations were remedial to correct moisture damage,
and the loss of the swimming pool diminished the subject’s utility as a health club. He valued
the subject as if the renovations were 100 percent complete, because the data did not support
dividing the renovation costs between remedial and nonremedial work. Dr. Tappouni, in
contrast, concluded that all of the renovation costs added value because removing the swimming
pool freed the subject for other uses. She therefore reduced her final value by the contracted
costs of the renovations remaining on the assessment date (about $356,000). (DE 64-65.)
B. Appraisers’ Reports
Mr. Bartels prepared an appraisal report for Plaintiff, and Dr. Tappouni prepared an
appraisal report for Defendant. The two experts’ concluded values differed dramatically:
Mr. Bartels valued the subject at $2,750,000, while Dr. Tappouni valued it at $7,470,000 as 100
percent complete before making a $356,000 downward adjustment for projected remaining
renovation costs. (PE 72; DE 65.) The appraisers’ differences in chosen comparables and
approaches to value are rooted in their differing highest and best use conclusions.
1. Highest and best use
The subject’s commercial zoning allows for “commercial uses, industrial uses incidental
and essential to an on-site commercial use, parking lots, multi-family dwellings, professional
offices, and hostels.” (DE 43.) Manufacturing is allowed if the manufactured goods are “sold on
a retail basis out of the commercial use which is the storefront for such sale.” (Id.) Use as a
health club “is generally considered a commercial use and is therefore * * * legally permitted per
zoning.” (Id.)
DECISION TC-MD 240189G 3 of 19 Setting aside the subject’s current improvements, the subject site would support the
above uses “on a moderate scale.” (DE 43.) Mr. Bartels and Dr. Tappouni agree that if the
subject were vacant, its highest and best use would be as mixed-use commercial rather than as a
health club of the existing type. (PE 37; DE 43.) However, given the subject’s current
improvements, the appraisers’ conclusions vary.
Mr. Bartels concluded that the subject’s highest and best use as improved was continued
use as a health club. (PE 38.) He testified that conversion to an alternative use was not
“realistic” given parking and access issues. Vehicles entering the subject from the north-south
artery to the east must cross the neighboring property. (See PE 21; DE 36.) Mr. Bartels testified
that arrangement is by oral agreement between Plaintiff and the neighboring owner; he doubts
the agreement would be extended to allow truck access needed for larger commercial or
industrial use. Mr. Bartels further testified that elements of the renovation—such as the café and
commercial kitchen—would be superfluous for light industrial use. He concluded the subject’s
most probable buyer was another local or regional health club operator because the subject “does
not fit with brand standards for larger chains.” (PE 38.)
Dr. Tappouni determined that the subject’s highest and best use as improved was
“continued commercial use – either as a health club or other large-scale commercial use or
mixed use.” (DE 45.) She expands upon potential uses in her report:
“Ultimately it appears that continued use as a health club is potentially financially feasible, but may require some adjustment in business plan in order to be maximally productive. Alternative uses that may be productive could include large-scale retail outlet, a mixed commercial/manufacturing use such as brewery with retail area and tasting room, or other manufacturing business headquarters with commercial showroom space open to the public. Depending upon user requirements, the use could be enhanced by a retrofitted roll-up door or doors into the building’s metal component.”
DECISION TC-MD 240189G 4 of 19 (DE 44.) Thus, Dr. Tappouni views the subject’s highest and best use as encompassing a “health
club,” a “large-scale retail outlet,” a “brewery with retail area,” a “manufacturing business
headquarters with commercial showroom,” or another “mixed commercial/manufacturing”
enterprise.
2. Approaches to value
The two appraisers each prepared a sales comparison approach but disagreed about the
relevance of the other approaches. Mr. Bartels prepared a cost approach and did not develop the
income capitalization approach. He found insufficient data to determine a lease rate or
capitalization rate for a locally operated stand-alone health club; the only leased health clubs are
built to suit by brand-name chains. Dr. Tappouni prepared an income approach, but not a cost
approach. She found no reliable method of determining the depreciation of a 1985 building with
metal and masonry components and lacking in cost comparables.
a. Plaintiff’s appraisal
(1) Cost approach
Mr. Bartels valued the subject’s improvements using Marshall & Swift cost factors,
depreciated by over 80 percent. That depreciation included a 47.62 percent reduction for
physical deterioration, based on an effective age of 20 years with an expected life of 42 years.
(PE 70.) It also included a 27.6 percent reduction for functional obsolescence due to removal of
the pool, equal to the proportion of memberships canceled following the pool closure. (Id.)
Finally, it included a 10 percent reduction for external obsolescence from changes in the health
club market following the Covid-19 pandemic. (Id.)
The majority of Mr. Bartels’s cost approach analysis consisted of determining the
subject’s land value from adjusted comparable land sales. (PE 58-68.) He concluded to a land
DECISION TC-MD 240189G 5 of 19 value of $20 per square foot. (PE 67.) That value was his basis for concluding the northern lot’s
value was $810,000, a figure adopted by both parties as an acceptable deduction from the two
lots’ combined value as indicated by the sales comparison approach. (Id.)
Mr. Bartels’s cost approach conclusion was $2,560,000. (PE 71.) He testified he did not
place primary reliance on the cost approach, viewing it as a secondary check on the sales
comparison approach.
(2) Sales comparison approach
Mr. Bartels chose “health club properties” as comparables, also giving consideration to
“sports and recreation facilities.” (PE 43.) First among his sales comparables was the subject’s
sister club in The Dalles, which had been developed by the same operator. (PE 45-46.) That
57,981-square-foot facility sold in January 2022 for $2,095,000, or $36.13 per square foot. (Id.)
It included separate buildings for a swimming pool, tennis courts, and dance classes. (PE 46.)
Its sale price did not include an additional $200,000 allocation for business and intangibles. (Id.)
Mr. Bartels’s second comparable was a portfolio sale of two clubs in July 2021: a 30,000-
square-foot building in Milwaukie, and a 27,000-square-foot building in Clackamas. (PE 47.)
The two clubs sold together for $3,759,000, or $66 per square foot. (Id.) Both clubs contained
lap pools, fitness rooms, locker rooms, and multipurpose sport courts. (Id.) The sales price did
not include personal property, which was separately allocated. (Id.)
Mr. Bartels’s three remaining comparables were former health clubs that underwent
changes of use after sale. The 31,165-square-foot Highline Athletic Club in Burien, Washington,
was purchased by the Muslim American Youth Foundation for $115.46 per square foot and
subsequently used for a combination of athletic programming and classroom space. (PE 45.)
The 71,487-square-foot YMCA building in Eugene was purchased for $40.56 per square foot
DECISION TC-MD 240189G 6 of 19 and subsequently demolished except for its tennis center. (Id.) The 20,040-square-foot Olympic
Fitness Club in Port Orchard, Washington, was purchased by the county for $74.85 per square
foot and converted into temporary housing. (Id.)
Mr. Bartels adjusted his comparables’ sale prices for market conditions and qualitatively
evaluated their similarity to the subject on the bases of location, size, amenities, and
age/condition. (PE 51-54.) He considered the sister club in The Dalles inferior to the subject
because of its location, amenities, and condition; he considered the Eugene YMCA inferior
because of its larger size and poor condition. (PE 54.) His other three comparables he
considered superior because of their locations and smaller sizes. (Id.) After adjusting, he found
a price distinction between large-format and small-format clubs, with the former (the sister club
and the YMCA) selling for $38 to $43 per square foot and the latter selling for $71 to $126 per
square foot. (PE 55-56.)
Mr. Bartels concluded that the subject, as a recently remodeled large-format club, would
sell just below the range for small-format clubs, at $65 to $70 per square foot. (PE 56.)
Applying a “middle of the range” value of $68 per square foot, he determined that the value of
both lots was $3,610,000. (Id.) Subtracting $810,000 for the land value of the northern lot, he
concluded that the subject’s value was $2,800,000. (Id.)
(3) Plaintiff’s reconciliation
Mr. Bartels concluded to a real market value for the subject of $2,750,000, slightly
reducing his sales approach conclusion because of the lower value reached by the cost approach.
(PE 72.)
DECISION TC-MD 240189G 7 of 19 b. Defendant’s appraisal
Dr. Tappouni developed sales comparison and income capitalization approaches to
determine the subject’s value “as if completed,” then adjusted the reconciled value downward by
the projected remaining costs of the renovation as of the assessment date.
(1) Sales comparison approach
Dr. Tappouni included six comparables in her analysis, selecting renovated multi-use
spaces without swimming pools as comparables. She testified that it was essential to use
comparables without swimming pools because the subject was being remodeled to remove its
pool.
Two of Dr. Tappouni’s comparables had been previously used as either a health club or
an athletics facility. Comparable 5 was a health club before its sale to the Islamic Center of
Tacoma for a new use involving classrooms and athletic activities. (DE 49-50.) It was located
across the street from the Costco in Tacoma, Washington, and had 284 parking spaces and
69,546 square feet of recently renovated space; it sold for $158 per square foot in October 2022.
(Id.) Comparable 4 was a gymnastics center before its sale for $125 per square foot in January
2022. (DE 49.) It was a 27,224-square-foot building near the I-205/SR-500 interchange in
Vancouver, Washington, that sold vacant to a nonprofit organization and “is being considered for
possible resale to the City of Vancouver for re-purposing as a homeless shelter.” (Id.)
Dr. Tappouni’s other four comparables had never been used as health clubs or athletics
facilities. Her Comparable 1 was a 68,840-square-foot facility in Hillsboro, built to suit a
semiconductor-product manufacturer in 2020; it sold new for $170 per square foot. (DE 47-49.)
Her Comparables 2 and 3 were light industrial properties in Portland built in 2019 and 2020,
each about 50,000 square feet, and each selling for $156 per square foot in a portfolio. (DE 49.)
DECISION TC-MD 240189G 8 of 19 Her Comparable 6 was a 40,000-square-foot showroom building in Medford with “warehouse
space, large retail showroom, and sales offices.” (DE 50.) It was sold to its tenant—“an auto
parts, auto merchandise, and outdoor gear dealer”—for $130 per square foot in January 2023.
(Id.)
Dr. Tappouni qualitatively evaluated her comparables’ similarity to the subject in date of
sale,5 city size (“location”), situation relative to major streets (“frontage/access”),
quality/condition, presence of loading doors (“adaptability”), presence of a courtyard, and size.
(DE 51-52.) For example, she determined her second and third comparables were similar to the
subject overall after considering them superior to the subject in city size, quality/condition, and
presence of loading doors, but inferior in having sold over a year before the assessment date,
being situated on a cul-de-sac, and lacking a courtyard. (Id.) She determined that her
Comparable 4 was inferior to the subject, her Comparable 1 was superior, and the remaining two
comparables were similar. (Id.)
The range in sale prices of Dr. Tappouni’s similar properties was $130 to $158 per square
foot. (DE 53.) Considering that more sales occurred at the high end of that range, she chose
$150 per square foot in determining the subject’s value, leading to a calculated value of
$7,354,000 “as if completed.” (Id.)
(2) Income capitalization approach
Dr. Tappouni developed an income approach using eight lease comparables. (DE 55-58.)
Seven of the eight comparables were located in shopping centers, and seven were located in the
Portland metropolitan area. (Id.)
5 She did not make numerical adjustments for market conditions.
DECISION TC-MD 240189G 9 of 19 The two properties she considered most similar to the subject were a 24,583-square-foot
unit in Tigard operated by a batting cage franchise, and a 26,928-square-foot space in Gresham
operated as a trampoline park. (DE 55-58.) Those properties leased for $0.95 and $1.08 per
square foot, respectively. (Id.) Dr. Tappouni judged that both properties’ superior locations and
smaller sizes were balanced out by their inferior “quality/condition” and by “market conditions.”
Her remaining six comparables included three spaces leased to retailers and three leased
to Planet Fitness. The three largest properties were the ones leased to retailers: a 47,451-square-
foot freestanding building in West Linn leased to Parkrose Hardware at $0.79 per square foot; a
40,160-square-foot space in a two-unit freestanding building in Portland leased to JoAnn Fabrics
at $1.21 per square foot; and 30,163 square feet of anchor tenant space in the Hood River
Shopping Center leased to Cascade Farm & Outdoor at $1.50 per square foot. (DE 55-58.) The
three Planet Fitness properties were located in Portland, Beaverton, and Aloha. (Id.) They
ranged in size from 22,166 to 25,000 square feet and leased for $1.17 to $1.85 per square foot.
From her analysis of the above comparables, Dr. Tappouni determined the subject’s
market rent would be $1.00 per square foot. (DE 58.) She concluded to a capitalization rate of
7.00 percent after examining five sales of leased properties, including two health clubs: “Vasa
Fitness” in Colorado Springs, Colorado (7.22 percent) and Planet Fitness in Sherwood (7.05
percent). (DE 59-60.) She also consulted market studies of capitalization rates for retail spaces
(6.29 to 6.38 percent) and for regional malls (average 7.33 percent). (DE 61.) Her indicated
value “as if completed” under the income approach was $7,585,000. (Id.)
DECISION TC-MD 240189G 10 of 19 (3) Reconciliation and adjustments
Dr. Tappouni gave “moderate” weight to each of her two approaches, considering her
comparable data reliable while noting that the comparable sales included neither “relevant
comparables in the immediate subject market, nor buildings with the same specific mix of uses
or amenities.” (DE 63.) Her reconciled value was $7,470,000 as if completed. (Id.) Dr.
Tappouni reduced that “as if completed” value by $356,000—to $7,114,000—to account for the
portion of the renovations that remained unfinished on the assessment date. (DE 64-65.) At
trial, she accepted Mr. Bartels’s $810,000 deduction for the land value of the northern lot.
3. Tax roll and requested relief
Defendant placed a real market value of $3,854,690 on the 2023-24 tax roll, which was
upheld by the board of property tax appeals. (Compl at 3-4.) Plaintiff asks the court to reduce
that value to $2,750,000, the amount concluded by Mr. Bartels. Defendant asks the court to raise
that value to the amount concluded by Dr. Tappouni in her report, less $810,000 for the land
value of the northern lot conceded at trial: $6,304,000.
II. ANALYSIS
The issue before the court is the real market value of the subject for the 2023–24 tax year.
Real market value is defined as “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.” ORS 308.205(1).6 The
assessment date for the 2023–24 tax year was January 1, 2023. See ORS 308.007; 308.210.
Real market value “shall be determined by methods and procedures in accordance with rules
adopted by the Department of Revenue[.]” ORS 308.205(2). Three approaches to value must be
6 The court’s references to the Oregon Revised Statutes (ORS) are to 2021.
DECISION TC-MD 240189G 11 of 19 considered but may not be applicable in every case: the cost approach; the sales comparison
approach; and the income approach. Oregon Administrative Rule (OAR) 150-308-0240(2)(a)
(2023); see also Dept. of Rev. v. River’s Edge Investments, 359 Or 822, 827, 377 P3d 540 (2016).
Each party must bear the burden of proof to the extent it seeks an order changing the tax
roll. ORS 305.427. Thus, it falls on Plaintiff to prove a reduction of tax roll value is warranted,
and on Defendant to prove an increase. See id. The applicable standard is a preponderance of
the evidence. Id. This court “has jurisdiction to determine the real market value or correct
valuation on the basis of the evidence before the court, without regard to the values pleaded by
the parties.” ORS 305.412.
The parties’ 2023-24 real market value dispute stems largely from their appraisers’
disagreement about the subject’s highest and best use as improved. Mr. Bartels defines the
subject’s highest and best use as a health club, with an owner-operator as its most likely buyer.
Dr. Tappouni describes the subject’s highest and best use as encompassing retail, commercial,
and manufacturing uses. Those differing conclusions led the appraisers to different sets of
comparables.
A. Highest and Best Use as Improved
A property’s highest and best use sets “a critical framework” for selecting comparables
and is therefore “[t]he first question that must be addressed in a credible appraisal.” Hewlett-
Packard Co. v. Benton County Assessor, 21 OTR 186, 188 (2013), aff’d, 357 Or 598, 356 P3d 70
(2015). That is particularly the case “in times of general economic transition or transition in
particular industries,” where a highest and best use equal to the current use cannot be assumed.
Id. at 189.
DECISION TC-MD 240189G 12 of 19 Here, both Mr. Bartels and Dr. Tappouni agree that the health club industry was in flux
following the pandemic-related shutdowns beginning in 2020. They also agree that the subject’s
site would have been more profitably developed for another use if it were vacant on the
assessment date. Thus, it was incumbent on them to prepare highest-and-best-use analyses of the
site, rather than assuming that its current use was its highest and best. See Hewlett-Packard, 21
OTR at 189. Both appraisers performed that analysis, and both concluded the subject’s current
use was its highest and best use as improved. However, they characterized that current use at
different levels of generality.
The idea behind Dr. Tappouni’s broadly formulated commercial/industrial highest and
best use is that, without the swimming pool, the subject’s shell could conceivably be refitted for
a variety of purposes. Allowing that to be true regarding the structure, the subject’s use remains
limited by other factors. Its parking lot is too small for large-scale retail, and it is not located in a
shopping center that would support such a use. Likewise, its possibilities for manufacturing use
are limited both by its location and by its lack of truck access. Neither its metal-framed tennis
center nor its commercial kitchen is suited for office use. Those factors suggest the subject is not
interchangeable with other commercial or light industrial properties. Its highest and best use is
more specific than general commercial or industrial.
On the available evidence, the subject’s highest and best use is most likely as a single-
tenant, large-format health club. That was the subject’s current use on the assessment date, and
it was undergoing remodeling to continue in that use. While decommissioning the pool reduced
its utility as a health club, its commercial kitchen and façade were specifically configured for
health club use, as were its locker rooms and racquet sports court. Plaintiff’s investment in
continuing that use soon after purchase is indicative of how market participants viewed the
DECISION TC-MD 240189G 13 of 19 subject’s highest and best use on the assessment date. Its use was specifically as an
independently operated health club because it did not fit brand standards for health club chains.
Health club use is perhaps only marginally feasible—both appraisers agreed that vacant
land on the site would be developed differently—but it is the best-supported highest and best use
for the subject.
B. Approaches to Value
The subject’s highest and best use as a health club provides the framework for evaluating
the remainder of the parties’ appraisals. See Hewlett-Packard, 21 OTR at 188.
1. Cost approach
The chief importance of Mr. Bartels’s cost approach lies in the $20-per-square-foot land
value he concluded. From that, he computed a value of $810,000 for the 40,511-square-foot
northern lot, which he deducted from the two lots’ total value indicated by his sales comparison
approach. (PE 22; PE 67.) That deduction was accepted by all parties as an appropriate
adjustment to the sales comparison indication, and the court likewise accepts it.
The improvements value indicated by Mr. Bartels’s cost approach is unreliable due to the
subject’s age and the mismatch between its highest and best use as vacant and as improved.
Significant depreciation from cost to construct new is needed, with thin market data on which to
base it. Mr. Bartels estimated depreciation at over 80 percent. With that magnitude of
depreciation and scant evidence, the court places no weight on the cost approach except as a land
adjustment to other approaches.
2. Sales comparison approach
It is of primary importance that a comparable’s highest and best use be similar to the
valuation subject’s. Where the seller and buyer of a comparable use the property for different
DECISION TC-MD 240189G 14 of 19 purposes, it is the buyer whose usage best indicates the property’s highest and best use. Here, all
of Mr. Bartels’s comparable properties had been constructed as freestanding health clubs, but
only three (Comparables 1 and 2, the latter of which comprises two buildings) were purchased
for that continued use. Dr. Tappouni’s comparables included no sales of buildings to be used as
health clubs; only her Comparable 5 had been constructed for that purpose.7
The best comparables supplied overall are the two properties included in Mr. Bartels’s
Comparable 2, which were both sold for use as health clubs. Although they lacked the subject’s
area for racquet sports, that deficiency was partly balanced by their inclusion of multipurpose
sport courts and lap pools. Their smaller sizes were superior to the subject’s large size, as were
the larger markets available in their metropolitan locations, although their effective ages were
inferior. One could wish for better comparables, but the Comparable 2 properties support Mr.
Bartels’s concluded value range of $65 to $70 per square foot for the subject.
Mr. Bartels’s Comparable 1—the subject’s “sister club” in The Dalles—is comparable to
the subject before the renovation. It is located in a smaller market but is similar to the subject in
size, amenities, and age. Its unrenovated $36-per-square-foot sale price is relevant to the
subject’s value after renovation because it supports Plaintiff’s statement that the moisture
damage from the subject’s swimming pool was unknown at the time Plaintiff purchased it.
Comparable 1 had no such damage—its pool was in a separate building—and yet still sold for
less than the subject’s $47 per square foot.
7 Dr. Tappouni’s decision to exclude all properties with swimming pools appears to have unnecessarily contracted the set of sales from which she chose comparables. While physically similar buildings are preferable, physical features are only one factor in determining highest and best use, alongside legal rights, financial feasibility within a market, and risk. Overreliance on a swimming pool feature downplays the importance of other factors— such as truck accessibility and market demand for alternative uses.
DECISION TC-MD 240189G 15 of 19 While the athletic and educational programming to which Mr. Bartels’s Comparable 3
and Dr. Tappouni’s Comparable 5 were repurposed after sale might be analogous to health club
use, that fact is not established by the evidence. The fact that those properties were repurposed
from health club uses suggests the new uses were more productive in Burien and Tacoma. The
evidence does not show that such a use would be feasible for the subject in Hood River. Those
comparables’ respective $115- and $158-per-square-foot sales prices are not helpful indicators.
None of the other athletic facilities or health clubs proposed as comparables by the appraisers
were purchased for use of the existing improvements as anything like a health club.
Dr. Tappouni’s remaining sales are not comparable to the subject. None had ever been
used for a purpose remotely similar to a health club, and none were purchased for such a use.
Three were newly built light industrial facilities, including a built-to-suit semiconductor product
manufacturing facility. The fact that they were newly built suggests that, unlike the subject,
there was no mismatch between their highest and best uses as vacant and as improved. The
fourth was an auto parts retail store with a warehouse. The evidence does not show that
manufacturing, retail, or warehouse use would be viable for the subject given its parking and
street access.
A good sales approach includes “sales adjusted for time, location, size, quality, and other
distinguishing differences.” Yarbrough v. Dept. of Rev., 21 OTR 40, 44 (2012). Mr. Bartels
adjusted for time, but both appraisers otherwise limited themselves to qualitative comparisons of
selected property traits due to lack of hard data. Mr. Bartels compared location, building size,
amenities, and age/condition, which are all fairly standard factors to consider. Dr. Tappouni’s
list separated out two aspects of location—city size and street access—and two forms of
DECISION TC-MD 240189G 16 of 19 amenity—loading doors and courtyards. She also included “date of sale” (i.e., market
conditions) among the qualitative factors.
Dr. Tappouni’s qualitative evaluation appears distorted by its inclusion of multiple
location and amenity factors, as well as by its inclusion of date of sale. She appears to have
given equal weight to each of her factors in assessing each comparable’s overall similarity—in
every case, the comparable’s overall similarity corresponds to whether a greater number of
factors are deemed “superior” or “inferior.” For instance, she judged that her Comparables 2 and
3, both newly built industrial properties, were similar to the subject overall and finding them
superior in three traits (city size, age/quality, and presence of loading doors) and inferior in three
traits (market conditions, proximity of major streets, and presence of a courtyard). If she had
made a quantitative adjustment for market conditions and thus removed it from her qualitative
comparison, there would have been one more superior factor than inferior; might the buildings
have then been deemed superior overall? It is also doubtful that the subject’s market values a
courtyard as equivalent to location or quality—at least, no evidence has been presented that it
does—yet they receive equal weight in Dr. Tappouni’s comparison.
Recognizing that the subject is difficult to value because of limitations in the available
evidence, the court finds Mr. Bartels’s sales comparison approach more credible than Dr.
Tappouni’s, because his chosen comparables better aligned with the subject’s highest and best
use and his adjustments and comparisons were more relevant to market value.
3. Income capitalization approach
Evaluating the subject using the income approach requires data showing the lease rates of
similar properties, but highest and best use differences limit the reliability of the data provided.
DECISION TC-MD 240189G 17 of 19 The comparable leases supporting Dr. Tappouni’s income approach included three
national franchise-branded health clubs in metropolitan shopping centers. Because the subject
does not meet brand standards for any of the national chains, it is not a substitute for any of those
three properties. Dr. Tappouni recognized that those three comparables were significantly
superior to the subject, with average lease rates over 40 percent higher than her concluded lease
rate for the subject, but even so they are not good indicators of the subject’s market lease rate.
The other comparable leased properties were not in use as health clubs of any type. The
two deemed most similar to the subject were a batting cage and a trampoline park. Because they
do not share the subject’s highest and best use, they are not reliable indicators of the subject’s
value.
Lacking lease data from properties sharing the subject’s highest and best use, the income
approach is unreliable, and the court gives it no weight.
C. Reconciliation
Mr. Bartels’s sales approach is the most credible value determination presented to the
court because he correctly identified the subject’s highest and best use and found comparables
consistent with that use. His cost approach to the improvements value was too speculative and is
given no weight. Dr. Tappouni’s appraisal report is flawed by its overly broad highest and best
use conclusion, which resulted in sales and lease comparables that were not relevant.
The subject’s recent $2,500,000 sale price and projected $1,590,000 cost of renovation
suggest a real market value of no more than $3,280,000, with the true value likely less because
some renovations remediated moisture damage and removed the pool, reducing the subject’s
utility as a health club. While the subject’s arm’s-length sale to Plaintiff was off-market, its
reasonableness is supported by the sister club’s market sale in The Dalles. Dr. Tappouni’s
DECISION TC-MD 240189G 18 of 19 modified concluded value of $6,304,000—to which Defendant requested the roll value be
raised—is unmoored from the actual, arm’s-length transactions undertaken by the subject’s
owners. Mr. Bartels’s sales approach conclusion of $2,800,000 is more credible.
With few market transactions involving health clubs, the court finds little ground for
differing from Mr. Bartels’s sales approach conclusion. Furthermore, the court agrees that the
remaining work to be done on the assessment date was not value-adding and finds that the
subject’s 2023-24 real market value incorporates all the value of the renovations.
III. CONCLUSION
The best available evidence supports a 2023–24 real market value of $2,800,000. Now,
therefore,
IT IS THE DECISION OF THIS COURT that the 2023–24 tax roll real market value of
the property identified as Account 9453 is $2,800,000.
POUL F. LUNDGREN 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 Poul F. Lundgren and entered on November 19, 2025.
DECISION TC-MD 240189G 19 of 19