Sustainable Investments, LLC I v. Dept. of Rev.

22 Or. Tax 42

• Court: Oregon Tax Court
• Decided: March 11, 2015
• Docket: TC 5213
• Status: Published

Opinion

42 March 11, 2015 No. 5 5 Sustainable Investments, LLC I v. Dept. of Rev. 22 OTR March 11, 2015

IN THE OREGON TAX COURT REGULAR DIVISION

SUSTAINABLE INVESTMENTS, LLC, Plaintiff, v. DEPARTMENT OF REVENUE, Defendant, and MARION COUNTY ASSESSOR, Defendant-Intervenor. (TC 5213) Plaintiff (taxpayer) appealed from a Magistrate Division decision as to the real market value of its developed lots in Marion County. Taxpayer argued for a lower value given several market forces that impacted the entire develop- ment project. Following trial, the court found that the appraiser for Defendant- Intervenor (the county) had provided no market evidence that indicated that potential purchasers of the lots would consider relatively small lots to be com- parable to much larger lots in other subdivisions by reason of the existence of a significant common area. Nor did the conclusion of the appraiser for the county seem reasonable in the absence of such proof. Therefore the court found that more probably than not, the values of the lots at issue were as concluded in the appraisal presented by taxpayer.

Trial was held August 25, 2014, in the courtroom of the Oregon Tax Court, Salem. Gordon R. Hanna, Garrett Hemann Robertson PC, Salem, argued the cause for Plaintiff (taxpayer). Scott A. Norris, Assistant Marion County Counsel, Salem, argued the cause for Defendant-Intervenor Marion County Assessor (the county). Decision for Plaintiff rendered March 11, 2015. HENRY C. BREITHAUPT, Judge. I. INTRODUCTION This property valuation case is before the court after trial. The year at issue is the 2012-13 year and the assessment date is January 1, 2012. Cite as 22 OTR 42 (2015) 43

II. FACTS There is no real dispute about the historical facts regarding the subject property, which may be summarized as follows. The zoning applicable to the property is “Fairview Mixed Use” (FMU). The property at issue is comprised of 127 residen- tial lots intended for single-family residences. The individual lots are contained in separate tax accounts. The lots at issue were all developed as part of the Pringle Creek Community, a development that brought a new level of environmentally sensitive residential develop- ment to the market. The evidence clearly establishes that the market did not respond positively to the effort. In fact, since the completion of the development of lots in 2012 only a few have sold, with no lot sales occurring between 2009 and the assessment date in 2012. The lack of positive response from buyers in the market appears from the record to be the result of three particular factors. First, the general size of the lots is quite small. While lot sizes offered to the market are consistent with the philosophy of the development and the zoning restrictions, the evidence shows that the buyers in the mar- ket desire fee ownership of larger lots. The existence of sig- nificant common areas and community facilities appears to have done little, if anything, to address concerns and desires of the buyers in the market with respect to lot size. A second factor contributing to the negative response of the market is the requirement that houses on the lots in question be constructed in accordance with environmentally sensitive standards. The evidence from the trial shows that construction costs are higher, often much higher, to achieve residence sizes with such features. This reality constrains the demand by contractors who would buy the lots with a goal of completing a residence house on the lot and offering the improved lot to the public. Nor have ultimate purchas- ers appeared with the willingness to buy a lot and incur the costs of construction of a house meeting the required standards. 44 Sustainable Investments, LLC I v. Dept. of Rev.

Finally, the timing of this development was such that the lots came to the market at the very same time as the city, state, and nation experienced a major set of eco- nomic shocks. The local as well as general effects of these shocks served to only magnify the downward pressure on values of the factors already discussed. One group of lots has an additional factor providing a downward force on value. This factor is the existence of archeological restrictions affecting the lots. Those restric- tions will involve the expenditure of some amount of money to assess what legal requirements exist with respect to fur- ther development. III. ISSUE The issue in this case is the impact of the market forces on the lots at issue and the fair market value of each such lot as of the assessment date. IV. ANALYSIS The problem faced by the appraisal experts who tes- tified in this matter was to determine the effect of the nega- tive factors discussed above on the real market value of the lots as of the assessment date. Neither appraiser concluded that the highest and best use of the property in question was other than its cur- rent use—that is, further development through construction of houses on the finished lots. It appears that the develop- ment decisions already made and reflected in the lot config- urations, streets and other features, together with existing zoning restrictions, would make abandonment of the exper- iment in environmentally sensitive development unfeasible. Each appraiser employed the comparable sales approach to valuation. The appraiser for Plaintiff (taxpayer) made adjustment to sales of properties that were consid- ered comparable except for lot size, a feature that appraiser established was important in the market. The appraiser for Defendant-Intervenor (the county) made no such adjustment. The basis for that position was that lot sizes were compara- ble when the significant common areas in the development were allocated to the residential lots. Cite as 22 OTR 42 (2015) 45

The appraiser for the county provided no evidence from the market that potential purchasers of the lots would consider relatively small lots to in fact be comparable to much larger lots in other subdivisions by reason of the exis- tence of significant common area. Nor does the conclusion of the appraiser for the county seem reasonable in the absence of such proof. This weakness in the appraisal presented by the county is of such significance that the court finds the appraisal to not be a reliable basis on which to conclude value for the lots. As to other areas of disagreement, especially with respect to the market impact of increased building costs and the downward effect of archeological problems, the appraisal presented by taxpayer is also more credible than that pre- sented by the county. V. CONCLUSION Accordingly, the court finds that more probably than not, the values of the lots at issue are as concluded in the appraisal presented by taxpayer. Counsel for taxpayer is directed to prepare and submit a form of judgment. Now, therefore, IT IS THE DECISION OF THIS COURT that the real market value of each of the lots at issue are as concluded in the appraisal presented by taxpayer as of the assessment date.