PROPERTY ASSESSMENT APPEAL BOARD FINDINGS of FACT, CONCLUSIONS of LAW, and ORDER Introduction Electronically Filed

Electronically Filed 2019-02-28 08:59:50 PAAB PROPERTY ASSESSMENT APPEAL BOARD FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER PAAB Docket Nos. 2016-077-00117C & 2017-077-00563C Parcel No. 181/00800-403-001 Wal-Mart Real Estate Business Trust, Appellant, vs. Polk County Board of Review, Appellee. Introduction This consolidated appeal came on for hearing before the Property Assessment Appeal Board (PAAB) on January 24, 2018, with a continuance for additional expert testimony on May 31, 2018. The parties filed post-hearing briefs and the record was closed as of November 2, 2018. Attorneys Paul Burns and Matthew Barnd represented Wal-Mart Real Estate Business Trust (Walmart). Assistant Polk County Attorney David Hibbard represented the Board of Review. Walmart owns a commercial property located at 1002 SE National Drive, Ankeny. The following table summarizes the subject property’s January 1, 2016 and January 1, 2017 assessments. (Exs. A & B). Assessment Year Land Buildings Total 2016 $5,310,000 $9,347,000 $14,657,000 2017 $6,372,600 $9,527,400 $15,900,000 Walmart petitioned the Board of Review claiming the subject property was assessed for more than the value authorized by law under Iowa Code section 1 441.37(1)(a)(1)(b) (2017). (Exs. 3, 6). The Board of Review denied the petitions. (Exs. 4, 7). Walmart reasserted its claim to PAAB. (Exs. 5, 8). Findings of Fact The subject property is a large commercial retail store built in 1999. It has 211,986 square feet of gross building area (GBA), which includes a greenhouse/garden center, and an auto care center. The 20.98-acre site is also improved with 528,000 square feet of paving. (Exs. A & B). Byron Tack, Director of Real Estate with the Polk County Assessor’s office, testified for the Board of Review and provided a history of the subject’s most recent assessments. Tack explained that in 2015 Walmart sold a portion of the existing parcel, which included an out-lot and an access drive. This sale resulted in a change from the 2015 assessment to the 2016 assessment. In 2017, the assessment changed again based on a countywide re-valuation. As part of the re-valuation, a sales-ratio study was conducted which resulted in an 8.5% increase to all commercial properties in Polk County. The record includes three appraisals valuing the property as of January 1, 2016, and January 1, 2017. Walmart submitted two appraisals, one completed by Chris Jenkins, CBRE, West Des Moines, Iowa (Ex. 1); and the other by Mike MaRous, MaRous & Company, Park Ridge, Illinois (Ex. 2). The Board of Review submitted an appraisal completed by Ranney Ramsey, Nelsen Appraisal Associates, Inc, Urbandale, Iowa. (Exs. C & D). All of the appraisers are qualified to appraise the property and testified at hearing. All of the appraisers concluded the highest and best use of the subject property, as improved, for both January 1, 2016, and 2017, is for continued single-tenant retail use. (Ex. 1, p. 68; Ex. 2, p. 12; Ex C, p. 66; & Ex. D, p. 66). Jenkins concluded the subject property is a good quality property in average condition; whereas in Ramsey’s opinion, it is an average quality property in good condition. (Ex. 1, pp. 39 & 76; Ex. C, pp. 56-57; & Ex. D, pp. 56-57). MaRous did not offer an opinion on the quality of the property, but believed it was in average condition. (Ex. 2, p. 11). 2 January 1, 2017 Appeal The following table summarizes the appraisers’ approaches to value and their respective conclusions as of January 1, 2017. 2017 Sales Income Cost Final Opinion Appraiser Approach Approach Approach of Value Jenkins $12,700,000 $12,100,000 $12,100,000 $12,300,000 MaRous $8,250,000 Not Developed Not Developed $8,250,000 Ramsey $15,500,000 $15,000,000 $15,000,000 $15,500,000 Jenkins Appraisal (2017) Jenkins identifies that the subject is located in a major retail corridor with nearby retail properties, including big-box stores, strip centers, convenience stores, and restaurants. (Ex. 1, p. 31). Based on demographics, he indicated demand for both comparable surrounding area retail properties and the subject will continue to be favorable. (Ex. 1, p. 44). He noted its size limits the potential pool of users. (Ex. 1, p. 10). Jenkins developed the sales comparison, income, and cost approach to value in developing his January 1, 2017 opinion of fair market value. Jenkins included seven improved properties for his sales comparison analysis. He testified that he focused on large, single-tenant retail stores in his search for comparable properties. He tried to avoid sales with long-term leases to national credit tenants, as well as vacant retail stores. On cross-examination, he stated he was attempting to value the property at market occupancy, market rent, and not assuming it’s vacant. In terms of tenancy, he was looking at a typical credit tenant. He indicated his sales included first-generation and second-generation sales. In Jenkins’ opinion, all of the sales were similar quality to the subject property. The following table is a summary of the comparables he relied on for his analysis. (Ex. 1, pp. 79 & 84). 3 Sale Building Sale Adjusted Address Date Sale Price Area (SF) Price/SF SP/SF Subject 211,986 1 - Agency St, Burlington, IA Apr-12 $8,542,0001 131,644 $64.89 $62.49 2 - NW 86th St, Johnston, IA Dec-14 $5,900,000 146,003 $40.41 $51.94 3 - Crest View Dr, Hudson, WI May-15 $3,800,000 89,557 $42.43 $51.90 4 - 32nd St, Port Huron, MI Feb-13 $9,796,179 193,590 $50.60 $62.85 5 - Golf Rd, Rolling Meadows, IL Sep-15 $24,300,000 259,302 $93.71 $65.63 6 - St. Patricks Dr, Perry, GA Jun-13 $13,861,500 152,720 $90.76 $67.74 7 - Willow Trail Pkwy, Norcross, GA Dec-15 $13,446,047 141,284 $95.17 $57.76 In Jenkins’ opinion, lease terms, length of the lease, and quality of the tenant significantly impact the price paid for a property. (Ex. 1, p. 80) He explained the quality of a tenant is more important to a buyer than the real estate itself when a long-term lease is in place. He contends the sale price has nothing to do with the fee-simple interest as they are buying into an income stream. In his opinion a shorter lease term lessens the impact of the lease and gets closer to the value of the real estate. The Board of Review asserts the market rent of the subject property would also be based on the length of the lease, which it believes would not be a short-term lease. Jenkins testified that a building like the subject property, if built-to-suit, would likely have a longer-term lease; however, if Walmart vacated the subject property, he believes it could be occupied on a short-term lease. Jenkins acknowledged that Walmart has occupied the subject property since it was built and to his knowledge they have no intent on vacating the property in the near future. Due to a lack of fee-simple sales, Jenkins explained he had to consider sales with leases in place. Sale 1 was a Lowes situated on a 31.85-acre site. Jenkins reported the existing 20-year lease was renegotiated into a 30-year lease at the time of sale, resulting in a remaining lease term of roughly 14 years. (Ex. 1, p.80) Sale 2 was a vacant former American TV store that “went dark in February 2014.” (Ex. 1, p. 81). Jenkins adjusted this sale upward 20% for conditions of sale 1 Sale 1 sold for $8,887,000 but was adjusted downward $345,000 to reflect capital improvement costs resulting in a net adjusted sale price of $8,542,000. (Ex. 1, p. 80). 4 because it “was sold by an owner under distress who went out of business and the price was believed to be discounted.” (Ex. 1 pp. 81 & 84-85). Sale 3 is Jenkins’ only sale under 100,000 square feet of building area. (Ex. 1, p. 84). Despite its size and Jenkins’ testimony that smaller properties tend to sell for more on a per square foot basis, we note this property’s sales price per square foot is the second lowest amongst Jenkins’ sales. At the time of sale it was 100% occupied and leased by Walmart, which had just exercised its first of five, 5-year renewal options extending its lease to January 2020. (Ex. 1, p. 81). This is the only lease that Jenkins adjusted upward, which he believed was necessary because of its lower than market lease rate. (Ex. 1, p. 84). He testified the shorter lease term lessens the impact of the tenant quality/lease terms on the sale price. Sale 4 is the most similar in size to the subject property and was a built-to-suit in 1992 for Super Kmart, which occupied the property. At the time of sale, there was just over 5 years left on the lease but with multiple 5-year options available. (Ex. 1, pp.81- 82). This sale required the lowest gross adjustment. (Ex. 1, p. 84). We note this sale had a significantly higher capitalization rate than any of the other sales Jenkins considered. We assume this is due to the well-known issues regarding Kmart store closures, which the other appraisers referenced in their appraisals and testimony.

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