Staff Report for 2019 State Board of Equalization

September 25, 2019 File No.: 2019- BISMARCK-KOHLS Prepared by: Property Tax Division County or City: City of Bismarck Appellant: Kohl’s Department Store Issue: Protests the assessment of parcel number 0756-001-150.

Summary: Christopher Stafford, attorney for Kohl’s Department Stores, protests the assessment on the department store located in Bismarck, he believes the assessment is too high.

Analysis: The subject property is an 88,263 sq. ft store located in a major shopping area in Bismarck. It was built in 2005 and is currently assessed for $7,960,500, as approved by the City of Bismarck Board of Equalization and the Burleigh County Board of Equalization. The appeal addresses the assessment is excessive because of the decline in brick and mortar store shopping. The appellant cites the store is not meeting company performance expectations and that Kohl’s has been redesigning new stores to a smaller footprint. Kohl’s has appealed in four jurisdictions: Bismarck, Fargo, Grand Forks and Minot. At the time of appeal to the city boards of equalization, Kohl’s provided last minute information to the city assessor. The city assessors, along with the county tax directors, compiled information together to justify their assessments.

The cost approach provided by the appellant, using Marshall & Swift, indicated a starting value of $6,058,216. Using a 32.5% physical depreciation, 15% store sales decline obsolescence, and a 25% reduced footprint obsolescence, the appellant provided a total building value of $1,666,009. A value of $65,000 was added for 266,000 (appx) sq. ft of curb and paving/parking lot. With the land, from the assessor, added into the final value, the appellant is providing a $4,593,309 cost. They are requesting $5,250,000 assessment. The Bismarck City Assessing Office provided a cost approach using the Vanguard Appraisal manual. Their cost includes the land, building, and yard extras. The property received a physical deprecation and a functional obsolescence factor. The appellant used the Marshall & Swift cost guide to provide the cost approach but failed to use the correct depreciation amount as provided in the manual. The correct amount of deprecation for the subject property’s real estate should be 18% (with effective age) as provided in the same manual. The appellant’s approach also did not include a mezzanine and did not realize the full value attributed to nearly 266,000 (appx) sq. ft of parking. All of the appeals submitted by Kohl’s did not include the correct amount of physical depreciation on the building and did not consider the full value attributed to paving/parking.

A list of sales from the Midwest region was provided by the local jurisdictions. The sales indicated a range of $68 to $119 per sq. ft, with a median of $92. The City of Grand Forks Assessor, Mr. Paul Houdek, provided a copy of a Kohl’s recent market listing (2017) offered at $8,300,000 or $94 per sq. ft. The City of Minot Assessor, Mr. Kevin Ternes, provided the purchase price for a Kohl’s store from 2015, in the amount of $6,644,500, for a per sq. ft value of $87 (appx). The appellant provided sale information for the Gander Mountain sale in Fargo, and in Grand Forks. The appellant’s packet of information indicates that the transaction for Gander Mountain is not considered an arm’s length transaction. All the jurisdictions involved concur that the sale was considered a “distressed” sale. The Shopko sale was also due to restructuring and ultimately filing bankruptcy.

The income approach was reviewed, as submitted by both parties. The income approach as provided by the appellant uses the sales of Gander Mountain and Shopko. They also use recent transactions from Kohl’s across the . The appellant indicates that a 9% capitalization rate and a $6 per sq. ft lease rate should be used. Both comparisons provided by the appellant are considered distressed sales. The jurisdictions involved provided lease information, gathered from the Midwest region, which indicate a range from $8 to $14 per sq. ft, and should be considered most similar to the market. The Kohl’s listing, provided by the city of Grand Forks, advertised a 7.25% capitalization rate and rental rates at $8.73 per sq. ft.

Information provided by the Burleigh County Tax Director, Mr. Allan Vietmeier, indicated a higher net operating income from 2017-2019 while realizing lower expenses for the same time period for the Bismarck location. No other income information was provided from Kohls. Each county responding to the Kohl’s appeal provided a comparison, of all the Kohls located in North Dakota, to the value per sq. ft, all which fall in the ranges of $87.86 to $99.87. The lowest being a building built in 1993. The subject property is at $90.19.

Upon completion of the review, the information gathered by the Property Tax Division supports the assessment of $7,960,500, as approved by the city and county.

Recommendation: No change recommended.