Macy's East, Inc. V. City of Nashua Docket No.: 20942-04PT
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Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT DECISION The “Taxpayer” appeals, pursuant to RSA 76:16-a, the “City’s” 2004 assessment of $13,720,500 (land $9,164,700; building $4,555,800) on Map A/Lot 737Q, an anchor department store consisting of a 126,141 square foot, two-story building on 8.63 acres of land (the “Property”) located in the Pheasant Lane Mall, a super regional shopping center. For the reasons stated below, the appeal for abatement is granted, but only to $11,037,000, (based on the City’s market value estimate of $13,000,000 equalized by the weighted mean ratio of 84.9%). The Taxpayer has the burden of showing, by a preponderance of the evidence, the assessment was disproportionately high or unlawful, resulting in the Taxpayer paying a disproportionate share of taxes. See RSA 76:16-a; Tax 201.27(f); Tax 203.09(a); Appeal of City of Nashua, 138 N.H. 261, 265 (1994). To establish disproportionality, the Taxpayer must show the Property’s assessment was higher than the general level of assessment in the municipality. Id. The Taxpayer carried this burden but only to the extent noted above. Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 2 of 24 The Taxpayer argued the assessment was excessive because: (1) the Property was a “Macy’s” anchor department store at the time of the assessment (but the Property was sold in July, 2006 to the mall owner and is slated for demolition); (2) an appraisal of the Property (the “Bouchard Appraisal,” Taxpayer Exhibit No. 2) was prepared by a well qualified MAI appraiser, Donald P. Bouchard of Lincoln Property Company, who is licensed in New Hampshire and other states and has considerable experience in valuing shopping centers, malls and anchor department stores within them; (3) using the income and cost approaches, and placing more emphasis on the income approach, the Bouchard Appraisal reconciled the market value of the Property to be $10 million (Taxpayer Exhibit No. 2, p. 125) as of the assessment date (April 1, 2004); (4) the City’s expert (Stephen G. Traub) agrees the highest and best use of the Property as of the assessment date is as an anchor department store; (5) the signed “PA-34” form and other evidence, including Mr. Bouchard’s communications with the buyer and seller, see Bouchard Appraisal, p. 4, indicates the subsequent sale of the Property to the mall owner (Simon) in July, 2006 for $7 million was a reasonable indication of its value at that time; and (6) when equalized by the median ratio (80%), the assessment should be abated to $8,000,000 for tax year 2004. The City argued: (1) an appraisal of the Property (the “Traub Appraisal,” Municipality Exhibit No. B) was prepared by a well qualified appraiser and certified New Hampshire assessor (CNHA), Stephen G. Traub, contracted by the City to appraise the Property; Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 3 of 24 (2) using primarily the income and cost approaches (and to a lesser extent the comparable sales approach), and placing the most emphasis on the cost approach, the Traub Appraisal reconciled the market value of the Property to be $13 million (Municipality Exhibit No. B, p. 79) as of the assessment date (April 1, 2004); (3) the rental estimate comparisons used in the Bouchard Appraisal (see p. 100) are flawed both because they do not include percentage rent, which can be significant and because they are a very small and selective sample from a region (New England) with many other malls and anchor department stores; (4) the cost estimate comparisons used in the Bouchard Appraisal are also flawed because they failed to consider the considerable site improvement costs of the Best Buy site in Nashua and Mr. Bouchard did not include the Lechmere sale for a Target store in the Pheasant Lane Mall; (5) the market extraction method used in the Bouchard Appraisal to estimate annual depreciation is excessive because it only looks at department stores that have been demolished rather than looking also at stores that continue to operate; (6) the subsequent sale of the Property to the mall owner (Simon) for $7 million is not a qualified sale for assessment purposes because it was part of a “bulk” sale of multiple stores and occurred in July, 2006, two years after the assessment date; and (7) the $13 million value of the Property estimated in the Traub Appraisal and the weighted mean ratio (84.9%) should be applied. The parties stipulated the board could take official notice (see RSA 541-A:33, V) of the evidence presented in another 2004 tax appeal involving The May Department Stores Co., d/b/a Filenes v. City of Nashua Docket No.: 21005-04PT . Both properties are anchor department Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 4 of 24 stores at Pheasant Lane Mall and the parties’ representatives and appraisers were the same in both appeals which were heard on consecutive days. Board’s Rulings The board first considered arguments regarding whether the weighted mean (84.9%, proposed by the City) or the lower median (80%, proposed by the Taxpayer) should be applied for the level of assessment. The City’s Chief Assessor (Angelo Marino) testified the City used the weighted mean in tax years 2002, 2003 and 2004 for all direct equalization functions and to use a different ratio for the level of assessment would lead to greater disproportionality. The Taxpayer argued, to the contrary, that the City used the median ratio in subsequent years and should do so for the Property in tax year 2004. For the reasons stated in Campbell v. City of Manchester, BTLA Docket Nos. 20086-03PT/20796-04 PT (February 16, 2007), the board agrees with the City and finds use of the weighted mean is appropriate for tax year 2004. Based on the evidence, the board finds the proper assessment to be $11,037,000 using the estimated market value of $13 million in the Traub Appraisal submitted by the City and the weighted mean (84.9%) as the level of assessment in tax year 2004. The appeal is therefore granted, but only to this extent. While the Taxpayer’s expert estimated a lower market value of the Property ($10,000,000) as of the assessment date, the board is unable to agree. The board must consider the evidence as a whole, not just the estimate of value presented by the Taxpayer, especially when the City had its own expert testify and submit an appraisal supporting a much higher estimate. See, e.g., Paras v. City of Portsmouth, 115 N.H. 63, 67-68 (1975). In Paras, the supreme court noted “all relevant factors should be considered . in order to arrive at a just result” and the board, “[a]s a quasi-judicial body, . must assess conflicting evidence, its Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 5 of 24 credibility, and the weight to be given the various portions thereof.” Id. In considering different approaches to value and examining conflicting expert testimony, the board can exercise discretion in evaluating and deciding, for example, how much weight each submitted appraisal is entitled to. Id. On balance, the board finds the Taxpayer failed to meet its burden of establishing the market value of the Property was $10 million and finds the City’s estimate of $13 million to be more credible. Before addressing more specifics, the board notes this appeal involves the same type of property, many of the same issues, the same taxpayer’s attorney (David G. Saliba), one of the taxpayer’s appraisers (Donald P. Bouchard) and, indeed, some of the same comparables as were entirely or partially presented in appeals of the Sears, Roebuck & Company and J.C. Penney anchor department stores in the City of Manchester for tax year 2004 and prior years: Sears, Roebuck & Company v. City of Manchester, Docket No.: 20820-04PT, decided February 26, 2008 (“Sears II”); Sears, Roebuck and Company v. City of Manchester, Docket Nos.: 19814- 02PT and 20026-03PT, decided March 28, 2006 (“Sears I”); and J.C. Penney Properties, Inc. v. City of Manchester, Docket No.: 20940-04PT, decided February 26, 2008 (“Penney”) (collectively, the “Manchester Appeals”). Many of the board’s findings in this decision will be the same or parallel to the findings in those decisions due to the similarity of the properties, issues and evidence submitted. As the arguments above summarize, both parties utilized the cost and income approaches to value the Property with the Taxpayer placing more weight on the income approach and the City placing more weight on the cost approach. As in the Manchester Appeals, the board finds Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 6 of 24 the cost approach, rather than the income approach, provides the most reliable estimate of market value.1 The board’s general finding in Sears I (at p. 5) relative to the income approach is equally applicable in this appeal. The income approach to value is applicable to properties that typically throw off a predictable income stream and to properties that are acquired as investments due to their income potential. In most instances, owner-occupied properties are not valued by the income approach because, by their very nature, they do not produce an income stream separate from the ownership interest in the property.