Bainbridge Ltd. v. Dekalb Cnty. Tax Assessors

• Decision Date: 15 February 2022
• Docket Number: A21A1808
• Parties: BAINBRIDGE LTD., L.P. v. DEKALB COUNTY TAX ASSESSORS.
• Court: Georgia Court of Appeals

362 Ga.App. 654

869 S.E.2d 606

BAINBRIDGE LTD., L.P.

v.DEKALB COUNTY TAX ASSESSORS.

A21A1808

Court of Appeals of Georgia.

February 15, 2022

Coleman Talley, Thompson Kurrie Jr., Kayla Hope Barnes, Valdosta, Edward Fowler Preston, for Appellee.

Matthew Christopher Welch, Atlanta, Clark Ellison Candler II, Decatur, Bennett Davis Bryan, for Appellee.

Miller, Presiding Judge.

In this dispute between Bainbridge Limited L.P. ("Bainbridge") and the DeKalb County Tax Assessors ("the County") concerning the amount of ad valorem tax of a rent-restricted apartment complex, Bainbridge appeals from the trial court's final order declaring the fair market value of the apartment complex for the 2018 tax year. On appeal, Bainbridge argues that (1) the County's witnesses failed to apply the negative impact of the restrictive covenants and higher operating costs of the apartment complex in its fair market value analysis; (2) the County's witnesses failed to make a deduction for economic obsolescence in its fair market value analysis; (3) the trial court erred by denying its motion in limine to exclude the testimony of one of the County's witnesses; and (4) the trial court erred by denying its request for attorney fees under OCGA § 48-5-311. For the reasons that follow, we affirm in part, vacate in part, and remand this case for further proceedings.

"On appeal from a superior court [in a tax exemption dispute], this Court accepts the superior court's findings of fact unless clearly erroneous but applies a de novo standard of review to the court's application of the law to those facts as well as to its legal conclusions." (Citation omitted.) Cherokee County Bd. of Tax Assessors v. Mason , 340 Ga. App. 889, 890, 798 S.E.2d 32 (2017).

The record shows that Bainbridge owns Granite Crossing Apartments ("Granite Crossing"), which is located in Lithonia, Georgia. The construction of Granite Crossing was partially financed with low-income housing tax credits ("LIHTC") awarded to it by the Georgia Housing and Finance Authority, and in exchange for the tax credits, 74 units at Granite Crossing were reserved for low-income tenants who pay rent below the market rates. Construction on Granite Crossing began in 2017 and was completed after January 1, 2018. Granite Crossing's assessment for the 2018 tax year was $11,801,800. Bainbridge appealed the assessment to a hearing officer, who determined that the property's fair market value was $10,707,500. Bainbridge then appealed the hearing officer's decision to the DeKalb County Superior Court, and the superior court set the matter for a bench trial.

At trial, Calvin Hicks, the chief appraiser for DeKalb County, testified that he relies upon OCGA § 48-5-2 and various administrative rules in determining a property's fair market value. Specifically, he noted that Ga. Comp. R. & Regs. r. § 560-11-10-.09 required appraisers to consider various approaches when appraising real property, including the income approach and the cost approach, and he stated that the particular approach employed would depend on the availability of reliable data and the type of property being appraised. He explained that, for the income approach, an assessor would need properties with comparable market rents and expenses and that it may be "questionable" to use the income approach to assess a property if that information were not available. According to Hicks, the cost approach is the best approach to use to assess a low-income housing tax credit property because it is the only approach with the necessary available information to render an opinion of the property's value. As to the factors listed in OCGA § 48-5-2 which assessors use to assess a property, Hicks testified that he requires his assessors to consider each factor in the statute in determining which approach to use and whether each factor applies in assessing a property. As to Granite Crossing, Hicks testified that he did not believe that the factors listed in OCGA § 48-5-2 (3) (B) (vi), rent limitations and higher operating costs, applied when using the cost approach. He also testified that rent restrictions and higher operating costs would not constitute economic obsolescence because the arrangement regarding restricted rent is a matter of contract and is within the owner's control.

Geoffrey Johnson,¹ the commercial appraiser supervisor for the DeKalb County Tax Assessor's Office, conducted an appraisal of Granite Crossing using the cost approach. According to Johnson, most of the reliable data supported the use of the cost approach to determine Granite Crossing's fair market value. Regarding the factors listed in OCGA § 48-5-2, Johnson testified that he considered each criterion to determine if each was relevant in determining the fair market value and that not all of the factors were relevant. Specifically, he considered rent limitations and higher operating costs resulting from regulatory requirements imposed on the property, and he determined that these two factors were not relevant in assessing Granite Crossing's fair market value because there was no line item for using those factors under the cost approach. Johnson described economic obsolescence as negative influences on a property that are external to the property and beyond the control of the property owner. Johnson testified that rent restrictions and higher operating costs for low-income housing tax credit properties do not constitute economic obsolescence under the cost approach because those factors are not external to a decision made by the parties or the property owner, and in this case, Bainbridge received something in return for its agreement to reduce the rental rates which was why he did not have a line item for economic obsolescence. In Johnson's opinion, Granite Crossing's fair market value was $14,226,785. Johnson testified that he did not use the income approach because Granite Crossing was still under construction as of January 1, 2018, and that the income approach is not the best approach to use for a property still under construction because there is very little reliable data available to develop an accurate valuation of the property.

Bainbridge presented testimony from Glen Bamberger, the chief financial officer for Wendover Housing, who prepared the application for Bainbridge's funding in 2015. Bamberger acknowledged that Granite Crossing was not issued a certificate of occupancy until February 1, 2018. Bamberger testified that, in his opinion, Granite Crossing's fair market value was $1,000,000 under the income approach.

Bainbridge also presented testimony from Brian Walsh, an employee of the VSI Appraisal Group in Ohio, who testified that Granite Crossing's stabilized fair market value as of January 1, 2018 was $3,700,000. He testified that the cost approach is unreliable for low-income housing tax properties because "the market rent to develop a property new does not meet the cost to develop that property," and that the income approach was the better approach to use to determine the fair market value.

Following the trial, the trial court entered an order declaring Granite Crossing's fair market value for the 2018 tax year to be $14,226,785 under the cost approach. Specifically, the trial court concluded that the cost approach was the appropriate method for determining the property's fair market value because its data was more reliable and because the property was still under construction as of January 1, 2018. Additionally, the trial court also denied Bainbridge's motion in limine to exclude Geoffrey Johnson's testimony after concluding that the testimony was based upon reliable methods, and it also denied Bainbridge's motion for attorney fees under OCGA § 48-5-311. This appeal followed.

1. First, Bainbridge argues that the County's witnesses failed to apply the negative impact of the restrictive covenants and higher operating costs of the apartment complex in determining Granite Crossing's fair market value. We agree that the trial court erred by concluding that the County's witnesses were not required to account for the restrictive covenants and higher operating costs in determining the fair market value under OCGA § 48-5-2 (3) (B).

All property must be returned for taxation at its fair market value. OCGA § 48-5-6. A county's appraisers are required to "base their decisions regarding the taxability, uniform assessment, and valuation of real property on the circumstances of such property on January 1 of the tax year for which the assessment is being prepared." Ga. Comp. R. & Regs. r. § 560-11-10-.09 (1) (b) (2) ; see also OCGA § 48-5-10 ("Each return by a taxpayer shall be for property held and subject to taxation on January 1 next preceding each return."). "The essence of this duty is to see that all taxable property within the county is assessed and returned at its fair market value and that fair market values as between the individual taxpayers are fairly and justly equalized so that each taxpayer shall pay as nearly as possible only such taxpayer's proportionate share of taxes." (Citation omitted.) SJN Properties, LLC v. Fulton County Bd. of Assessors , 296 Ga. 793, 800 (2) (b) (ii), 770 S.E.2d 832 (2015).

To determine whether the County was required to account for the impact of the restrictive covenants and the higher operating costs in determining Granite Crossing's fair market value, we are required to construe OCGA § 48-5-2. OCGA § 48-5-2 (3) defines "fair market value" as "the amount a knowledgeable buyer would pay for the property and a willing seller would accept for the property at an arm's length, bona fide sale[,]" and it provides a list of factors that tax assessors "shall apply " in determining fair market value. These include (1) "Existing zoning of property"; (2) "[e]xisting use of property"; (3) "[e]xisting covenants or restrictions in deed dedicating the property to a particular use"; (4) "[r]ent limitations, higher operating costs resulting from regulatory...