Collector of Cook County, Application of

Decision Date29 September 1987
Docket NumberNo. 85-555,85-555
Citation515 N.E.2d 731,161 Ill.App.3d 860
Parties, 113 Ill.Dec. 746 In re the Application of the COLLECTOR OF COOK COUNTY (The Collector of Cook County, Applicant-Appellant,v. Illinois Bell Telephone Company, Objector-Appellee).
CourtUnited States Appellate Court of Illinois

Richard M. Daley, States Atty., Chicago, Henry A. Hauser, Mark R. Davis, of counsel, for applicant-appellant.

Thomas P. Hester, James R. Bryant, Jr., Michael J. Karson, John C. Gockley, Chicago, for objector-appellee.

Presiding Justice SCARIANO delivered the opinion of the court:

The Collector of Cook County ("Collector") appeals from a decision of the circuit court reducing the Cook County Assessor's valuation of certain property owned by appellee, Illinois Bell Telephone Company ("Bell"), located at 10 South Canal Street in the city of Chicago. When the Assessor made his 1974 quadrennial assessment, the total fair market value of Bell's land and building was fixed at $20,786,433; however, when the property was reassessed one year later, the Assessor increased the value of the building to $47,864,312, although the land value remained the same at $2,205,495. Bell paid the 1975, 1976 and 1977 real estate taxes on the property under protest, and filed timely valuation complaints with the Board of Appeals, which sustained the assessment.

After the Collector initiated this application, Bell filed timely objections to the assessment in the circuit court. The trial judge found that by the end of 1974, Bell "had over $49 million invested in the building," and he commented that the Assessor's estimated market value for the year 1975 was "reasonably close to the actual investment made in the improvement by Illinois Bell." Nevertheless, he reduced the valuation on the entire property to $23,600,000 for 1975, and, applying Bell's expert appraiser's estimated increment value of five percent per year, the judge further determined the fair market value of the property to be $24,832,500 for 1976 and $26,015,000 for 1977. The only issue we need to address on appeal is whether, under the circumstances of this case, the trial court erred in holding that the approach to valuation of the 10 South Canal Street building for ad valorem tax purposes was "purely a question of law" to be determined by the judge. We reverse.

Thomas Leonard, a clerk in the Cook County Assessor's Audit Department, whose function was to correct the Assessor's "Form 4905" to reflect the appropriate value for realty, prepared such a form for the Bell property. A "Form 4905" is a worksheet upon which the specific characteristics of a building are matched to specific costs in order to calculate a total cost for the building. Leonard, who was called as a witness by both parties, testified before the trial court that he did not inspect the building nor see any of the plans and specifications pertaining to it prior to filling out the Form 4905, but simply copied information from a previous form. Leonard admitted that he had no opinion of the value of 10 South Canal Street either before or after he completed the form, and that one of his superiors gave him a figure to arrive at in determining the value because the previous Form 4905 for that building was voided.

His supervisor also told him to use whatever factors and adjustments were necessary to attain the requested figure. In so calculating, Leonard multiplied the costs given for framing, excavating, basement floor, and roof cover by 2.5 as a "construction adjustment factor." He conceded that the highest construction adjustment factor allowed in the Cook County Assessor's Manual was 1.3, and that the Manual did not permit any construction adjustment for multi-story buildings such as the one that forms the subject matter of this case. He could not explain why the use of a construction adjustment was warranted. Leonard also applied a 1.5 grade adjustment to all components of the building, including those that had been subject to the construction adjustment.

Bell called two real estate appraisers, John Shanahan and Jared Shlaes, as expert witnesses. Shanahan testified that the "highest and best use" of the structure at issue herein was as an "office and computer building," which he equated with its present use. He estimated that the replacement cost of the building would be $35,000,000, but that its fair market value was between $20,000,000 and $21,000,000. Shanahan did not know how much it had actually cost to erect the building, nor did he inquire of anyone at Bell as to what the construction costs were, although he thought it important enough to obtain such cost data from the owners of other buildings. Shanahan also did not believe that the structure could be classified as "special purpose" property, which he defined as property that had to be designed for a specific use, had no discernible alternative market and for which the cost of conversion to an alternative use was prohibitive.

Shlaes testified that the highest and best use of the property was as an "office and computer building," and he noted in a written report that its best use was its present use. He was aware that the "hard cost" of building the edifice was approximately $42,000,000 and that the cost would have been greater in 1975-77 than in 1971. He also indicated that it would cost about $10,500,000 to install windows in floors 3 through 20, which had been constructed without glazing, thereby making the building more suitable for general office space. Despite its initial cost and the conversion expense, Shlaes concluded that the 10 South Canal Street property had a market value of between $20,000,000 and $22,000,000, based on its highest and best use. Shlaes agreed with Shanahan that the building could not be categorized as special purpose, and defined that term as a structure with a purpose so limited that the property has no market or that there would be excessive cost in converting it to another use.

Robert Kelly, Assistant Supervisor of the Industrial-Commercial Department of the Assessor's Office, testified as an expert appraiser on behalf of the Collector, and was accepted as such by the trial judge. Kelly inspected and appraised 10 South Canal Street in December 1981, and prepared a Form 4905 for use in the instant litigation. He was aware that the structure cost approximately $50 million to build in 1970-71. Using the reproduction cost approach, Kelly opined that the market value of 10 South Canal Street was approximately $47,000,000 as of 1977. In arriving at this figure, he utilized the State of Illinois Assessor's Appraisal Manual issued in August 1976, and adopted by the Cook County Assessor's office on January 1, 1977. The state manual was more current than the Cook County Assessor's Manual, which had not been updated since 1974. Kelly testified that assessing officials were not bound by any particular manual, and that he therefore used several sources to verify his cost estimate.

In preparing the Form 4905, Kelly used different classifications for pricing different components. For example, he classified the building as "commercial" when he priced the heating, ventilating, plumbing, sprinkler and air-conditioning systems; "office" when pricing the electrical system; and "institutional/utility" when pricing the framing. He acknowledged that the 16' 6"'' ceiling heights of the Bell property were functionally obsolete. Kelly testified further that he used the reproduction cost method of valuation because he believed the 10 South Canal Street building to be "special purpose" property, which he defined as property which has no independent marketability, and which cannot be converted to other uses without a large capital investment. He estimated that it would cost 11 million dollars to convert the property to an office building, and he opined that such a large capital outlay was indicative of special purpose. However, Kelly agreed with Shanahan and Shlaes that 10 South Canal Street had other possible uses, including those of office, computer, storage or exhibition space, and that there was a market for these uses in the greater Loop area between 1975 and 1977.

Kelly's belief that the building was a special purpose property was predicated upon what he characterized as the exceedingly unique nature of the structure. The building was designed as a toll, or long-distance, switching center at a time when tall mechanical "cross-bar" computers did the switching. Floors 3 through 20 were built with 16' 6"'' high ceilings and no windows to accommodate the cross-bar switching equipment. The 21st through the 27th floors, which included windows, were intended to be used originally as office space, but were designed and built with floor loads and ceiling heights capable of handling more switching equipment. The 28th floor was designed to house power equipment, and the 29th floor was built for the radio equipment associated with the microwave disc on the roof, which was used to transmit telephone signals. The building contained 832,186 feet of gross building area built on a site of 49,687 square feet. The trial court found that construction on what it described as the "29 story and basement steel and concrete structure" at 10 South Canal Street began in 1966, was substantially completed in 1971, and that by the end of 1974, Bell had over $49 million invested in the building.

The invention of integrated circuits gave rise to Electronic Switching Systems ("ESS"), a technological breakthrough which had five times the capacity of cross-bar switches and occupied half the space. This new technology could be installed in buildings with the standard 12-13 foot ceiling heights. The ESS equipment was first used for long-distance service at 10 South Canal Street in January 1976. Had the ESS technology been available at the time of construction, the building conceivably could have been 20% shorter....

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