In Re Appeal of Winston-Salem Joint Venture

• Decision Date: 17 July 2001
• Docket Number: No. COA00-912.,COA00-912.
• Citation: 144 NC App. 706,551 S.E.2d 450
• Parties: In the Matter of APPEAL OF WINSTON-SALEM JOINT VENTURE from the Decision of the Forsyth County Board of Equalization and Review Concerning Real Property Taxation for Tax Year 1997.
• Court: North Carolina Court of Appeals

551 S.E.2d 450

144 NC App. 706

In the Matter of APPEAL OF WINSTON-SALEM JOINT VENTURE from the Decision of the Forsyth County Board of Equalization and Review Concerning Real Property Taxation for Tax Year 1997.

No. COA00-912.

Court of Appeals of North Carolina.

July 17, 2001.

Maupin Taylor & Ellis, P.A., by Charles B. Neely, Jr. and Nancy S. Rendleman; Fisk, Kart & Katz, by James P. Regan, Raleigh, for taxpayer-appellant.

Bell, Davis & Pitt, P.A., by John A. Cocklereece, Jr., Stephen M. Russell and Kevin G. Williams, Winston-Salem, for appellee-Forsyth County.

HUNTER, Judge.

Taxpayer-appellant Winston-Salem Joint Venture (herein "Taxpayer") appeals the final decision of the North Carolina Property Tax Commission ("the Commission") modifying the Forsyth County Board of Equalization and Review's ("the Board") decision as to the value of Taxpayer's commercial property (referred to herein as "Hanes Mall"), and finding its appraised value to be $140,000,000. Taxpayer argues the Commission erred: (1) by failing to apply or properly consider the cost approach method in appraising Hanes Mall, and; (2) by adopting the County's expert appraiser's assessment of the property's value. Upon careful review of the record before us, we affirm the Commission's decision.

Finding no discrepancy in the parties' recitation of the facts, we take our account of the facts directly from Taxpayer's brief to this Court. Effective 1 January 1997, the Forsyth County Tax Assessor ("the Assessor") "appraised the real property associated with Hanes Mall in Winston-Salem at a total value of $162,725,000." Taxpayer appealed the assessment to the Board in a timely manner. Subsequently, the Board heard Taxpayer's appeal and "on December 4, 1997 ... affirmed the decision of the Assessor." Then on 2 January 1998, Taxpayer appealed the Board's decision to the Commission. After a hearing which lasted several days, the Commission found, in pertinent part:

12.... [The] County [Assessor] used the direct capitalization method to arrive at a total value of $162,725,000 for the subject property. This method is used to convert an estimate of one year's income expectancy, or an annual average of several years' income expectancy into an indication of value in one direct step.... In general, the direct capitalization approach requires the use of comparable sales and the income derived therefrom to arrive at an appropriate capitalization rate. When using this approach to value the subject property, [the Assessor] did not apply or rely upon its 1997 schedule of values, rules and standards to arrive at the capitalization rate of 7.75%. Instead, the [Assessor] used data developed for a prior appraisal assignment that did not correlate with the rate information used to develop the 1997 schedule of values, standards and rules. Hence, the [Assessor] arrived at a capitalization rate of 7.75% and when that rate was applied to the applicable schedule of values, rules and standards it resulted in an improper classification of the subject property as an A plus mall.

13.... In Mr. Nafe's opinion [Taxpayer's expert witness], the value of the subject property is composed of three components: (1) real estate, (2) Hanes Mall's internal profit centers, and (3) the intangible personal property associated with Hanes Mall's business....

14. In Mr. Nafe's opinion, in order to determine fair market value, the appraiser must identify and segregate the non-realty elements of the subject property so that his appraisal of the subject property would be limited to the fee simple in the property's real estate value.... In applying the cost approach, Mr. Nafe ... estimated the value of the subject property to be $84,000,000. Under the income approach, Mr. Nafe arrived at total value $80,000,000 for the subject property when applying both the direct capitalization analysis and the discounted cash flow analysis. Mr. Nafe's going-concern value of the subject property as of January 1, 1997 was $130,000,000, denoted as follows:

Fee simply [sic] real estate only: $ 80,000,000 Non-realty value: $ 50,000,000 Total Going Concern value: $130,000,000

...

16.... In summary, Mr. Nafe concluded that the value of the subject real property... was $80,000,000.... He reached this valuation by applying the income approach, which is typically given greatest weight in the analysis of income-producing property.

...

20. Investors in regional malls do not use the cost approach to determine market value because of the assumptions and wide variety of estimates that are placed upon such items as entrepreneurial profit, subsidies, and influences by anchor department stores....

21. To arrive at an opinion of value for the subject property, Mr.... Korpacz, the [Assessor]'s expert witness, utilized the direct capitalization and yield capitalization approaches as recognized under the income method of valuation. While Mr. Korpacz utilized the sales comparison approach to value, he rejected the cost approach based upon his experience that investors in regional malls give little value to this approach to at arrive [sic] market value.

22. Mr. Korpacz considered business enterprise value in his value analysis of the subject property, but he rejected this concept because, based upon his experience, regional mall investors do not recognize or reflect this concept when investing in this particular market....

23. Mr. Korpacz's fee simple opinion of value for the subject property ... was $140,000,000. He reached this value when applying the income approach; analyzing market rents and determining that the appropriate capitalization rate was 8.55%. Mr. Korpacz's appraisal correlates with the County[Assessor]'s 1997 schedule of values, rules and standards in that his appraisal analysis yields a proper classification of the subject property as a B plus mall.

24. Of the three traditional appraisal methods considered by the Commission, the cost approach, the comparable sales approach, and the income approach, the income approach is the most reliable method in reaching market value for the subject property.

25. Even though the Commission considered the comparable sales and cost approaches to value, the Commission determined that those approaches would not yield fair market value of the subject property and should not be relied upon as the primary approaches to determine value.

(Emphasis added.) Thus, the Commission concluded as a matter of law:

2. In North Carolina, property must be valued for ad valorem tax assessment purposes at its "true value in money," which is statutorily defined as "market value[,]" [pursuant to N.C. Gen.Stat. § 105-283.]

...

3. Ad valorem assessments are presumed to be correct. In order for the Taxpayer to rebut the presumption of correctness, the Taxpayer must prove that the County [Assessor] employed an arbitrary or illegal method of valuation and that the assessment of the subject property substantially exceeded the true value in money of the subject property.

...

6. In reaching a total assessed value for the subject property ... of $162,725,000, the County [Assessor] failed to properly apply its schedule of values, rules and standards, as required and directed by G.S. 105-317 of the North Carolina Machinery Act. The income capitalization rate developed by the County [Assessor] does not correlate with an appropriate classification of the subject property under the County[Assessor]'s schedule of values, rules and standards....

...

10. The income approach is the most probative means to establish the fair market value of the subject property and even though it is the preferred method, a combination of the three methods may be used as long as the income approach is given the greatest weight....

11. The value of the subject property, relying primary [sic] on the income approach... was $140,000,000.

(Emphasis added.) Taxpayer appeals the Commission's decision.

Taxpayer first assigns error to the Commission's "failing to apply or properly consider the cost approach in appraising Hanes Mall." Although Taxpayer admits "this Court [has] held that ... exclusive reliance on the cost approach [i]s an error of law and that the income approach should be the primary method used," relying on In re Appeal of Belk-Broome Co., 119 N.C.App. 470, 473, 458 S.E.2d 921, 923-24 (1995), aff'd, 342 N.C. 890, 467 S.E.2d 242 (1996), Taxpayer argues "this Court did not conclude that the cost approach should not be used." (Emphasis omitted and added.) As such, Taxpayer contends that "a combination of cost and income methods could be used so long as the income approach is given greatest weight" (emphasis added), and thus the cost approach should have been used in the present case because that method's "primary use is to establish a ceiling on valuation...." Belk, 119 N.C.App. at 474, 458 S.E.2d at 924. We are unpersuaded.

N.C. Gen.Stat. § 105-345.2(b) (1999) governs the standard of appellate review as to property valuations, stating that the appellate Court "shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning and applicability of the terms of any Commission action." N.C. Gen.Stat. § 105-345.2(b). Further, the statute gives this Court the authority to reverse, remand, modify, or declare void any decision which prejudices a plaintiff, where said decision is:

(1) In violation of constitutional provisions; or

(2) In excess of statutory authority or jurisdiction of the Commission; or

(3) Made upon unlawful proceedings; or

(4) Affected by other errors of law; or

(5) Unsupported by competent, material, and substantial evidence in view of the entire record as submitted; or

(6) Arbitrary or capricious.

N.C. Gen.Stat. § 105-345.2(b). Moreover, our state's case law has plainly set out that "ad valorem tax assessments are presumed to be correct." In re Appeal of AMP, Inc., 287 N.C. 547, 562, 215 S.E.2d 752, 761 (1975) (emphasis added). However, in dealing with this...