In re Appeal of Prospect Crozer LLC

• Decision Date: 28 September 2022
• Docket Number: s. 1596 - 1599 C.D. 2019,s. 1600 - 1629 C.D. 2019,Nos. 1596 - 1599 C.D. 2019,Nos. 1600 - 1629 C.D. 2019
• Citation: In re Appeal of Prospect Crozer LLC, 283 A.3d 428 (Pa. Commw. Ct. 2022)
• Parties: IN RE: Appeal of PROSPECT CROZER LLC from the Decision of the Board of Assessment Appeals of Delaware County, PA Appeal of: Prospect Crozer LLC
• Court: Pennsylvania Commonwealth Court

283 A.3d 428

IN RE: Appeal of PROSPECT CROZER LLC from the Decision of the Board of Assessment Appeals of Delaware County, PA

Appeal of: Prospect Crozer LLC

Nos. 1596 - 1599 C.D. 2019

Nos. 1600 - 1629 C.D. 2019

Commonwealth Court of Pennsylvania.

Argued March 10, 2022

Decided September 28, 2022

Robert L. Byer and Gerald J. Schirato, Philadelphia, for AppellantProspect Crozer LLC.

Pamela A. Van Blunk, Media, for Appellee Chester Upland School District.

BEFORE: HONORABLE PATRICIA A. McCULLOUGH, Judge, HONORABLE STACY WALLACE, Judge, HONORABLE MARY HANNAH LEAVITT, Senior Judge

OPINION BY SENIOR JUDGE LEAVITT

Prospect Crozer LLC(Taxpayer) appeals 34 orders of the Court of Common Pleas of Delaware County(trial court) that, collectively, assessed Taxpayer's real property at $74 million for tax years 2017, 2018, and 2019.¹On appeal, Taxpayer argues that the 34 orders are null and void because the judge issued them after he had forfeited his judicial office by assuming a position with the Philadelphia Board of Revision of Taxes(Philadelphia Tax Board).Taxpayer also challenges the orders on their merits because, inter alia , the trial court did not state a reason for accepting the valuation of the taxing authority's expert over that of Taxpayer's expert, which was necessary because the trial court accepted the testimony of both experts.For the reasons that follow, we vacate the trial court's orders and remand the matter.

Background

Taxpayer owns 57.7 acres of land located in Upland Borough, Delaware County, Pennsylvania.Part of this property has been developed with a 6-story hospital known as Crozer Chester Medical Center (Medical Center).The other part of the property has been developed with several buildings and is known as Crozer Theological Seminary (Seminary).For real estate tax purposes, the Medical Center and Seminary properties are assessed as 34 separate parcels.Taxpayer purchased this real property as part of its acquisition of the Crozer-Keystone Health System on July 1, 2016.

For tax years 2017 through 2019, the Delaware County Assessment Office assessed the Medical Center and Seminary properties at a combined value of $80,166,493.Taxpayer appealed the assessment as excessive, and the Delaware County Board of Assessment Appeals denied the appeal.Taxpayer then appealed to the trial court, and the Chester Upland School District(School District) intervened.

At the de novo hearing before the trial court, Taxpayer and the School District stipulated that with the admission of the assessments of the Delaware County Assessment Office, the School District established a prima facie case.²Reproduced Recordat 1149a-83a(R.R. __).Taxpayer then submitted expert testimony and documentary evidence to challenge the Delaware County assessments, and the School District responded with its own expert and documentary evidence.

Taxpayer's vice president for development, Frank Saidara, testified that in January 2016, Taxpayer entered into an agreement to purchase the Crozer-Keystone Health System, and the transaction closed on July 1, 2016.The transaction involved numerous real properties owned by Crozer-Keystone Health System.Saidara explained that Taxpayer and Integra Realty Resources – DFW, LLC(Integra Realty) did their "best to come up with a qualified guess" to apportion purchase prices among the properties acquired in order to calculate the real estate transfer taxes.Notes of Testimony (N.T.), 1/14/2019, at 51;R.R. 97a.With respect to the 34 properties here, they estimated a total purchase price of $78 million, which Saidara testified was "high."Id .

Taxpayer's real estate appraiser, Ryan Hlubb, prepared an expert report of the fair market value of the Medical Center and Seminary properties, which was submitted into evidence.The Seminary property of 36.2 acres is separated from the Medical Center property of 21.5 acres by Medical Center Boulevard.Hlubb separately valued the Medical Center and Seminary properties because they are not used together.³

At the hearing, Hlubb first testified about his valuation of the Seminary property.Hlubb used the sales comparison approach to establish its fair market value.⁴This approach assumes that an informed purchaser will pay no more for a property than the cost of acquiring an existing property with the same utility.⁵Hlubb studied the Seminary property by collecting property tax records, site plans, and interviewing the property owner.He noted that one of the buildings on the Seminary property, Old Main, had been designated a historic building and cannot be demolished.The other buildings had an economic life of five years, which meant that they should be razed or put to another use.

Hlubb identified four comparable vacant land sales in Southeastern Pennsylvania, where the price per acre ranged from $150,000 to $240,000.After adjusting for topography and location, Hlubb concluded that the Seminary property had a value of $165,000 per acre, or $5,971,515, from which he subtracted the cost of razing, i.e. , $867,833.⁶Hlubb opined that the Seminary property had a fair market value of $5.1 million for the 2017 and 2018 tax years.Based on updated market data, Hlubb determined that the Seminary property had a value of $5.35 million for tax year 2019.

Next, Hlubb testified about the fair market value of the Medical Center, which is a 21.5-acre property with a 300-bed acute care hospital and parking facilities to accommodate 1,500 cars.The Medical Center is a "special purpose property," meaning it has "a unique physical design, special construction materials, or [a] layout that particularly adapts its utility to the use for which it was built."N.T., 2/4/2019, at 174;R.R. 324a.The Medical Center's location in a medical campus zoning district also limits the number of potential buyers.⁷

To calculate the fair market value of the Medical Center property, Hlubb used both a sales comparison and a cost approach.He developed the income capitalization approach but only to test the validity of the other valuation approaches.

For the sales comparison approach, Hlubb identified four sales in the region that were similar to the Medical Center: Memorial Hospital, Suburban Community Hospital, Roxborough Memorial Hospital, and MedStar Southern Maryland Hospital.After making the necessary adjustments to the sales, Hlubb determined that the fair market value of the Medical Center property under the sales comparison approach was $37.5 million for tax years 2017 and 2018 and $39.2 million for tax year 2019.⁸

Hlubb also used the cost approach, which is "based on the concept that an informed investor would not willingly pay more for the subject property than would be necessary to develop an alternative providing economically equivalent benefits."In re PP&L, Inc. , 838 A.2d 1, 11(Pa. Cmwlth. 2003).Hlubb testified that there are two cost methodologies.The reproduction cost method estimates the cost to construct an exact duplicate using the same materials, construction standards, design, layout and quality.The replacement cost method estimates the cost to construct a building of equal utility using modern materials and current design standards.Hlubb used the replacement cost method.

Hlubb determined a total replacement cost of $328,592,804 for 2017 and 2018 and $345,419,938 for 2019, to which he added a land value of $4.3 million for each tax year.For 2017 and 2018, he estimated depreciation at $296,061,870, and for 2019 at $309,113,292.Hlubb arrived at a cost valuation of $36.8 million for 2017 and 2018 and $39.6 million for 2019.

Reconciling his sales comparison and cost valuations, Hlubb opined that the fair market value of the Medical Center was $37.5 million for tax years 2017 and 2018 and $39.5 million for tax year 2019.Hlubb opined that the combined fair market value of the Medical Center and Seminary properties was $42.6 million for tax years 2017 and 2018 and $44.5 million for tax year 2019.

In response, the School District introduced the report of its expert real estate appraiser, John J. Coyle, III, and offered his testimony.Coyle stated that the highest and best use for the 57.7-acre property was as a hospital.He did not separate the Medical Center from the Seminary in his valuation.Coyle also used the sales comparison and cost approaches in his valuation.⁹

For the sales comparison approach, Coyle selected three hospital facilities with parking garages.The three properties were part of the Community Health System in Reading, Pennsylvania, which had been sold to Tower Health.Each building ranged from 354,887 square feet to 362,703 square feet and had sale prices ranging from $91.54 per square foot of building area, including the land, to $172.39 per square foot of building area, including the land.

After taking into consideration the differences between those sales and the subject property, Coyle opined that the entire 57.7-acre property should sell at $105 per square foot of building area, including the land.Multiplying the 703,081 square feet of gross building area of the 57.7-acre property by $105 produced a market value of $73,823,505, which he rounded to $73.8 million.

For the cost approach, Coyle used a reproduction cost method.Coyle testified that the International Association of Assessing Officers defines "reproduction cost new" as "the cost of constructing new property reasonably identical with the given property except for the absence of physical depreciation using the same materials[,] construction standards, design, and quality of workmanship computed on the basis of prevailing prices and on the assumption of normal competency and normal conditions."N.T., 3/20/2019, at 56-57;R.R. 1012a-13a.Coyle explained that reproduction cost does not have to price an exact duplicate building, only one reasonably identical.

To develop the fair market value of the land, Coyle looked at three sales of vacant land.The first involved land in Richland Township, Bucks...