Lowe's Home Ctrs., Inc. v. Monroe Cnty. Assessor
| Decision Date | 19 November 2020 |
| Docket Number | Cause No. 19T-TA-00017 |
| Citation | 160 N.E.3d 263 |
| Parties | LOWE'S HOME CENTERS, INC., Petitioner, v. MONROE COUNTY ASSESSOR, Respondent. |
| Court | Indiana Tax Court |
ATTORNEYS FOR PETITIONER: BENJAMIN A. BLAIR, BRENT A. AUBERRY, ABRAHAM M. BENSON, FAEGRE DRINKER BIDDLE & REATH LLP, Indianapolis, IN
ATTORNEYS FOR RESPONDENT: MARILYN S. MEIGHEN, ATTORNEY AT LAW, Carmel, IN, BRIAN A. CUSIMANO, ATTORNEY AT LAW, Indianapolis, IN
Lowe's Home Centers, Inc. ("Lowes") appeals the Indiana Board of Tax of Review's final determination that established the assessed values of its real property for the 2014 through 2017 tax years. Specifically, Lowes contends that the Indiana Board erred in rejecting its sales comparison approach and income approach valuations and in excluding the obsolescence depreciation adjustments from its cost approach valuations. Upon review, the Court affirms the Indiana Board's final determination.
The subject property is a 134,791 square foot Lowe's store that sits on approximately 13 acres of land. (See Cert. Admin. R. at 120, 894-95.) The store was constructed in 1998 and is located within the Whitehall Crossing/Whitehall Plaza shopping center in Bloomington, Indiana. (See Cert. Admin. R. at 120, 142, 870, 898.) The Assessor valued the property for the 2014 through 2017 assessments as follows: $9,395,500; $9,406,400; $8,996,600; and $8,991,500. (See Cert. Admin. R. at 316.)
Believing those values to be too high, Lowes sought review first with the Monroe County Property Tax Assessment Board of Appeals and then with the Indiana Board. (Cert. Admin. R. at 1 -35.) On March 26, 2018, after consolidating all of Lowes's petitions for review, the Indiana Board commenced a five-day administrative hearing. (See Cert. Admin. R. at 81-83, 807 ¶ 3.) During the hearing, both parties presented appraisals that valued the subject property for each of the years at issue using the sales comparison approach, the income approach, and the cost approach. (Cert. Admin. R. at 115-228, 318-520.) The Assessor also presented an appraisal review that critiqued Lowes's appraisal. (See Cert. Admin. R. at 523-643.)
The Indiana Board concluded that the Assessor's appraisal was unreliable because all of its valuations contained "major flaws[.]" (See, e.g., Cert. Admin. R. at 854 ¶ 136, 859 ¶ 152.) Neither party has challenged that finding on appeal.
Lowes's sales comparison approach valuations, prepared by Laurence G. Allen, an Indiana certified general appraiser, estimated the total value of its property by comparing it directly with other purportedly comparable properties that had sold in the market. (See Cert. Admin. R. at 171-92, 224, 942-43.) D. 2011 REAL PROPERTY ASSESSMENT MANUAL ("Manual") (incorporated by reference at 50 IND. ADMIN. CODE 2.4-1-2 (2011) ) at 2 (). More specifically, Allen based each of the valuations on the fee simple sale of six properties with single-tenant freestanding retail stores. (See Cert. Admin. R. at 171-72, 947-48.) The six comparables were sold between December of 2011 and January of 2014, ranged in size from 103,540 square feet to 192,814 square feet, and were located in Indiana, Wisconsin, Michigan, and Illinois. (See Cert. Admin. R. at 172, 948-82.) After adjusting the sales price of each comparable to account for a variety of factors, including differences in their locations and the age and condition of their improvements, Allen concluded that the probable sales price of Lowes's property was between about $3.4 million and $3.6 million for the years at issue. (See Cert. Admin. R. at 180-90, 192, 984-1023.)
The income approach "is used for income producing properties that are typically rented[ and] converts an estimate of income, or rent, [a] property is expected to produce into value through a mathematical process known as capitalization." Manual at 2. (See also, e.g., Cert. Admin. R. at 193-205, 1033.) Under this approach, Allen developed an estimate of market rent for each of the years at issue by using the factors from his sales comparison approach valuations to adjust the leases of twelve existing single-tenant retail stores located in Indiana and Illinois.1 (See Cert. Admin. R. at 194-97, 1044, 1051-55.) Allen also considered the leases of four regional properties in Michigan, Missouri, and Iowa.2 (See Cert. Admin. R. at 196-97, 1054-55.) All of the sixteen lease comparables had triple net leases from as early as April of 2003 to as late as May of 2015 and their stores ranged in size from 60,000 square feet to 109,793 square feet. (See Cert. Admin. R. at 194-97, 1040-41, 1044-52.) Allen opined that the size differences between the lease comparables and the subject property likely resulted in a higher estimate of market rent per square foot given the inverse relationship between a property's size and rental rates. (See Cert. Admin. R. at 194-95.) To arrive at a final value conclusion, Allen completed several other steps, such as developing net operating incomes and capitalization rates, and settled upon values ranging between $3.7 million and $4.3 million for the years at issue. (See Cert. Admin. R. at 197-205, 1055-73.)
Allen's cost approach valuations estimated the value of the land as if it were vacant and added the depreciated replacement cost of the improvements. (See Cert. Admin. R. at 206-16, 1074, 1091-93.) See also Manual at 2 (). With respect to the obsolescence depreciation adjustments, Allen explained that his review of a variety of sales, lease, and construction data indicated that Lowes's property suffered from obsolescence. (See Cert. Admin. R. at 209-15, 1105-20, 1126-30.) As a result, Allen quantified the obsolescence using the data from his income approach valuations, applied the resulting obsolescence depreciation adjustments to his preliminary valuations, and concluded that the final value of the subject property under the cost approach was between approximately $3.8 million and $4.3 million during the 2014 through 2017 tax years. (See Cert. Admin. R. at 213-14, 216, 1121-26, 1130-31.)
The Assessor's appraisal review, prepared by J. David Hall and Michael C. Lady, who are both Indiana certified appraisers, provided opinions on the completeness, accuracy, and credibility of Lowes's appraisal, not on its concluded value of its property. (See Cert. Admin. R. at 525-27, 625-628, 1263-64.) After reviewing Lowes's appraisal and publicly available information, the appraisers stated that several parts of the appraisal were inadequate, unsupported, and unreasonable. (See, e.g., Cert. Admin. R. at 555-619.) For instance, the appraisers opined that Lowes's sales comparison approach valuations were not credible because the adjustments made to the six sales comparables were not sufficiently supported, appropriate, or reasonable. (See, e.g., Cert. Admin. R. at 555, 1284-1391.) The appraisers also indicated that Lowes's income approach valuations were unreliable given the poor quality of the data and lack of support for the final market rent estimates. (See, e.g., Cert. Admin. R. at 601, 1399-1407.) Furthermore, the appraisers claimed that Lowes's cost approach valuations were not credible because Allen's claims of obsolescence were questionable, and his obsolescence depreciation adjustments were quantified by using the unreliable income approach data. (See, e.g., Cert. Admin. R. at 607, 1436-48.)
On March 29, 2019, the Indiana Board issued its final determination that, among other things, examined the strengths and weaknesses of all of Lowes's valuations. (See Cert. Admin. R. at 806, 847-54 ¶¶ 109-35.) The Indiana Board found that Lowes's sales comparison approach valuations were not credible because the adjustments Allen made to the six sales comparables failed to reflect the subject property's location, condition, and use. (See Cert. Admin. R. at 847-49 ¶¶ 110-18.) The Indiana Board also rejected Lowes's income approach valuations, finding that the market rent estimates lacked probative value for several reasons, including the use of questionable data and unsupported location adjustments. (See Cert. Admin. R. at 849-52 ¶¶ 119-25.) With respect to Lowes's cost approach valuations, the Indiana Board found them to be "minimally credible" if the obsolescence depreciation adjustments were excluded. (See Cert. Admin. R. at 852-54 ¶¶ 126-35.) Consequently, the Indiana Board eliminated the obsolescence depreciation adjustments from Lowes's cost approach valuations to arrive at final assessments of $5,946,914 for 2014, $5,677,455 for 2015, $5,358,355 for 2016, and $5,092,506 for 2017. (Cert. Admin. R. at 859-60 ¶¶ 153-54.)
On May 13, 2019, Lowes initiated this original tax appeal. The Court conducted oral argument on November 25, 2019. Additional facts will be supplied when necessary.
The party seeking to overturn an Indiana Board final determination bears the burden of showing that it is invalid. CVS Corp. v. Searcy, 137 N.E.3d 1053, 1055 (Ind. Tax Ct. 2019). Thus, to prevail on appeal, Lowes must demonstrate to the Court that the Indiana Board's final determination is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to constitutional right, power, privilege, or immunity; in excess of or short of statutory jurisdiction, authority, or limitations; without observance of procedure required by law; or unsupported by substantial or reliable evidence.
On appeal, Lowes contends that the Indiana Board's final determination must be reversed because it is contrary to law, constitutes an abuse of discretion, and is unsupported by substantial evidence. (See, e.g., Oral Arg. Tr. at 3-5.) More specifically,...
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