Ventas Realty Ltd. P'ship v. City of Dover
| Decision Date | 10 January 2020 |
| Docket Number | No. 2018-0680,2018-0680 |
| Citation | 235 A.3d 100,172 N.H. 752 |
| Parties | VENTAS REALTY LIMITED PARTNERSHIP v. CITY OF DOVER |
| Court | New Hampshire Supreme Court |
Hamblett & Kerrigan, P.A., of Nashua (Kevin P. Rauseo and Andrew J. Piela on the brief, and Mr. Rauseo orally), for the plaintiff.
Mitchell Municipal Group, P.A., of Laconia (Walter L. Mitchell and Laura Spector-Morgan on the brief, and Ms. Spector-Morgan orally), for the defendant.
The plaintiff, Ventas Realty Limited Partnership (Ventas), appeals an order of the Superior Court (Howard, J.) denying its request for an abatement of the real estate taxes it paid the defendant, the City of Dover (City), for the 2014 tax year. We affirm.
The trial court found, or the record establishes, the following facts. The subject real estate consists of a 5.15-acre site containing a skilled nursing facility serving both short-term and long-term patients, two garages, and a parking lot. At issue is the City's April 1, 2014 assessment of the real estate at a value of $4,308,500. Ventas alleges that it timely applied to the City for an abatement of its 2014 taxes. The City presumably denied or failed to act upon the request, and Ventas, thereafter, petitioned the superior court for an abatement pursuant to RSA 76:17 (Supp. 2018), alleging that the City had unlawfully taxed the property in excess of its fair market value.
The trial court held a two-day bench trial at which the parties' experts testified. Ventas's expert was Raymond A. Dennehy, III, president of Health Care Valuation Advisors, Inc. The City's expert was Melanie Kosich, a former nursing home administrator and director of Tellatin, an entity affiliated with Integra Healthcare Services. The parties stipulated that in 2014, the City used an equalization ratio of 95.1%.
Both experts opined that the property's highest and best use is as a skilled nursing facility. The experts also agreed that the most reliable method for determining the property's fair market value is the income capitalization method, although the City's expert also completed analyses under the sales comparison and cost approaches. Both experts examined the same comparable properties and they also used similar definitions of "fair market value." In his May 2016 report, Dennehy concluded that the property's fair market value as of April 1, 2014, at its highest and best use as a skilled nursing facility, was $1,700,000. In her October 2017 report, Kosich opined that the property's fair market value as of April 1, 2014, at its highest and best use as a skilled nursing facility, was $4,700,000.
The main difference between the approaches of the two experts is that Kosich used both market projections and the property's actual income and expenses from 2012, 2013, and 2014 to forecast the property's future net income, while Dennehy did not. Dennehy used the property's actual income and expenses for the 11 months before the April 1, 2014 valuation date, without any market-based adjustments.
Despite their different approaches, the experts gave similar estimates of the property's projected gross income for tax year 2014: Kosich's estimate was $10,063,865, and Dennehy's estimate was $10,147,068. Both experts also used similar capitalization rates: Kosich used a 13.5% capitalization rate, and Dennehy used a 12.6% capitalization rate. At trial, Ventas stipulated to Kosich's capitalization rate.
The experts differed greatly in their estimates of the property's projected gross operating expenses for tax year 2014. Dennehy relied upon the property's actual operating expenses for the 11 months before the April 1, 2014 valuation date, opining that the expenses for those months, annualized to represent a full year, "provide[d] the most reliable indication of the subject's stabilized operating expenses." He calculated the property's gross operating expenses to be $9,936,601. Dennehy observed that the subject property's operating expenses are higher per patient day than in comparable properties, but opined that "this reflects the lower occupancy at the subject than the comparables, which results in higher expenses per patient day."
By contrast, after examining the expenses of comparable facilities and applying an inflation factor based upon market trends, Kosich assigned values to the different categories of operating expenses. For example, as to nursing expenses, Kosich used the property's actual nursing expenses in 2013 and 2014 for each category of nursing professional and compared those expenses with the 2013 nursing expenses of five comparable properties. She took into account the ratio of total revenue that nursing typically represents for a skilled nursing facility (30% to 45%) and applied an inflation rate to nursing expenses based upon market trends. Based upon those figures, she assigned a value to the property's forecasted nursing expenses that fell within its actual 2013 and 2014 expenses and the average expenses of the comparable properties. She conducted a similar analysis for other categories of operating expenses. Ultimately, Kosich estimated the property's total forecasted operating expenses to be $9,016,402.
The trial court concluded that "Dennehy's approach ... does not accurately reflect the overall value of the property based on forecasted net income the property would have generated on the open market in 2014," and, thus, decided that Ventas had not "sufficiently proved the property's fair market value under the income capitalization approach." Accordingly, the trial court ruled that Ventas failed to meet its burden of proof to obtain an abatement for tax year 2014. This appeal followed.
To succeed on its tax abatement claim, Ventas had the burden of proving by a preponderance of the evidence that it paid more than its proportional share of taxes for tax year 2014. See Porter v. Town of Sanbornton, 150 N.H. 363, 367, 840 A.2d 778 (2003). "To carry the burden of proving disproportionality, the taxpayer must establish that the taxpayer's property is assessed at a higher percentage of fair market value than the percentage at which property is generally assessed in the town." Id. at 368, 840 A.2d 778 ; see Appeal of Pub. Serv. Co. of N.H., 170 N.H. 87, 94, 165 A.3d 695 (2017).
Generally speaking, fair market value refers to "the price which in all probability would have been arrived at by fair negotiations between an owner willing to sell and a purchaser desiring to buy, taking into account all considerations that fairly might be brought forward and reasonably given substantial weight in such bargaining." Society Hill at Merrimack Condo. Assoc. v. Town of Merrimack, 139 N.H. 253, 255, 651 A.2d 928 (1994) (quotation omitted); see Appeal of Pennichuck Water Works, 160 N.H. 18, 37, 992 A.2d 740 (2010). The determination of fair market value is a question of fact. Society Hill at Merrimack Condo. Assoc., 139 N.H. at 255, 651 A.2d 928. As the trier of fact, the trial court was entitled to accept or reject such portions of the evidence as it found proper, including that of expert witnesses. Public Serv. Co. of N.H. v. Town of Bow, 170 N.H. 539, 542, 178 A.3d 690 (2018).
We will uphold the trial court's factual findings and rulings unless they lack evidentiary support or are legally erroneous. Marist Bros. of N.H. v. Town of Effingham, 171 N.H. 305, 309, 195 A.3d 90 (2018). We do not decide whether we would have ruled differently than the trial court, but rather, whether a reasonable person could have reached the same decision as the trial court based upon the same evidence. Id. Thus, we defer to the trial court's judgment on such issues as resolving conflicts in the testimony, measuring the credibility of witnesses, and determining the weight to be given evidence. Id.
In this case, both experts used the income capitalization method to determine the fair market value of the subject property. The income capitalization method "is an established and well-accepted method for determining the value of income-producing property," such as the skilled nursing facility at issue. Brickman v. City of Manchester, 119 N.H. 919, 921, 409 A.2d 1328 (1979) (quotation omitted). "The income capitalization approach" to calculating the fair market value of real estate "measures the present value of property on the basis of the future net income the property could produce for the owner." Rollsworth Tri-City Trust v. City of Somersworth, 126 N.H. 333, 335, 493 A.2d 462 (1985). "The net income is the [income] the property would generate on an open market, less the normal and usual costs of operation." Id. "This figure is then capitalized to determine present worth." Id.
On appeal, Ventas argues that the trial court erred by crediting Kosich's appraisal over Dennehy's appraisal. According to Ventas, doing so was error because: (1) Kosich's appraisal "inappropriately reduced the nursing and medical costs incurred by the facility" (bolding omitted); (2) the comparable properties that Kosich used did not "offer[ ] the same mix of services that [Ventas] offered"; (3) Kosich "had no medical or nursing training" and, therefore, "had no idea what a safe staffing level was for this facility, given its patient needs, and whether the suggested cuts to the facility expenses would cause the remaining nurses" to risk losing their licenses or would risk patient health and safety; (4) Kosich's appraisal violates public policy because it arbitrarily reduces the facility's nursing expenses; and (5) Kosich used post-assessment data. As to nursing expenses, in particular, Ventas argues that "absent evidence from the City that demonstrated the facility's expenses were excessive for this particular property, it was error for the Trial Court to adopt the City's opinion as to appropriate nursing expenses, which was based on a ‘market rate,’ and thus, the City's capitalization of income calculation."
All of Ventas's arguments fault the trial court for finding Kosich's valuations...
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