Veritas Vill. v. City of Madison
| Docket Number | 2022AP507 |
| Decision Date | 26 October 2023 |
| Parties | Veritas Village, LLC, Plaintiff-Appellant, v. City of Madison, Defendant-Respondent. |
| Court | Wisconsin Court of Appeals |
APPEAL from a judgment of the circuit court for Dane County: No 2019CV1469, MARIO WHITE, Judge. Affirmed.
Before Kloppenburg, P.J., Graham, and Nashold, JJ.
¶1 Veritas Village, LLC ("Veritas") appeals a circuit court judgment upholding the City of Madison's 2018 tax assessment of Veritas's apartment building. Veritas challenges the assessment as excessive under Wis.Stat. § 74.37 (2021-22).[1] Specifically, Veritas argues that the City's assessment lost the presumption of correctness under Wis.Stat. § 70.49(2) because it did not comply with the Wisconsin Property Assessment Manual (2018) ("the Manual")[2]and that this court should therefore credit the significantly lower appraised value determined by Veritas's appraiser.
¶2 The circuit court credited the City's appraiser's appraised value over that of Veritas's appraiser, and the parties agree that the key difference between the two appraisals is the vacancy rates used by the appraisers in determining the value. Veritas argues that the City was required to use the actual 72% vacancy rate that existed on January 1, 2018, rather than a vacancy rate that took into account leases that were anticipated to occur after that date. We disagree and therefore affirm the circuit court order.
¶3 Veritas is the owner of a luxury four-story, multi-family property consisting of 189 apartment units located in the downtown area of Madison, Wisconsin ("the Property" or "the Veritas Property"). The Property consists of studio and one-, two-, and three-bedroom units. The common area of the Property includes underground parking and amenities such as a fitness center, a yoga studio, a clubhouse, a coffee bar, an outdoor sundeck with pool, an outdoor lounge area and fire pit, outdoor grilling stations a party room, and a bike room.
¶4 Construction of the Property was completed in 2017 and leasing began in August of that year. As of January 1, 2018 the Property was 28% occupied, meaning that it was 72% vacant. The parties agree that the Property was in the process of "lease-up"[3] as of January 1, 2018; that it was anticipated that additional leases would be signed, thereby reducing the vacancy rate; and that, as of January 1, 2018, the Property was not yet "stabilized."[4]
¶5 The City assessed the property at $17,780,000 based on the appraisal conducted by City appraiser Scott West. Veritas filed an objection to the City's assessment and hired private appraiser Dominic Landretti to conduct a retrospective appraisal, which valued the Property at $6,800,000. As stated, the difference in the appraised values was due primarily to the differing vacancy rates used by the two appraisers, with Landretti using a 72% vacancy rate that reflected the actual vacancy rate of the Property on January 1, 2018, and West using a vacancy rate that accounted for anticipated future leases.
¶6 The City subsequently hired private appraiser William Miller to complete a retrospective appraisal of the Property, and Miller valued the property at $32,600,000. It is undisputed that the City's assessment was based on West's appraisal, not Miller's, and that Miller's appraisal served only to confirm the City's view that the assessment is not excessive.
¶7 The Board of Assessors for the City of Madison and the Board of Review sustained the City's assessment of $17,780,000. Veritas paid $400,322.62 in real estate taxes on the Property calculated from the $17,780,000 assessment and commenced this action against the City for excessive assessment under Wis.Stat. § 74.37.
¶8 The circuit court held a five-day bench trial, during which the court heard testimony from the three appraisers, West, Miller, and Landretti; and from Veritas's developer and managing member, Terrence Wall.
¶9 Following the submission of post-trial briefs, the circuit court issued a written decision. The court determined that Veritas did not overcome the presumption of correctness afforded the City's assessment under Wis.Stat. § 70.49(2). Specifically, the court concluded that West's appraisal complied with the Manual and with Wisconsin statutes and case law and that Veritas did not present significant contrary evidence. In comparing West's analysis to Landretti's, the court concluded that Landretti's analysis, "which utilized both actual and market data[,] creates a situation in which a completely vacant, luxury apartment complex has no value for tax assessment purposes." The court determined that the City's assessment and West's conclusions were more "reliable, credible, and persuasive than those offered by Veritas." Given these conclusions, the court declined to address Miller's analysis. Accordingly, the court sustained the City's assessment and entered judgment in favor of the City. Veritas appeals. Additional facts are discussed below as needed.
¶10 "Real property shall be valued by the assessor in the manner specified in the Wisconsin property assessment manual … from actual view or from the best information that the assessor can practicably obtain, at the full value which could ordinarily be obtained therefor at private sale." Wis.Stat. § 70.32(1).
¶11 Pursuant to Wis.Stat. § 70.49(2), a tax assessment challenged under Wis.Stat. § 74.37 is given a presumption of correctness.[5] Metropolitan Assocs. v. City of Milwaukee, 2018 WI 4, ¶50, 379 Wis.2d 141, 905 N.W.2d 784. However, the presumption can be overcome if the challenging party establishes that the assessment does not apply the principles set forth in the Manual or presents "'significant contrary evidence.'" Bonstores Realty One, LLC v. City of Wauwatosa, 2013 WI.App. 131, ¶¶5, 9, 351 Wis.2d 439, 839 N.W.2d 893 (quoted source omitted). "Stated differently, when a city assessor correctly applies the [Manual] and Wisconsin Statutes, and there is no significant evidence to the contrary, courts will reject a party's challenge to the assessment." Allright Props., Inc. v. City of Milwaukee, 2009 WI.App. 46, ¶12, 317 Wis.2d 228, 767 N.W.2d 567. ¶12 Wisconsin Stat. § 70.32(1) "sets forth a hierarchical valuation methodology for arriving at a property's fair market value." Lowe's Home Ctrs., LLC v. City of Delavan, 2023 WI 8, ¶27, 405 Wis.2d 616, 985 N.W.2d 69 (citing State ex rel. Markarian v. City of Cudahy, 45 Wis.2d 683, 685-86, 173 Wis.2d 627 (1970)). This provision "lists three sources of information that inform tax assessments." Lowe's, 405 Wis.2d 616, ¶28. "The order in which these sources are listed is indicative of the quality of information each source provides." Id., ¶28. "This methodology has been described as providing three 'tiers' of analysis."
¶13 A tier 1 analysis is an examination of a recent arm's-length sale. Id., ¶29. "An arm's-length sale of the subject property is the best information of a property's fair market value, and is thus the first source of information to which an assessor should look in conducting an assessment." Id.
¶14 If a tier 1 analysis cannot be conducted because "the property has not been recently sold, then the appraiser moves to a tier 2 analysis." Id. In a tier 2 analysis, the appraiser "examin[es] recent arm's-length sales of reasonably comparable properties (the 'sales comparison' approach)." Id.
¶15 When both tier 1 and tier 2 are unavailable, the assessor moves to a tier 3 analysis. Id., ¶30. Under the tier 3 analysis, the assessor "may consider all the factors collectively that have a bearing on the value of the property," including "cost, depreciation, replacement value, income, industrial conditions, location and occupancy, sales of like property, book value, amount of insurance carried, value asserted in a prospectus, and appraisals produced by the owner." Id. The tier 3 framework includes, among other things, the "income approach, which seeks to capture the amount of income the property will generate over its useful life, and the cost approach, which seeks to measure the cost to replace the property." Adams Outdoor Advert., Ltd. v. City of Madison, 2006 WI 104, ¶35, 294 Wis.2d 441, 717 N.W.2d 803.
¶16 Here, Veritas brought an excessive assessment claim against the City pursuant to Wis.Stat. § 74.37(3)(d). "The question on appeal in a Wis.Stat. § 74.37 action is not whether the initial assessment was incorrect, but whether it was excessive." Metropolitan Assocs. 379 Wis.2d 141, ¶40. "An action filed pursuant to § 74.37 seeks a trial before the circuit court, and is distinct from a certiorari action." Lowe's, 405 Wis.2d 616, ¶23. In contrast to a certiorari action, an excessive assessment action under § 74.37 "is not confined to the record before the board and new evidence may be presented." Id., ¶23 n.11. Thus, "we review the circuit court's determination, not that of the assessor or Board of Review." Id., ¶23.
¶17 Veritas's excessive assessment claim is premised on its argument that the City's assessment did not comply with the Manual and therefore lost the presumption of correctness. "[W]e independently review whether a valuation complied with the statutes and the Wisconsin Property Assessment Manual." Bonstores, 351 Wis.2d 439, ¶6. However, we defer to the circuit court's findings of fact and "will not upset the court's factual findings, including findings involving the credibility of witnesses, unless they are clearly erroneous." Id. "In particular, it is within the province of the factfinder to determine the weight and credibility of expert witnesses' opinions." Id.
¶18 As stated, West conducted an...
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