Wellmark, Inc. v. Polk Cnty. Bd. of Review, 14–0093.
| Decision Date | 12 February 2016 |
| Docket Number | No. 14–0093.,14–0093. |
| Citation | 875 N.W.2d 667 |
| Parties | WELLMARK, INC., Appellee, v. POLK COUNTY BOARD OF REVIEW, Appellant. |
| Court | Iowa Supreme Court |
875 N.W.2d 667
WELLMARK, INC., Appellee,
v.
POLK COUNTY BOARD OF REVIEW, Appellant.
No. 14–0093.
Supreme Court of Iowa.
Feb. 12, 2016.
John P. Sarcone, County Attorney, and David W. Hibbard and Ralph E. Marasco Jr., Assistant County Attorneys, Des Moines, for appellant.
Deborah M. Tharnish and Christopher E. James of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, for appellee.
APPEL, Justice.
In this case, we confront difficult issues related to the proper valuation of a large, well-built, and highly attractive corporate headquarters located in a relatively small metropolitan area for property tax purposes.
This case involves the 2011 assessed valuation of Wellmark, Inc.'s corporate headquarters located in Des Moines (the property). The Polk County Assessor set the valuation at $99 million. Wellmark protested to the Polk County Board of Review (the Board). After a hearing, the Board denied the protest, and Wellmark appealed to the district court. On appeal, the district court entered its findings of fact, conclusions of law, and judgment, finding the valuation of the property for property tax purposes on January 1, 2011, was $78 million.
The Board appealed. Among other things, the Board asserted that the district court improperly relied upon expert testimony based not upon the current use of the building, namely as a headquarters for a single owner-occupant, but as a multitenant office building. We transferred the case to the court of appeals. The court of appeals affirmed the judgment of the district court. We granted the Board's application for further review.
The fundamental issue coursing through this case is whether the Wellmark property should have been valued as if it were a multitenant office building—the most likely use that would result if the property were sold in the limited Des Moines market—or whether the Wellmark property should have been valued according to its current use—a single-tenant headquarters building—even though there was some question whether a buyer for that use could be found in response to a hypothetical "For Sale" sign.
I. Background Facts and Proceedings.
A. The Property. In March 2010, Wellmark completed construction of its corporate headquarters in downtown Des Moines. The building is comprised of five 599,880–square–foot stories of above-ground office space, and two levels of below-ground parking. An adjoining parking garage and exercise facility are not included in the present appeal.
The record demonstrates that the building is striking and highly attractive. The outside of the building is finished with limestone, sandblasted precast concrete, and glass, with a large U-shaped, recessed, curved glass wall on the southern exposure. The building design allows daylight into all the office workstations.
The first floor contains a lobby, several entrances, a convenience store, an art gallery, a full-service restaurant, and a conference center. The second floor contains an auditorium and facilities to support that room, with approximately 90,000 square feet unfinished and unoccupied. The third and fourth floors contain open office space. The third- and fourth-floor space is filled primarily with cubicles with some private
offices. The fifth floor is designed the same as the third and fourth floors with an executive office area at the southwest corner.
Additionally, the property was designed to be energy efficient and environmentally friendly. The property has achieved LEED (Leadership in Energy and Environmental Design) platinum certification.1 LEED is a green building certification program devised by the United States Green Building Council. There is no dispute that the structure provides class-A office space with first-class amenities. It was also undisputed that the cost to construct the building exceeded $150,000,000.
The property could fit comfortably into the surroundings of the suburbs of Chicago, an expanding Sunbelt city, or an East Coast office park. It is located, however, in the commercial real estate district known as the central business district (CBD) in downtown Des Moines. The Des Moines metropolitan statistical area (MSA) is characterized as a "third-tier" MSA with an area population of approximately 490,000.
B. Assessment/Protest. Although staff at the Polk County Assessor's office originally believed the property should be valued in excess of $100,000,000 for property tax purposes as of January 1, 2011, the assessment eventually embraced by Polk County after a series of meetings and consultations with senior local tax officials was $99 million. In May 2011, Wellmark timely filed a protest of the valuation with the Board, asserting the taxing authorities assessed the property for more than the value authorized by law. See Iowa Code § 441.37(1)(b) (2011). In contrast to the assessor's value of $99 million, Wellmark asserted that the actual value of the property was $72 million. In June, the Board denied the protest, noting "[t]he assessed value of [the] property was not changed because market data indicate[d] that the property is assessed at its fair market value." Wellmark appealed to the district court.
A bench trial commenced in July 2013. At the beginning of trial, Wellmark stated without objection that the parties had agreed to a stipulation, noting among other things that "the only grounds that [the parties were] proceeding on today [would be] that the property [was] assessed for more than the value authorized by law."2
Four well-qualified appraisers testified regarding the value of the property: Chris Jenkins and Ted Frandson for Wellmark, and Peter Korpacz and Bernie Shaner for the Board. The appraisers looked to three traditional approaches to find the property's value: cost, comparable sales, and income. After arriving at a value based on each of these three traditional approaches, the appraisers reconciled the three approaches to reach their final conclusion regarding value. The table below sets forth the valuations of each appraiser under each method of valuation and their reconciliations of the different approaches:
| Jenkins | Frandson | Korpacz | Shaner | |
|---|---|---|---|---|
| Comparable–Sales Approach | $65,100,000 | $65,987,000 | $143,800,017 | $83,980,000 |
| Income Approach | $68,480,581 | $75,209,978 | $149,798,817 | $87,450,000 |
| Cost Approach | $71,100,000 | $73,123,000 | $149,798,812 | $122,970,000 |
| Reconciliation | $68,000,000 | $70,000,000 | $145,000,000 | $120,000,000 |
The Polk County Assessor valued the property at $99 million using the cost approach. The record does not contain calculations supporting this figure, but it appears to have been a result of a series of internal meetings in the assessor's office.
The parties' experts differed on many points and adjustments in their analyses. A key issue was one of methodology. The Board's experts, Korpacz and Shaner, emphasized the current use of the Wellmark building as a single-occupant corporate headquarters. This use was the linchpin of their evaluation. They asserted that the proper way to value the business was in a hypothetical transaction in which the buyer would continue the current use. Recognizing there were no Des Moines area transactions in which a large office building was purchased by an owner-occupant for sole use as a corporate headquarters, Korpacz considered corporate headquarters transactions identified from a national database in a wide variety of national locations. While Shaner relied on local multitenant office structures in his comparable-sales and income analyses as the best available comparisons in the local area, he ultimately emphasized his relatively high-cost valuation as the most accurate reflection of the value of the property when used as a corporate headquarters by a single occupant. By emphasizing national sales and by valuating the building at relatively close to actual cost, the Board's experts asserted they had provided the best way to value the building according to its current use, justifying...
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