Webb/Henne Montgomery Luxury Apts. v. Hamilton Cty. Bd. of Revision

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State: Ohio

Court: Supreme Court

Docket No: 1994-1878

Case Date: 10/11/1995

Plaintiff: Webb/Henne Montgomery Luxury Apts.

Defendant: Hamilton Cty. Bd. of Revision

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Webb/Henne Montgomery Luxury Apartments, Appellee, v. Hamilton

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County Board of Revision, Appellee; Sycamore Community School District,

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Appellant.

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[Cite as Webb/Henne Montgomery Luxury Apts. v. Hamilton Cty. Bd. of

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Revision (1995), _____ Ohio St.3d _____.]

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Taxation -- Real property valuation -- Board of Tax Appeals' action of not basing true value solely on total cost expended at a given time for a partially completed apartment complex construction project is reasonable -- BTA is vested with wide discretion to determine the weight given to evidence and credibility of witnesses that come before it -- Supreme Court will not overrule BTA findings of fact that are based upon sufficient probative evidence. (No. 94-1878 -- Submitted June 15, 1995 -- Decided October 11, 1995.)

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Appeal from the Board of Tax Appeals, No. 92-X-473.

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Appellee, Webb/ Henne Montgomery Luxury Apartments

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("Webb/Henne") is a general partnership that owns a one-hundred-unit

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apartment complex located on a fifteen-acre site in Montgomery, Ohio.

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Charles Henne, the managing partner of Webb/Henne, testified before the

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Board of Tax Appeals ("BTA") concerning the condition of the partially

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completed apartment project as it existed on the tax lien date of January 1,

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l990. Henne testified that only six of the planned one hundred apartment

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units were near completion and, while most of the site work had been

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completed, there was no access to the site because the roads were too

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muddy to be paved. Some landscaping was in place near the entrance to the

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project and the six units which were near completion; work had started on

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the clubhouse, but no work had started on the gatehouse. The remaining

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ninety-four apartment units were in various stages of construction, ranging

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from those for which the basements had not been excavated to those for

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which the basement walls had been poured to others on which framing had

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been started. As of January 1, 1990, Webb/Henne had spent a total of

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$4,631,238 on the entire project, consisting of $2,508,394 for hard costs

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(labor and materials), $843,704 for soft costs ( legal and architectural fees,

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insurance, etc.), $525,640 for interest, and $753,500 for land cost.

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The Hamilton County Auditor assessed the property at a true value of

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$2,577,830. Webb/Henne filed a complaint with the Hamilton County

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Board of Revision ("BOR"), alleging that the property had a true value of

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$1,000,000. Sycamore Community School District filed a counter-

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complaint, alleging that the property had a true value of $4,631,238. The 2

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BOR found the true value to be $4,631,250. Webb/Henne filed an appeal

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with the BTA.

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At the BTA hearing, Henne testified that his estimate of the market

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value of the project as of January 1, 1990 was $1,000,000. Henne

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contended that no matter how much had been spent on the project as of

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January 1, 1990, a knowledgeable buyer would pay only $1,000,000 for the

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project as it then existed. Henne, a former vice president in the real estate

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investment department of Prudential Insurance Company, contended that

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there was a difference between what Webb/Henne had incurred in costs to

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get the project to its status as of January 1, 1990, and what a buyer would

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pay for the project.

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Henne also presented an exhibit setting forth a value of $1,819,000,

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which he considered to be the maximum market value for the property as it

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existed January 1, 1990. Henne arrived at the $1,819,000 amount for

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market value by taking the hard costs and discounting them where he

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thought there had been cost overruns. Henne then adjusted the discounted

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hard costs by fifty percent for what he termed "inherited [sic] risk" to arrive

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at the value which he considered market value. 3

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David Wuest, an appraiser testifying on behalf of Webb/Henne, stated

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that in his opinion costs and value were not synonymous for this project as

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it existed on January 1, l990. Wuest stated that because there is a risk that

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must be taken into account when taking over a partially completed project

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he would adjust the cost approach analysis in determining value. Wuest

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testified that because there was no income, he did not consider the income

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approach to evaluate the project.

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Neither the school district nor the BOR presented any witnesses

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before the BTA.

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After reviewing the evidence in the case, the BTA stated that

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Webb/Henne had not satisfied its burden of establishing that the property

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was worth only $1,000,000. The BTA also found that the appellees had not

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satisfied their burden of proof in asserting that the BOR's value should be

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retained. The BTA determined the property's value to be $1,953,500 by

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taking the final construction cost, $6.4 million, and applying the auditor's

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twenty-five-percent completion figure to arrive at a partially completed cost

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of $1.6 million. To determine the market value for the improvements the

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BTA further reduced the $1.6 million cost by an additional twenty-five 4

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percent to recognize "the undeniable risk any purchaser would take." The

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addition of the land purchase amount of $753,500 to the market value of

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the improvements ($1.2 million) results in the $1,953,500 value found by

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the BTA.

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Sycamore Community School District filed an appeal with this court.

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The cause is now before this court upon an appeal as of right.

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____________________

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Roeller, Roeller & Jameson and Kenneth D. Jameson, for appellee

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Webb/Henne Montgomery Luxury Apartments.

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Joseph T. Deters, Hamilton County Prosecuting Attorney, and

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Thomas J. Scheve, Assistant Prosecuting Attorney, for appellee Hamilton

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County Board of Revision.

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Klaine, Wiley, Hoffman & Meurer and Franklin A. Klaine, Jr., for

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appellant.

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____________________

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Per Curiam. The school district's first proposition of law asserts that

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the BTA erred in finding that the true value was less than the total of all

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costs expended by Webb/Henne as of January 1, 1990. The school district 5

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cites no cases to support its assertion that total costs expended at a given

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point in time for a partially completed project represents market value. The

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BTA rejected the total cost approach, stating that it was "unlikely a

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developer would have purchased the site for that amount, at that time." The

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BTA further stated that while costs are useful they must be checked against

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what the uncompleted project would bring if sold on the open market. An

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example of a situation where cost would not equal value is where work on a

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construction project has been performed incorrectly. The cost of performing

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the erroneous work, while chargeable to the project, would not increase the

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value of the project. The fair market value of a property reflects what

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portion of the cost will be recovered in a sale, not necessarily the actual cost

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of the project. Indeed, the fair market value may exceed actual costs. "In

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determining the value of property for the purpose of taxation, the tax

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assessor must take into consideration all factors which affect the value of

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property." (Emphasis sic.) Cardinal Fed. S. & L. Assn. v. Cuyahoga Cty.

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Bd. of Revision (1975), 44 Ohio St.2d 13, 18-19, 73 O.O.2d 83, 86, 336

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N.E.2d 433, 437. Contrary to a consideration of all factors, the school

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district would have the BTA blindly accept total cost without regard to other 6

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factors. We find the action of the BTA in not basing true value solely on

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the total cost expended at a given time for a partially completed construction

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project was reasonable.

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The school district's second proposition of law asserts that the BTA

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erred in relying upon the testimony of an appraiser in another case. The

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school district misinterprets what the BTA said. The BTA stated that the

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cost approach used in another case should be applied here. The BTA found

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that the cost approach methodology which it had used in another case was

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similar to what the auditor's office had used in this case. Ohio Adm. Code

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5705-3-02(G) directs auditors to value a building under construction based

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upon "its value or percentage of completion as it existed on January 1."

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The BTA found that the Webb/Henne project was twenty-five percent

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completed on January 1, 1990 and that the ultimate total cost of the

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improvements was $6.4 million, thereby yielding a cost of $1.6 million on

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January 1, 1990. The BTA further reduced that amount by twenty-five

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percent to recognize what the BTA described as the "undeniable risk" that a

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potential purchaser would undertake in purchasing a partially completed

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project. While the BTA had used this method in another case, the same 7

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theory was testified to in this case by Henne, who used a fifty-percent

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discount factor for the "inherited [sic] risk" of purchasing an uncompleted

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project. Based on the facts in this case, the BTA found the inherent risk

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discount factor should be twenty-five percent rather than fifty-percent, as

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urged by Henne. The BTA is vested with wide discretion to determine the

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weight given to evidence and the credibility of witnesses that come before

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it. Witt Co. v. Hamilton Cty. Bd. of Revision (1991), 61 Ohio St.3d 155. The

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risk factor used by the BTA is within the range presented to the BTA;

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therefore, its decision to use the cost approach to determine value was

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reasonable.

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The school district's third proposition of law asserts that the BTA

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erred in reversing the decision of the BOR after the BTA had concluded that

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the landowner had failed to meets its burden of proof. In making this

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assertion, the school district misinterprets the BTA's decision. In its

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decision, the BTA stated that the landowner had not satisfied its burden of

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proof in asserting the property was worth only $1,000,000. The BTA did

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not state that the landowner had failed to meet its burden of proof in

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showing that the BOR value was in error. In fact, the BTA stated that the 8

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landowner had shed doubt upon the accuracy of the BOR's valuation and

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that the school distrtict had not sustained its burden in asserting that the

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BOR values should be retained.

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Based on the evidence before it, which consisted of the landowner's

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witnesses and the statutory transcript, there was sufficient evidence in the

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record upon which the BTA could determine value. In R.R.Z. Assoc. v.

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Cuyahoga Cty. Bd. of Revision (1988), 38 Ohio St.3d 198, 201, 527 N.E.2d

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874, 877, we summarized the functions of the BTA and this court in

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property valuation appeals:

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"The BTA need not adopt any expert's valuation. It has wide

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discretion to determine the weight given to evidence and the credibility of

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witnesses before it. Its true value decision is a question of fact which will

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be disturbed by this court only when it affirmatively appears from the record

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that such decision is unreasonable or unlawful. Cardinal Federal S. &L.

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Assn. v. Cuyahoga Cty. Bd. of Revision (1975), 44 Ohio St.2d 13, 73 O.O.2d

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83, 336 N.E.2d 433 paragraphs two, three, and four of the syllabus. This

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court is not a ` "super" Board of Tax Appeals.' Youngstown Sheet & Tube

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Co. v. Mahoning Cty. Bd. of Revision (1981), 66 Ohio St.2d 398, 400, 20 9

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O.O.3d 349, 351, 422 N.E.2d 846, 848. We will not overrule BTA findings

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of fact that are based upon sufficient probative evidence. Hawthorne

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Mellody, Inc. v. Lindley (1981), 65 Ohio St.2d 47, 19 O.O.3d 234, 417

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N.E.2d 1257, syllabus." We find the BTA's action in not adopting the

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valuation set by the BOR to be reasonable.

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Finally, the appellant asserts that the BTA failed to specify the

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reasons for its decision and the evidence upon which it relied. The decision

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of the BTA set forth step by step how it arrived at its final value and cited

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the evidence upon which it based its decision. We do not find the BTA's

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action to be unreasonable

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We determine that there is sufficient probative evidence establishing

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the current true value of the property in accordance with the BTA's

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valuation. The decision of the BTA is reasonable and lawful and it is

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affirmed.

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Decision affirmed.

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MOYER, C.J., DOUGLAS, WRIGHT, RESNICK, F.E. SWEENEY, PFEIFER

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and COOK, JJ., concur.

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