WHITNEY YOUNG VILLAGE V CITY OF KENTWOODAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
WHITNEY YOUNG VILLAGE APARTMENTS,
July 31, 1998
Michigan Tax Tribunal
MTT Docket No. 96562
CITY OF KENTWOOD,
Before: Doctoroff, P.J., and Fitzgerald and Talbot, JJ.
Petitioner appeals as of right the October 1, 1996, final opinion and order of the Michigan Tax
Tribunal, claiming that respondent improperly assessed petitioner’s federally subsidized rental housing
project for the years 1985, 1986 and 1987. We affirm.
Absent fraud, this Court’s review of a Tax Tribunal decision is limited to determining whether
the tribunal adopted a wrong principle of law or erred as a matter of law. Const 1963, art 6, § 28;
Georgetown Place Cooperative v City of Taylor, 226 Mich App 33, 43; 572 NW2d 232 (1997).
Because petitioner does not allege fraud, this Court’s review is limited to whether the tribunal erred as a
matter of law.
First, petitioner argues that the tribunal cannot ignore the concept of cash equivalency used by
its appraiser and must discount the present value of the mortgage balances of comparable properties in
its sales comparison approach, relying on Antisdale v City of Galesburg, 420 Mich 265; 362 NW2d
632 (1984), and Washtenaw Co v Tax Comm, 422 Mich 346; 373 NW2d 697 (1986). We
disagree. In Meadowlanes v City of Holland, 437 Mich 473, 492-493; 473 NW2d 636 (1991), our
Supreme Court specifically repudiated the use of cash equivalency discounting, stating that the
discounted mortgage approach is flawed because it values the property in large part by valuing its
underlying mortgage in a theoretical commercial paper market. Petitioner’s use of cash equivalency
discounting in both its income and sales comparison approaches is a version of the discounted mortgage
approach which our Supreme Court rejected in Meadowlanes, supra at 492-493.
Contrary to petitioner’s contention, neither Antisdale nor Washtenaw applies to the present
case. In Antisdale, our Supreme Court expressed no opinion regarding whether the discounted
mortgage approach can be substituted for traditional comparisons under the market approach.
Antisdale, supra at 282-283. Furthermore, our Supreme Court limited its holding to the facts of that
case, where the tribunal adopted a wrong principle when it valued the subject property by reference to
the outstanding balances on mortgages which carried terms well below market rates. Id. In
Washtenaw, our Supreme Court held that if market data shows that the sales price of a comparable
property includes both the value of real property, and the value of an atypical financing arrangement
between the buyer and the seller, then the sales price of the comparable properties must be adjusted to
exclude the value attributable to the atypical financing. Washtenaw, supra at 373-374. However, our
Supreme Court subsequently held that a federal interest subsidy is not the type of atypical financing
referred to in Washtenaw. Meadowlanes, supra at 498.
Second, petitioner argues that the tribunal made an error of law by accepting respondent’s
submarket analysis to establish the true cash value of the property. We disagree. Contrary to
petitioner’s contention, this Court’s decision in Comstock LDHA v Comstock Twp, 168 Mich App
755, 763; 425 NW2d 702 (1988), did not reject the use of submarkets in all contexts. Furthermore,
our Supreme Court authorized the valuation of federally subsidized housing through the employment of a
sales comparison approach that uses subsidized properties as sales comparables. Meadowlanes,
supra at 502.
Third, petitioner argues that the tribunal made an error of law when it attributed a quantifiable
value to the project’s mortgage interest subsidy without recognizing the offsetting negative aspects of
the federal regulatory scheme. We disagree. Although the mortgage-interest subsidy is an intangible,
and not taxable in and of itself, it is a value influencing factor and should be reflected in the assessment
process. Id. at 496. Both the positive and negative aspects of the regulatory agreement voluntarily
entered into between the owner and the government must be considered in the valuation process. Id. at
499-500. In order to accomplish this, our Supreme Court sanctioned the use of the three recognized
valuation approaches: the replacement-cost less depreciation approach, the market or comparison-sales
approach, and the capitalization of income approach. Id. at 501-502. By using similarly subsidized and
regulated housing projects as comparable properties in his market sales comparison approach,
respondent’s appraiser complied with Meadowlane’s requirement that he consider both the positive
aspects of the mortgage subsidy and the negative aspects of federal regulation in his valuation of the
project. See id. at 502.
Finally, petitioner argues that the tribunal made an error of law by adopting respondent’s low
capitalization rates in contravention to this Court’s holding in Congresshills Apartments v Ypsilanti
Twp, 128 Mich App 279; 349 NW2d 121 (1983). We disagree. In Congresshills, this Court held
that the federal interest subsidy was an intangible asset which could not be subject to taxation as real or
tangible property and determined that the tax tribunal erred in part because its low capitalization rates
impermissibly incorporated the value of the interest subsidy as a real estate value subject to taxation. Id.
at 282-283. However, Congresshills is no longer precedent on that issue, because our Supreme Court
subsequently ruled in Meadowlanes that the value of federal interest subsidies should be reflected in the
/s/ Martin M. Doctoroff
/s/ E. Thomas Fitzgerald
/s/ Michael J. Talbot