Allen v. Clackamas Co.
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IN THE MAGISTRATE DIVISION OF THE OREGON TAX COURT Property Tax SAMUEL E. ALLEN and ANITA M. ALLEN, Plaintiffs, v. CLACKAMAS COUNTY ASSESSOR, Defendant. ) ) ) ) ) ) ) ) ) No. 010569D DECISION Plaintiffs appeal the real market value of their property identified as Clackamas County Assessor's Account No. 00429487 for tax year 2000-2001. A trial was held on Thursday, November 8, 2001, at the Clackamas County Office of Assessment and Taxation, Oregon City, Oregon. Mr. Sam Allen, owner of the subject property (a motel), appeared on behalf of Plaintiffs. Mr. Jack Leeman, Certified Appraiser, testified on behalf of Plaintiffs. Mr. John Taylor, Appraiser II, appeared on behalf of Defendant. STATEMENT OF FACTS Plaintiffs own three motels in Clackamas County, Oregon. The motels are located in close proximity to each other at the Sunnyside Road and Interstate 205 junction. Plaintiffs have appealed the real market value of each motel. Even though each appeal was assigned a separate case number, the court tried all three cases at one time.1 The motel under appeal in this case is the Monarch Motor Hotel (Monarch). Mr. Allen recounted for the court the history of the Monarch. The Monarch was built in 1984-85 on 5.42 acres of land. Rooms available for rent total 193. The Monarch offers food service (Sam s Restaurant and Lounge) and conference facilities. The Monarch has 1 For reference, the other two cases are 010567D and 010568D. DECISION 1 ten meeting rooms with a total capacity of 1,000 persons. Mr. Leeman categorized the Monarch as a full service hotel. It subscribes to a national reservation system (UTEL). Mr. Allen testified that the hotel is managed by a general manager who has been working for him for 20 years. Since opening the hotel, Mr. Allen testified that his business has increased and was steady. Within the last four to five years, Mr. Allen testified that business was no longer steady nor increasing. He testified that hotel rooms in the Portland area have jumped to 21,116 from 10,500. Within the last three years, Mr. Allen testified that over 4,400 rooms have been added. In the last two years, he testified that three new motels, all within 2 miles or less of his property, have opened or expanded. The three motels are: Marriott Courtyard with 150 rooms; Oxford Suites with 100 rooms and Comfort Inn with 50 rooms. As a result of the increased competition, he testified that his sales team has to work harder to market and rent the motel rooms, offering substantial room rate discounts. While the advertised standard room rates varied from $112 to $155, Mr. Allen testified that the average room rate in 1999 was $66. From 1998 to 1999, revenue dropped 2 percent and in the next year from 1999 to 2000, revenue dropped an additional 13.5 percent. (Ptfs Ex 1 at 18A.) With the economy at its current low point, Mr. Allen testified that there is no net income. He explained that he has consolidated some operations, such as laundry services for all motels, at one of his three motels in an effort to reduce expenses. Mr. Allen testified that because of the substantial decrease in revenue in the last year he is concerned that the hotel will not generate enough cash to pay debt service on the property. Mr. Leeman s initial testimony focused on the uniqueness of a hotel as an DECISION 2 investment alternative. (Ptfs Ex 2.) He called the court s attention to the fact that hotels and motels must continually sell their services in contrast to other commercial properties that can lock tenants into leases of varying terms to produce relatively secure and stable income. (Id. at 1.) He testified that hotels and motels have a higher vulnerability to changes in the economy. Mr. Leeman reviewed forecasted trends for hotel values. (Ptfs Ex 3.) He quoted from a recent opinion article to support Mr. Allen s financial information that even before the September 11, 2001, tragedy, hotels were experiencing a softening of occupancy and average rate as the economy slowed and a recession neared. (Id. at 1.) The article concluded that as a whole the nation s hotel values will fall in the near-term with a recovery in 2002 and over the long-term, hotel values will increase to levels at or above those achieved in the past three years. (Id. at 4-5.) Mr. Leeman testified that in valuing a hotel property it is extremely important to consider the local markets rather than regional or national trends. (Id. at 5.) Because the local market controls the occupancy and average room rate, Mr. Leeman testified that in valuing a motel, the income approach is the most meaningful. He testified that potential investors favor direct capitalization of income and place little reliance on projected income because the property must generate cash to meet the debt service. For these reasons, Mr. Leeman based his income approach on actual 1999 operating income of the subject property with adjustments for debt service, depreciation and amortization. He concluded that the adjusted 1999 net income represented a stabilized income stream. (Ptfs Ex 1 at 8; Ptfs Ex Income Approach Computation.) Mr. Leeman did not adjust the expenses for shared operating expenses recorded on the Monarch s operating statement which benefitted the Monarch and two other hotel properties owned by Mr. Allen. DECISION 3 To the adjusted 1999 net income, Mr. Leeman deducted a Reserves for Replacement in order to capture the return on personal property. (Ptfs Ex Income Approach Computation.) As a result, the capitalized net operating income then indicates the market value of the property both real and personal, requiring the personal property assessed value to be deducted [i]n order to avoid double assessment. (Ptfs Ex 1 at 9.) After computing an adjusted net income of $727,776, Mr. Leeman capitalized the net income at 10.5 percent to compute an indicated value of the motel in the amount of $6,931,199. (Ptfs Ex Income Approach Computation.) Mr. Taylor testified that when using the income approach to determine the real market value of a hotel it is important to use a stabilized net operating income and not select one year s actual income as representative of the life cycle of the hotel. He stated that Oregon s property tax system is based on value, not income, and value does not go up and down each year. Mr. Taylor provided the court with an example of how the capitalization of a net income that was not stabilized could result in an erroneous determination of value. (Def s Ex A at 18.) Mr. Taylor concluded that the hotel market should stabilize by the year 2005. (Def s Ex A at 21-22.) Using a projected rent room income of $100 by the year 2005, occupancy rate of 70 percent and expenses per room of 76.7 percent, Mr. Taylor capitalized the net income at 11 percent. (Id. at 22.) Next, he discounted each year s income from 2000 to 2004 and a year 2005 value at 14 percent to adjust for the years with the reduced income (Id. at 21-22.) Then, the 2005 stabilized income was reduced by each of the discounted year s income from 2000 to 2004 and the year 2005 value to arrive at a real market value of $10,861,342.2 (Id. at 22.) 2 The parties agree that the value of the personal property ($530,752) should be deducted from the computed real market value. DECISION 4 Mr. Taylor testified that the income approach should not be used in isolation in determining value. He testified that to make an accurate determination of value the relationship between the market (comparable sales) and income must be reviewed to know what an investor did pay for an income producing property similar to the subject property. Mr. Taylor submitted both in town and out of town sales of comparable properties. (Def s Exs B and C.) From these comparable sales, he developed a room rent multiplier (RRM) which when multiplied times the income from renting the rooms calculates a real market value. (Def s Ex A at 12-13.) Using a room rent multiplier of 3, Mr. Taylor determined a real market value of $10,706,400. (Id. at 14.) In addition, using the in town comparable sales, Mr. Taylor adjusted the sale price of four comparable properties for date of sale, square footage based on a land to building ratio, location, and quality to determine a real market value of $9,644,118. (Id. at 11.) Considering the values indicated by the market, RRM and income approaches, Mr. Taylor concluded the market value of the property to be $10,800,000. (Id. at 23.) Mr. Leeman did not use the comparable sales method to determine the fair market value of the subject property. He wrote that there were no comparable sales in the area of the subject within the past two years and the market approach was not considered. (Ptfs Ex 1 at 14.) Mr. Leeman testified that in his experience it is very difficult to obtain the necessary information to make proper adjustments to the sale prices. In addition, he stated that the bottom line is what is an investor is going to pay in light of the economy and can the motel generate sufficient income to make debt service payments. Mr. Taylor testified that because of the current downturn in the local economy, the DECISION 5 county supported an average 20 percent reduction in the real market value of all motel properties located in the county that were appealed to the board of property tax appeals (Board). The real market value of Plaintiffs property was reduced by the Board from $11,483,930 to $10,183,930, an 11 percent reduction. (Board Order mailed March 14, 2001.) COURT'S ANALYSIS The issue before the court is the 2000-2001 real market value of Plaintiffs motel. Real market value is the standard used throughout the ad valorem statutes (except for special assessments.) Gangle v. Dept. of Rev., 13 OTR 343, 345 (1995). Real market value is defined in ORS 308.205(1)3 which reads: Real market value of all property, real and personal, means the amount in cash that could reasonably be expected to be paid by an informed buyer to an informed seller, each acting without compulsion in an arm s length transaction occurring as of the assessment date for the tax year. It is common practice for appraisers to use three approaches to determine real market value: (1) the cost approach, (2) the sales-comparison or comparable sales approach, and (3) the income approach. The parties in this case agree on the following points. They agree that the highest and best use of the property is its current use, the cost approach is not an acceptable method of valuation, and, after determining a real market value using the income approach, the personal property assessment must be removed to report only the market value of the real property. Income Approach 3 All references to the Oregon Revised Statutes are to 1999. DECISION 6 Both parties presented the court with analysis and estimates of value based on the income approach. The capitalization rates used by each party were similar, 10.5 percent for Plaintiffs and 11.0 percent for Defendant. Mr. Taylor computed a lower capitalization rate based on the market, dividing a comparable property s net income by the sale price. (Def s Ex A at 20-21.) He concluded that it was appropriate to use the 11 percent rate often quoted for hotels because buyers are anticipating better times to come as occupancies return to their former rates. (Def s Ex A at 21.) The court finds Mr. Taylor s explanation puzzling since two of the five sales he used occurred before the current economic slowdown. (Id. at 20.) The indicated capitalization rates for these two sales which occurred in August 1997 and February 1999 were 7.52 percent and 8.88 percent, respectively, each within a close range of the other three sales which occurred in late 1999, early 2000 and October 2001. (Id.) Each party s projection of gross room revenue is significantly different from the other. Mr. Leeman used actual gross room revenue for the 1999 calendar year. Mr. Taylor projected gross rent revenue on the assumption that by the year 2005 the room rent revenue would be stabilized. Mr. Taylor concluded that it was incorrect to use the actual income of the property as the stabilized income because he believed that the downturn in the economy was the sole reason for the decline in room revenue. While the downturn in the economy could explain part of the 15 percent room revenue decline between 1999 and 2000, it does not explain the room revenue decline of 4 percent between 1998 and 1999 when the economy was expanding. (Ptfs Exs 1 at 18B, 18C, and 18E.) The court concludes that the arrival of competing motels offering similar accommodations forced the Monarch to discount its room rate to stabilize its occupancy rate. (Id. at 18F.) DECISION 7 Mr. Taylor s income approach ignored the contribution of the income from the restaurant and lounge and conference facilities to the overall value of the Monarch. Mr. Leeman combined the revenue from the rooms, restaurant and lounge, conference facilities and related expenses. He used one capitalization rate to compute a value. In deciding to use one rate, Mr. Allen testified that he believed Mr. Leeman s rate was too low considering the volatility of the restaurant and conference business. Neither party has accurately accounted for the contribution of the restaurant and lounge, and conference facilities in the value of the Monarch. The income earned between these two lines of business is almost evenly split. (Ptfs Income Approach Computation.) The court cannot correct for this significant deficiency because all the expenses related to activities other than the operating costs of the rooms are not separately detailed in the financial statements. Mr. Leeman used the actual expenses for the Monarch for calendar year 1999 excluding annual debt service. Mr. Leeman increased the actual expenses to include a reserve for replacements. Mr. Leeman used four percent of gross revenue as a reserve for replacements whereas Mr. Taylor did not specify a rate. Considering the age and condition of the subject property, the court finds that four percent is a reasonable estimate of the necessary reserve for replacements. Mr. Leeman s total expense ratio was 88.8 percent.4 This expense ratio is slightly higher than the 1998 ratio (88.0 percent) reflecting increased marketing costs in the face 4 This ratio is determined by dividing the expense amount by the income amount to indicate a ratio of income to expenses. Using the data from Plaintiffs Ex 1 at 18A and 18B, the calculations are as follows: 1998: $5,858,903 (Expenses) ÷ $6,658,392 (Income) = .8763 (rounded to 87.6%); 1999: $5,798,081 (Expenses) ÷ $6,525,853 (Income) = .8884 (rounded to 88.8%). DECISION 8 of competition. (Ptfs Ex 1 at 18B and 18C.) Because of shared expenses recorded in the Monarch s operating statement that benefit two other hotels owned by Mr. Allen, the expense ratio may be overstated. Mr. Taylor used an expense ratio of 76.7 percent. Mr. Taylor s market data indicated expense ratios ranging from approximately 71 percent to 75 percent. (Def s Ex A at 20.) For purposes of the income approach, it is acceptable to use actual income and expenses for one year when the property is established and maintains a stable level of occupancy. In 1999 with the arrival of competing motels, the Monarch maintained its level of occupancy by discounting its room rate. With the same manager for over 20 years and a marketing staff of 6, the Monarch is both competently marketed and managed. The Monarch s actual income and expenses for 1999 represented a stabilized operating level. Using an income approach and a capitalization rate of 11 percent, the court concludes that the real market value of the Monarch as of January 1, 2000, was $7,025,236 before subtracting the value of the personal property. However, the court notes that by using one capitalization rate for two separate lines of business (hotel and conference) and including shared expenses in the expense ratio, the weight given by the court to the indicated value must be reduced. Comparable Sales Noting that there is danger in placing too much reliance on any one approach to value , the court next considers the market analysis submitted by Mr. Taylor. Lincoln County Assessor v. YCP Salishan LP, OTC-RD Nos. 4509, 4510, WL 902781, at *6 (Aug. 3, 2001). The sales comparison approach estimates the value of property by adjusting the sales price of similar properties recently sold. The court looks for arm s length sales transactions of property similar in size, location and quality to Plaintiffs DECISION 9 property in order to determine the real market value. Because Plaintiffs did not use the comparable sales method in valuing the subject property, the only evidence submitted was Defendant s comparable sales. Mr. Taylor s market analysis presented four comparable sales. The four properties selected as comparable were: Capri Motel (Capri); Ramada Limited (Ramada); Residence Inn By Marriott (Residence); and Alderwood Inn (Alderwood).5 (Def s Ex A at 11; Def s Ex B at 3-21.) Compared to the subject property with 193 rooms, the comparable properties include the Capri with 45 rooms6, Ramada with 68 rooms, Residence with 112 rooms and Alderwood with 150 rooms. (Def s Ex A at 6.) Mr. Taylor made adjustments for the various items of value to account for the variations among the properties in order to bring an accurate indication of value. (Id. at 5.) His adjustments which are discussed below were: date of sale; land to building ratio; location; and quality. Mr. Taylor testified that these adjustments are subjective or a judgment call. Mr. Taylor stated that it is typical to make an adjustment for the age of the building. (Id. at 10.) However, in this case, Mr. Taylor concluded that after making the other four adjustments, the Capri, built in 1959, is very close in value per square foot to the newest building, the Ramada, built in 1991. (Id.) Mr. Taylor also concluded that the newly constructed Alderwood, built in 1998, did not merit an adjustment because of the difficulty for new 5 The addresses and location of the four properties are: Capri, 1530 NE 82nd Avenue, Portland, Oregon (NE 82nd, off Interstate 84); Ramada, 17993 SW Lower Boones Ferry Road, Tualatin, Oregon (Interstate 5 at Boones Ferry); Residence, 15200 Bangy Road, Lake Oswego, Oregon (Interstate 5 and Highway 217); and Alderwood, 7025 NE Alderwood Road, Portland, Oregon (near Portland International Airport). 6 Mr. Taylor s analysis uses 45 rooms for the Capri. (Def s Ex A at 6.) According to the CoStar Comps data on the Capri (Def s Ex B at 3-5) the Capri has 45 rooms and 40 parking spaces. The TravelHero.com data (Id. at 6-7) on the property indicates a total of 40 rooms. DECISION 10 properties in achieving stabilized occupancy in these lean years. (Id.) For these reasons, Mr. Taylor made no adjustments to account for the variations in year built. (Id.) Date of Sale In adjusting for the date of sale, Mr. Taylor used a sample of property sales to determine a correlation between the date of sale and the sale price per square foot. (Def s Ex A at 6.) The sample included 15 total properties,7 built between 1919 and 2000 with sale prices ranging from $540,000 to $26 million. (Id. at 8.) In developing the time adjustment to account for variations in the date of sale, Mr. Taylor placed a great deal of confidence in a Microsoft Excel regression analysis tool which he labeled forecast. Mr. Taylor concluded that the change in value for the time period, January 1, 1999, to January 1, 2000, was 10.3 percent. (Id.) Based on the number of months between the date of sale of the selected comparable property and the assessment date of January 1, 2000, the computed price per square foot was adjusted. (Id. at 11.) While the court has no opinion as to the accuracy of the Microsoft program, Mr. Taylor states that the correlation among the 15 sales is significant, though not great. (Id. at 6.) The court agrees with Mr. Taylor that the dissimilarities among the properties including a property (the Ramada) that was remodeled and another (the Residence) that was sold at a price substantially less than the assessed value of the property, as well as the numerous differences in number of rooms, location and year built, all combine to discount the confidence to be placed in this adjustment. In addition, the court notes that Mr. Taylor s computed rate is for the period January 1, 1999, to January 1, 2000. 7 One property included in the sample, 25425 SW 95th Avenue, sold twice, once on September 7, 2000, for $5.5 Million and again on May 3, 2001, for $5.75 Million. DECISION 11 However, he applied the same rate for a sale which occurred almost a year prior, January 20, 1998. (Id. at 11.) There was no evidence to support an assumption that the annual adjustment for the two year period would be the same as the one year interval. In reviewing the reported sale price for the Alderwood, the court notes that Defendant s evidence reported a sale price of $5,820,000 for the sale of the improvements. (Def s Ex B at 22.) According to the exhibit, the buyer has acquired the land in a separate transaction. (Id.) Mr. Taylor did not submit evidence to support the land value which he included in his reported sale price. (Def s Ex A at 11.) In addition, the time to sale adjustment made no mention of the time difference between the land transaction and improvements transaction. Land to Building Ratio Another adjustment made by Mr. Taylor was for the land to building ratio (L/B ratio.) The L/B ratio is derived by dividing the square footage of the land by that of the building. A high land to building ratio is more desirable. (Id. at 9.) The subject property had a land to building ratio of 1.99 while the properties selected had ratios of 1.47 to 3.21. (Id. at 6.) According to Mr. Taylor s method the L/B ratio was multiplied by $5 to account for the incremental value attributable to land. (Id. at 10.) Mr. Taylor failed to include a definition of incremental value or evidence to support his determination that $5 is the correct value per square foot of incremental value. As a result, the court makes no determination as to accuracy of the L/B ratio adjustment but does note that this adjustment in relation to the sales price was not a significant amount in any of the comparable properties. (Id. at 11.) Location Mr. Taylor also made an adjustment for differences in location between the DECISION 12 comparable sales and the subject property. (Id.) Mr. Taylor concluded that the subject property ranks average in location. Two properties, the Capri and the Alderwood, were also determined to be average in location. Although the Alderwood was ranked as an average location, Mr. Taylor stated that an adjustment for location needed to be made because the Alderwood is not located near a freeway. (Id. at 9.) No adjustment, however, was made by Mr. Taylor in the final computations. (Id. at 11.) The Ramada was adjusted because it was ranked as inferior and an adjustment was made to the property because it is landlocked and requires an easement for access. (Id. at 9.) Mr. Taylor appears to have based the amount of the adjustment on two factors: ease of access and proximity to a freeway. While Mr. Taylor noted that the hotel must have easy access to other points of interest, this factor was not discussed in his appraisal report in relation to the subject property and the comparable sales. (Id.) Unlike the subject property, none of the comparable sales are located in the Interstate 205 corridor or in close proximity to any major shopping malls or entertainment complexes. In addition, the amount used to adjust the price per square foot of the comparable sales was not explained nor documented, and could have included any or all of the factors listed above. For example, Mr. Taylor ranked the Ramada as inferior and a $20 adjustment was added to the unadjusted sale price per square foot. (Id. at 11.) Because the Residence was ranked as superior, $5 was subtracted. (Id.) While a $5 adjustment in relation to an unadjusted sales price of $132 for the Residence is not significant, a $20 adjustment in relation to an unadjusted sales price of $69 for the Ramada suggests a strong lack of comparability between the properties and the subject property. DECISION 13 Adjustments for location are necessary where the location characteristics of the comparable properties differ from those of the subject property. Appraisal Institute, The Appraisal of Real Estate 435 (12th ed 2001). The court views the location adjustment as particularly significant in this case because of the impact of competition from neighboring properties on the value of the subject property. The competition factor was not discussed in this context or as a separate adjustment factor. While Mr. Taylor noted the differing characteristics of the properties, the court finds the accuracy of the location adjustment questionable because there was no mention of adjustments for location to account for access to other points of interest, the failure to make the stated adjustment necessary to account for the Alderwood s lack of freeway access, no explanation of how the amount used to make the adjustment was determined, and the relationship between the adjustment amount and the unadjusted sale price in one of the comparable sales was significant. Quality Mr. Taylor adjusted only one comparable sale for quality. In his analysis, Mr. Taylor concluded that an adjustment should be made to the sales price per square foot of the Capri because of its facilities for truckers, its lower room rates and its generally inferior quality when compared to the subject. (Def s Ex A at 10.) The quality adjustment was an addition of $15. None of the other properties were adjusted for quality variation. Mr. Taylor did not explain nor document how the amount of the adjustment ($15) was determined. As previously noted, no adjustments were made to account for variations in the year built of each property. Mr. Taylor s appraisal report stated that the building age does not seem to be a measurable factor among the comparable selected after making all other DECISION 14 adjustments. (Id. at 10.) Mr. Taylor s conclusion is based on the reliability of the prior adjustments. Because of the lack of information provided to the court explaining how the dollar amount of the adjustment was determined, the court cannot agree with Mr. Taylor. The court notes that as compared to the subject, both the Ramada and the Alderwood are newer facilities, built in 1991 and 1998 respectively. (Id. at 6.) In addition, the Ramada was partially remodeled in 1998. (Def s Ex B at 10.) By not explaining these differences, the court has no evidence to support Mr. Taylor s conclusion that an adjustment for variations in year built was not warranted. Conference and Restaurant Facilities Mr. Taylor did not make any adjustments to the properties with respect to the conference and restaurant facilities of the subject property. With a full service restaurant on-site and ten meeting rooms with a total capacity of 1,000 persons, the court agrees with Mr. Leeman s characterization of the Monarch as a full service facility. Three of the comparable properties, the Capri, Ramada and Residence, are limited service facilities with no on-site restaurant or conference capabilities.8 The remaining property, Alderwood, appears to have been included as a comparable because it has some conference capability. (Def s Ex B at 22.) However, the only information about this capability is a statement that the property has conference rooms with average technical accommodations. (Id.) There is no information indicating any on-site restaurant or other food service. Based on this limited information, the court cannot conclude that the Alderwood is a full service facility comparable to the subject property. 8 The Capri has no meeting rooms (Def s Ex B at 6); the Ramada has one meeting room with a total capacity of 35 (Id. at 12); and the Residence has two meeting rooms with a total capacity of 24 (Id. at 18). DECISION 15 Adjusted Sale Prices and Value After the adjustments discussed above, the indicated sale price per square foot computed by Mr. Taylor ranged from $91.62 to $99.91. (Def s Ex A at 11.) Mr. Taylor concluded that the range was narrow. (Id.) Taking the average of $94 and multiplying it times the number of square feet of the Monarch (102,597), Mr. Taylor s comparable sales analysis indicates a value of $9,644,118. (Id.) The weight given by the court to Mr. Taylor s indicated value is influenced by his failure to explain the dollar amounts selected for the adjustments and the lack of comparability of the properties. The failure to find any comparable property located in the immediate area or Interstate 205 corridor highlights the difficulty in finding comparable property which ultimately goes to the value issue. Finally, Mr. Taylor failed to make any adjustments or give any explanation in his analysis to account for the absence of conference and restaurant facilities available at the comparable properties in contrast to the full service facilities available at the subject. For the comparable sales approach to provide a range of values which the court can look at as support for the final determination of value, the properties must be comparable to the subject. As discussed above, the properties selected as comparable do not provide the same full service amenities as does the Monarch, nor were adjustments made to the comparables to reflect this substantial difference in services. The court finds that the properties are not comparable and the comparable sales approach gives the court a limited indication of value for full service hotels in the Portland Metro area. Room Rent Multiplier Mr. Taylor also presented the court with a value estimate based on the room rent multiplier (RRM). (Def s Exs A at 12 and C at 1-13.) This approach to estimating value is a capitalization method similar to the income approach. To derive a RRM from market DECISION 16 data, sales of properties which are rented at the time of sale are required. The RRM is calculated by multiplying the income from the room rent by a factor, derived from the market, to get the Market Value. (Def s Ex A at 12.) Mr. Taylor s RRM was developed using properties located outside the Portland Metro area. The four properties used to develop the out of area RRM were: Comfort Inn, Wenatchee, Washington (Wenatchee); Comfort Inn, Auburn, Washington (Auburn); Holiday Inn Express, Albany, Oregon (Albany); and Best Western Ramada Inn, Lincoln City, Oregon (Lincoln City). (Id.) Using these properties, a RRM of 3.62 to 4.20 was indicated. However, these properties seem to ignore the impact of the local market on the value of a property. Determining this RRM to be too high in light of the number of assumptions required when using the out of area properties, Mr. Taylor also considered data from the sale of two properties in the Portland area. (Id. at 13.) One property was the Lamplighter Motel (Lamplighter) located on Highway 26 in the Cedar Hills area of Portland and the other was the Holiday Inn Express (Holiday) located close to the outlet mall in Troutdale, Oregon. (Id.; Def s Ex C at 9-12.) After evaluating the data from the Portland area in comparison with the indicated RRM for the out of area properties, Mr. Taylor concluded a reasonable RRM to be 3.00. (Def s Ex A at 13-14.) Multiplying the RRM of 3 times the 1999 gross income for the subject property, Mr. Taylor computed an indicated value of $10,706,400. (Id. at 14.) It is important when attempting to develop a RRM that the properties analyzed be comparable to the subject property and to one another. Comparability is based on a review of various characteristics, including among others age, size and location. There are numerous differences between the subject property and the out of area properties, as DECISION 17 well as among the out of area properties themselves. For example, the Wenatchee, Albany and Lincoln City properties were built between 1994 and 1997 while the Monarch is a much older property, built in 1984-85.9 (Def s Ex A at 12.) The differences also carry through to the Portland area properties. The Lamplighter, built in 1973, is significantly older than the subject property. (Def s Ex C at 10.) The Holiday was built in 1997 with a conversion November 2000 to a Holiday Inn Express, requiring remodeling costs of approximately $450,000. (Id. at 9.) There is a substantial difference in the size of the properties. While the subject property has 193 rooms, the out of area properties have between 53 and 81 rooms. (Def s Ex A at 12.) The Portland area properties have less rooms than the subject property; the Holiday has 78 rooms and the Lamplighter has 56 rooms. (Def s Ex C at 910.) Furthermore, neither of the local or out of area properties have any conference or full service capabilities comparable to that of the subject property. Neither the Lamplighter nor the Holiday have any conference facilities. (Id.) The Wenatchee and Lincoln City properties have meeting space with a capacity for 75; the Albany property has meeting space with capacity for 60-70; and the Auburn property has a single meeting room with capacity for 35. (Id. at 1, 3, 5 and 7.) Also, in developing a RRM, the income data must be similar for each sale transaction. For the out of area properties, Mr. Taylor used gross income from 1998 for three of the properties and 1996 for the fourth property. (Def s Ex A at 12.) For the 9 No date was provided for the age of the Comfort Inn located in Auburn, Washington (Def s Ex A at 12.) DECISION 18 Lamplighter, Mr. Taylor used the information provided by the selling broker that the property sold at a gross rent multiplier of 4. (Def s Ex C at 10.) Finally, Mr. Taylor used income for the Holiday for the year prior to the conversion and the year of conversion. Such differences significantly reduce the reliability of the RRM. One final issue concerning RRMs. Properties with the same or close to the same multipliers can have substantially different operating expense ratios. Mr. Taylor s information did not include any comparable information about the operating expenses of the selected comparable properties. Without a review of the operating expenses, the properties may or may not be comparable as to value. Each of the issues discussed above impact the value of a hotel property. Because of the significant disparities among all the properties, including the use of out of town properties, the lack of comparability between the RRM properties and the subject and the absence of any operating expense analysis, the court concludes that it will give little weight to Defendant s RRM. CONCLUSION After carefully considering and weighing all the evidence and testimony, the court concludes that the real market value of the subject property for the tax year 2000-2001 was $8,800,000 after the reduction of $530,752 for the personal property assessment. Now, therefore, IT IS THE DECISION OF THIS COURT that the real market value of Plaintiffs property identified as Clackamas County Assessor's Account No. 00429487 for tax year 2000-2001 was $8,800,000. IT IS FURTHER DECIDED that the county shall correct the assessment and tax rolls to reflect the above stated real market value of Plaintiffs property as defined in DECISION 19 ORS 308.162(2) with any refund due Plaintiffs to be promptly paid with statutory interest pursuant to ORS 311.806 and 311.812. Dated this _____ day of January, 2002. _________________________________ JILL A. TANNER MAGISTRATE IF YOU WANT TO APPEAL THIS DECISION, FILE A COMPLAINT IN THE REGULAR DIVISION OF THE OREGON TAX COURT, FOURTH FLOOR, 1241 STATE ST., SALEM, OR 97301-2563. YOUR COMPLAINT MUST BE SUBMITTED WITHIN 60 DAYS AFTER THE DATE OF THE DECISION OR THIS DECISION BECOMES FINAL AND CANNOT BE CHANGED. THIS DOCUMENT WAS SIGNED BY MAGISTRATE JILL A. TANNER ON JANUARY 17, 2002. THE COURT FILED THIS DOCUMENT ON JANUARY 17, 2002. DECISION 20
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