Woolen Mill Assoc. v. City of Winooksi

WOOLEN_MILL_ASSOC_V_CITY_OF_WINOOSKI.93-190; 162 Vt. 461; 648 A.2d 860

Filed:  26-Aug_1994

 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.  Readers
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                                   No. 93-190


 Woolen Mill Associates                       Supreme Court

                                              On Appeal from
      v.                                      Property Valuation &
                                                Review Division

 City of Winooski                             June Term, 1994



 Rexford E. Roberts, Chair

 Philip H. Zalinger, Jr., and Donna Russo-Savage of Paterson & Walke, P.C.,
   Montpelier, for plaintiff-appellee

 William M. O'Brien, Winooski, and Karel Brown Ryan, Essex Junction, for
   defendant-appellant


 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


      DOOLEY, J.   The City of Winooski appeals a decision of the Board of
 Tax Appraisers (the Board) reducing the assessed value of taxpayer's
 property from $5,200,000 to $4,750,374.  We affirm.
      The property consists of four interconnected brick masonry structures,
 once used as a woolen mill, with a total floor area of 247,600 square feet
 situated on a 6.1-acre parcel of land in downtown Winooski, called
 collectively the Woolen Mill.  Taxpayer has renovated the structures into
 163 residential rental units and about 16,000 square feet of commercial
 rental property.

 

      The City assessed the property for the 1991 grand list at $5,200,000,
 based on a report of its appraiser.  The City's expert estimated the fair
 market value of the Woolen Mill using a combination of two recognized
 approaches to valuation, comparable sales and income capitalization.  Using
 the comparable sales approach, the appraiser relied upon the sale of a
 property of similar design located in Manchester, N.H. and, after extensive
 adjustments, arrived at a value for the subject property of $31,170 per unit
 or $5,080,710 for the 163 units combined.
      The City's appraiser also calculated the value via income
 capitalization, using taxpayer's income and expense figures for calendar
 years 1988, 1989, and 1990, and deriving a capitalization rate from the sale
 values of six apartment properties.  Two parts of the calculation are
 relevant to this appeal.  In determining gross income, the City's appraiser
 used a vacancy rate of 3% because it exceeded the actual historic vacancy
 rate.  In determining operating expenses, the appraiser reduced historic
 administrative expenses to reflect more accurately typical management, legal
 and accounting expenses.  Through income capitalization, the appraiser
 reached a fair market value of $5,240,000.  He then reconciled the
 valuations produced by the two methods to reach a fair market value of
 $5,200,000.
      On appeal to the Board, taxpayer argued that income capitalization was
 the best method of determining fair market value, but contested four aspects
 of the appraiser's calculations in using this method.  Specifically, tax-
 payer argued for a vacancy rate of 5%, rather than 3%.  The Board agreed,
 finding that the evidence for the City's lower rate was "not conclusive" and
 that the appraiser had used a 5% vacancy rate in computations with respect

 

 to the Manchester, N.H. property.  Further, taxpayer contested the
 appraiser's reduction of administrative expenses to determine net income
 from which to capitalize.  The Board agreed to an increase in administrative
 expenses.  Once the adjustments were made in the appraiser's calculation,
 the fair market value derived by income capitalization was reduced to
 $4,750,374.  The Board adopted this value, and the City appealed.(FN1)
      The City argues first that taxpayer failed to rebut the presumption of
 validity in favor the City's appraisal, see Rutland Country Club, Inc. v.
 City of Rutland, 140 Vt. 142, 144, 436 A.2d 730, 731 (1981), because tax-
 payer did not introduce evidence showing that the appraisal exceeded fair
 market value.  See Elliott v. Town of Barnard, 153 Vt. 306, 310, 571 A.2d 653, 656 (1989).  We point out, as we have often in the past, that this is a
 "bursting bubble" presumption.  Any admissible evidence can rebut the
 presumption, whatever we may ultimately think of the evidence's weight.  See
 City of Barre v. Town of Orange, 152 Vt. 442, 444, 566 A.2d 951, 952 (1989).
 The question is: "'Does the fact offered in proof afford a basis for a
 rational inference of the fact to be proved?'"  Rutland Country Club, Inc.,
 140 Vt. at 146, 436 A.2d  at 732 (quoting Tyrrell v. Prudential Ins. Co. of
 America, 109 Vt. 6, 21, 192 A. 184, 191 (1937)).
      In this case, taxpayer went forward with two expert witnesses who
 supported the income capitalization method and criticized the limitation
 imposed by the City's appraiser on administrative expenses.  Taxpayer's
 lawyer conducted a cross-examination of the appraiser to show incon-

 

 sistencies in the treatment of vacancy rates to provide a basis for tax-
 payer's argument that a higher vacancy rate was appropriate.  Taxpayer's
 approach was to accept the overall methodology of the City's appraiser but
 to seek adjustments in the application to its property that would reduce the
 overall calculation of fair market value by specific amounts.
      The City's argument would restrict the nature of the evidence that can
 overcome the presumption by demanding that the taxpayer come up with a com-
 plete alternative appraisal or a relevant comparable property.  Taxpayer
 may, however, rely in part on the evidence put forward by the City, and
 there is no restriction on the method or manner of showing fair market
 value.  See Sondergeld v. Town of Hubbardton, 150 Vt. 565, 567, 556 A.2d 64,
 66 (1988).  Our precedents are clear that we are unwilling to engage in
 debates about the quality of evidence in determining whether the
 presumption of validity is overcome.  The City seeks to drag us back into
 that debate.
      The City has recast its claim that taxpayer had to offer an
 independent appraisal or evidence of comparables in its second argument,
 maintaining that taxpayer failed to meet its burden of persuasion as a
 matter of law.  With respect to the comparables, the Board decided to rely
 on the income capitalization approach to determine fair market value.  This
 decision was within the Board's discretion.  See Beach Properties, Inc. v.
 Town of Ferrisburg, ___ Vt. ___, ___, 640 A.2d 50, 52 (1994); New England
 Power Co. v. Town of Barnet, 134 Vt. 498, 505, 367 A.2d 1363, 1368 (1976).
 Use of income capitalization was particularly appropriate in this case
 because taxpayer's expert witness urged it and the City's appraiser
 supported it.  Income capitalization does not rely on comparisons of the

 

 value of comparable properties.(FN2)  The evidence the City asserts is
 indispensable became irrelevant once the approach to valuation was decided.
      It is also misleading to claim that taxpayer did not present an
 alternative appraisal.  It happened that taxpayer's appraisal agreed with
 that of the City on many points, but differed on four specifics. Taxpayer
 presented evidence on the four specifics, and was not required to introduce
 a wholly independent appraisal.  It could, and did, rely on the City's
 evidence for much of the calculation of fair market value.  See In re
 Quechee Lakes Corp., 154 Vt. 543, 553-54, 580 A.2d 957, 963 (1990).
      Finally, the City argues that the adjustments made by the Board in the
 vacancy rate and the administrative expenses were not supported by the
 evidence or findings.  In assessing these claims, we reiterate that findings
 supported by evidence are conclusive, and the Board's action is "deemed
 presumptively correct."  Sondergeld v. Town of Hubbardton, 150 Vt. at 571,
 556 A.2d  at 68.   As we stated in Breault v. Town of Jericho, 155 Vt. 565,
 569, 586 A.2d 1153, 1156 (1991), "Once the Board has shown some basis in
 evidence for its valuation, the [taxpayer] bears the burden of demonstrating
 that the exercise of discretion was clearly erroneous. . . .  If the
 decision is within the range of rationality, it must be affirmed."
 (Citations omitted.)

 

      We also point out that the issues raised here relate to the use of the
 income capitalization method to determine fair market value.  We recently
 explored similar issues in applying the income capitalization method and
 cautioned: "Because relatively small adjustments to net income will
 significantly alter the resulting fair market value, it is important that
 expenses leading to net income be subject to scrutiny by the trier of
 fact."  Beach Properties, ___ Vt. at ___, 640 A.2d  at 53.  It was exactly
 this scrutiny that led to the adjustments now being challenged.
      The adjustment for administrative expenses was based on the testimony
 of a witness for taxpayer relating to the administrative expenses
 experienced by comparable projects, as well as the actual expenses of the
 Woolen Mill over the past three years.  Based on that testimony, the Board
 made some adjustment in the amount of administrative expenses although the
 final amount remained well below the actual expenses.  The Board's action is
 fully supported by the evidence and its findings.  The Board "sifted
 through the evidence,"  See Roy v. Town of Barnet, 147 Vt. 551, 551-52, 522 A.2d 225, 226 (1986) (Board has duty to sift through evidence and make clear
 statements), and explained its rationale succinctly but thoroughly, as this
 Court has long encouraged.
      The adjustment for the vacancy rate was made for consistency of
 approach.  Although taxpayer experienced a vacancy rate between 1% and 2%
 and the City's appraisal allowed a 3% vacancy rate, the testimony of the
 City's appraiser was that a 5% rate was used in deriving a capitalization
 rate from the similar New Hampshire project because it had to relate to "the
 expectation of the buyer at the time of the conveyance, not necessarily what
 the historical factors were."  The Board concluded that consistency was

 

 necessary for proper application of the income capitalization method.  Cf.
 Beach Properties, ___ Vt. at ___, 640 A.2d  at 53 (fair market value must be
 based on potential for earning income as well as actual experience over a
 period of time).  This determination is supported by the record and was
 within the Board's discretion.
      Affirmed.

                                    FOR THE COURT:



                                    _____________________________
                                    Associate Justice

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                                Footnotes

FN1.    Two other contests were resolved in favor of the City and are not
 part of this appeal.  Taxpayer attempted to cross-appeal on these points but
 we dismissed the cross-appeal as untimely filed.


FN2.    The term "comparable properties" is used in property appraisal law
 to describe a number of different concepts.  See Bowen v. Town of Burke, 153
 Vt. 131, 134-36, 569 A.2d 452, 453-54 (1989) (Dooley, J., concurring).  In
 Beach Properties, ___ Vt. at ___, 640 A.2d  at 52, we pointed out that the
 income capitalization method requires analysis of "comparable investments."
 This is a different standard of comparability.  There is no dispute that the
 six apartment projects used by the city appraiser to derive a capitalization
 rate are investments comparable to the Woolen Mill.