Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: April 30, 2015

FILE NO.: WR 129736

Assessed Person(s): 301 Markham Street Inc.

Appellant(s): Allied Properties Reit

Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 9

Respondent(s): City of Toronto

Property Location(s): 301 Markham Street

Municipality(ies): City of Toronto

Roll Number(s): 1904-065-460-07330-0000

Appeal Number(s): 2955428, 3013734 and 3076072 (deemed 2015)

Taxation Year(s): 2013, 2014 (and deemed 2015)

Hearing Event No. 570079

Legislative Authority: Section 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended

ARB Case Name: WR 129736

Heard: November 26, 2014 in Toronto, Ontario

APPEARANCES:

Parties	Counsel+/Representative
Allied Properties Reit	P. Grossman
MPAC	A. Maounis
City of Toronto	No one appeared

DECISION OF THE BOARD DELIVERED BY MARCELLE BOURASSA

INTRODUCTION

1The subject property consists of an underground parking garage housed in a condominium building at 301 Markham Street, in the College and Bathurst neighborhood of Toronto. The ground floor of the building is retail commercial and the upper floors are residential. The property is located on the south east corner of Markham and College Streets and west of Bathurst Street. The parking garage is accessed via an entrance off Markham Street.

2The assessment of the subject property was returned at $1,023,000. There is a recommendation for $734,000 valued on the income approach to value.

3Ari Maounis, on behalf of MPAC, stated that the only issue is current value. No classification or equity issues were brought forward.

4Paul Grossman, on behalf of the Appellant is of the opinion that the value as recommended is too high and that the assessment should be based on the July 2011 purchase price of $430,750 which occurred five months prior to the January 1, 2012 valuation date.

5The issue is whether the assessment as returned for the subject property for taxation years 2013 and 2014 is at current value as at the January 1, 2012 valuation date, and whether it is equitable with the assessments of similar lands in the vicinity.

DECISION

6The Assessment Review Board (“Board”) finds that the current value of the subject property, as of the valuation day of January 1, 2012, is $695,000 and that it does not require a further adjustment under s. 44.(3)(b) of the Assessment Act (“Act”) in order to make it equitable with similar lands in the vicinity.

7For the 2013 and 2014 taxation years, the assessment of the subject property is reduced from $1,023,000 to $695,000.

REASONS FOR DECISION

The Legislation

8For the 2013 and 2014 taxation years, in determining the value at which land shall be assessed, the Board must have regard to the following provisions of the Act.

9Section 19.(1) of the Act states that the assessment of the land shall be based on its current value. Current value is defined in s. 1 to mean, in relation to land the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer.

10Section 19.2(1)(3) of the Act provides that for each subsequent period consisting of four consecutive taxation years, land is valued as of January 1 of the year preceding the first of those four taxation years. Therefore, for the period consisting of the four taxation years from 2013 to 2016, land is valued as of January 1, 2012.

11In determining the value at which the land shall be assessed, s. 44.(3) of the Act requires that the Board (a) determine the current value of the land; and (b) have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment of the land.

12Section 40.(17) of the Act provides that, where value is the ground of appeal, the burden of proof as to the correctness of the current value of the land rests with the assessment corporation.

13After hearing the evidence and the submissions of the parties, the Board shall determine the matter pursuant to s. 40.(19).

Analysis

MPAC’s Evidence

14On behalf of MPAC, Mr. Maounis submitted Exhibit 1, a Valuation Report.

15Mr. Maounis stated that the correct phase-in starting value is $572,000, the result of Minutes of Settlement signed by MPAC and Argil Property Tax Services on March 28, 2014, that revised the 2008 current value assessment (“CVA”).

16Mr. Maounis reviewed the sales history of the subject property (“301 Markham Street”). 301 Markham Street was initially sold by Context Properties, a property developer, to Jagramstef that specializes in the ownership and operation of parking lots, on February 6, 2008 for $575,000. Jagramstef is the parent company of CanPark. He stated that both parties are major players in their respective industries and that it would stand to reason that the sale price was based on informed decisions where both parties did their due diligence in determining a value. A sales review indicated that it was an open market transaction.

17301 Markham Street was purchased for $430,704 along with a parking garage at 388 Richmond Street West as part of a $6,950,000 portfolio sale on July 29, 2011.

18MPAC takes the position that in portfolio sales, individual sale prices do not necessarily reflect market value. Other factors such as the possibility of a package deal understating market value or a negotiated total price whereby individual prices are merely determined for internal purposes such as accounting, etc. could make an individual portfolio sale price unreliable.

19Mr. Maounis pointed out that according to a press release by Allied Properties REIT included in Exhibit 1, the sale of 301 Markham Street and 388 Richmond Street West was encumbered by an existing mortgage assumed by the purchaser bearing interest at 6.04% per annum. Mr. Maounis added that sales involving properties with assumed mortgages are not reliable indicators of value because the financial implications of taking on a mortgage with a different interest rate (over prevailing rates) could be factored into the purchase price. According to Mr. Maounis, commercial interest rates in 2011 were lower, approximately 4.34% (based on a 3.34% bond rate plus the typical 1% spread). Therefore, one could assume that some sort of discount was built into the purchase price to make up for the additional financial encumbrance.

20The assessment of the subject property was originally returned at $1,023,000. MPAC has recommended a value of $734,000 based on the income approach to value. He pointed out that the recommendation includes a revised monthly parking rate of $160 that coincides with actual advertised rates, an increase in the vacancy allowance from 6% to 8% and an increase in the cap rate from 6.5% to 7%. The expense allowance remains unchanged at 35%.

21The recommended value was calculated as follows:

Potential Gross Income (47 spaces x $160 12 months): $ 90,240

Less Vacancy Allowance of 8%: $ 7,219

Less Expense Allowance of 35% $ 31,584

Net Operating Income $ 51,437

Divided by a 7% Cap Rate $734,814

or $734,000 (rounded)

22Mr. Maounis also referred to a small sample of sales of parking garages in the vicinity (located within 2.5 kilometres) to test whether the income valuation falls within a reasonable range of the sales. He added that parking garages are unique and that there is not a large volume of sales. He added that relying solely on the direct comparison approach for parking garages is challenging because parking rates are driven by site specific supply and demand factors. Therefore, a low volume of sales in any specific economic neighborhood may not offer a reliable sample size from which to make an accurate prediction. The recommended value of $734,000 divided by 47 parking spots results in a value of $15,517 per parking space which is in the lower end of the range.

23The sales are summarized in Table 1 below. The average sale price per parking space is $23,371 and the median sale price per parking space is $26,902.

Table 1

Address	Spaces	2012 CVA	CVA per space ($)	Sale Price ($)	Sale Price Per Space ($)
301 Markham	47	734,000	15,617	575,000 (2008/02/06)	12,234
75 Portland Street	60	2,296,000	38,267	N/A (2010/12/14)	30,000
15 Brant Street	331	12,618,000	38,121	8,500,000 (2006/12)	25,680
210 Simcoe Street	144	16,623,000	N/A	4,050,000 (2006/03/17)	28,125
507 College Street	31	393,000	12,677	300,000 (2011/05/02)	9,677

24The parking spots at 75 Portland Street were sold to the same buyer although conveyed individually on the same day. They were assessed as one property.

25The sale at 15 Brant Street is the oldest having occurred in 2006. Mr. Maounis was of the opinion that the sale price would have been appreciably higher if conveyed on January 1, 2012 due to Toronto’s appreciating real estate market.

26He noted that the CVA per parking space is not applicable as the 2012 CVA was based on development land rates and not on a parking lot valuation. This sale also occurred in 2006.

27Little is known about the sale at 507 College Street other than it was sold by a condominium developer to a parking lot operator. The sale price per parking space is significantly lower than the average or median.

28Under cross-examination, Mr. Maounis stated as follows:

• He did not speak with either the purchaser or vendor regarding the $575,000 sale of the subject property. A sales investigation was conducted but he has no details.
• He did not speak with either the vendor or the purchase regarding the July 29, 2011 sale of the subject property. He did speak with Mr. Grossman and his staff.
• The press release was publicly available.
• In general, portfolio sales are not considered ”clean” sales.
• His comment that commercial interest rates were lower in 2011 (approximately 4.34%) is based on his personal knowledge and experience. He believes that the interest rate of 6.04% per year on the assumed mortgage as referenced in the press release was higher than prevailing rates at that time. He did not have any back up documentation with him at the hearing.
• The monthly parking rate of $160 is based on current information from the “IMPARK” website that advertises a monthly rate of $159 at 301 Markham Street – Lot 458. This was the same rate as two years ago when he worked on the appeal for the 2012 taxation year involving the subject property.
• MPAC used a monthly parking rate in its calculation of the potential gross income. The daily rates and high turnover on an hourly basis far exceed reserved parking.
• He stated that information on actual income and expenses was requested.
• He cautioned against using a median or an average sales price per square foot. He added that the sales were provided as a test of the income approach valuation.
• 210 Simcoe is located somewhere south of Dundas Street.
• 15 Brant Street is located west of the subject property at Brant and Adelaide in the area known as the garment district. He agreed that it was different neighborhood than Little Italy.
• 507 College Street is located a couple of blocks east of the subject property.

Appellant’s Evidence

29Mr. Grossman, on behalf of the Appellant, is of the opinion that the July 2011 sale of $430,750 is the best evidence of current value. He submitted a copy of the purchase agreement between the buyer, Allied Properties REIT Acquisition Corporation (“Allied”) (Exhibit 2) and the seller, Jagramstef Canada Inc. (Exhibit 2), a Revised Statement of Adjustments (Exhibit 3), summary statements of operations for 301 Markham Street for 2011, 2012 and 2013 (Exhibit 4) and a chart detailing actual rental revenue and recoverable operating expenses for 2012 and 2013 and “stabilized” revenues and expenses for 301 Markham Street (Exhibit 5).

30Wayne Jacobs was called as a witness to provide evidence regarding the purchase of 301 Markham Street. He is the Executive Vice President at Allied responsible for handling acquisitions and asset management. He stated that:

• 301 Markham Street is a wholly-owned subsidiary.
• He was involved in the purchase of 301 Markham Street.
• He and Michael R. Emory have been in business together since 1991. Both have signing authority as he travels frequently. Michael Emory signed the purchase agreement as he was away at the time.
• 301 Markham Street and 388 Richmond Street West were purchased at the same time. They were involved in developing a new building on Peter Street that didn’t have any parking on site. The building on Peter Street is located next to 388 Richmond Street West which could provide dedicated parking to their tenants. They desperately wanted to buy 388 Richmond Street West for this purpose.
• They also have a small property at 555 College Street West with a small surface parking lot next to it that is relatively close to 301 Markham Street. The purchase of 301 Markham Street could assist with providing parking to their tenants at 555 College Street.
• They were approached by an investment banking firm (Macquarie Capital Markets Canada Ltd.) whose client (Jagramstef) owned both properties about their interest in purchasing them. The properties were not on the market. They were interested and a letter of intent was prepared. Once it was accepted, an Agreement of Purchase and Sale (Exhibit 2) was prepared. The purchase price was $6,950,000 and involved an above-grade parking facility at 388 Richmond Street West with 117 parking spaces and a subsurface parking facility at 301 Markham Street West with 46 parking spaces. He added that they operate a number of parking lots and substructures and know the value of parking in downtown west.
• Regarding the apportionment of the sale price, a big factor was the lack of net income at 301 Markham Street West. In 2013, 301 Markham Street had a net income of $1,006 versus 388 Richmond Street West with a net income of $174,000 as per audited financials. Net income is determined by deducting operating expenses (taxes, repairs and maintenance, management fees, wages and benefits and insurance) from the gross rental revenue. The purchase price of $430,704 worked out to be its approximate value. He added that College Street doesn’t have the same density factor as downtown. Parking spaces rented out on a monthly basis generate less than on an hourly basis.
• He stated that he is very confident regarding the purchase price and allocation of value as between the two properties. Today, he would allocate more to 388 Richmond Street West due to the difference in income streams. He added that 301 Markham Street West is now breaking even as there is national parking operator there. However, it does not have the same level of traffic.

31Mr. Jacobs stated as follows under cross-examination:

• The sale came to their attention through an agent. There was no exposure on the open market. He added that he has done many such transactions. It is not uncommon among the downtown core. However, it is very common in the market involving brick and beam and small underground parking structures.
• They were prepared to take 301 Markham Street as they really wanted the 388 Richmond Street West property and could only do so by taking on the above average mortgage rate.

32Mr. Jacobs left the hearing after concluding his evidence.

33Mr. Grossman referred to summary statements of operations for 301 Markham Street for 2011, 2012 and 2013 (Exhibit 4). More specifically, he referred to the actual monthly parking revenue in December 2012 (a combination of daily and monthly parking revenue) of $8,731 and annual parking revenue of $85,787 in 2012. He also referred to listed recoverable operating expenses, a large portion of which were essentially unrecoverable in 2012.

34He directed the Board to Exhibit 5, a chart detailing actual rental revenue and recoverable operating expenses for 2012 and 2013 and “stabilized” revenues and expenses for 301 Markham Street. He stated that repairs and maintenance were high in 2012 due to some capital expenditures. He included a “stabilized” parking revenue of $85,382 and stabilized operating expenses that included $5,000 for actual maintenance such as sweeping, etc., $23,366 for taxes, $21,856 for management fees (condo fees) and $2,856 for insurance. Using these stabilized figures, he derived a “stabilized” net income of $32,345. Dividing this figure by a 7% Cap Rate resulted in a value of $462,071. This value reconciles well with the purchase price of $430,000.

35Regarding the Minutes of Settlement signed by MPAC and Argil Property Tax Services on March 28, 2014, that revised the 2008 current value assessment to $572,000, he stated that it was a business decision. The value was negotiated as MPAC didn’t want to recognize the July 2011 sale value.

36The property at 507 College Street is closest to the subject property. Applying the sale price per space of $9,677 to the subject’s 47 parking spaces results in a value of $454,819 which is close to the purchase price. He added that the other properties are not in “Little Italy” and are all south of Dundas Street.

The Board’s Analysis

Current Value

37The Board does not find the July 2011 sale, of which $430,704 of the $6,950,000 portfolio sale price was allocated to 301 Markham Street, as the best indicator of current value.

38The Minutes of Settlement entered into on March 28, 2014 suggest that the Appellant accepted the negotiated value of $572,000 as reflective of the current value as of the January 1, 2008 valuation date for 2008 CVA cycle. Mr. Grossman referred to the Minutes of Settlement as a business decision. Still, no evidence was brought forward to indicate that that February 2008 standalone sale of the underground parking garage at 301 Markham Street for $575,000 was not reflective of current value as at the January 1, 2008 valuation date. The allocated value of $430,704 for the July 2011 sale is well below the Minutes of Settlement value of $572,000 which in turn is reflective of the sale value of $575,000.

39The Board does not find the allocated sale price of $430,704 for 301 Markham Street to be reliable for purposes of determining current value. Mr. Jacobs stated candidly that they really wanted to buy the property at 388 Richmond Street West and to do so they had to assume the above average mortgage rate. The portfolio sale also included 301 Markham Street. He stated that it had some value as it was relatively close to another one of their properties at 555 College Street West and could assist in providing parking to tenants there. However, it did not generate net income at that time. The facility is now breaking even as there is a national parking operator there. Still it does not enjoy the same level of traffic as 388 Richmond Street West or its high income stream. He was satisfied with the allocation of value as between the two properties. In his opinion, the allocated sale price was reflective of its value given the lack of net income generated at 301 Markham Street West. In addition, there was no exposure on the open market. Mr. Jacob’s evidence was that he has conducted similar transactions where a sale has come to their attention through an agent although this is not common in the downtown core. In the end, Allied got the property it really wanted along with less desirable 301 Markham Street.

40The Board finds the best indicator of current value is based on the income approach to value

41The Board finds the actual rental revenue to be the best evidence. Exhibit 4 details actual rental revenue for 2011, 2012 and 2013. Revenue is from parking spaces rented out on a monthly basis and on an hourly basis. The Board will not consider rental revenue in 2011 given that the sale occurred in July 2011. Clearly, rental revenue was low at $30,670. Actual rental revenue was $85,757 in 2012 and $85,007 in 2013, which was above budget in both years. The average actual rental revenue of $85,382 is below the Potential Gross Income of $90,240.

42Exhibit 4 also details “recoverable operating expenses” for 2011, 2012 and 2013 that include realty taxes, repairs and maintenance, management fees, wages and benefits, office and general and insurance. The amounts vary considerably year to year from $35,601 in 2011, to a high of $135,367 in 2012 and $83,637 in 2013. Mr. Grossman submitted that expenses have stabilized and provided a breakdown of “stabilized operating expenses” that include $23,366 for realty taxes, $5,000 for actual maintenance such as sweeping, $21,856 for management fees (condo fees) and $2,856 for insurance for a total of $53,038. Interestingly, using these stabilized figures, he derived a stabilized net income of $32,345. Dividing this figure by a 7% cap rate resulted in a value of $462,071 which is close to the allocated sale price for 301 Markham Street. The Board notes that the hearing took place in November 2014 and yet no evidence of operating expenses incurred in 2014 was produced that would provide a larger sample size and corroborate these “stabilized operating expenses”. Mr. Grossman’s breakdown of stabilized operating expenses appears arbitrary. Reference was made to some capital expenditures having been incurred in 2012. However, there is a huge drop from $33,624 in 2013 to $5,000 for repairs and maintenance. Wages and benefits account for $31,501 in 2012 and $1,272 in 2013 but have been reduced to zero in the breakdown of stabilized operating expenses. The Board is not persuaded that these figures are reflective of actual stabilized operating expenses

43Therefore, the Board will not use the “stabilized operating expenses” as put forward by Mr. Grossman. Rather, the Board accepts Mr. Maounis’s expense ratio as being a better indicator of parking lot expenses. The Board will use a vacancy allowance of 8%, an expense allowance of 35% and a 7% Cap Rate in deriving a current value:

Actual Rental Revenue (average) $ 85,382

Less Vacancy Allowance of 8%: $ 6,830

Less Expense Allowance of 35% $ 29,883

Net Operating Income $ 48,669

Divided by a 7% Cap Rate $695,271.42

or $695,000 (rounded)

44This value divided by 47 parking spots results in a value of $14,787 per parking space.

45The Board also compared this value per parking space with the sample of sales of parking garages in the vicinity of 301 Markham Street and finds that it falls within a reasonable range of the sales. The Board agrees with Mr. Maounis that the small volume of sales and the uniqueness of parking garages make the direct sales comparison approach challenging. The sale price of $9,677 per parking space at 507 College Street falls below the average or the median. In addition, it is below the 2008 sale price of $12,234 per parking space for 301 Markham Street.

Determining Equity

46The Act was amended for taxation years beginning with 2009 to require the Board to determine whether the current value as determined above for the subject property is equitable with the assessments of similar lands in the vicinity.

47Mr. Maounis indicated at the outset of the hearing that no equity issues had been brought forward. However, under cross-examination, Mr. Grossman referred to equity in connection with the two sales closest in size to 301 Markham Street – 75 Portland Street and 507 College Street. The Board considers the sample as being too small. Also, the sale at 75 Portland Street is too far removed from the valuation date. As for the sale at 507 College, it has an Assessment to Sale Ratio of 1.31. The Board finds that the evidence does not support the conclusion that the current value of the property require a further adjustment in accordance with s. 44.(3)(b) of the Act in order to make it equitable with similar lands in the vicinity.

CONCLUSION

48The Board finds that the current value of the subject property, as of the valuation day of January 1, 2012, is $695,000 and that it does not require a further adjustment under s. 44.(3)(b) of the Act in order to make it equitable with similar lands in the vicinity.

49For the 2013 and 2014 taxation years, the assessment of the subject property is reduced from $1,023,000 to $695,000.

2015 DEEMED APPEAL

50An appeal for the 2014 taxation year is presently before the Board. Section 40.(26) provides that the appellant is deemed to have made the same appeal for the subsequent taxation year if the appeal is not finally disposed of before March 31 of the subsequent taxation year. The Board has not disposed of the 2014 appeal before March 31, 2015. For that reason, this decision also applies to the 2015 taxation year.

51Section 40.(26) of the Act directs:

Deemed appeals, 2009 and subsequent years

For 2009 and subsequent taxation years, an appellant shall be deemed to have brought the same appeal in respect of a property,

(a) in relation to the assessments under sections 32, 33 and 34 for the year; and

(b) in relation to the assessment, including assessments under sections 32, 33 and 34, for a subsequent taxation year to which the same general reassessment applies, if the appeal is not finally disposed of before March 31 of the subsequent taxation year or, if an assessment has been made under section 32, 33 or 34, before the 90th day after the notice of assessment was mailed.