Assessment Review Board

Commission de révision de l'évaluation foncière

ISSUE DATE: July 22, 2015 FILE NO.: WR 132136 Assessed Person(s): 2035332 Ontario Limited Appellant(s): 2035335 Ontario Limited and Maria Galipo Respondent(s): Municipal Property Assessment Corporation ("MPAC") Region 14 Respondent(s): City of Vaughan Property Location(s): 349 Four Valley Drive Municipality(ies): City of Vaughan Roll Number(s): 1928-000-233-28563-0000 Appeal Number(s): 3056827, 3059723 and 3081234 (deemed 2015) Taxation Year(s): 2013, 2014 (and deemed 2015) Hearing Event No.: 579630

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

Heard: April 13, 2015 in Maple, Ontario

APPEARANCES:

Parties	Counsel/Representative
2035332 Ontario Limited	M. Galipo
MPAC	D. Samuels
City of Vaughan	No one appeared

DECISION OF THE BOARD DELIVERED BY MARK SPRAGGETT AND JOSEPH M. WYGER

INTRODUCTION

1The subject property consists of a 20,560 square foot building constructed in 1965, and situated on a 1.02 acre industrial site at 349 four Valley Drive in the City of Vaughan. The structure has 13,435 square feet of first floor space and a 7,386 square foot second floor mezzanine. In 2012, the property was converted from owner occupied to a multi-tenanted unit with three rent-paying tenants. MPAC has it coded as a 520 standard industrial property valued at $3,234,000 using the cost approach.

2MPAC's policy is not to value industrial properties that have been converted to multi-tenant using the income approach, but rather to value them as single occupier using the cost approach, backed up by sales of similar, single occupier industrial properties.

3The Appellant argued that the subject property be valued as an industrial mall using the income approach, which would significantly reduce the assessment. The issue is which approach results in the correct current value, and what that value should be.

4The secondary issue that the Board has to determine is whether buildings with a much smaller first floor "footprint" and a larger proportion of total area on the second floor, would have less value than comparable properties with significantly more of their total floor area at grade.

5Apportionment was not an issue. MPAC recommended the value be apportioned 80% industrial and 20% commercial.

DECISION

6The Board was unable to use an income approach to value the property. We have employed the cost approach, selecting comparables that reflect the Appellant's concerns regarding the relative size of the first floor footprint.

7The Board determines that the current and equitable value is $2,776,000. This value is apportioned $2,220,800 to the industrial class (80%) and $555,200 to the commercial class (20%).

REASONS FOR DECISION

LEGISLATION

8Section 19.(1) of the Assessment Act ("Act") states:

19.(1) Assessment based on current value. – The assessment of land shall be based on its current value.

9Section 44.(3) of the Act states:

44.(3) Same, 2009 and subsequent years. – For 2009 and subsequent taxation years, in determining the value at which any land shall be assessed, the Board shall,

(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.

MPAC's Position and Evidence

10Drew Samuels, advocate for MPAC, called Patrizia Dalamagas as his valuation witness. Ms. Dalamagas explained that property Code 580 is reserved for industrial malls that were purpose-built for multi-tenant occupancy, with units separated by load-bearing walls. Those properties are valued using the income approach. She maintained that properties like the subject which were converted to multi-tenant use must be valued under property Code 520 using the cost approach.

11Ms. Dalamagas's four comparable properties were all single occupier, Code 520 industrial buildings with sale values ranging from $2,750,000 to $3,350,000. Lot sizes were very similar and the structure sizes were similar enough to the subject property, to lead to a tight range of sale values per square ("psf") from $152 to $168 psf. The most similar property nearby at 423 Four Valley Drive having the identical lot size, year-built and structure size, sold for $3,250,000 only three months after the valuation day. Ms. Dalamagas opined that the subject current value at $3,234,000 is clearly correct.

Appellant's Position and Evidence

12Maria Galipo, the principle for the corporate appellant, advanced its position that the subject property was not comparable to MPAC's four comparables because it is a multi-tenanted, industrial mall that ought to be coded as a 580, and valued using the income approach. She also emphasized that her first floor "footprint" of only 13,435 square feet, was of less value than the 18,198 square feet of ground floor space found in MPAC's best comparable property.

13Ms. Galipo proposed the neighbouring property at 361 Four Valley Drive as the best comparable. It has the same first floor footprint, is divided into three distinct tenanted units, and has a similar gross leasable area. Ms. Galipo argued that this property was also not a purpose-built industrial mall, but is coded by MPAC as a 580 that is valued using the income approach, resulting in a current value of $1,981,000 or $104 psf. Because the gross income from her building is almost the same as the income from 361 Four Valley Drive, she submits that her current value should be approximately the same. Adding an $8 psf for refrigeration to the $104 psf of 361 Four Valley Drive, she proposes a current value of $2,303,000.

14In the alternative, Ms. Galipos proposes four properties, different and more comparable than the assessor's, coded as 520, and with sales values ranging from $109 to $130 psf, leading to a suggested total current value of $2,570,000.

Board's Analysis

15The Board found Ms. Dalamagas for MPAC to be a competent and intelligent valuator. The comparable properties she selected are seemingly very similar to the subject building. She has however only been assessing industrial properties for six months, and was unable to explain the rationale for why a willing buyer or seller would treat an income-producing, multi-tenanted industrial property more like the unconverted single occupier standard industrial that it used to be, than the actual thing it is now. The assessing authority appears to have taken a different approach with the similarly converted property next door at 361 Four Valley Drive, which is treated as a multi-tenant Code 580 industrial mall and valued using the income approach.

16This situation would not be so problematic except that MPAC's Code 520 cost approach comparable properties average value ($159 psf) is 53% higher than the income approach returned value ($104 psf) for the similar sized property next door to the subject. The three industrial mall, Code 580 comparables provided by Ms. Galipo average only $106 psf, with the median at $104 psf representing that neighbouring property.

17Two possibilities come to mind: An industrial property that is divided up into separate units and rented out to earn income loses substantial value in the transition to an income-producing industrial mall; or the income approach is under-assessing industrial malls, while the cost approach is returning values that are in line with sales for standard industrial properties. There were no sales of industrial malls in evidence to verify either of these suppositions, but the Board considers it more probable that it is the latter, and that 361 Four Valley Drive may be assessed below its likely sale value. This is one of the reasons that the Board is unable to apply the income approach to value the subject property.

18Ms. Galipo's case is based on having a similar gross income to her neighbor, but it is uncertain whether that property is correctly assessed without more evidence on fair market rents and a defensible capitalization rate. The Board is not bound by MPAC's coding of properties, but for the Board to consider an income approach to value, the subject property requires much more evidence than provided here. Revenue statements, cap rate studies and sales of other industrial malls would be required, together with a full analysis of the subject property's own income and expenses.

Sales of Code 520 Comparables

19The Board found Ms. Galipo to be an experienced and knowledgeable witness, well-versed in the management, finances and values of industrial properties. Her assertions on the relative sizes of first floor footprints and second floor mezzanines and that the latter always have less value, has the advantage of being intuitively convincing. The Board is persuaded that the ratio of first floor size to total square footage can effect value calculations for willing buyers and sellers of industrial properties. Consequently, that is one of the factors that determines a property's comparability to the subject property.

20For that reason, after a consideration of all of Ms. Galipo's proposed comparable properties, the Board accepted the three that we deemed most comparable. The evidence showed that the other properties were not suitable for the following reasons: several had no mezzanines; many had sales too far removed from the valuation day; two sales were of questionable validity; a number of them were much older structures than the subject property.

21The three code 520 properties supplied by Ms. Galipo that the Board found reasonably comparable in all respects, included a more similar ratio of footprint to total square footage. The industrial properties at 151 Villarbolt Crescent, 50 Four Valley Drive, 85 Corsate Road, had sales at $109, $130, and $127 per square foot respectively. For the same reason, the Board elected not to employ two of MPAC's comparable properties at 33 Corsate Road and 30 Moyal Court, one of which is 100% commercial, and both of which have no mezzanine and so a 100% ratio of first floor footprint to total square footage. The Board used the two comparables at 423 Four Valley Drive and 30 Casimir Court with sale values of $157 and $152 psf respectively.

22Listed in Table 1 below is the average per square foot sale value of the five relatively comparable properties.

Table 1

Relatively Comparable Properties	Sale Price	Total Square Feet	PSF
423 Four Valley Drive	$3,235,000	20,561	$157
30 Casimir Court	$3,109,784	20,460	$152
151 Villarbolt Crescent	$2,000,000	18,416	$109
50 Four Valley Drive	$3,000,000	23,100	$130
85 Corsate Road	$2,185,000	17,188	$127
Average	N/A	N/A	$135

23The average value psf for the five comparable properties selected is $135 psf. Applying this figure to the subject structure size results in a current value assessment of $2,776,000 rounded.

Equity

24The Board had reference to the assessments of similar properties in evidence to try to discern if the current value determined is fair and equitable relative to those assessed values. At first glance it would appear inequitable that Ms. Galipo's property be assessed higher than the 580 industrial mall next door at 361 Four Valley Drive. However, the Board does not accept that equity is achieved by reducing a correct current value to an incorrect level on the basis of comparison with a single neighbouring property. The Board requires evidence that many similar properties are assessed at a lower level than the subject for no apparent good reason, in order to warrant an equity adjustment under s. 44.(3)(b).

CONCLUSION

25The assessment is reduced from $3,234,000 to $2,776,000. This value is apportioned $2,220,800 to the industrial class and $555,200 to the commercial class.

2015 DEEMED APPEAL

26An 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.

27Section 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.