Assessment Review Board
Commission de révision de l’évaluation foncière
ISSUE DATE: October 20, 2015
Assessed Person(s): Downtown West 1 GP Limited
Appellant(s): Downtown West 1 GP Limited
Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 09
Respondent(s): City of Toronto
Property Location(s): 388 King Street West
Municipality(ies): City of Toronto
Roll Number(s): 1904-062-320-00600-0000
Appeal Number(s): 2031694, 2365063, 2700566 and 2906988
Taxation Year(s): 2009, 2010, 2011 and 2012
Hearing Event No. 590935
Legislative Authority: Section 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended
Heard: August 25, 2015, in Toronto, Ontario
APPEARANCES:
| Parties | Counsel^+^/Representative |
|---|---|
| Downton West 1 GP Limited | M. Steinberg and P. Grosman |
| MPAC | E. Grant and K. DaSilva |
| City of Toronto | No one appeared |
DECISION OF THE BOARD DELIVERED BY BARBARA KOWARSKY
ISSUE
1The issue is to determine whether the assessment of 388 King Street West located in the City of Toronto (“subject property”) as returned at $13,873,000 for the 2009, 2010, 2011 and 2012 taxation years is correct, and whether it is equitable with that of similar lands in the vicinity.
DECISION
2In order to determine the value assessment of a property, the Assessment Review Board (“Board”) is legislated to follow two steps:
3Section 44.(3)(a) of the Assessment Act (“Act”) which requires the Board to:
(a) “determine the current value of the land.”
4The Board determines the current value to be $9,624,000 for the 2009, 2010, 2011 and 2012 taxation years, apportioned at commercial $7,025,500 and office building $2,598,500.
5Section 44.(3)(b) of the Act directs the Board to:
(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.”
6The Board finds that, an adjustment for equity pursuant to s. 44.(3)(b) is not required in order to make the assessment of the subject property equitable with that of similar properties in the vicinity.
REASONS FOR DECISION
The Subject Property
7The subject property, a two storey retail building with offices on the second floor, was built in 1942. It has a total building area of 34,215 square feet and is situated on a lot measuring 21,348 square feet with a double frontage on King Street West and Peter Street.
The Position of MPAC
8MPAC was represented by Erinn Grant, in the capacity of advocate and Kenneth DaSilva, an assessor, testified as to the particulars of the property under appeal before the Board.
9Ms. Grant asked to submit MPAC’s disclosure package containing a report relating to this appeal.
10Michael Steinberg, counsel for the appellant’s representative, objected to the inclusion in this package, of a confidential e-mail which addressed a settlement offer from MPAC.
11Ms. Grant testified that the offer is “still on the table.”
12Mr. Steinberg objected on the grounds that the offer is based on a different property (400 King Street West), with a different appellant, and that no one is present who represented that property, and therefore no direct testimony could be given as to why a settlement was reached using land value only.
13Ms. Grant removed the printed offer from the disclosure package and then submitted the package of material into evidence, which is marked as Exhibit 1.
14Mr. Da Silva testified that:
i. The subject property is located at the southwest corner of King Street West and Peter Street, east of Spadina and west of University Avenue (later corrected as being on the north side of King Street West). It is an improved two storey commercial structure built in 1942. It has a gross leasable area of 34,215 square feet. The first floor is leased to one tenant, Shoppers Drug Mart. The second floor has offices which are leased to Shoppers Drug Mart and others.
ii. The site area measures 21,000 square feet (rounded) with frontage on both King Street West and Peter Street.
iii. In his opinion:
The building has exceeded its economic life expectancy. This ‘conclusion’ is supported by the evidence of exposed plumbing in the ceiling, the internal patchwork concrete, covered with paint;
The layout of the building is confusing;
There has been no major investment to address “esthetic deficits”; and
Therefore, the property’s only value is in the land.
iv. The property should be valued for land only and that he calculated the current value assessment for this property by applying the land value of other properties in the area, $650 per square foot to the site area of the subject, 21,000 square feet, resulting in a current value assessment of $1,650,000. However, since the neighbouring property at 400 King Street West was returned at $600 per square foot, MPAC is prepared to apply this value to the subject property, resulting in a recommended assessment of $12,600,000.
15He further testified that the King and Spadina area is zoned as a Reinvestment Area (RA) and designated in the official plan as a Regeneration area which means that planning is “relaxed” to “encourage buildings to be re-developed, having regard to heritage.” There is “lessened strict planning control”. For example, density standards are set to “encourage progress”, to convert from industrial buildings to other types of buildings and “to encourage re-investment into the community.”
16Mr. DaSilva testified that land rates east of Spadina are greater than those west of Spadina. He combined the land sales proposed by MPAC and those presented to MPAC by the appellant’s representative and calculated the average rate is $673 per square foot and the median is $664. MPAC is not seeking an increase.
17When questioned by Ms. Grant, Mr. DaSilva testified that he determined that applying the income approach based on square footage and income, the current value would be $7,200,000. He did not use this approach because, in his opinion, it doesn’t properly represent what the property could be sold for. “A prudent seller wouldn’t look to income. Land is the best value at that time.”
18Ms. Grant submitted that the only issue is current value and that equity was not raised. MPAC is recommending a reduction in current value from $13,859,000 to $12,809,000 for the years under appeal and that the classification remains commercial (CT).
The Position of the Appellant
19Mr. Steinberg is counsel for Argil Property Tax Services, the appellant’s representative.
20Mr. Steinberg called three witnesses.
21The first was Hugh Clark who is Vice President of Development for Allied Properties REIT. Mr. Clark testified that:
This firm is the owner/manager of numerous properties across Canada;
Allied Properties REIT wholly owns Downtown West/GP Ltd., the owners of the subject property;
The nature of this investment trust is to buy old warehouses, renovate and improve the building, rent, and then distribute the income amongst the unit holders;
Shoppers Drug Mart has been a tenant since 2004, and Shoppers has high standards for the condition of their rental properties. These standards are discussed thoroughly with the building owners;
at the subject property location, there was a substantial investment by the building owner to achieve these standards at the store, basement and office levels (which includes the exposed HVAC etc.);
Shoppers signed an initial 15 year lease with renewal terms of 5 years each at market rates;
the lease does not allow the owner to terminate these long leases unless there is cause;
in discussions with Shoppers, the tenant views this location as a “very successful store”; it is a “flagship in Toronto”; and
the owner does not anticipate developing the property further, because the lease with Shoppers will “hypothetically not finish” until September 30, 2039.
22The second witness for the appellant was Brian Wagner. Mr. Steinberg submitted Mr. Wagner’s signed Acknowledgment of Expert’s Duty (Exhibit 2) and Mr. Wagner’s Curriculum Vitae (Exhibit 3).
23Mr. Wagner testified that:
he has no affiliation with Allied and that his compensation is not contingent on the outcome of this hearing;
he has been an Accredited Appraiser of the Canadian Institute (AACI) since 1986;
an appraiser evaluates characteristics and other factors, then establishes the highest and best use of the property;
the definition of highest and best use, as defined in Exhibit 4 which is The Canadian Uniform Standards of Professional Appraisal Practice, effective April 1, 2014, issued by the Appraisal Institute of Canada (as amended by the parties), is at page 5, 2.33:
HIGHEST AND BEST USE: The reasonably probable use of a property,
that is physically possible, legally permissible, financially feasible and
maximally productive, and that results in the highest value.
as to 388 King Street West as at January 1, 2008, it is his opinion that there should be a “continuation of the existing use”;
the lease to Shoppers is a key issue, since it has been in place since 2004, and has renewal options to 2039, and since this lease comes with the property, it re-enforces its use, and the lease is the basis for the value of the property in 2008;
he has never met or spoken to Mr. Clark;
he concurs with Mr. Grosman’s income value analysis.
24Under cross-examination by Ms. Grant, Mr. Wagner further testified that:
there are three approaches to appraisal – direct, income and cost, and that direct and income are the most commonly used;
the final value takes the direct and income approach into account, and appraisers will look at whatever is the highest value;
in his experience he has found instances where land is worth more than income;
if there is a long term lease, such as in this instance, then the lease is critically important.
25The appellant’s final witness was Paul Grosman, principle of ArGil Property Tax Services. Mr. Steinberg submitted Mr. Grosman’s signed Acknowledgment of Expert’s Duty (Exhibit 5) and Mr. Grosman’s Curriculum Vitae (Exhibit 6).
26Mr. Grosman’s testimony can be encapsulated as follows:
he employed the income approach method only in establishing value;
he used the square footage from the rent roll of the subject property, and that the square footage from the rent roll is higher than MPAC has determined – MPAC’s total building area is 34,215 square feet, the appellant’s rent roll indicates 43,966 square feet – which includes the basement, the ground floor (Shoppers retail) and the second floor offices, part of which is used as Shoppers storage;
while the Shoppers lease started in 2004, he didn’t believe that those rental values applied in 2008, and therefore he looked at lease rates from Shoppers stores in the area. He applied $25/sq. ft. for the 15,012 sq. ft. ground floor. He used the 2009 basement value of $9/sq. ft. and for the second floor, three of the four tenants were paying $18/sq. ft. Since there was no leasing activity from 2007 to 2009, he examined 2008 GRAD information and while $18 was at the high end of the range, given the subject property location, he believes that it is reasonable to apply $18 to the second floor area of 14,209 sq. ft.;
he represents Allied Properties REIT in Ontario and has access to many properties to establish these rates and also looked to the GRADs of other properties to support this approach;
he used standard vacancy, collection and expense allowances, GRADs and applied these to the fair market rent of the subject property – all of which are encapsulated in the Income Valuation Chart, marked Exhibit 7.
the cap rate on the other GRADs is 7.5 per cent but sales of similar properties indicate a cap rate of 7 per cent, and since the higher the cap, the lower the current value, he opted to use 7 per cent. The resulting 2008 current value assessment for the subject property based on his calculations is $9,624,156.
27In cross-examination and re-direct examination, Mr. Grosman testified that while he did initially consider land sales, he determined that a land sale analysis approach was not the proper approach to pursue in determining value of this property, because it is an investment property that is fully tenanted, has an existing lease until 2019 with further options to 2039, and therefore he used the income approach only.
The Legislation
28In arriving at a decision, the Board must consider the following provisions of the Act:
29Section 19.(1) of the Act states:
19.(1) Assessment based on current value. – The assessment of land shall be based on its current value.
30Section 1 of the Act states:
“current value” means, 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.
31Section 19.2(1) of the Act provides:
19.2(1) Valuation days. – Subject to subsection (5)1, the day as of which land is valued for a taxation year is determined as follows:
For the period consisting of the four taxation years from 2009 to 2012, land is valued as of January 1, 2008.
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.
32Section 40.(17) of the Act provides:
40.(17) Burden of proof. – For 2009 and subsequent taxation years, where value is a ground of appeal, the burden of proof as to the correctness of the current value of the land rests with the assessment corporation.
33Section 40.(19) of the Act states:
40.(19) Board to make determination. – After hearing the evidence and the submissions of the parties, the Board shall determine the matter.
34Section 44.(3)(a) and (b) 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.
Analysis and Findings
35The assessment legislation, as amended for taxation year 2009 and subsequent years, directs the Board to determine the current value of the subject property, having reference to the value at which similar lands in the vicinity have been assessed. Once current value is determined, the Board may reduce an assessment where it finds that it is inequitable with that of similar lands in the vicinity.
The Current Value of the Land
36The best evidence of current value is an arm’s length and market tested sale of the subject property on the valuation date, January 1, 2008, or close to it. This did not occur.
37The Board finds that the most compelling evidence was given by the appellant’s three witnesses. The testimony of the two experts was articulate, knowledgeable and fact based.
38Mr. DaSilva’s testimony was opinion based, and the Board received no evidence to support his opinion that the building “has exceeded its economic lifespan” and therefore the only value is in the land.
39The Board is persuaded by the strong evidence submitted that the building does indeed have value. The Board finds the highest and best use and the use that is reasonably probable, is the long term Shoppers Drug Mart lease, which is its current use.
40Mr. DaSilva’s opinion is that the layout of the building is “confusing”; that there is “exposed plumbing and HVAC”; that there is “patchwork concrete covered with paint” and that there has been “no major investment to address the esthetic defects”. However, the Board has no evidence to support those opinions that these features exist or detract from the value of the property.
41On page 5 of Mr. DaSilva’s report, he states that the subject is “an outdated two storey commercial building…Income from the current built form does not reflect the true value…when compared to the value of the property as a redevelopment site.” The Board however, received no evidence to support this position, and consequently rejects such assertions.
42The Board must rely on the evidence submitted, which it finds to be reliable, in order to make a fair, open and transparent decision. The only evidence submitted that included value for the building is contained in the Income Valuation as presented in Exhibit 7. Therefore, the Board finds that the current value assessment for the subject property for the 2009, 2010, 2011 and 2012 taxation years is $9,624,000.
Equity with Similar Lands in the Vicinity
43The Board is required under s. 44.(3)(b) of the Act to 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 land of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment.
44No arguments were submitted in regard to equity.
CONCLUSION
45Based on the totality of the evidence presented, the Board reduces the assessment of the subject property from $13,873,000 to $9,624,000 for the 2009, 2010, 2011 and 2012 taxation years, apportioned at commercial $7,025,500 and office building $2,598,500.
“Barbara Kowarsky”
BARBARA KOWARSKY
MEMBER
Assessment Review Board
A constituent tribunal of Environment and Land Tribunals Ontario
Website: www.elto.gov.on.ca Telephone: 416-212-6349 Toll Free: 1-866-448-2248