440 Elizabeth Street Holdings Ltd. v. Municipal Property Assessment Corporation, 2016 CanLII 54954

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE:

August 19, 2016

FILE NO.:

WR 140800

Assessed Person(s):

440 Elizabeth Street Holding

Appellant(s):

440 Elizabeth Street Holdings Ltd.

Respondent(s):

Municipal Property Assessment Corporation (“MPAC”) Region 15

Respondent(s):

City of Burlington

Property Location(s):

440 Elizabeth Street

Municipality(ies):

Burlington

Roll Number(s):

2402-060-608-02800-0000

Appeal Number(s):

2944564, 3032782, 3086199 and 3153057(deemed 2016)

Taxation Year(s):

2013, 2014, 2015 (and deemed 2016)

Legislative Authority:

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

Heard:

May 24, 2016 in Burlington, Ontario

APPEARANCES:

Parties

Counsel⁺/Representative

440 Elizabeth Street Holding and 440 Elizabeth Street Holdings Ltd.

Daniel Attard Andrew Attard

MPAC

K. Lunau ⁺

City of Burlington

P. Lacelle

DECISION OF THE BOARD DELIVERED BY DAN WEAGANT

INTRODUCTION

1The subject property is a six storey Class ‘C’ commercial office building, constructed in 1974 in the Downtown area of Burlington. It comprises a total of 45,090 square feet (“sq. ft.”) of leasable area and lies within the City of Burlington’s (the “City”) “Downtown Parking Exempt” area. The subject property has no on-site parking. The parking requirement for the subject property is provided by three nearby surface parking lots known as 455 and 446 Elizabeth Street and 425 Pearl Street. Owing to its size, the subject building is required to provide a total of 146 parking spaces, in accordance with zoning regulations. The three surface parking lots have a combined total of 160 spaces, with 105 of these at Pearl Street, with the remainder located at 455 and 446 Elizabeth Street.

2There are two distinct yet linked issues between 440 Elizabeth Street Holding and 440 Elizabeth Street Holdings Ltd (the “Parties”) in this appeal. The Parties agree on the conceptual method of determining the current value which is the determination of a Fair Market Rent (“FMR”), on a per sq. ft. basis. The Parties also agree that a FMR would generally include parking for the tenants that occupy the subject building. The subsequent issue is the determination of the amount of the per sq. ft. FMR that is attributed to parking, which the Parties further agree should be deducted from the FMR for the subject property since it has no parking facilities itself.

3For the 2015 taxation year, the Municipal Property Assessment Corporation (“MPAC”) has returned a value of $5,898,000, apportioned as follows:

• Commercial Property Classification - $3,271,000

• Office Building Property Classification - $2,627,000

4There is no dispute with respect to classification. The Parties agreed that whatever findings of value the Assessment Review Board (the “Board”) makes, the same proportion reflected in the returned value should be applied to the decision with respect to apportionment.

5In preparation for the hearing, MPAC adjusted the value attributed to the subject property, indicating their recommendation of $5,231,000 after these adjustments.

6440 Elizabeth Street Holdings Ltd. (the “Appellant”) believes that the recommended value from MPAC is still too high, resulting from a FMR that is too high and a parking value adjustment that is too low.

7Paul Lacelle who represented the City of Burlington did not participate in the hearing and was in attendance to observe the proceeding.

8In making its determination of current value the Board must first decide the correct FMR to be applied to the subject property. Secondly, the Board must determine the value of parking as a component of the value determined and reduce it accordingly. Once the current value is determined, the Board must also have reference to the assessments of similar properties in the vicinity to determine if the assessment found should be reduced for it to be equitable.

DECISION

9The Board finds that the current value of 440 Elizabeth Street is $5,795,000. The Board also finds that, for the purposes of equity, this value is reduced to $5,215,000.

10Accordingly, for the 2013, 2014 and 2015 taxation years, the assessment is reduced from $5,898,000 to $5,215,000, apportioned as follows:

• Commercial Property Classification – from $3,271,000 to $2,893,000

• Office Building Property Classification – from $2,627,000 to $2,322,000

11This same result is deemed for the 2016 taxation year.

LEGISLATION

12In making its determination of these appeals, the Board must consider the relevant sections of the Assessment Act (“Act”).

13Section 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.

14Section 19.(1) of the Act states:

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

15Section 40 of the Act states:

40.(1) Appeal to Assessment Review Board. Any person, including a municipality, a school board or, in the case of land in non-municipal territory, the Minister, may appeal in writing to the Assessment Review Board,

(a) on the basis that,

(i) the current value of the person’s land or another person’s land is incorrect,

(ii) the person or another person was wrongly placed on or omitted from the assessment roll,

(iii) the person or another person was wrongly placed on or omitted from the roll in respect of school support,

(iv) the classification of the person’s land or another person’s land is incorrect, or

(v) for land, portions of which are in different classes of real property, the determination of the share of the value of the land that is attributable to each class is incorrect; or

(b) on such other basis as the Minister may prescribe.

16Section 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.

ISSUE 1 – What is the Correct FMR

17Thomas Yoon represented MPAC in this appeal. Mr. Yoon testified that he prepared a valuation report, focusing on the correct FMR, based on a survey of leases at similar properties in the City of Burlington and the leases that he was able to obtain from the Appellant that exist at the subject property. He confirmed that in making his determination of the current value of the subject property, he used a FMR of $11.50 to arrive at the returned value of $5,898,000. When investigating further, Mr. Yoon took the existing leases on the subject property and used those figures to arrive at a FMR of $13.50.

18The $13.50 figure was based on four multi-year leases, all of which were in force at the valuation date of January 1, 2012. He testified that these leases represent 86% of the overall building area and accordingly are suitably representative of the entire building. Mr. Yoon concluded that the original $11.50 FMR used for the initial valuation was in fact too low.

19Mr. Yoon also compared the lease rates at the subject property with six other buildings he deemed to be similar. Three of these buildings were B class buildings and three were C class buildings. Mr. Yoon testified that he used B and C buildings in the City for two reasons. Firstly, both B and C class buildings are valued the same way by MPAC with respect to vacancy allowance, unrecoverable expanse allowance and capitalization rates that are all used to “convert” the FMR to the property value. Secondly, Mr. Yoon testified that there was some discrepancy in various documents that he referenced that indicated the subject building was considered either a B or C class property. In any case, his reference to the other six buildings led Mr. Yoon to the conclusion that these other buildings have a median FMR of $12.25. When a more detailed review of specific leases in three of these comparable buildings was undertaken, the result was a median of $12.46 per sq. ft. Mr. Yoon considered this comparison as a test of the FMR determined for the subject property and believed that the original FMR of $11.50 was still too low.

20Finally, Mr. Yoon completed an analysis of the sales of similar properties in the Burlington area. He uncovered two sales with a median sale value per sq. ft. of $169.02. When applied to the subject property, the value determined from this method was $7,621,112; far above the returned value for the subject property. His conclusion is that the FMR for the subject property is $13.50, with the understanding that this value would need to be adjusted downward because it includes the provision of parking. The subject site has no parking facilities and thus its value should not include the parking amount.

21Daniel Attard, advocate for the Appellants, challenged Mr. Yoon on the use of leases within the subject building. Mr. Yoon excluded two leases from his review (units 300 and 303) and explained that he did so because he did not consider them to be reliable. In the case of Unit 300, the lease term extended from February 2010 to February 2015, but did not include annual ‘stepped up’ rate increases. In the case of unit 303, the term of the lease is a single year. Mr. Yoon explained that the normal term for commercial leases is five years and single year leases are not considered reliable for the purposes of determining FMR.

22Mr. D. Attard called Michael Von Teichman, the representative of the owner. Mr. Teichman has specific knowledge of the subject property as he is responsible for its management. One of his responsibilities is the management of the leases. He testified that the lease at Unit 300, with a five-year term starting in 2010, stepped from $11.75 per sq. ft. to $12.00 per sq. ft. in its second year, for the remainder of the term; meaning that on January 1, 2012, the lease rate for Unit 300 was $12.00 per sq. ft.

23There was consensus between the parties that the single-year lease for Unit 303 makes it suspect for the purposes of determining FMR.

24The most common approach to valuation of a multi-tenanted commercial office building is the Income Approach, which uses leased-based FMR to create a gross revenue figure. In this case, the gross revenue figure is reduced by 6% for vacancy allowance and 3% for unrecoverable expenses. The reduced net revenue then has a capitalization rate of 8% applied to arrive at an assessment value. There is no dispute between the parties on this process or the percentages used. There is only the issue of what the ‘starting’ figure should be.

25Mr. Yoon used four of six leases available to him from the Appellant; two of which he rejected. The Board finds Mr. Teichman’s evidence with respect to the lease at Unit 300 to be credible. The Board therefore finds that the FMR is calculated as follows, from the data submitted at the hearing:

Lease

Term

Rate on Jan 1 2012 or proximate (per sq. ft.)

Unit size – Sq. ft.

Gross revenue

Unit 101

November 2012-2017

$14.00

3,149

44,086

Unit 2^nd floor and 301

November 2012-November 2019

$13.00

9,131

118,703

Unit 302

July 1, 2012-January 2015

$13.00

1,005

13,065

Unit Floor 4-6

January 1 2013-January 1 2023

$12.25

25,656

314,286

Unit 300

February 2010-February 2015

$12.00

1,760

21,120

Total

40,701

511,260

(90 % of building area)

26Using these five leases, the weighted average per sq. ft. is $12.56, which the Board finds is the correct FMR, including the parking value. The Board notes that this figure is very close to Mr. Yoon’s findings in his comparative analysis with six buildings in the City.

ISSUE 2 – What Portion of the FMR/Current Value is Applied to Parking

27Andrew Attard, representing the Appellant submitted what he considered to be a simple but effective method of adjusting the total value by the parking value to come up with the final assessment value, net of parking. This approach took the direct values of the three separate properties that provide parking for the subject property site and subtracted those values from the returned value of the subject property. Mr. A. Attard suggested the returned value rather than the recommended value because the values he used for the three parking lots were also either returned values or values determined by the Board.

28Mr. A. Attard takes the returned value of $5,898,000 and subtracts as follows:

• For Pearl Street - $465,000

• For 455 Elizabeth Street - $1,042,000

• For 446 Elizabeth Street - $1,042,000

The result of $3,349,000, according to Mr. A. Attard, represents a valid current value for the subject property as the three properties above have the sole function of providing parking to the subject property.

29Karey Lunau takes issue with this approach and contends that it is factually flawed. Ms. Lunau submits that the two Elizabeth Street parking lots, while they do provide parking for the subject property, also have unmitigated development potential. They are unencumbered by easement or agreement with respect to their use, save and except for the natural regulations imposed by the zoning by-law. She submits that to include the entire value of these two lots as merely parking value would be to ignore the other value they have, which would lead to a reduction for parking that was too large.

30As for the Pearl Street parking lot, as was agreed in fact, this property is encumbered by an agreement that effectively prohibits its use for any other purpose than for providing parking for the subject property. Its assessed value is $465,000 and provides 105 parking spaces to the subject property at a per parking space value of $4,429. As the subject building requires 146 spaces by zoning regulation, the total value of parking with this approach would result in a parking value of $646,634.

31Mr. Yoon submitted an alternative approach to determining the value of parking. He submitted that there were three monthly parking rates existing in the Burlington Downtown area for spaces on surface lots. These values are $45, $65 and $104 per month, with the difference depending on the location. The source of these rates is Exhibit 3, which is a parking map issued by the City, issued in Jan 2011, 12 months prior to the valuation date. By using these monthly rates, Mr. Yoon suggests that the parking value per square foot of leasable area of the subject building would be $1.88, $2.52, or $4.40, depending on the rate used.

32The Board finds that the best indicator of the value of parking to the subject property is the value of the Pearl Street parking lot, owned by the Appellant and inextricably linked to the subject property for the sole purpose of providing parking for it. The Board rejects Mr. A. Attard’s approach and agrees with Ms. Lunau, that by using this approach, the value unrelated to parking included in the two Elizabeth Street lots is not removed prior to using their total values for the adjustment. The Board also rejects Mr. Yoon’s approach given that it is not suitably specific for the purpose and the rates suggested are disparate and may not be up to date. The Board also notes that the City owned lots would have a level of operation / management costs included in them. These monthly rates lack the reasonable certainty required to use them to determine the specific parking value attributed to the subject property.

ISSUE 3 – What is the Current Value of 440 Elizabeth Street?

33The Board finds that the current value of the subject property is $5,795,000, determined as follows:

• 45,090 x FMR of $12.56 (which includes parking) = $566,330 gross revenue

• Less 9% for vacancy and expenses allowance of $50,970 = $515,360

• Divided by 8% capitalization rate = $6,442,000

• Reduced by value of parking of $646,634 = $5,795,366 or $5,795,000 rounded.

ISSUE 4 – Is the Current Value Found Equitable?

34Mr. A. Attard submitted an equity analysis that included eight sales of similar properties in the vicinity of the subject properties with comparisons to their assessed values. Ms. Lunau sought to discredit some of the sales in cross-examination, confirming that none of the eight were time-adjusted to address value changes over time and questioning the legitimacy of one sale over MPAC’s suspicion that it was not an arm’s length sale. Generally speaking, the eight sales stood up to scrutiny when argued in more detail.

35The eight sales have assessment to sale ratios (“ASR”’s) ranging from 0.58 to 1.19, with a median ASR of 0.90. MPAC did not submit specific evidence of its own with respect to equity. The Board finds that the median ASR from Mr. A. Attard’s equity analysis is applied to the current value found above, and the assessment is reduced accordingly, to $5,215,500 ($5,215,000 rounded)

CONCLUSION

36The Board finds that the current value of 440 Elizabeth Street is $5,795,000. The Board also finds that, for the purposes of equity, this value is reduced to $5,215,000.

37Accordingly, for the 2013, 2014 and 2015 taxation years, the assessment is reduced from $5,898,000 to $5,215,000, apportioned as follows:

• Commercial Property Classification – from $3,271,000 to $2,893,000

• Office Building Property Classification – from $2,627,000 to $2,322,000

38This same result is deemed for the 2016 taxation year.

2016 DEEMED APPEAL

39An appeal for the 2015 taxation year is presently before the Board. Section 40.(26) of the Assessment Act 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 2015 appeal before March 31, 2016. For that reason, this decision also applies to the 2016 taxation year.

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

Deemed appeals, 2009 and subsequent years

(26) 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.