Studio Court Ltd. v. Municipal Property Assessment Corporation, 2017 CanLII 31046

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: May 15, 2017

FILE NO.: WR 145343

Assessed Person(s): Studio Court Ltd. and Lemonwood Townhomes Ltd.

Appellant(s): Studio Court Ltd.

Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 09

Respondent(s): City of Toronto (“City”)

Property Location(s): 77 Lemonwood Drive

Municipality(ies): City of Toronto

Roll Number(s): 1919-023-170-06150-0000

Appeal Number(s): 2984762, 2946445, 3034831, 3011513, 3074762, 3146812

Taxation Year(s): 2013, 2014, 2015, 2016

Hearing Event Nos. 630782, 637564 and 650268

Legislative Authority: Sections 32 and 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended

Heard: July 13, October 3, and December 8, 2016 in Toronto, Ontario

APPEARANCES:

Parties

Representative

Studio Court Ltd.

Lorne Bumstead

MPAC

Ashtyn Rank and Rebecca Butcher

City of Toronto

No one appeared

DECISION OF THE BOARD DELIVERED BY BERNARD COWAN AND MARGARITA OKHOVATI

BACKGROUND AND INTRODUCTION

177 Lemonwood Dr. (“the subject”) is a row housing/townhouse¹ property comprised of 75 three-bedroom rental units on a 2.63 acre site in the Etobicoke area of Toronto.

2Built in 2005, the subject qualifies for the “new multi-residential” property tax (“NT”) class that was established by the Assessment Act (“Act”) and adopted in accordance therewith by the City. The intended purpose of this provision was to encourage the development of new rental housing stock by providing a property tax reduction as incentive. By agreement, the City and the property’s builder/owner designated the rental project as qualifying for the NT classification that enables a property to be taxed at the residential rate for 35 years, in lieu of the substantially higher multi-residential property tax rate. A condition of the agreement is that “legacy” tenants who resided in a former building at the site and who moved into any of the newly-built residences could remain therein throughout their ongoing tenancy at rents based upon their former leases.² As of the valuation date for these appeals, four “legacy” tenants remained in occupancy.

3Following brief opening statements by the appearing parties, Day 1 of the hearing was devoted to addressing two preliminary motions, argued by Ms. Rank for MPAC and Mr. Bumstead for the appellant. Both were heard and considered before our rulings were indicated.

4Mr. Bumstead sought to have MPAC’s witness’ Valuation Report (Exhibit 1) disallowed into evidence because its witness, Yvette Koo, was not intended to be suggested as an expert witness. He was concerned that the Board might attribute weight to opinions expressed in this document or in her testimony. We denied Mr. Bumstead’s motion. In so doing, we noted that in order to respect the difference between a witness who has been qualified by the Board as an expert and one not so qualified, and cognizant of the possibility of a difference in weight that may be afforded to a qualified expert’s opinion on matters of sufficient technicality or uniqueness where the tribunal requires such specific expertise, we would consider opinions expressed by Ms. Koo as her observations and not her opinions as an expert. Our reasoning on this motion recognized the likelihood that the Valuation Report, and indeed the issues, would be substantially conventional in nature, such that we would most probably be capable of comprehending the complexities of the matters without needing the opinions of the witnesses. The witness’ opinions and or observations would be attributed the weight that we would consider to be merited, based on the factual evidence and related argument to be presented.

5The appellant intended to introduce an equity study, which compares the assessments of other properties to that of the subject, in order to enable us to ensure that the assessment that we determine is equitable. Ms. Rank moved to prohibit the introduction of the document because it had not been disclosed to MPAC until the day before the commencement of the hearing. Ms. Rank indicated a willingness to “level the playing field” by refraining from introducing any “equity” evidence from MPAC if we granted her motion. We denied the motion, but granted an adjournment to enable MPAC to evaluate the equity study’s contents and to reply thereto. We noted that the parties had chosen to establish their own deadlines for production, that this was not uncommon or unique within the assessment community, and that specific circumstances as to the availability of Mr. Bumstead and his witness, Peter Ward, inhibited their capability to provide the document sooner. The Act places an obligation on the Board to have reference to assessments of similar lands in the vicinity, and to reduce current values otherwise determined, if necessary to remedy an inequity. It follows that the greater the preponderance of evidence before us in this regard, the greater the probability of more determinative evidence before us to satisfy our statutory mandate.

6Ms. Butcher assumed representation for MPAC on Day 2 onward. Day 2 was devoted to presentation of MPAC’s witness’ evidence and cross-examination; and Day 3 included the appellant’s witness’ evidence and cross-examination, together with summations and introduction of Authorities by the parties.

ISSUES

7The preponderance of issues in this matter can be characterized as conventional. The parties are in agreement that the most appropriate valuation methodology should be income based, as is common to most multi-residential properties, and we concur. This technique determines a property’s gross annual income stream to which a gross income multiplier (“GIM”) is applied, yielding the property’s approximate value.

8The parties disagree on the specific determination of annual rents for the subject, and the factors to be incorporated into the GIM utilized; specifically, the adjustment factors related to the subject’s condition, its size, and the premium, if any, attributable to it being assessed in the NT property class. The applicability and/or quantification of the impact of a property’s NT classification on the GIM, and hence its value, can be characterized as a relatively unique and unconventional issue.

9MPAC seeks confirmation of the subject’s assessment at $17,835,000, based on Ms. Koo’s Valuation Report. This document utilizes what she has determined to be fair market rents (“FMR”) applied to all units, including the “legacy” units. Ms. Butcher argues that these specific units’ leases are encumbrances, and that as such, do not meet the Act’s stipulation that current values for assessment are to be set as if unencumbered in the marketplace. The GIM utilized by MPAC incorporates a “good” (above average) condition factor, a size factor that is more favorable to the appellant³, and an 18% premium in recognition of the subject qualifying for the NT tax classification whereby the annual assessments are taxed at residential rates in lieu of the considerably higher multi-residential rates for a 35-year period.

10The appellant seeks a reduction in the assessment to $13,329,000, as set out in Mr. Ward’s Assessment Analysis (Exhibit 4). This document utilizes actual rents for the subject, inclusive of those for the “legacy” units, and its GIM is based upon the property being in average condition and meriting no premium for its NT property classification. Mr. Bumstead argues that no premium is appropriate, for were it to be so, the advantage of the lower property tax rate incentive would be eliminated, and the Act’s purpose for instituting the NT classification would be negated.

11Our responsibility is to determine the current value for the subject, and to then refer to evidence and argument from the parties to determine if that result is inequitable relative to the assessments of similar lands in the vicinity. If so, a downward adjustment should be applied if necessary to achieve an equitable assessment for the subject.

DECISION

12The current value (“CV”) assessment is reduced from $17,835,000 to $15,426,000 for the 2013, 2014, 2015 and 2016 taxation years. This value is not definitively determined to be inequitable with the assessments of other similar multi-residential rental row houses/townhouses in the vicinity, and no further adjustment is merited.

REASONS FOR DECISION

Current Value

13Section 19.(1) of the Act states:

The assessment of land shall be based on its current value.

14The Act establishes January 1, 2008 as the valuation date for 2009 to 2012 taxation, and defines current value 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.

15The Act accordingly establishes the January 2012 marketplace to be determinative of a property’s CV, subject to suitable recognition of the influence of any encumbrances.

16As the subject property has not sold since being built as a new multi-residential project, the parties adopted the income approach formula as a proxy for the marketplace. Because of the complexity of adjusting sales of projects whose attributes are more divergent than common to facilitate comparison of these with the subject, we also, in this instance, utilize the income approach to determine its CV.

Rental Income

17In general terms, and consistent with court precedents, MPAC bases its multi-residential property assessments on market (economic) rents. As is common in the preponderance of appeals for this property type when rental agreements are short term, MPAC and the parties equate market rents to the actual rents in the particular property under appeal, and we concur. In this way, applying a property’s annualized potential gross rental income stream as of the valuation date to an appropriate GIM yields CV. This stream is customarily determined by multiplying the median monthly rent per unit type x 12 months x the number of units per unit type, and totaling the result for all types. Appropriate adjustments thereto for other factors can apply.

18In this instance, the parties differ as to the actual annual rental income to use for the subject.

19Mr. Ward utilizes the median monthly unit rent set out for all 75 units in the Rent Roll summary as of January 1, 2012 (Exhibit 4, Tab B), all units of which are subject to one-year leases that expire throughout the 2012 year, inclusive of the rent sought for two vacancies on that date. This equates to $1,403,100 per annum (median rent of $1,559 x 12 months x 75 units).

20Updating her view of the median monthly rents based upon more recent data (Exhibit 1, Tab 8) received from the appellant, Ms. Koo determines the median per unit net rent to be $1,620, which equates to $1,458,000 per annum. She essentially grosses this up to $1,593,000 by adding $150 per unit per month ($135,000 per annum), being her estimate of utilities paid directly by the 75 tenants.

21We are somewhat bemused by the appellant’s failure to adopt or address in any way Ms. Koo’s $135,000 gross-up for utilities. We accept this addition to the rental stream as appropriate for four reasons. Firstly, we recognize that the factor applied to a property’s annual rents is called and means Gross Income Multiplier. Having adopted MPAC’s income-based methodology, at page 11 of his Analysis, Mr. Ward acknowledges that “Adjustments are made for whether heating, hydro or cable is paid by the tenant or the property owner…”, and that for any particular type of property, whichever pays is not an issue “…so long as the same approach was used in the development of the gross income multiplier as is used in the application of the valuation.”

22Secondly, Ms. Koo’s Report and testimony address utilities directly and were modified accordingly; and she is experienced in and therefore attuned to this issue. Thirdly, the appellant’s Statement of Earnings for the year ended December 31, 2011 at page 3 in the Financial Statements (Exhibit 1, Tab 10) demonstrates that the tenants bear the utility costs, necessitating a gross-up, as it indicates only $12,617 in utility cost for the year. This equates to only about $14 per unit per month, and we obviously infer this expense to represent only utilities for public areas and/or facilities. Finally, we attribute a negative inference from the appellant’s silence in not challenging or referencing the adjustment whereby tenants’ utility costs are added to the gross rental income stream otherwise determined. We accordingly accept the $135,000 addition to the rental stream to be capitalized.

23Other than the $150 monthly utility addition per unit, the primary difference in rental income advocated by the parties arises from the circumstance whereby MPAC has not included the lower lease rates attributable to the “legacy” units, whereas the appellant’s median rent is the lesser value resultant from their inclusion.

24We find that the annual gross rental income to which the GIM is to be applied is $1,538,000. This is the total of the $1,403,100 derived from the median actual January 1, 2012 rent roll and the $135,000 attributable to the utilities. Because the “legacy” units’ rents are at a lesser level than the rental rates being achieved by all other units, Ms. Butcher maintains that Ms. Koo’s approach that does not take into account the resultant reduction to gross annual income for these units is correct. This position is founded on utilizing economic/market rent over actual for these four units, together with the premise that leases may be an encumbrance.

25Neither party introduced any authority to assist us in determining if these leases are in fact encumbrances. Nor did either go so far as to provide an established definition of “fee simple” and/or “unencumbered”.

26While we would be safe in assuming that a mortgage or an easement, for example, would invariably be registered against title, individual residential leases may not be. We have no evidence that the subject’s leases (all are one year only) are registered on title and are accordingly encumbrances, nor any evidence that an adjustment to the four “legacy” units’ actual rent is necessary to achieve market value. Rather, we have evidence that many units within the building have experienced tenant turnover (20 units in 2011 alone per Exhibit 1, Tab 8; 65 new leases during the period 2010-2013 per Exhibit 1, Tab 3). Mr. Ward indicates he has enquired and been advised that on many turnovers, the appellant has replaced flooring, redecorated, replaced appliances where needed and otherwise maintained these units. He opines that these turnovers costs approximate $3,000-$4,000 per unit, and are necessary to achieve the high rental rates achieved by the subject. It follows, and on the balance of probability we concur with Mr. Ward that the state and condition of the “legacy” units is inferior to the other units, and accordingly their leases are more closely in accordance with the marketplace than being negatively impeded by the agreement with the City that established the basis for these units’ annual rent increases.

27Furthermore, the “legacy” units are a creation of the agreement between the City and the appellant, and even if their leases are an encumbrance, their negative influence on rents if any, after considering their probable inferior condition, is likely substantially mitigated as a direct result of that agreement whereby the property tax benefit accorded to the owner very significantly exceeds the rental rate restrictions on what have become only four remaining “legacy” units.

28We accordingly adopt the aforesaid gross annual rental income of $1,538,000 as reasonable in these specific circumstances.

GIM

29We find the GIM for the subject to be 10.03. This is determined incorporating the factors as set out in Table 1 immediately below, which also summarizes the GIMs sought by the participating parties.

Table 1

	GIM Per MPAC	GIM Per Appellant	GIM Per Board Finding
Base GIM	10.26	10.26	10.26
Location	0.90558	0.90558	0.90558
Building Type	1.09794	1.10	1.09794
Condition	1.1333	1.00	1.00
Size	0.9018044	0.92971	0.9018044
NT Premium	1.18	0.00	1.09
GIM (Rounded)	12.30	9.50	10.03

30Our findings respecting the individual GIM factors are based on the following:

Building Type

31We find the appropriate adjustment to the GIM for this element to be 1.09794. There is no difference other than rounding between the parties and our rounding. We utilize MPAC’s factor as it is more precise and is derived from its detailed study of market parameters.

Condition

32We find the “average” condition to be most appropriate to attribute to the subject property. Hence, an adjustment factor of 1.00 is applied by us to the GIM otherwise determined.

33It is unclear whether the parties’ use of the term “condition”, references either the quality of the initial construction and features, or the state of upkeep together with the impact of depreciation as of the valuation date. By virtue of the arguments advanced, we conclude this GIM element is intended to represent primarily the latter, with some weight perhaps attributed to extraordinary construction/feature enhancements or deficiencies. Nothing extraordinary has been brought to our attention by either party.

34Ms. Koo maintains that multi-residential properties’ assessments reflect a “good” condition if it is above average or a “poor” condition if a property is deemed below average. This testimony is supported by her Report where, at page 7 of Tab C, being a 16-page overview of Market Parameters as authored by MPAC’s Assessment Standards and Mass Appraisal Department dated March 2013, condition categories’ GIM adjustment factors for “good”, “average” and “poor” are referenced. Mr. Ward references an authority⁴ wherein (paragraph 43) MPAC’s witness “… testified that MPAC does not designate multi residential properties in Toronto as poor. That the lowest condition designation in the city [sic] is average”. We attribute no weight to the appellant’s argument based on this authority, where it attempts to imply that MPAC has been inconsistent by previously indicating only two condition categories apply to multi-residential properties in Toronto, and by currently indicating three categories as applicable. Had Mr. Bumstead issued a summons for that MPAC representative, perhaps this alleged contradiction between that witness’ testimony in that regard and Ms. Koo’s testimony in this matter would be clearer. Both parties before us in this matter argue the issue of whether the appropriate GIM factor should be that for average or good condition. We fail to comprehend why it is an issue of concern to the appellant in this hearing that a different witness in a different hearing appears to have provided a different insight; and if so, what remedy might apply here.

35We are of a view that the issue separating the parties as to whether or not an adjustment to the GIM is appropriate for a multi-residential property’s condition is moot. Instead, we are comfortable in making no adjustment for the subject’s “condition”. This is so, because of the extensive history in multi-residential assessment matters whereby a property’s condition, age and extraordinarily-impacted location directly impact its open-market negotiated rents. To adjust the subject’s property’s GIM for it being in better than average condition, as MPAC has done in this matter, would be “double-counting” the impact of its condition, because this is already incorporated into the rents that are determined above for the subject.

36Notwithstanding our finding respecting condition, and in the alternative, we nevertheless adopt Mr. Ward’s expert opinion that the subject property should be assessed as being in average condition. He has directly inspected the interiors of several units on more than one occasion, and opines that they were (in January 2012) and remain no better than average. This contrasts starkly with Ms. Koo not having been inside the subject building.

37Ms. Butcher correctly argues that what Mr. Ward has seen was about four years after the valuation date, and that at the valuation date, the property was only 7 years old. Mr. Ward was accepted by us as a qualified expert in valuation, without objection. Having first-hand knowledge of the state and condition of the units when inspected in 2015 and 2016, his opinion merits determinative weight. We are cognizant of his prior experience in both assessment valuation with MPAC’s predecessor assessment corporation and as an experienced real estate sales person, active in his community’s Association of Realtors. While there have been changes to condition over time, his description of specific observations in the units does not indicate superior initial interior finishing, or remedial repairs and replacement on tenant turnovers, 34 of which transpired in 2011 and 2012 alone. His observations include such items as: bedroom ceiling fixtures being the cheapest $5 globes; fiber, not wooden floorboards; carpet replacements in bedrooms with “average berber”; living room flooring starting to cup and rise, indicating it to be “average at best”; stippled ceilings without crown moldings; sub-average kitchen cabinetry, definitely contrary to the subject’s website describing it as “upscale”.

38Relying on Mr. Ward’s expert opinion that the physical structure is not in above average condition, or relying on the actual rents achieved, we do not consider an added premium to the GIM for “good condition” to be necessary or appropriate.

Size

39We find the appropriate adjustment to the GIM for this element to be 0.9018044. In lieu of the higher percentage adjustment that the appellant has proposed, we utilize MPAC’s factor as it is more precise and derived from its detailed study of market parameters. In this instance the specific source for the premise it has determined is not in evidence. However, there is evidence that the more units in this building type, the lesser the GIM adjustment. MPAC’s factor is less than that used (but unexplained) by the appellant. We rely on MPAC, having studied the elements of this GIM formulation in detail to 7 decimal points.

NT Premium

40We find that it is reasonable and appropriate to expect multi-residential properties assessed at the new multi-residential property class rate to attract a premium in the marketplace, because of our conviction that the enhanced profitability ensured by lower property tax rates over an extended time frame will result in higher values in the marketplace. For the subject, we incorporate a 9% addition to its CV by applying that factor to its GIM.

41In her Report, Ms. Koo observes that owners of a property classified as NT “…have a distinct advantage to the bottom line…” by virtue of the lower property tax that would otherwise apply. Ms. Butcher argues in support of this, and introduces an authority⁵ (“Galipo”) wherein MPAC’s witness asserts in that matter that an 18% NT premium was applied, consistent with like properties, and wherein at paragraph 50 the differently constituted tribunal panel:

…agrees … that a willing buyer faced with a decision to purchase one of two identical multi-residential buildings one with the New Tax incentive and the other without, will inevitably choose the one with the New Tax incentive due to the benefit of tax savings which extends for a 35 year period and which increases the overall value of the property.

42We are referred by Ms. Koo to Tab 6 of her Report, being MPAC’s reply to the appellant’s disclosure, which sets out its basis for establishing the 18% addition to NT classified properties’ GIMs. It has compared the effective tax rates and base 6% capitalization (“cap”) rate in Toronto and determined the differential to be 1.18. This “reply” report therefore concludes that “The advantage to the net income of a multi-residential property taxed at NT is 18%. This equates to 18% higher value over the same property being taxed at the MT class.” MT is the tax class for conventional multi-residential properties.

43It may be important to recognize MPAC’s effective tax rates calculation, which is set out as:

(Sum of MT tax rates + base cap rate) / (Sum of NT tax rates + base cap rate = NT value premium = (.0202 + .06 / .0077 + .06) = .0802 / .0677=1.18 (or 18%).

In so doing, MPAC appears to have essentially established the net income advantage to the owners of these qualifying NT properties in the City by directly applying the relative effective property tax rate differential to the CVs otherwise determined.

44At page 8 of his Analysis, Mr. Ward expresses that an adjustment to GIM for a property having the NT tax rate “…was not the intent of the legislation when this class was initiated. This class was created to entice developers to add to the rental market. Making such an adjustment to the valuation would supersede this.” He continues, in reference to MPAC’s Market Parameters overview (previously referenced), that “… there is nothing…that shows anything dealing with the premium for the NT rate, nor was it the intent of the legislation that this rate would prompt a higher assessment value.” Mr. Bumstead echoes this argument in like terms.

45Referring to his conviction that an 18% CV adjustment for NT status is unreasonable and to his observation that no CV premium should apply in this matter, Mr. Ward suggests that this was the case respecting limited dividend buildings that were established in the 1970s to foster new construction, and should likewise be so for NT designated buildings. On our questioning, he also offers MURB buildings, understood by us to refer to Multiple Unit Residential Buildings having some form of taxation advantage in the 1970’s, as examples where, in the past, no value difference resulted from the subsidization of their mortgages. We are unable to attribute any weight to this observation of a correlation of these previous “advantaged” residential project types to the NT classification impact on CV, as no examples or details of the legislated or operative terms were introduced.

46We prefer and concur with the Galipo decision that accepted the proposition that the NT classification leads to tax savings, greater profitability, and enhanced value. We do so because in our view, this is a logical, reasonable and probable expectation to attribute to the introduction of the NT tax class. We are confident that the Act and its Regulation 282/98 that addresses classification is silent on any premium attributable to a property’s value because the Act’s definition of CV leaves the marketplace as the determinative element of assessment valuation.

47However, we lack demonstrative evidence sufficient to provide confidence in the accuracy of this 18% premium being representative of the marketplace. The uncontested facts that we have from page 12 of Ms. Koo’s Report are relatively simple. There are only 6 row house rental properties in Toronto assessed and taxed at the NT rate, none of which has sold. Only one NT designated property in the City has sold, an eight-unit property with “small commercial unit(s)” at 3885-3891 Bloor St. W. Based on its time-adjusted sale price, Ms. Koo calculates its GIM as 14.68. Here ends the relative simplicity.

48The complexity and our resultant concern about lack of determinative evidence begins with our recognition that this singular sale of an NT property brings to mind the oft quoted maxim whereby “one sale does not a market make”. This sold NT property is about as different from the subject as one could imagine. Compared to the subject, it is dissimilar in age, building type, unit number and mix, and location. It is four years newer, is not row housing but rather a building having only 8 residential units and an unspecified “small commercial unit(s)”. By virtue of its location on Bloor Street West, the impact of its commercial influence on income and/or value and hence on its GIM is indeterminate from the evidence, but quite probably meaningful.

49Additional concerns that we have as to the 18% premium factor include:

• Uncertainty as to the merits in utilizing a 6 % cap rate in the formula set out above. Just as GIMs are indicated from the evidence to vary among properties, the merits of utilizing the 6% cap rate may likewise vary as a result of timing, locational and total numbers of units in any particular property. For example, if we hypothetically substitute 5% and 7% cap rates for the 6% rate added to the MT and NT rates in the above effective tax rates formula calculation we calculate the resultant NT “premiums” to be 22% and 16% respectively⁶, in lieu of MPAC’s 18%.

• Similarly, the merits of MPAC’s use of the City’s MT and NT tax rates in its calculations raises questions. Tab 5 of Ms. Koo’s Report indicates these MT and NT rates for the tax years 2012 to 2015, and she attested to those now available for 2016. The evidence is that MPAC used Toronto’s 2012 tax rates in the above calculation (2.02% and 0.77%) for MT and NT respectively, and that these rates diminished annually between the 2012 to 2016 tax years. By 2016, the MT and NT rates had become 1.64% and 0.71%. Hence, for 2012 the NT rate is 38% of the MT rate (0.71/2.02), and for 2016 the NT rate is 43% (0.71/1.64). The relative ratios between the MT and NT tax rates are not retained as constant by the City. Rather they change from year to year, as annually determined. This casts some doubt as to the merits of utilizing MPAC’s 18% calculation.

• MPAC has utilized a cap rate in evaluating the property tax benefit in market terms, and proceeds to work the result into a GIM. The impact of this technique, which is founded upon capitalizing net income (in this instance, the property tax element therein) has been imported into a GIM valuation formula that is focused on gross rental income.

50These examples we have posed to demonstrate that possible differences in cap rates determined by the marketplace, together with municipal tax rates that are changing targets based on municipally determined and unpredictable parameters leave us questioning the veracity of MPAC’s 18% outcome.

51We disagree with the appellant’s views that no added value was intended to result from the legislation. Mr. Ward’s qualification by us as an expert witness specifically excluded expertise respecting the NT property class, as he admittedly had limited or no experience in previously addressing that classification as it might impact CV prior to this matter. However, he and Mr. Bumstead are quite correct in concluding that the legislative intent was to encourage new rental construction.

52We do believe that with respect to the subject, it is logical to presume that even if an 18% premium is appropriate for a project newly built just prior to the mandated valuation date, the “added” valuation will diminish as the 35-year end date for the NT designation progresses. Only the marketplace can measure this impact in meaningful measurable terms, but such a market has apparently not yet developed.

53In summary, we conclude that the NT designation enhances the subject’s value, but on probability not to the unproven extent that MPAC advocates. The added value should be below 18% and above the nil value that the appellant seeks. Absent any meaningful, determinative sales evidence, we adopt the mid-point of 9% as reasonable.

Current Value Determination

54Multiplying our finding of the gross annual rental income of $1,538,000 by the GIM factor of 10.03 that we have determined indicates the subject’s rounded CV to be $15,426,000.

55As the parties each sought a value based on their individual approaches to the income basis of valuation using GIMs, we likewise look to the direct sales evidence in an effort to test the CV.

56For our comparative analysis, the $15,426,000 CV equates to $205,680 per unit. Before the 9% NT premium, these values would be $14,152,294 or $188,697 respectively by dividing each of these values by 109%. We utilize both of these reduced amounts for comparative purposes because, with the exception of the Bloor Street property referenced above, all sales transactions in evidence are for MT classified properties. Likewise, reducing the subject’s 10.03 GIM to establish what its GIM would be without the 9% NT premium indicates a GIM of 9.2 (10.03 / 109%).

57Because of the diversity among the sold properties offered for this purpose by the parties, and hence their lack of direct comparability with the subject, as the parties have done, we focus our comparative analysis on sale values per unit and/or on the GIMs demonstrated.

58Page 61 of Mr. Ward’s Analysis sets out the indicated GIMs for five multi-residential property sales, based upon his estimates. These range from 4.91 to 12.76, and have an average and median GIM of 9.39 and 9.98 respectively.

59We concur with Mr. Ward’s suggestion that we disregard the property having the lowest GIM as being an outlier, but do not adopt his suggestion to possibly disregard the top-of-range GIM. The property to which the 4.91 GIM is attributed, according to its Marsh Report (a sales reporting service commonly referenced within the industry) at Tab 1 of his Analysis, is an obviously inferior 1960s property having challenges. Furthermore, as Ms. Koo indicates, it is in the inferior location described as Jane and Finch, and its market model differs. That property with the 4.91 GIM is accordingly rejected from our consideration. On the other hand, there appears to be no compelling basis for excluding the property indicating the 12.76 (highest) GIM, based on its Marsh Report description at Tab 4 of the Analysis.

60If we eliminate the property at Mr. Ward’s Tab 1 that has the extraordinary “outlier” 4.91 GIM, we determine the remaining four property sales referenced on page 16 of Mr. Ward’s Analysis to indicate the range of GIMs to be between 8.41-12.76; the average and median GIMs being 10.50 and 10.42 respectively. The subject’s GIM that we have found to be 9.2 before attributing the 9% NT falls within the range of GIMs indicated by the sales. Furthermore, we have calculated the per unit sales prices (not time adjusted) for these four property sales to range from $131,790 to $212,857. The subject’s CV as reduced to exclude its NT premium equates to $188,697 per unit; again falling within the indicated range of these four sales introduced by the appellant. Our finding of CV for the subject, tested against Mr. Ward’s four sales that merit weight, is substantiated.

61Having eliminated the one property with the GIM “outlier”, three of the four remaining sold properties in Mr. Ward’s Exhibit 2 sales that we have utilized for this test are common with those introduced by Ms. Koo. The fifth property offered in evidence by Mr. Ward is located at 2 Blackthorn Ave. MPAC argues that the sale of this fourth property, the attributes of which are described in a Marsh Report at Tab 4 of Mr. Ward’s Analysis, should be disregarded because the transaction was in 2013, almost two years past the valuation date. However, we note that the range of sale prices per unit is unchanged at $131,790-$212,857. The subject’s pre-NT premium value of $188,697 per unit is within this range, whether or not this 2013 sale is considered.

62Page 12 of Ms. Koo’s Report sets out four multi-residential property sales. One of these properties (the one having a 14.68 GIM) has the NT designation, but no meaningful weight is attributed because, this property is not a townhouse/row house property, and it has a commercial element in its character. To repeat our above commentary, “By virtue of its location on Bloor Street West, the impact of its commercial influence on income and/or value and hence on its GIM is indeterminate from the evidence, but quite probably meaningful.”

63The three remaining MT property sales in Ms. Koo’s Report are also referenced and considered by us two paragraphs above in addressing the sales introduced by Mr. Ward, and are incorporated into our conclusion that the sales evidence corroborates the CV we have found. It is noted that there are relatively slight differences in the GIMs indicated for these three common property sales between the two parties’ evidence. In each instance, MPAC is indicating a slightly lower GIM, which we speculatively attribute to it having more precise rental information than the estimates that Mr. Ward developed and used. These GIM differences are of little consequence, as the difference for each of the three properties is minimal.

64The parties expended considerable rhetoric and introduced extensive evidence respecting the property sales in support of the CV each supported. We find that, on balance of probability, the pre-NT premium value we have determined and the resultant CV inclusive of the NT premium are not demonstrated to be unreasonable by the sales evidence. Although few sales are in evidence for this purpose, and notwithstanding these properties being considerably older and having fewer units than the subject we have no better evidence to test our determination of CV. Instead, like the parties, we are satisfied that the best basis for achieving the valuation sought is to utilize the proxy technique of applying an appropriate GIM to the subject’s gross rental income stream.

65We accordingly find the subject’s CV to be $15,426,000 for the taxation years 2013 to 2016 inclusive. This results from applying the GIM of 10.03 of the gross rental income stream of $1,538,000.

Equity With Assessments Of Similar Lands In The Vicinity

66Section 44.(3) of the Act states in part:

…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 land.

67This responsibility of the Board is most often addressed by the parties in one or both of two ways; by introducing specific properties’ assessments for reference in relation to the subject’s CV as determined, and/or by providing a comparison of the ratios of specific properties’ assessments to their sales (“ASRs”) as an indicator of the validity of the assessment methodology. In this instance, for the multi-residential properties referenced, the appellant compares assessments of 22 multi-residential properties on a per unit basis, and MPAC has introduced 37 time-adjusted ASRs.

68Mr. Ward’s comparative assessment analysis (Exhibit 6) indicates a range of assessments from $110,800 to $162,900, with a median and average approximating $137,000.

69Ms. Koo’s ASR listing (page 17 of Exhibit 1) indicates an ostensibly satisfactory methodology, whereby the median time-adjusted ASR is 0.99 (the ideal being 1.00). While the appellant challenges this list due to two errors having been recognized, the implication being that more errors might be applicable, we calculate that the median does not change; nor does the 0.98 median if the sales incorporated into the ASR are not time-adjusted.

70We find that the evidence and testimony as to the equity of the $15,426,000 CV that we have established for the subject does not indicate it to be inequitable with the range of assessments of other properties in evidence, for the reasons that follow.

71We attribute limited weight to MPAC’s ASR list. MPAC considers the properties therein to be similar to the subject by virtue of being of like nature, character or function, all being multi-residential rental properties. However, aside from indicating their distance from the subject (between 3.0-13.4 kilometers from the subject) and sale date, there is no other specific information provided that might have an influence on a property’s assessment or sale price. Only two of the 37 assessments exceeded $5 million (the highest being only $11,282,000) and only four of the sale amounts exceeded $5 million (the highest being $9.3 million). Lacking the number of units for any of these properties, we are unable to compare them to the subject on the oft-utilized basis of value per unit, or in any other meaningful manner. The only thing that we can conclude from this type of reference is that none of the properties listed are likely from the evidence to be similar to the subject in unit count and/or in other value-determinative aspects. We are consequently unable to ascertain for our reference to the specific properties’ assessments or sales whether or not the subject’s assessment is equitable to their assessments.

72While we acknowledge that our reference in the immediately preceding paragraph to specific properties is not in accord with MPAC’s intended purpose for the ASR list, we derive limited comfort from the list’s median time-adjusted ASR of 0.98. On the surface, that correlation to the ideal of 1.00 appears to demonstrate that MPAC has succeeded in appropriately assessing this group of properties, and by implication, this type of property in this municipality and hence the subject. Consistent with MPAC’s frequent standard of evidence, at page 18 of her Report, Ms. Koo indicates that “The median ASR of the sales in the study should fall between 0.95 – 1.05. If it does, this tells me that equity has been achieved because similar properties have been assessed at their current values.” In this particular instance, while the median ASR is a strong indicator of equity being achieved, its attributable weight is diminished on more intensive consideration. Of the 37 properties, only six of their ASRs fall within the range of 0.95-1.05. Indeed about 20 of the 37 ASRs fall outside of the range of 0.90-1.10.

73In short, MPAC’s evidence respecting s. 44.(3)(b) of the Act is not determinative. We can nevertheless conclude that it does not demonstrate a quantifiable inequity to merit a downward adjustment to the subject’s CV.

74The appellant’s Exhibit 6 is a listing of 22 properties that Mr. Ward considers to meet the Act’s requirement of being “similar” to the subject, having inspected each according to his testimony. In addition to indicating the year built, CVAs as returned, GIMs, unit and bedroom counts, and monthly rents, all as provided by MPAC, this document includes the appellant’s calculation of CVA per unit. Because 20 of the 22 properties have only between 10-50 units each, rather than referring to their absolute CVs, we concur with Mr. Ward that the most meaningful approach to our mandated reference to equity with the 75-unit subject is on a per unit basis.

75As indicated in paragraph 47 above, the CVA range approximates $111,000-$163,000 for these 22 properties. Ms. Butcher maintains that this outcome is overly low for two reasons. The properties were all built in 1968 or earlier, and hence are likely in poorer condition than the 2005-built subject; and because they are a mixture of two, three and four bedroom units yielding a lesser overall income stream than the all-3-bedroom subject, as they have substantially more two than four bedroom units in the overall mix. The evidence confirms what may be reasonably expected; the fewer the bedrooms, the lesser the rental stream per unit, and hence the lower the value per unit in the marketplace and the CVs. Clearly from this evidence, the subject’s assessment should exceed the median and average assessments per unit.

76Mr. Ward concurs and so do we. Our challenge is to ascertain whether or not the pre-NT premium CVA of $14,152,294 or $188,697 per unit exceeds that of the assessments of other properties in evidence excessively.

77We conclude that the CV of $15,426,000 is not demonstrated to be inequitable with the assessments of similar lands in the vicinity of the subject. There are no indicated row housing NT classified rental properties in evidence for our reference. In order to conduct a meaningful comparative analysis, we must accordingly utilize the pre-9% NT premium value that we have determined.

78Mr. Ward’s testimony leads to our conclusion that no inequity has been demonstrated. His testimony was formulated on the basis that no NT premium should be recognized by us. We have found otherwise, as outlined above. However, his views based on experience in both the assessment and realty sales sectors, when applied to values not influenced by the new multi-residential tax class are meaningful.

79It is understood that equity among assessments is respecting those values, not the components (in appeals such as this) of rents and GIMs. However, whatever the GIM, an overall assessment value is based on the one absolute factor applicable to a particular property: its rental income. It is for this reason that Mr. Ward has stated that the subject’s value per unit should exceed that of all the two-bedroom units in Exhibit 6, and indeed that of each of the 22 “comparable” properties therein because it is “getting better rents”.

80We derive the most comfort in concluding that the subject is not excessively assessed from Mr. Ward’s testimony respecting his views on the range of CVAs per unit in Exhibit 6 compared to the value sought for the subject. Referring to the $110,800-$162,900 per unit range of CVAs in relation to the $177,720 CVA per unit ($13,329,000/75 units) that the appellant seeks, he agrees that the value being sought is fair and equitable, even though it is higher than that of the highest “comparable” because its rents are higher. It is noted that this is a subjective and not empiric conclusion he has reached.

81We conclude, on the balance of probability, that the $188,697 per unit pre-NT premium value that we have determined for the subject is not indicated to be unreasonable relative to the CVAs set out in Exhibit 6. As Mr. Ward has acknowledged no discomfort with the $177,720 value being sought, and considering the considerable age differences and resultant probable depreciation between the 22 listed properties and the subject, as Ms. Butcher suggests, we consider it reasonable in this particular circumstance to move the bar from the $110,800-$162,900 range of CVAs per unit set out in Exhibit 6 to $188,697 instead of $177,720. This is particularly so, as we recognize that the value sought by the appellant has not incorporated the added value attributable to the utilities adjustment that we have found to be necessary.

CONCLUSION

82Lacking empirical evidence to the contrary, we are unable to conclude otherwise than that neither MPAC’s ASR list nor Exhibit 6 from the appellant demonstrate conclusively and in quantifiable terms that the CV of $15,426,000, as found by us, to be inequitable with the assessments of similar lands in the vicinity. The assessments for the 2013-2016 taxation years are accordingly reduced to that value.

Footnotes

1. 1“Row housing” and “townhouse” are terms used interchangeably herein.
2. 2The agreement was not placed in evidence by either party. Our references are accordingly anecdotal, based upon witness’ descriptions.
3. 3Ms. Koo has applied and stands by what is the correct size factor determined by MPAC’s GIM analyses.
4. 4Crestview Investments Limited v. The Municipal Property Assessment Corporation, Region 9 and the City of Toronto (Board File No. WR 132886)
5. 5A F & N Galipo Brothers Ltd. v. Municipal Property Assessment Corp., Region No. 9 [2013] O.A.R.B.D No. 150
6. 6.0702/.0577 = 1.22 and .0902/.0777 = 1.16