Assessment Review Board
Commission de révision de l’évaluation foncière
ISSUE DATE:
May 29, 2017
WR 146392
Assessed Person(s):
2390122 Ontario Inc.
Appellant(s):
2390122 Ontario Inc., Neil Mehta
Respondent(s):
Municipal Property Assessment Corporation (“MPAC”)
Region 09
Respondent(s):
City of Toronto
Property Location(s):
290 Shuter Street
Municipality(ies):
City of Toronto
Roll Number(s):
1904-072-140-03200-0000
Appeal Number(s):
3199756
Taxation Year(s):
2016
Hearing Event No.:
673278
Legislative Authority:
Section 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended
Heard:
April 05, 2017 in Toronto, Ontario
APPEARANCES:
Parties
Representative
2390122 Ontario Inc.
Neil Mehta and Katan Chandhari
MPAC
Andre Campbell
City of Toronto
No one appeared
DECISION OF THE BOARD DELIVERED BY BERNARD COWAN
INTRODUCTION
1290 Shuter Street (“the subject”) is an 8,967 square foot (“sq. ft.”) multi-level commercial building located east of the downtown Toronto core, and across from a public housing complex known as Moss Park.
2Built in 1911, the subject’s renovation and/or updating history is not in evidence for the period prior to the appellant completing industry specific renovations in 2015 to accommodate medical and pharmacy usage. These renovations were completed at a cost of about $343,000 following acquisition of the property in December 2013 for $2,092,500.
3The subject was assessed by MPAC at $1,462,000 for the 2016 taxation year utilizing the sales comparison methodology. Its representative, Andre Campbell, has introduced sales transactions in support of the assessment as returned that indicate a higher value than the subject’s assessment. As the assessment to sales ratios (“ASRs”) indicate an average and median of 0.95 and 0.97 respectively, he concludes that the assessment is appropriate and equitable.
4Neil Mehta, advocating and testifying for the appellant, seeks a reduction in the assessment to $1,234,000 based on applying a capitalization (“cap”) rate of 4.25% to his calculated net income potential. He maintains that the character of the subject’s neighbourhood is extremely problematic compared to the neighbourhoods of the property sales utilized by Mr. Campbell, rendering MPAC’s methodology as unsuitable. Further, Mr. Mehta explains that the purchase price paid was knowingly in excess of market value, as the intended profits from establishing an on-site pharmacy business would override the one-time cost.
5I must determine from the evidence which methodology utilized in support of the parties’ positions is more representative of the market value as of January 1, 2012, and based thereon, determine an appropriate current value for the subject. I am also required to refer to the assessments of other like properties, and if they are indicative of a need to reduce the value otherwise determined in order to achieve an equitable result, I must do so.
DECISION
6The sales comparison methodology is preferred for the reasons set out herein, and the assessment is accordingly confirmed at $1,462,000 for 2016 taxation. No reduction is necessary to achieve equity with the assessments of similar lands in the vicinity.
REASONS FOR DECISION
Current Value
7Section 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.
8The Act establishes January 1, 2012 as the valuation date for 2016 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.
9The Act accordingly establishes the marketplace as being determinative of current value (“CV”).
10There are three types of market evidence before me; the sales listing of the subject’s immediate neighbor to the east; the six sold properties set out in Appendix 1 to Mr. Campbell’s Exhibit 1 Valuation Report; and the appellant’s purchase of the subject in December 2013.
11No weight is attributed to the failed sales attempt of the abutting property to the east, details of which are in the Green Tab of Exhibit 2, being Mr. Mehta’s bound materials. That property is an automotive repair facility listed for sale in mid-2016 at $1,950,000. Mr. Mehta’s evidence is that its site area is larger than that of the subject, and that it has on-site parking that is absent on his property. I reject consideration of this evidence for several reasons: it did not sell; it was not exposed to the market until about four and a half years after the applicable valuation date; its building area is less than half of that of the subject; and it appeared to have been offered with an existing lease in place for in excess of eight remaining years.
12The six sales introduced by Mr. Campbell are, in fact only five; the sixth being the subject itself. I adopt the more conventional valuation approach, as it is rare indeed for assessment valuators or traditional appraisers to include a specific property being evaluated in market terms in the “comparable” sales or assessment evidence. I do so while appreciating that a property’s validated sale will be incorporated within MPAC’s broad market-determined values. But when specific evidence is introduced for the Assessment Review Board’s determination of CV and/or its equity in relation to other properties’ assessments, it is customary to exclude those particular properties’ sales in a comparative analysis.
13The five sales remaining in evidence are best compared on a per square foot (“psf”) of structure basis, as Mr. Campbell has done, because of disparities in their properties’ structure areas. Mr. Mehta did not express disagreement with this approach, and has included evidence from other sources that likewise include psf references.
14The five sales, unadjusted for differences in lot sizes, dates of sale in relation to the valuation date, and locational influences demonstrate a correlation to the subject’s total acquisition and renovation cost to the appellant. This outcome is based on my calculations as to averages and medians of salient direct extracts from Appendix 1 of Mr. Campbell’s Report, as set out in Table 1, immediately below:
Table 1
Sale Price CV
Property PSF ($) PSF ($) ASR
422 Parliament St. 299.93 230.13 0.77
133 Berkley St. 270.04 219.07 0.81
431 Richmond St. E. 371.26 430.11 1.12
672 Queen St. E. 196.99 221.36 1.16
754 Queen St. E. 227.47 263.32 1.16
Average 273.13 1.00 Median 270.04 1.12
15The mid-point of the unadjusted average and median sales prices psf is $271.58. Applying this to the subject’s 8,967 sq. ft. structure is indicative of a value of $2,435,258. This ostensibly correlates almost precisely with the appellant’s $2,436,020 total investment in the subject (the purchase for $2,092,500 + $343,520 for renovations).
16I find, however, that neither the appellant’s investment costs nor the sales evidence are determinative of the subject’s CV as of the January 2012 valuation date. Rather, I conclude that the subject’s CV should be less than $2,435,000. This conclusion results from the cumulative effect of several reasons, addressed below in no particular order.
(a) The purchase of the subject by the appellant was in December 2013, almost two years after the January 2012 valuation date. There is no evidence to time-adjust for changes in the marketplace, if any.
(b) I accept Mr. Mehta’s explanation for “overpaying” for the property as it is credible and is unchallenged by Mr. Campbell. Mr. Mehta explains that the property was purchased by him as an entrepreneur to operate his pharmacy business. He knowingly took an “aggressive” approach to obtain this site, in the expectation that the business profits to be derived would offset the “excessive” purchase price.
(c) Likewise, I accept the appellant’s unchallenged argument that the renovations are only of benefit to users in the medical professions. Mr. Mehta asserts that the added value would not benefit a potential buyer for a broader use.
(d) The five sales set out in Table 1 are respecting properties that do not suffer like negative adverse locational influences experienced by the subject.
17The preponderance of Mr. Mehta’s evidence addresses the nature and character of the community in which the subject is located, safety concerns due to excessive crime, and the negative influences on property values that he believes result therefrom. Specifically, he has introduced the following by testimony and/or in his Exhibit 2:
Crime statistics and news releases by the Toronto Police Service for Division 51 (that encompasses the subject’s neighbourhood) and by news agencies that reference the Moss Park community and its environs. These are offered as evidence in support of Mr. Mehta’s testimony that the immediate area is rife with criminals, including thieves, robbers, sexual offenders, drug addicts, prostitutes and otherwise offensive individuals.
Neighbouring non-residential properties have a substantial element of non-business occupants. Many social service, non-profit occupants of offices and street-front premises abound to support the shelter, mental, addiction and other needs of a segment of the community’s residents. Mr. Mehta lists seven such organizations within one square block of the subject.
About 35-40 photographs corroborate the nature of the nearby non-business service organizations described immediately above. As well, these photos demonstrate the resultant unsavory residue left by those unable or unwilling to follow more conventional paths. They graphically indicate such circumstances as syringes strewn on roads and walkways, inappropriately distributed garbage, (purportedly human) excrement in a hallway of the subject, and considerable graffiti on storefronts and elsewhere.
18Mr. Mehta maintains that none of the five properties included in Table 1 above are influenced in the same way as the subject, which is directly across from the Moss Park public housing complex. He suggests that this area suffers from crime, safety concerns and other negative influences that are absent or less prevalent in other downtown Toronto communities like Riverdale or Cabbagetown or outside of Division 51, where these five properties are located. He consequently argues that the Table 1 properties’ sales are inappropriate for comparison to his property.
19While Mr. Campbell indicates that commercial properties like the subject, located in downtown Toronto but outside of the heart of the core are similar location-wise for valuation purposes, he offers no determinative explanation for the discrepancy between the value in excess of $2 million for the subject indicated by his comparative sales analysis and MPAC’s $1,462,000 assessment as returned that is inclusive of the property’s renovations.
20Due to the indicated unsavory nature and character of the subject’s immediate community, I have found that the subject’s current value should be less than that indicated by the above Table 1 valuation analysis. In so doing, I am cognizant that those responsible for the crime and other offensive behavior in the community threaten the safety and create an atmosphere within their community that considerably exceeds their proportionate numbers. They are not representative of the majority of residents and businesses in the Moss Park area of the City. Like the appellant, the safety and comfort level of the majority is negatively impacted by the actions of the few; as is the subject’s value.
21Mr. Mehta urges me to adopt a capitalization of net income approach to establish the subject’s CV.
22He calculates net potential rental income based upon what he considers to be fair market rent for the entire premises ($11,750 per month1), and reduces the outcome by 10% as a vacancy allowance, and by a further $74,413 for operating expenses. The resultant net income of $52,487 is capitalized at 4.25%, yielding the rounded value for assessment of $1,235,000 that Mr. Mehta seeks.
23While capitalization of net income is one of the conventional valuation methodology techniques, it is not the one preferred by MPAC for properties of this type. MPAC generally values such properties by utilizing the sales comparison approach. In so doing, I find that MPAC has met its initial burden of proof in support of not reducing the assessment as returned, based upon the sales evidence that it has introduced.
24The appellant must accordingly establish, on the balance of probability, that the CV assessment should be a lesser amount.
25I find that Mr. Mehta has not provided sufficient evidence or argument to satisfy me that a reduction to an amount less than the assessment as returned is merited.
26In so doing, I attribute no weight to Mr. Mehta’s proposed income-based approach to value the subject. I do so for various reasons:
The only evidence of market rents2 is that at the Green Tab of his Exhibit 2 binder. This sets out Toronto MLS Average Lease Rates for the fourth quarters of 2015 and 2016. The entire City area is too broad for a meaningful determination of rents as might have been applicable for the subject in the Moss Park community, and is based on a differing time period than the legislated valuation date.
Likewise, the cap rate suggested is unsupported by meaningful evidence. Included in the first Blue Tab in Mr. Mehta’s binder is a one-page Cap Rate Report for the fourth quarter of 2016 issued by Colliers International, a provider of realty valuation and advisory services. Aside from the difference of almost five years from the valuation date, this document broadly addresses cap rates within the GTA that included “Downtown Office” (likely inclusive of major banking towers), “Suburban Office”, and “Retail”. Lacking any specificity as to location or function, this document is of no assistance in validating cap rates appropriate for the subject in its location.
The operating expenses of $74,413 are “Based on … conservative estimates of operating expenses”, exclusive of property management fees. Since the purchase of the property was in December 2013, and the renovation was not completed until late 2015, I conclude that the expenses estimate is in the balance of probability based on 2016 experience, rather than expected expenses more immediately following the January 2012 valuation date.
Furthermore, while I believe that Mr. Mehta has made his best efforts to utilize appropriate rents, expenses and cap rates, and while they may be reasonable, it is incumbent upon him to provide meaningful documentary evidence pertinent to the January 2012 valuation date to support these three major components of a market valuation based on capitalization of income. This is particularly so when the outcome he seeks is over 40% below the assessment as returned.
27In my opening comments at the commencement of the hearing, I indicated to Mr. Mehta that “… it is not enough to merely demonstrate the existence of a problem, a nuisance, or a circumstance that likely diminishes the value of a property. You must also provide evidence to demonstrate the impact of this on the property’s current value. The Board cannot speculate on the effect of a nuisance factor on a property’s current value. We cannot arbitrarily reduce an assessment.”
28In this matter, I have found that the assessment should be less than that demonstrated by the sales evidence, due to the negative impact of the unsavory nature and character of the subject’s immediate community. However, I find that there is no determinative evidence to quantify the impact of this circumstance on the subject’s assessment as returned.
29In an attempt to address the negative impact of the subject’s location, Mr. Mehta has introduced evidence of the impact of crime on property values in support of the assessment that he seeks. The Purple Tab in his Exhibit 2 binder includes an article from The Journal of Regional Science whereby the two co-authors from separate educational institutions addressed their study to test how crime affects economic activity. They evaluated commercial sales and assessments in New York City, and concluded that “… crime reduces commercial property values, and the magnitude of the effect depends on the type and geography of the crime.” The authors’ findings go on to suggest that in a concentrated crime area of New York City, “… if an additional violent crime within a quarter-mile of a property reduces prices by $1.50 per square foot, then properties near 100 crimes per year will suffer price drops of $150 per square foot (holding all else constant).”
30The article’s overriding conclusion, that crime reduces commercial property values, is compatible with my conclusion and with Mr. Mehta’s belief respecting the subject property. However, correlation of the impact on commercial property values psf of crime in New York with that for a property a little east of the downtown Toronto core remains absent.
31As I am unable to arbitrarily reduce the subject’s assessment below that returned without having an evidentiary basis, I find the subject’s CV to be $1,462,000 as of the January 1, 2012 valuation date for 2016 taxation. I consider the negative influence of the subject’s location to be reasonably addressed by this outcome.
Equity with Assessments of Similar Lands in the Vicinity
32Section 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.
33The burden of proof respecting equity of an appealed property rests with the appellant. Mr. Mehta has offered no evidence or argument for this appeal related to equity, other than a request that the outcome be “fair.” I am nevertheless obligated by the legislation to refer to any evidence of other properties’ appeals.
34The only other properties’ assessments in evidence before me are those introduced respecting the five sold properties in Table 1 above. I attribute no determinative weight to the ASRs indicated therein. Having eliminated the subject from Mr. Campbell’s ASR listing, I am left with only five ASRs having an average and median of 1.00 and 1.12 respectively. This small sample includes no ASRs within the range of 0.95-1.05 that MPAC commonly considers to be a useful guideline; and indeed none of the five ASRs even fall within the range of 0.90–1.10
35I find that the subject’s assessment is not demonstrated to be excessive, and hence no downward adjustment is required to achieve an equitable assessment with those properties. In this regard, whether these properties are found to be similar properties to and in the vicinity of the subject by virtue of their nature, character or use, or if they are found, as Mr. Mehta urges, to be dissimilar for locational or other differences, the outcome is the same: their assessments do not indicate the subject to be over-assessed, and no alternative property assessments are available for my reference. This conclusion is obvious, because the subject’s $1,462,000 CV equates to $163.04 psf, which is less than any of the five properties in Table 1, whose assessments range from $219.07 to $430.11 psf.
CONCLUSION
36The subject’s assessment is confirmed as $1,462,000 for the 2016 taxation year. No downward adjustment is necessary to achieve equity with the assessments of the other properties in evidence.
“Bernard Cowan”
BERNARD COWAN
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