Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: November 07, 2017

FILE NO.: WR 148142

Assessed Person(s): Rutherford Properties Ltd. C/O Morguard Investments

Appellant(s): Rutherford Properties Ltd. C/O Morguard Investments

Respondent(s): Municipal Property Assessment Corporation ("MPAC") Region 15

Respondent(s): City of Brampton

Property Location(s): 317 329 Rutherford Road South

Municipality(ies): City of Brampton

Roll Number(s): 2110-020-005-06002-0000

Appeal Number(s): 2961755, 3030968, 3082973 and 3152061

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

Hearing Event No.: 677075

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

Heard: July 25, 2017 in Brampton, Ontario

APPEARANCES:

Parties	Representative
Rutherford Properties Ltd.	Colin Francis, Chandelle Hamilton
MPAC	Robert Zamozniak, Ryan Cody
City of Brampton	Aida Karreman

DECISION OF THE BOARD DELIVERED BY DAN WEAGANT

INTRODUCTION

1The subject property is a 15.25 acre site with three separate buildings comprising a total of 254,875 square feet (sq. ft.). The buildings have heights ranging from 27.5 feet to 30.7 feet. One building, known as 317 Rutherford Road South, has two tenants, while the other two buildings (known as 20 Resolution Drive and 30 Resolution Drive) have one tenant each. Combined, the buildings have an average year built of 2007.

2The parties agree that the subject property is in the commercial class. The parties disagree about the correct current value of the property for the 2013-2016 tax years and disagree about the appropriate valuation methodology to be used.

3For the 2013 taxation year, MPAC returned a value of $25,903,000, and applied a property code of 'other industrial' owing to its unique characteristic of having three separate buildings of significant size on the same property. In determining the current value of the property, MPAC used three separate valuation methods; the Cost Approach, the Direct Comparison Approach and the Income Approach.

4The Appellant believes the current value is $22,124,000, based on a modified Direct Comparison Approach.

ISSUES

5There are two questions the Assessment Review Board ("Board") must answer in making its decision:

1. What is the correct current value of the subject property for the 2013-2016 taxation years?

2. Does the current value determined require a reduction when reference is made to the assessments of similar properties in the vicinity for the purposes of equitable assessment?

In order to make its determination of current value the Board also must determine the best indication of current value from the different methods in evidence at the hearing.

DECISION

6The Board finds that:

1. The current value of the subject property for the taxation years 2013-2016 is $26,183,000.

2. The current value requires a reduction to $24,533,000 when reference is made to the assessments of similar properties in the vicinity for the purposes of equitable assessment. The assessment is reduced to $24,533,000.

7Accordingly, the assessment for the 2013 - 2016 taxation years is reduced from $25,903,000 to $24,533,000, in the Commercial property class.

REASONS FOR THE DECISION

What is the current value of the subject property for the 2013- 2016 taxation years?

8The initial task for the Board is to determine the current value of the subject property. Section 19.(1) of the Assessment Act ("Act") states that "The assessment of land shall be based on its current value" and s. 1 of the Act defines 'current value' as "...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 also provides a common valuation day for each four-year assessment cycle. For the 2013 through 2016 taxation years, the valuation day is January 1, 2012.

10Ryan Cody, on behalf of MPAC, provided the Board with a valuation report, including the details of the three valuation methods he undertook. Mr. Cody explained that MPAC started with the Cost Approach. During preliminary discussions with the Appellant's representative, he added the Income Approach as he expected from these discussions that the Appellant would be pursuing the Income Approach at the hearing as a means of valuation. To further 'test' the two approaches, Mr. Cody also undertook a Direct Comparison Approach to value.

11The three methods used by Mr. Cody resulted in a relatively narrow range of value; $25,903,000 using the Cost Approach, $26,183,000 using the Income Approach and $25,834,000 using the Direct Comparison Approach. Mr. Cody viewed the narrow range as a good indication that MPAC's methods were reasonable and that each result served to support the other two as to his opinion of value.

12Of the three methods used, Mr. Cody considered the Direct Comparison Approach to be the least reliable. This view resulted from his opinion that the adjustments or corrections necessary to make a meaningful comparison between the five comparable properties in evidence and the subject property were too large. He submits that adjustments that combine to affect more than 20% of the value of the comparable property being used are unreliable. He specifically pointed to age adjustments which resulted in changes in value of between $3,157,000 and $7,222,000, on properties that were constructed between 1988 and 2000. These adjustments alone, according to Mr. Cody, represent adjustments ranging from 15.4% to 35.9% of the time adjusted sale values of the five comparable properties. When these time adjustments are added to other adjustments for land area differences and building height (which is important in this type of property) there is a total of $30,000,000 in adjustments over the five comparables.

13In response to the Appellant's statement of issues, Mr. Cody carried out the Income Approach to value and requested rent rolls and the relevant leases for the purpose. The gross income was reduced by 5% and 3% respectively for vacancy and operating expenses. The resulting net income then had a capitalization rate of 6% applied, resulting in a current value of $26,183,336.

14Chandelle Hamilton, representing the Appellant submitted that she shared some of Mr. Cody's concerns regarding the adjustments necessary when using the Direct Comparison Approach. Ms. Hamilton's testimony focused on this aspect of the Direct Comparison Approach, and sought to provide an alternative method of making adjustments for the effect of age on properties of this type. Ms. Hamilton submitted that MPAC's Automated Cost System ("ACS") has specific ways of treating the effects of age on function, maintenance and other reasons for depreciation, but in this case an alternative method is required.

15Ms. Hamilton's alternative approach blends the Direct Comparison Approach with the Cost Approach method by taking the cost and depreciation analysis of the Cost Approach and applying those findings to the properties in the direct comparison analysis. In support of her approach, Ms. Hamilton cited Exhibit 6, entitled 'Cost and Depreciation Analysis Correspondence Course, Institute of Municipal Assessors, December 2014'. This document explains the Market Extraction Method of calculating value adjustments to buildings resulting from age.

The Board's Analysis

16The Board has four separate methods of valuation in evidence. The Board shares the parties' concerns with respect to adjustments to the values of other properties and how they are determined. Mr. Cody voiced his opinion that the adjustments required by the Direct Comparison Approach were, in his opinion, too large to be reliable. Ms. Hamilton submitted that the adjustments, to be estimated properly, should take the form of an alternative method, whereby the depreciation approach in the ACS, or similar alternative, is applied to the Direct Comparison Approach. Mr. Cody disagreed on the basis that 'mixing' these two approached could serve to double the impact of certain adjustments when used to establish the current value of the subject property, because adjustments are made within these two methods in different ways. Applying the cost method depreciation to sale values of comparable properties does not consider that those properties sold in the open market.

17The Board is generally open to new approaches or methods in the context of determining current value, where their impact can be understood and their reliability can be established. Ms. Hamilton's approach is one such new method. However, under cross examination by Mr. Zamozniak, she was unable to articulate how her method was more accurate that the other methods in evidence.

18The Board needs to make a decision on current value that is based on the best evidence available and the most appropriate valuation methodology. Owing to the concerns of Mr. Cody and Ms. Hamilton regarding the way adjustments are calculated, and the evidence in this regard being inconclusive, the Board finds the best evidence is the value determined through the Income Approach. The parties agreed on the majority of facts and the aspects of this approach, with the exception of the capitalization rate. Mr. Cody applied a rate of 6%. Ms. Hamilton suggested that a different rate should apply, based on her view that the 6% rate is the one used for a standard industrial mall property. When questioned, she did not offer an alternative.

19The result is that the Income Approach prepared by MPAC is the most reliable in its content, as the income is derived from the rent rolls supplied by the Appellant and the adjustment allowances for vacancy and expenses are agreed to. The only aspect of the Income Approach in dispute is the capitalization rate, which the Appellant failed to refute. The Income Approach is a universally accepted approach to determining the current value of an income producing property with multiple tenants, like the subject property. The Board finds that the current value of the subject property is $26,183,336 ($26,183,000 rounded) as determined by MPAC's Income Approach.

Does the current value determined require a reduction for it to be equitable with the assessments of similar lands in the vicinity?

20Once current value has been established, the Board must determine whether an adjustment should be made to lower the assessment below current value in order to make it equitable with the assessments of similar lands in the vicinity.

21The Board has five similar properties in evidence, submitted in conjunction with the current value arguments advanced by both parties. While these five comparable properties do not form part of the Board's decision on current value, they are indicative of the time adjusted sale values and assessments of similar properties in the vicinity of the subject property. The Board heard from the parties that this property is 'unique' in a number of ways. For the purposes of determining if a property's current value should be reduced for the purposes of equitable assessment, properties needn't be identical, in fact the test of similarity is more liberal than the test for 'comparable' made in connection with the current value decision. All five properties are in evidence as having a similar function and size, that being warehousing, like the subject property. The five properties in evidence are summarized in Table A.

TABLE A

	Time Adjusted Sale Value	Assessment (2012 CVA)	Assessment to Sale Ratio ("ASR")
1 Van Kirk	$11,196,523	$9,657,000	0.862
2 Sun Pac	$20,148,763	$19,170,000	0.951
3 Kenview	$20,493,622	$18,243,000	0.890
4 West Creek	$35,362,082	$34,338,000	0.971
5 Spar	$18,275,247	$18,476,000	1.011
Average ASR			0.937

22The ASRs show that all but one of the properties is assessed at a value below its time adjusted sale value, which is the current value determined by the market on the valuation day. This indicates that properties in this category are regularly assessed at a value below their current value. Accordingly, the Board applies the average ASR of the properties in evidence of 0.937 to the current value determined above, to reduce the assessment to a level that is equitable with similar properties in the vicinity. The assessment is reduced to $24,533,471 ($24,533,000 rounded).

CONCLUSION

23For the taxation years 2013 - 2016, the Board finds that the current value of the subject property (317 Rutherford Road South, 20 Resolution Drive, and 30 Resolution Drive) is $26,183,000. The Board further finds that this value is reduced to $24,533,000 for the assessment of the subject property to be equitable with that of similar properties in the vicinity.

24Accordingly, the assessment for the 2013 - 2016 taxation years is reduced from $25,903,000 to $24,533,000, in the Commercial property class.