Pine Valley Packaging Limited v. Municipal Property Assessment Corporation, Region 13, 2017 CanLII 7845

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: February 13, 2017

FILE NO.: WR 145344

Assessed Person(s): 1557511 Ontario Inc.

Appellant(s): Pine Valley Packaging Limited

Respondent(s): Municipal Property Assessment Corporation (“MPAC”), Region 13

Respondent(s): Township of Uxbridge

Property Location(s): 1 Parratt Road

Municipality(ies): Township of Uxbridge

Roll Number(s): 1829-030-007-30705-0000

Appeal Number(s): 3002139, 3080297 and 3150495

Taxation Year(s): 2014, 2015 and 2016

Hearing Event No.: 652066

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

Heard: January 18, 2017 in Uxbridge Ontario

APPEARANCES:

Parties	Counsel+/Representative
Pine Valley Packaging Ltd.	P. Grosman
MPAC	R. Zamozniak
Township of Uxbridge	No one appeared

DECISION OF THE BOARD DELIVERED BY JOSEPH M. WYGER

INTRODUCTION

1Just west of the urban area of the Township of Uxbridge is a large industrial building in which automotive parts are packaged for shipment to auto assembly plants in Ontario. It is situated on a 10.58 acre parcel in the rural area of the Township with no town services such as water or sewers. Part of the 71,502 square feet of useable area is 10,000 square feet of mezzanine partially used for production. The property is assessed for $4,940,000 for the 2014, 2015 and 2016 taxation years under appeal. MPAC recommended a reduction to $4,424,000 based on a cost and direct sales analysis, while the Appellant seeks an assessed value of $3,570,000 based on a professional appraiser’s analysis of sales. The issues are what is the best evidence to determine the current value, and to examine whether the current value is inequitable compared to the assessed values of similar lands.

DECISION

2I conclude that the current value of the subject property is $ 3,932,000 for the 2014, 2015 and 2016 taxation years, apportioned $3,402,000 to the IT tax class and $530,000 to the IU tax class. Upon review of the assessed values of similar properties in evidence, I am unable to make a finding that this current value is not equitable.

REASONS FOR DECISION

MPAC’S Position

3The assessment corporation was represented by Robert Zamozniak, who called Chris Gentle as his expert valuation witness. Mr. Gentle provided an analysis which used the Replacement Cost New of 12 potentially comparable industrial properties, and demonstrated graphically how to narrow them to the five most comparable properties that sold in the appropriate timeframe. He endeavored to use only properties that were on the GTA “fringe”, in recognition of the rural, relatively remote location of the subject facility. Mr. Gentle then calculated the sale values per square foot (“psf”), settling on the median value of $61.88 psf to arrive at his recommended current value of $4,424,000.

4Mr. Gentle also provided a cost approach resulting in a current value of $4,690,000 that featured sales of vacant lands in support of the subject property’s land value as returned of $100,000 per acre.

Appellant’s Position

5The Appellant was represented by paralegal Paul Grosman, who called Brian Wagner as his expert valuation witness. Mr. Wagner provided an analysis employing most of the same comparable properties as MPAC. Mr. Wagner made downward adjustments to the sale values per square foot in order to reflect differences between them and the subject property, most notably the difficulties entailed due to the remote rural location and the lesser value of a substantial mezzanine component in the subject structure. His analysis resulted in a projected value in the $50 to $55 psf range, employing $51 psf to result in his suggested current value of $3,570,000.

Legislation

6Section 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.

7Section 44 of the Act states:

44.(1) Assessment may be open upon appeal. – Upon an appeal on any ground against an assessment, the Assessment Review Board or court, as the case may be, may reopen the whole question of the assessment so that omissions from, or errors in the assessment roll may be corrected, and the amount for which the assessment should be made, and the person or persons who should be assessed therefore may be placed upon the roll, and if necessary the assessment roll, even if returned as finally revised, may be opened so as to make it correct in accordance with the findings made on appeal.

(2) Reference to similar lands in vicinity. – For taxation years before 2009, in determining the value at which any land shall be assessed, reference shall be had to the value at which similar lands in the vicinity are assessed.

(3) Same, 2009 and subsequent years. – For 2009 and subsequent taxation years, in determining the value at which any land shall be assessed, the Board shall,

(a) determine the current value of the land; and

(b) have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment of the land.

Analysis – Current Value

Objection to Expert Qualification

8Mr. Zamozniak sought to have Mr. Gentle qualified to give opinion evidence to the Board based on his many years of experience as a property valuation specialist in commercial/industrial assessment. Mr. Grosman objected to the qualification on the grounds that Mr. Gentle could not be impartial as an MPAC employee, and that he had no real world appraisal experience in the industrial real estate market.

9The argument that MPAC assessors cannot be impartial because they are employees, has never been too persuasive to me. It presumes that MPAC has an agenda that is adversarial and always opposite to the interests of the taxpayer. I am of the view that because MPAC representatives are statutorily bound to the neutral exercise of getting the assessment right, they are more likely than not to provide an unbiased, professional opinion on what that number is. Consequently, without additional evidence of bias, I cannot find that Mr. Gentle has bias simply because he an MPAC employee and I accept his acknowledgment that he is trying to be impartial in his analysis.

10Mr. Gentle did not presume to have expertise in the individual appraisal of properties in the industrial real estate market, and so was qualified to give his opinion from within MPAC’s method and model of creating and defending assessments.

11Mr. Grosman’s witness Brian Wagner was qualified in the other direction, to give only opinion evidence on his individual appraisal from within the industrial real estate market and not on the assessment of industrial properties

Current Value

12I accept to a large extent the individual appraisal of Mr. Wagner, as it reflects a more nuanced and in-depth analysis and accounting of the relative deficiencies and location of the subject property, than does the more clinical and statistics-based analysis of Mr. Gentle. After a review, analysis and adjustment of all of the acceptable comparable property sales, I arrive at a value of $55 psf, resulting in a current value determination of $3,932,000.

MPAC Evidence

13I do not give much weight to MPAC’s cost approach as there are a sufficient number of sales of comparable properties to provide a market based estimate of value, in accordance with s. 19 of the Act. Mr. Gentle’s method of selecting comparable properties and narrowing them down to the five most comparable shows much promise. His method initially identified 12 potentially comparable properties within a 50 km radius. This field was narrowed by employing the replacement cost new (”RCN”) values from the automated cost system (“ACS”) to aid in finding the statistically best available comparables. The rationale is that all major building components are valued in place adjusted for depreciation and other deficiencies, and so comparable buildings should have RCNs psf that are relatively close to each other. An RCN per square foot (”psf”) for each comparable is plotted on a graph that shows a “Power Regression Trendline”. This line permits the analyst to “…identify which comparables are most mathematically like the data chosen.” Properties outside the “Best Fit Comparable Tolerance” line are removed from the analysis because they are physically not comparable enough, leaving five “Statistically Best Available Comparables”. The sale value psf of these five ranged from $31.45 psf to $80.48 with an average and median of $59.26 psf and $61.88 psf respectively. Employing the median value and applying it to the 71,502 square feet of the subject property resulted in Mr. Gentle’s recommended value of $4,424,000.

Appellant’s Evidence

14Mr. Wagner’s appraisal used as comparables, four of the five properties identified by Mr. Gentle’s statistical analysis, lending some credence to his methodology for picking them. Mr. Wagner included a few other properties, including 1080 Squires Beach Rd, excluded by MPAC because the sale included another vacant parcel of land, and so I will exclude it as well. A property in East Gwillimbury at 2 Bales Drive was used by Mr. Wagner but excluded by MPAC because the September 2010 sale is “outside the sale timeline range…” It is not outside my 18 month sale timeline range and so I will consider it.

15Mr. Wagner also included in his analysis, the sale of a property that is the only sale of a comparable industrial property located within the Township of Uxbridge. The June 2015 sale date is well outside anyone’s timeline range for a January 2012 valuation, except perhaps on a review of that property’s assessed value. The sale value of $60 per square foot for a superior property, casts some doubt on MPAC’s conclusion of a $61.88 value for the subject, if one accepts Mr. Wagner’s testimony that values were generally rising between 2012 and 2015.

16The comparable property at 1171 Gorham Street in Newmarket was common to both valuators. It sold twice within my timeline range and so both sales values will factor in, even though Mr. Wagner preferred the lower July 2010 sale price, while MPAC favoured the higher December 2012 sale price.

17Mr. Wagner’s analysis and downward adjustments were based on many of the concerns expressed by Mr. Leeder, the principle of the corporate Appellant. Mr. Leeder catalogued the problems of an industrial plant in a rural location, such as pressure and potability issues with well water, extra costs of having a septic system, maintaining a huge water reservoir to take the place of fire hydrants, power outages, and a really bad, slow speed internet connection. The building itself is deficient in having only two shipping doors and a lot of wasted space and logistical issues with 10,000 sq. ft. of second floor mezzanine. In addition, the zoning of the property limits the industrial use to only those that do not use water in production or manufacturing, limiting the types of industries that can operate there.

18The most pressing problem for Mr. Leeder is the location of the plant, far removed from any of the major 400 series highways, resulting in increased transportation costs for him and his customers the auto makers.

19I find that all of the issues outlined by Mr. Leeder give support to Mr. Wagner’s opinion that the subject property is inferior to all of the comparables and lends support to his downward adjustments.

Comparable Analysis

20MPAC’s analysis does not make adjustments for location on the grounds that Mr. Gentle’s comparables are on the fringe of the GTA like the subject property. A look at the map however shows the properties in Newmarket and Markham being much closer to the 404 than the subject. The properties in Pickering and Oshawa are much closer to the 401 than the subject property. If those properties are on the “fringe”, the subject property is in a different category beyond that “fringe”. Further adjustments for the subject properties locational deficiencies are entirely reasonable.

21Mr. Zamosniak argued that there was no evidence to support or verify Mr. Wagner’s adjustments that were wholly subjective. He is correct and that is how the real estate market actually works. Buyers, sellers and appraisers make all sorts of subjective judgements on the relative merits of different properties and must quantify them without the benefit of statistics, algorithms, graphs or computer models. It is largely a qualitative exercise based on experience in transacting or appraising properties. Mr. Wagner was a credible witness and has much experience in this field, and his analysis includes consideration of the factors affecting value described by the principle Mr. Leeder. I accept his opinion that the comparable properties ought to be adjusted down to take account of those factors, just as the market would on an actual sale.

22Indeed there was some evidence provided by Messrs Leeder and Wagner of an attempt at an actual sale in 2010. The subject property was listed for sale for $4.2 million, and received an offer of $3.0 million dollars. While there was no documentary evidence in support of the offered amount, I accept their evidence that there was an attempt to sell it at $4.2 million. The fact that Mr. Leeder was unable to generate any interest anywhere near $4.2 million dollars allows for the inference that it was probably not worth more than that number, casting doubt on MPAC’s returned and recommended values which are well above that figure.

23Mr. Wagner’s five acceptable sales resulted in a medium value of $60 psf. His conclusion of an adjusted value for the subject property of $51 psf is $9 psf less than the median. I have added as comparables the sales of 2 Bales Drive and the later 2012 sale of 1171 Gorham Street providing seven sales for my analysis. The median sale price psf of those seven is $64.78 psf. I accept the value of $64.78 psf as representing what the subject property could have sold for absent any adjustments. I accept Mr. Wagner’s general adjustment downward of $9 psf to account for all of the property’s deficiencies, most particularly location. This results in a value of $55.78 psf, which I will round down to $55.00 psf. This value still falls within Mr. Wagner’s adjusted range of values. Applied to the subject property structure size, this results in an indicated value of $3,932,610 rounded to $3,932,000. This is my best estimate of the current value of the subject property as of January 1, 2012.

Analysis - Equity

24I have had reference to the assessments of the 12 similar properties placed into evidence. The ratio of their assessed values to the sale prices (“ASR”) ranges widely from 0.83 up to 1.39, showing no definitive trend. The average and median ASRs of 1.07 and 1.06 generally indicates a slight over- assessment of similar properties. The subject property was similarly over-assessed but to a greater extent, and will now be assessed at its correct current value. There is nothing in the numbers that permits me to conclude that other similar properties are unfairly assessed at a wholly lower level of assessment than is the subject property at its newly determined current value of $3,932,000. The assessment is reduced from $4,940,000 to $3,932,000 apportioned $3,402,000 to the IT tax class and $530,000 to the IU tax class for the three taxation years under appeal.