Hockenhull Land & Cattle Company Limited v. Municipal Property Assessment Corporation Region 32, 2020 CanLII 24879

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE:

March 26, 2020

FILE NO.:

WR 163594

Assessed Person(s):

Hockenhull Land & Cattle Company Limited

Appellant(s):

Hockenhull Land & Cattle Company Limited, John Hockenhull

Respondent(s):

Municipal Property Assessment Corporation Region 32

Respondent(s):

Township of Oliver Paipoonge

Property Location(s):

41 Rubin Drive

Municipality(ies):

Township of Oliver Paipoonge

Roll Number(s):

5808-240-002-00302-0000

Appeal Number(s):

3182855

Taxation Year(s):

2016

Hearing Event No.:

728281

Legislative Authority:

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

APPEARANCES:

Parties

Representative

John Hockenhull

Self-represented

Municipal Property Assessment Corporation

Brittany Kee, Kathleen Silen

Township of Oliver Paipoonge

No one appeared

HEARD:

January 21, 2020 by telephone conference call

ADJUDICATOR(S):

Anthony LaRegina, Member

DECISION

OVERVIEW

1John Hockenhull (the “Appellant”) filed an appeal for the 2016 taxation year with the Assessment Review Board (the “Board”). It is the Appellant’s position that the Municipal Property Assessment Corporation’s (“MPAC”) current value assessment of $531,000 is too high and that the correct current value assessment is $325,000. At this hearing, MPAC takes the position that the current value assessment should be reduced from $531,000 to $434,000.

Background

2Kathleen Silen, the assessor for MPAC, provided the Board with an estimate of current value at $434,000 based on the cost approach to value supported by the comparable sales.

3Mr. Hockenhull submits that the direct sales comparison approach should be used to establish the current value because it is based on the local market and that the cost approach utilized by MPAC does not properly reflect the market conditions and therefore, the true value of the subject property.

4Mr. Hockenhull submits further that his business is doing very poorly as a result of being located in an economically depressed area and therefore, the economic obsolescence factor of 25% used by MPAC’s cost approach is too low to compensate for the depressed location of the subject property. Mr. Hockenhull submits he would have difficulty selling his property for $325,000 and that MPAC does not have a good understanding of the real estate market in the Township of Oliver Paipoonge and the greater Thunder Bay area.

Issues for the Hearing

5The issues to be determined are:

1. the correct current value of the subject property for the 2016 taxation year, and
2. is the current value equitable with the assessments of similar lands in the vicinity?

RESULT

6The Board finds the current value of the subject property for the 2016 taxation year is $387,500 rounded to $387,000.

7The Board determines that the current value requires no further adjustment in order to make the assessment of the subject property equitable with the assessments of similar lands in the vicinity.

ANALYSIS

Description of the Subject Property

8The subject property is a mixed-use commercial/industrial property located at 41 Rubin Drive (“subject property”) in the Township of Oliver Paipoonge. The subject property hosts a forest products business manufacturing and retailing mouldings, flooring, paneling, siding, decking, and other lumber products. The structures on the property were built between 2003 and 2015, have a total building area of 14,852 square feet (“sq. ft.”) and are situated on a 3.08 acre lot. The four main structures which constitute the majority of the building area include the following:

1. 6,000 sq. ft. pre-engineered steel building built in 2015 (uninsulated/unheated)
2. 1,680 sq. ft. retail showroom/office wood frame building with mezzanine built in 2007
3. 2,520 sq. ft. wood frame building built in 2005 (uninsulated/unheated)
4. 2,800 sq. ft. prefabricated metal Quonset building with mezzanine built in 2003.

Issue 1 – Current Value

9In accordance with s. 44(3)(a) of the Assessment Act, R.S.O. 1990, c. A.31 (the “Act”), the first mandate of the Board is to determine “the current value of the land.” Section 1 of the Act defines current value as “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.”

10For the 2016 taxation year, the Board must determine what the subject property would have sold for in an arm’s length transaction on the January 1, 2012 valuation day set by s. 19.2(1) of the Act.

The Cost Approach vs. the Direct Sales Comparison Approach to Value

11Kathleen Silen introduced the cost approach as MPAC’s primary approach as well as the sales comparison approach to further support the value determined by the cost approach. The breakdown of the costing is as follows:

Improvements:

Total Cost New:

$612,140

Total Functional Obsolescence:

$-26,186

Total Depreciation:

$-30,710

Total Economic Obsolescence:

$-138,811

Replacement Cost New Less Depreciation:

$416,433

Plus Land Value:

$17,821

Current Value:

$434,254

Rounded to $434,000

12MPAC originally used a 19% Economic Obsolescence factor which they increased to 25% after receiving the Request for Reconsideration (RFR). Ms. Silen referenced in cross-examination that the American Appraisal Institute was commissioned by MPAC to do a study of the forestry sector in Ontario and concluded that the economic obsolescence should be 25% across the board for properties involved in the forestry industry.

13To further support the cost approach Ms. Silen also entered six comparable property sales located in the vicinity of the subject property. These sales are outlined in the table below.

[1]

Subject Property

Sale 1

Sale 2

Sale 3

Sale 4

Sale 5

Sale 6

41 Rubin Drive

1531 Rosslyn Road

821 Marks Street North

4 Cooper Drive

59 Twin City Crossroads

54 Rubin Drive

325 Highway 527

Current Value Assessment (“CVA”) $

434,000

341,000

208,000

438,000

494,000

162,000

393,000

Sale Value $

510,000

195,000

475,000

750,000

170,000

300,000

Sale Date

03/2012

09/2010

02/2011

11/2012

12/2013

09/2012

Year Built

2003-2015

1990

1989

1974

2004

1970-2000

1960-2004

Building Area sq. ft.

14,852

8,905

6,300

12,603

7,197

8,857

13,688

Site Area acres

3.09

1.35

0.36

4.75

4.94

2.11

12.77

Land Value $

17,500

73,000

51,000

44,000

44,000

15,000

8,000/

34,000

Structure Value $ (Cost Approach)

416,500

268,000

175,000

395,000

450,000

147,000

385,000

MPAC Rating

Superior location, similar structures

Superior location, similar structures

Similar location, similar structures, same municipality

Similar location and structures

Similar location, structures are inferior

Similar location and structures

14Ms. Silen submits that the most comparable properties are Sales 3 and 4 which range in sale value from $475,000 to $750,000. Ms. Silen further submits that the value of $434,000, established using the cost approach, is very reasonable in comparison to the high sale values of the two most similar properties in the vicinity.

15Mr. Hockenhull has taken the position that the cost approach is not a valid approach to establishing the current value of the subject property. He claims that the value of building a structure bears no relationship to the market value of the property. Mr. Hockenhull asserts that the area is very depressed and properties sit on the market for long periods before they sell and for much lower values than the asking price. He referenced a property in the forestry sector located on 63 Logrin Road, a decommissioned sawmill that has been shutdown since 2009, and according to MPAC, on the market since 2013. He describes this property as being substantially larger and more superior to the subject with 100 acres of land and over 20,000 sq. ft. of building area. This property has been listed for seven years at $599,000 without a sale. Mr. Hockenhull submits that this property would take several million dollars to replace using the cost approach and therefore, concludes that in the greater Thunder Bay market the cost approach is not directly related to the market value of a property and consequently, the 25% economic obsolescence used by MPAC for the area is much too low. He further submits that he cannot comprehend how the returned value of his property is $531,000 when this superior property in the same industry at 63 Logrin Road is assessed at a 2012 value of $570,000 and at the same time cannot attract a sale value of $599,000 in 2020.

16Mr. Hockenhull also enters the property of Dorian Wood Products which is a direct competitor in the same business. This property is 12 miles further from Thunder Bay than the subject property on the opposite side of Thunder Bay at 920 Highway 11/17 in Dorion, Ontario. Mr. Hockenhull claims that this property has 50 acres more than the subject property, the same Quonset hut and cold storage buildings as the subject property and is assessed at $131,000. He submits that he can no longer compete in the market if he’s paying taxes based on a property value of $531,000 verses the competition at $131,000. During cross-examination it was revealed by MPAC that the structures on this property are substantially inferior and therefore, not directly comparable to the subject property.

17Mr. Hockenhull does not agree with Ms. Silen’s opinion that the best comparable properties are Sales 3 and 4 because they are closer to the City of Thunder Bay and, therefore, are in a superior location as compared to the subject property. He believes that the best comparable property sales are Sales 5 and 6 located at 54 Rubin Drive and 325 Highway 27. Mr. Hockenhull suggests that Sale 5 is located on the same street and the majority of the buildings are used for cold storage similar to the subject property. In the case of 325 Highway 27, he claims that this property is incredibly similar to the subject property in location and size of buildings and yet sold for $300,000 which is substantially less than the $434,000 suggested by MPAC as the current value of the subject property.

18Mr. Hockenhull also enters a letter dated January 14, 2020 from Ralph St. Jarre, who is a Broker with First Choice Realty Limited of Thunder Bay. Mr. Jarre points out that the subject property is a specific use sawmill and in his opinion the market value is $350,000. Mr. Jarre also points out that if the property was listed for sale it could take up to two years to sell. Mr. Hockenhull submits that in light of the depressed market Mr. Jarre’s opinion of value is too high and that he estimates the correct current value of the subject property to be $325,000 based on a January 1, 2012 valuation date.

Findings on Issue 1

19The Board agrees with the Appellant that the cost approach is normally the approach of last resort when attempting to establish the market value of a property. The Board normally prefers market driven approaches to establishing the current value. In this case the economic obsolescence of 25% may be acceptable as an overall number for properties in the forestry sector in the Province, but as Mr. Hockenhull points out, may not be reflective or adequate of the market in the greater Thunder Bay area. The property located on 63 Logrin Road is a very good example of a property where the cost approach to value bears little relationship to the market value. As both Ms. Silen and Mr. Hockenhull point out, 63 Logrin Road is much superior to the subject property and the replacement cost new would be far greater than the current sale price and yet the property is still not sold. Mr. Hockenhull also points out that eight sawmills closed in the last 10 years and not one has reopened. The Board will therefore utilize the direct sales comparison approach to determine the current value of the subject property as the approach which best reflects the value of the subject property in the local market as of January 2012.

20The Board has analysed the six comparable property sales submitted by MPAC and concludes that the best comparable properties to the subject property are Sales 3 and 6, 4 Cooper Road and 325 Highway 27. These properties are the most similar in terms of building area and are located in the same Township of Oliver Paipoonge. The other comparable Sales 1, 2, 4 and 5 have substantially smaller building areas and therefore, are not comparable to the subject property.

21The Board will set the current value of the subject property at the average sale value of Comparable Properties 3 and 6 or $387,500 rounded to $387,000.

22The Board recognizes that the building structures on the subject property are newer and slightly larger than both comparable properties but that can be offset by the larger land area of both comparable properties and their superior locations closer to Thunder Bay than the subject property. Furthermore, as indicated by the evidence, the impact on value for having the newer and slightly larger buildings is very difficult to quantify for forestry specific use properties in depressed markets such as Oliver Paipoonge and surrounding areas of Thunder Bay.

Issue 2 - Equity

23Section 44(3)(b) directs that, after determining current value, the Board shall 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.”

24The Assessment to Sales Ratio (“ASR”) of a sample of sold properties is a tool often used to determine if a property in the vicinity is assessed below its current value. If any other property is assessed below its current value, a reduction in the assessment below current value is required to make the assessment equitable with the assessments of similar lands in the vicinity. The ASR is determined by comparing the assessment as returned to the time adjusted sale price, expressed as a mathematical ratio.

25Ms. Silen presented an equity analysis of 30 property sales of built on commercial/industrial properties that occurred from January 1, 2008 to December 31, 2012 located within 16.48 kilometres of the subject property, resulting in a median ASR of 1.01. Ms. Silen submits that MPAC’s standards indicate that for residential property, the median ASR should fall between 0.95 and 1.05. If the median ratio falls within this range, this reveals that the current value assessments are reflective of sales prices in the vicinity and therefore no further adjustment is required. In this case the median ASR falls within the range at 1.01. Therefore, Ms. Silen recommends no further downward adjustment is required to the current value of $434,000.

26Mr. Hockenhull provided no evidence in support of an equity argument.

27Mr. Hockenhull pointed out that a number of suggested similar properties presented by MPAC in support of its equity analysis were outside the Oliver Paipoonge area and therefore, not directly similar to the subject property. MPAC explained that the properties identified in support of equity do not have to necessarily be similar to the subject property and that the relationship between the returned assessed value and the sale value is the important factor in determining whether an equity adjustment is required. In addition, MPAC also explained that in order to obtain a dataset of 30 properties for its equity analysis, it was necessary to expand the vicinity to properties within 16.48 kilometers of the subject property.

Findings on Issue 2

28In this proceeding, the Board finds that the best evidence in relation to whether an equitable reduction of current value is required, is the sale and assessment evidence of 30 properties presented by MPAC, which indicates a median ASR of 1.01. An ASR in this range indicates that similar properties in the vicinity are assessed at or near their sale values. As such, they are not under-assessed Therefore, based on MPAC’s equity study, the Board finds that no downward adjustment should be made to the correct current value of the subject property in order to ensure it is equitable with the assessment of other properties in the vicinity.

ORDER

29The Board reduces the assessment of the subject property from $531,000 to $387,000 for the 2016 taxation year with $143,000 apportioned in the commercial (new construction) (full) and $244,000 in the industrial (new construction) (full) classifications.