Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: October 16, 2020

FILE NO.: WR 166343

Assessed Person(s): 9840508 Canada Inc. and Textbook (256 Rideau Street)

Appellant(s): The City of Ottawa and Textbook (256 Rideau Street)

Respondent(s): Municipal Property Assessment Corporation Region 3

Respondent(s): City of Ottawa

Property Location(s): 256 Rideau Street and Besserer Street

Municipality(ies): City of Ottawa

Roll Number(s): 0614-021-001-04200-0000 and 0614-021-001-12600-0000

Appeal Number(s): 3249678, 3316736, 3291940, 3347476, 3346685, 3396537, 3395999, 3249679, 3316739, 3291944, 3348079, 3346425, 3397049 and 3396349

Taxation Year(s): 2017, 2018, 2019 and 2020

Hearing Event No.: 733879

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

APPEARANCES:

Parties	Counsel*/Representative
Municipal Property Assessment Corporation	Mohammad El Dali
City of Ottawa	Guy Tudino
9840508 Canada Inc.	Phillip Sanford*

HEARD: September 22, 2020 by video conference

ADJUDICATOR(S): Jean-Paul Pilon, Member

DECISION

OVERVIEW

1This decision concerns appeals brought pursuant to section 40 of the Assessment Act, R.S.O. 1990, c. A.31 (the “Act”) for two properties in the City of Ottawa located at 256 Rideau Street and 211 Besserer Street (the “Subject Property”). 211 Besserer was noted on the Assessment Review Board’s (the “Board”) docket as simply Besserer Street.

2The City of Ottawa (the “Municipality”) appealed the assessments that were returned for the Subject Property for the 2017 taxation year, and both the Municipality and the previous owner of the Subject Property, Textbook (256 Rideau Street), appealed the assessments for the 2018 to 2020 taxation years. Textbook (256 Rideau Street), which at some point changed its name to Generx (Byward Hall) Inc. and then went into receivership, sold the Subject Property to 9840508 Canada Inc. (“9840508”).

3The Municipal Property Assessment Corporation (“MPAC”), the Municipality and 9840508 were all represented at the hearing.

4The parties settled all of the issues in these appeals other than equity, which is the subject of this decision.

BACKGROUND

5The Subject Property is composed of two vacant lots of similar size, 6,246.97 square feet (“sq. ft.”) for 256 Rideau Street and 6,619 sq. ft. for Besserer Street, in the Byward Market area in downtown Ottawa. 256 Rideau Street was assessed at $2,117,000 for the 2017 to 2019 taxation years and $3,603,000 for the 2020 taxation year. Besserer Street was assessed at $2,132,000 in all of the taxation years at issue before the Board.

6Both lots were assessed as being in the GT Parking Lot tax class. Textbook (256 Rideau Street) originally intended that the Subject Property would be used for student housing, but that plan changed with its demise. The Subject Property will now be the location of two buildings containing 275 residential condominium units.

Areas of Agreement

7As noted above, equity was left as the only issue to be determined by the Board. The parties’ agreement on the other issues is set out below.

8The parties agreed that the correct current value of the totality of the Subject Property was $10,250,000. The parties stated at the outset of the hearing that they wanted the two assessment roll numbers (one for each of 256 Rideau Street and Besserer Street) to be rolled into one, but that is outside of the Board’s jurisdiction to order. As a result, the parties then agreed that the total value for the two lots comprising the Subject Property should be split evenly, so that the correct current value of each prior to any equitable adjustment would be $5,125,000.

9The parties further agreed that the returned classification of the Subject Property as Parking Lot (GT) should remain as such for the 2017 and 2018 taxation years. However, for the 2019 and 2020 taxation years, the parties agreed that the classification of the Subject Property should change to Vacant Commercial Land (CX).

Issue for the Hearing

10The sole issue remaining to be determined in this proceeding was that of equity.

11Section 44(3)(b) of the Act provides that, after determining the current value of land (which in this case was agreed to):

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 in the assessment of the land.

12All parties agreed that an equitable adjustment was required. They disagreed however as to the extent of that reduction and relied on their individual analyses to justify each of their positions on equity. The specific points of dispute included the similarity and vicinity of land to be considered and time adjustments, if any, to be applied.

13In addition, the parties disagreed as to methodologies to be used to determine the equity issue. 9840508 argued that the Board should use an Assessment to Market Ratio (“AMR”) method, and the Municipality and MPAC argued that the Board should use the Assessment to Sale Ratio (“ASR”) method more typically seen in equity analyses before the Board.

14The results using these differing methodologies led to vastly different conclusions as to what adjustment should be made for equity. MPAC’s conclusion was that an ASR of 0.948 would result in an adjustment that would reduce the current value of the Subject Property to $9,717,000 (which was inaccurately expressed at the hearing as $9,635,000). The Municipality concluded that with an ASR adjustment of 0.820, the current value of the Subject Property would be reduced to $8,405,000. 9840508’s position, on the other hand, was that the application of its AMR method would result in a weighted AMR of 37.38%, which would result in a reduced current value of $3,800,000 rounded.

15This decision first reviews the approaches taken by each of the three parties in their equity analyses. This is followed by the Board’s analysis of the two different methodologies used by the parties, ASR and AMR, and an analysis of the evidence as provided by MPAC and the Municipality. The decision concludes with a summary of the Board’s findings and its conclusion on the equity issue.

Result

16Using the data from nine properties in evidence, the Board determines that an equitable adjustment is required, based on an ASR of 0.830. Applied to the current value of the Subject Property before any equitable adjustment of $10,250,000 that was agreed to by the parties, the conclusion is that the correct current value of the Subject Property after the adjustment in equity is $8,507,750, $8,500,000 rounded for simplicity, or $4,250,000 for each of the two pieces of land comprising the Subject Property.

THE PARTIES’ APPROACHES TO EQUITY

17This part of the decision follows the order in which it was agreed at the outset that the parties would present their evidence at the hearing.

MPAC

18MPAC’s expert witness, Charles Titley, prepared an equity report in anticipation of the hearing. That report listed assessment and sales data pertaining to 30 properties that had been the subject of sales transactions, but that list was reduced to 21 properties at the hearing. With these 21 properties, Mr. Titley used the ASR method to determine a median ASR of 0.948.

19All but one of MPAC’s properties (possibly two, where a property code was not specified) were in its 112 property code that signifies “Multi-Residential Vacant Lot.” The time period searched in MPAC’s study was January 1, 2011 to September 27, 2018, where the valuation date for all of the taxation years under appeal was January 1, 2016. Significantly, MPAC did not adjust sales prices for the passage of time. In addition, the radius of MPAC’s search was 35 km from the Subject Property and not 15 km as indicated in its report.

20One further property, 151 Metcalfe Street, which also had a 112 property code, was added after MPAC’s report was compiled and was included in the Board’s analysis that concludes this decision.

Municipality

21The Municipality, which also relied on the ASR method, chose 16 properties that had been the subject of sales transactions in its study compiled by its expert witness, Don Davies. The vicinity of those properties was in the urban core of Ottawa “with emphasis on lands and development proposals in the immediate area” and with similar zoning.

22Some of these 16 sales transactions identified in the Municipality’s report involved more than one related property conveyed at the same time. The site areas of all of these properties ranged from 0.07 acres to 3.58 acres.

23The Municipality’s time adjustments that were in its report were not explained in detail at the hearing or in its report. The Municipality’s witness testified at the hearing that he applied time adjustments of 0.64% per month using paired sales, where the difference in sales price was considered between two sales of the same property over time.

24Using those initial 16 sales transactions and time adjustments, Mr. Davies’ application of the ASR method resulted in a median ASR of 0.820.

9840508

259840508’s expert witness Gord Jones took an entirely different approach to the equity question, using the AMR method. In this ratio, the numerator (the top number in the fraction) was the current value assessment of a comparable property. The denominator (the bottom number) was the market value the property, which in this case was derived from the agreed to current value of the Subject Property. This latter number was shown in 9840508’s expert report as $677 per sq. ft., but was revised with the parties’ agreement as to that correct current value of $10,250,000, to $775 per sq. ft.

26Using this methodology, 9840508 arrived at a revised weighted average AMR of 37.38% which, when multiplied with the current value of the Subject Property, would have reduced its current value to $3,800,000.

27The properties used for comparison by 9840508 were chosen for their proximity to the Subject Property and, according to its expert report, “similar zoning and density as the Subject Property.”

28There were essentially four properties used in 9840508’s AMR study. The first, which was “strongly comparable” to the Subject Property according to Mr. Jones, was an assembly of five properties across the street from the Subject Property, including one that was formerly a Metro grocery store. Those five properties, on Rideau, Cumberland and George Streets, were together the subject of a sale transaction in 2012 that was also referred to in the Municipality’s evidence. Mr. Jones assumed they had the same current value as the Subject Property because they were so similar. He testified that it would have been challenging to use the sale transaction from 2012 in his analysis because the permitted density changed at the time of the transaction, and because the potential floor area of those properties would also have had to have been adjusted.

29Mr. Jones’ expert report was not updated to reflect the revised current value of the Subject Property. To illustrate his method, however, the calculation would have taken the current value assessment of those five properties at $315 per sq. ft., divided by the market value per sq. ft. of $775 which was assumed to be the same as the Subject Property, resulting in an adjustment of 0.4065 or 40.65%. This would have reduced the current value per square foot from $775 to $315.

30The other three properties referred to in Mr. Jones’ report included a parking lot also on Rideau Street, and two others on George Street. Mr. Jones testified that these had the same zoning as the Subject Property but had lower permitted heights. To account for those differences, he applied an adjustment to his assumed market value of those properties of $775 per sq. ft.

ANALYSIS

31As noted above, section 44(3)(b) of the Act provides “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 in the assessment of the land.” The Act is silent on how exactly this is to be achieved.

Issue 1 – AMR, ASR or a Combination of Both?

32MPAC and the Municipality relied on equity studies using the ASR method, while 9840508 used the AMR method. The first issue to be determined is whether one or the other method should be used, or whether to use a combination of both as was suggested by 9840508’s counsel.

339840508 took a narrow view of the term “vicinity” in section 44(3)(b) and used its AMR method to focus on the immediate Byward Market area. 9840508’s position at the hearing was that the level of assessment in the Byward Market was low and that MPAC “missed the market”, as in it did not take into account appreciation in value, particularly in 2015.

34MPAC argued that extensive use of the ASR method in previous court and Board decisions supported its use of that method. It is true that on several occasions Board has expressed its preference for the ASR methodology to determine equity. For example, in 2002556 Ontario Inc. v. Municipal Property Assessment Corp., Region No. 13, [2014] O.A.R.B.D. No. 84 at para. 30, the Board said that “a probative ASR analysis must be based on a representative sample, that demonstrates a definitive trend…(and) is without question the best method for determining the equity of assessments,” but it also indicated that ASR is not the only methodology that can be used. In another example, Pittens v. Municipal Property Assessment Corporation, Region 07, 2016 CanLII 53151 (ON ARB) at para. 16, the Board determined that “the best evidence on the equity of assessments is how assessments in a particular area compare to sales values.” In Millar v. Municipal Property Assessment Corporation, Region 28, 2017 CanLII 46008 (ON ARB), the Board wrote at para. 13 that “the preferred metric for evaluating equity is how assessments compare to the value at which land sold.” In Tocheri v. Municipal Property Assessment Corp., Region No.32, [2014] O.A.R.B.D. No. 535, the Board also expressed a preference for the ASR method. That case also illustrated the tension in the analysis at para. 21 where it said that:

The Board understands that an equity determination should normally be done by comparing the subject property to many properties. However, this obligation has to be balanced with the legislated necessity that the comparables be similar to, and in the same vicinity as the subject property. In this case, the Board finds that the best method to determine equity is to use the mean ASR of similar properties that are located near the subject property.

35Nevertheless, none of these decisions are binding on the Board, and, with that background, the Board finds three significant issues with the AMR method as it was applied by 9840508 in this case.

36The first issue has to do with the assumption that three of the four comparable properties used, particularly the large assembly of five parcels across the street from the Subject Property, would have had the same market value as the Subject Property. The Board does not discount the possibility that that might have been the case, but it is an assumption that cannot take into account any actual but unknown differences between the Subject Property and the other properties considered. An ASR analysis using sales transactions from other properties, on the other hand, inherently provides a higher degree of accuracy because it would be based on real market data from real property transactions.

37The second issue has to do with the adjustments for height made to two of the four comparable properties. These might also have been correct but the adjustments were not supported by any evidence before the Board. In addition, the starting point prior to those adjustments assumed the same market value per sq. ft. as the Subject Property, carrying with it the same issues as set out above.

38The third problem was specifically identified by MPAC and the Municipality as the “robustness” of 9840508’s study, which considered far fewer properties than the other studies before the Board. This was an issue identified by the Board at para. 19 of Hennessy v. Municipal Property Assessment Corporation, Region 02, 2016 CanLII 619 (ON ARB) which noted the “importance of a robust sample size in determining equity.” There may be situations in which it would be appropriate to use as few as five properties for comparison as Mr. Jones’ study did. However, as discussed below, there was sufficient evidence before the Board in this instance to make determinations of equity without having to resort to such a small sample size.

39The Act does not define the terms “similarity” or “vicinity.” In 9840508’s report, similarity meant identical on a per sq. ft. basis because that was its assumption as to the current market value of its comparable properties before applying any adjustments. “Vicinity” in 9840508’s report meant the Byward Market area as opposed to the larger downtown core chosen by the Municipality or the inclusion of the suburbs in MPAC’s report. In the end though, the Board does not agree that 9840508’s approach should be used when a more accurate determination of equity on a balance of probabilities can be made with data of actual sales over a larger geographic area than 9840508 chose.

40As noted earlier, counsel for 9840508 argued that it was open to the Board to use more than one approach in determining equity, by using some form of combination of the ASR and AMR methodologies. Again, the Board does not agree that this is necessary when there is sufficient evidence before it from the other two studies that would simply yield a more accurate result.

41For these reasons, the Board need not resort to an AMR analysis and rejects it in its entirety. This is not because of the quantum of the adjustment that would have been applied had the Board entirely accepted 9840508’s analysis. This appeared to have been a significant factor in Municipal Property Assessment Corporation v. Loblaw Properties Limited, 2017 ONSC 1299 (Div. Ct.) (“Loblaw”) at para. 39, where it was determined that an equitable adjustment that would reduce the assessed values for a grocery store to 20% and 28% for different taxation years “is not an adjustment” but was instead “a wholesale up-ending of the values that would otherwise have been dictated by the terms of the Assessment Act.” 9840508’s counsel argued that statement was entirely obiter, which also may have been the case but it is not something that needs to be decided here where the analysis is rejected for other reasons.

42One other aspect of 9840508’s position deserves mention: its use of the Consumer Price Index (“CPI”) to adjust sales prices in its valuation report, which was raised at the hearing in the context of adjusting sales prices in equity.

43The exact parameters of the CPI were not in evidence at the hearing, but it is common knowledge that CPI is a measure of inflation or deflation derived from price differences over periods of time for goods and possibly services as well. The most obvious issue with using the CPI for adjustments in this context is that the price fluctuations for a basket of goods and services in general (or whatever it is that the CPI measures) are likely to be very different than price fluctuations for real estate. As a result, the Board did not use the CPI to adjust the sales prices of properties considered in its analysis, as can be seen below.

Issue 2: Which Sales Transactions Should Be Considered From MPAC’s Report?

44MPAC relied on 21 sales transactions in its equity study. The next question to be determined is which, if any, of these should be considered in the Board’s analysis?

45Three issues with MPAC’s report on this point were raised at the hearing.

46The first issue was the omission of any time adjustment to sales prices, where the earliest transaction in its evidence occurred on May 12, 2012 and the last on March 22, 2017. The valuation date was January 1, 2016 and it was clear from the evidence that there were substantial changes in the real property market over that time period.

47The Municipality and 9840508 proposed time adjustments for their transactions that are rejected elsewhere in this decision. There was no evidence supporting any other time adjustment methodology, which is problematic given the span of nearly five years over which MPAC’s sales transactions took place.

48The only solution in the Board’s view is to remove from consideration those transactions that did not take place in the shoulder years to the valuation date, in other words, outside of the period January 1, 2015 to December 31, 2016. Seven transactions in MPAC’s evidence remain that occurred in that time period and were considered by the Board in its analysis.

49The second issue that was raised was the distance between some of the properties in MPAC’s analysis and the Subject Property, where only five of the seven remaining were located more than 8 km from the Subject Property. With the more distant two removed to resolve that issue, five properties remained for consideration.

50The third issue that was raised was that four of those remaining five properties were low density multi-residential land, where the Subject Property is high density multi-residential land. In addition, some of those properties sold for amounts significantly less than the value of the Subject Property when it transacted in 2012.

51As noted earlier, the Act says only that similar properties are to be considered without explaining what that means. In Loblaw at para. 23, the court quoted another decision with approval which holds that:

All points of comparison must be considered. The Board must make a factual finding based on such a consideration. One point of similarity such as use may be, but is not necessarily, determinative. Some similarities may be overridden by other characteristics and some differences may be subordinated.

52The AMR method was discarded because the ASR method is a more accurate means of determining equity, especially with sufficient evidence of sales transactions of similar properties in the vicinity before the Board. The points of similarity of these remaining properties in MPAC’s equity study and the Subject Property are that they were vacant, multi-residential land in the vicinity of the Subject Property. These points of similarity override the points of dissimilarity, that some are intended for low density multi-residential development rather than high density multi-residential development. The Board finds those differences are less important and subordinate to their similarities as vacant multi-residential development land and differences in price. The Board finds them to be sufficiently similar to the Subject Property for comparison in determining equity.

Issue 3: Which Sales Should be Considered from the Municipality’s Report?

53The Municipality also prepared an analysis of 16 properties using the ASR approach. Unlike the properties chosen in MPAC’s report, the Municipality’s report considered only properties that were for high density residential development.

54The Municipality’s attempt to adjust sales prices for the passage of time was mentioned earlier in this decision. In that analysis, the Municipality reviewed the sales prices of six properties that sold twice over time. This led to the Municipality’s conclusion that sales prices for the development land properties in its analysis appreciated by 0.85% per month.

55There were two problems with this time adjustment analysis. First, it assumed that there was no material change to those properties over time, which may have affected sales prices beyond inflation in the real estate market. Second, four of the six properties transacted in 2011 the first time, and four of the six transacted between the end of 2015 and the beginning of 2016 the second time. While this might have provided an indication of inflation over that period of time, it would not have provided a reliable result where the 16 property transactions proposed for the equity analysis took place during many different periods of time between 2011 and 2017.

56As a result of these deficiencies in the time adjustment analysis, the Board also rejects that analysis. That means that only those transactions in the shoulder years are considered from the Municipality’s evidence. That leaves four properties for comparison from the Municipality’s evidence.

Summary of Findings

57The result is a list of nine properties that were the subject of sales transactions in the one-year period before and after the valuation date of January 1, 2016. All were development lands located in central, if not downtown, Ottawa. They are similar lands in the vicinity of the Subject Property. In addition, the Board is satisfied that the size of the sample is robust to the extent that it accurately describes the inequity of assessments pursuant to section 44(3)(b) of the Act.

58These properties and transactions are summarized below:

Source	Sale Date	Address	2016 CVA	Sale Price	ASR
MPAC	04/08/2016	Wellington S.	$2,871,000	$3,700,000	0.776
MPAC	09/04/2015	311 Somerset W	$1,251,000	$1,507,750	0.830
MPAC	09/04/2015	2 Fourth Ave	$1,545,000	$1,757,400	0.879
MPAC	05/10/2016	404 Daly Ave.	$950,000	$950,000	1.000
Mun	09/04/2015	236 O'Connor	$607,000	$767,250	0.791
Mun	02/03/2015	900 Albert St	$21,091,000	$22,777,699	0.926
Mun	04/14/2016	400 Albert St	$11,371,000	$16,000,000	0.711
Mun	8/15/2016	Rochester St	$3,451,000	$3,650,000	0.945
MPAC	03/31/2016	151 Metcalfe	$5,985,000.00	$8,200,000.00	0.730
Mean ASR					0.843
Median ASR					0.830

59As noted above, the median ASR is 0.830 and it was not argued that the mean should be used instead. When applied to the agreed to current value of the Subject Property of $10,250,000, the Board’s conclusion is that the correct current value of the Subject Property after the adjustment in equity is $8,507,500.

CONCLUSION

60The Subject Property is composed of two roll numbers, 0614-021-001-04200-000 and 0614-021-001-12600-000. The parties agreed that the correct current value after the equitable reduction should be split evenly between the two roll numbers.

61The parties agreed that the correct current value of the Subject Property was $10,250,000 for the 2017, 2018, 2019 and 2020 taxation years.

62The parties further agreed that an equitable reduction is required, and, in this decision, the Board determines the median ASR to be 0.83. This means that the correct current value after the equitable reduction is $8,507,500, or $8,500,000 rounded for simplicity.

63Therefore, the value that should be indicated in the roll for each of the two roll numbers should be $4,250,000.

ORDER

64The correct current value after the equitable reduction described above for roll number 0614-021-001-04200-000 (256 Rideau Street) is $4,250,000.

65The correct current value after the equitable reduction described above for roll number 0614-021-001-12600-000 (Besserer Street) is $4,250,000.

66For the 2017 and 2018 taxation years, the classification of both properties (the Subject Property) should remain Parking Lot (GT). For the 2019 and 2020 taxation years, the classification of the of both properties is changed to Vacant Commercial Land (CX).