Tribunals Ontario

Tribunaux décisionnels Ontario

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: December 06, 2022 FILE NO.: WR 182492

Assessed Person: Jay Patry Enterprises Inc. Appellant: Jay Patry Enterprises Inc. Respondent: Municipal Property Assessment Corporation Region 05 Respondent: City of Kingston

Property Location: 810 Blackburn Mews Municipality: City of Kingston Roll Number: 1011-080-176-28700-0000 Appeal Numbers: 3244132, 3292361, 3348203, 3397848, 3440059 and 3486750 Taxation Years: 2017, 2018, 2019, 2020, 2021 and 2022 Hearing Event No.: 775266

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

APPEARANCES:

Parties	Counsel
Jay Patry Enterprises Inc.	Michelle Cicchino and Roberto Aburto
Municipal Property Assessment Corporation	Mackenzie Campbell and David Cowling
City of Kingston	No one appeared

HEARD: October 4 and 5, 2022 by video conference

ADJUDICATOR: Jean-Paul Pilon, Member

DECISION

OVERVIEW

1Jay Patry Enterprises Inc. (the “Appellant”) is the owner of 810 Blackburn Mews in the City of Kingston (the “Subject Property”).

2The Appellant appealed the assessment of the Subject Property for the 2017 taxation year, and further appeals were deemed for the 2018 to 2022 taxation years pursuant to section 40(26) of the Assessment Act, R.S.O. 1990, c. A.31 (the “Act”). The Appellant’s ground for appeal was that the current assessed value of the Subject Property for the taxation years in question is incorrect as in too high.

3The Municipal Property Assessment Corporation’s (“MPAC”) position in the appeals was that the assessed value of the Subject Property for the years in question is too low.

4The City of Kingston, the municipality in which the Subject Property is located, was a statutory party to the appeals but did not participate in the appeals.

Background

5Section 19(1) of the Act provides that the assessment of land shall be based on its current value. 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.” For the 2017 to 2022 taxation years the valuation date is January 1, 2016.

6The Subject Property is a multi-family residential property containing 65 rental units. Through its mass appraisal process, MPAC assessed the Subject Property at $9,970,000, but in the context of these appeals considered the current value to be $11,238,000 prior to an agreed to adjustment in equity. The Appellant, on the other hand, considered the current value of the Subject Property to be $8,183,000 prior to the same adjustment in equity.

Areas of Agreement

7The parties agreed that the income approach was the appropriate means of determining the current value of the Subject Property. By way of brief overview, the income approach involves determining the potential gross income (“PGI”) of the Subject Property, subtracting a vacancy allowance, and then an expense allowance, to determine a net operating income (“NOI”). To obtain the current value of a property from that point, the NOI is divided by a cap rate which reflects an investor’s long-term return expectation to the NOI that a property generates.

8In this case, the parties agreed to the following values using the income approach:

a. That the fair market rents (“FMR”) used to determine PGI should exclude property tax which instead should be added to the cap rate at a rate of 1.27%;

b. That the expense allowance should be 21.5%;

c. That the vacancy and collection loss allowance should be 3.3%; and

d. That there should be an 8% adjustment downward in the current value for equity pursuant to section 44(3)(b) of the Act.

Issues for the Hearing

9At issue in this proceeding were therefore the following:

1. The PGI for the Subject Property;

2. The cap rate for the Subject Property; and

3. The resulting current value of the Subject Property.

10A further issue arose at the hearing as to whether MPAC gave notice of its intention to seek a higher assessment than returned, which the parties addressed in their written submissions submitted after the hearing concluded. However, with the determination in this decision that the current value of the Subject Property after the agreed to adjustment in equity is, in fact, lower than the assessment returned, a determination on that question is not necessary.

Result

11The Board finds that the current value of the Subject Property is $10,409,916. After applying the equitable adjustment agreed to by the parties of 8%, the current value of the Subject Property is reduced to $9,577,122 or $9,577,000 rounded.

ANALYSIS

Description of Subject Property

12The Subject Property is a class “B”, three-storey multi-residential rental building. Built in 2007 or 2008, the Subject Property was described by the Appellant’s expert as wood-framed and elevator-equipped, with well-maintained, good quality units of reasonable size that benefit from amenities such as laundry facilities, a tenant lounge and a roof top deck.

13The Appellant’s expert testified that the Subject Property is located close to major shopping and residential areas, with easy access to downtown Kingston and all areas of Kingston West where it is located and Highway 401.

14The parties relied on expert valuation reports prepared by Emily Corsi for MPAC and Stephen Rayner for the Appellant. Both used the income approach to determine the current value of the Subject Property.

Issue 1 – What is the PGI for the Subject Property?

15The Subject Property contains 65 rental units. Ten of these are one-bedroom units, 53 are two-bedroom units and two are three-bedroom units.

16The Appellant’s position was that the existing rents which excluded utilities were higher than FMR. Nevertheless, the Appellant relied on its rent roll dated January, 2016 indicating that rents of $73,603 were collected that month. Multiplied by 12, the Appellant’s position was that the PGI that should be used was $883,236.

17MPAC’s expert testified that the actual rents were not reflective of the market because lease start dates were unknown and the owner benefitted from two programs that essentially subsidized the rent for 20 of the units. To address the latter issue, Ms. Corsi identified 15 units in the rent roll that had rents below $1,000 which she replaced with median rents for each type of unit from the remainder of the rent roll. Ms. Corsi testified that she was, however, unable to identify the five remaining subsidized units that were not identified by the Appellant.

18For comparison, Ms. Corsi identified four properties, 2727 Princess Street, 860 Norwest Road, 1610-1620 Bath Road and 2753 Princess Street where the median monthly rents were $1,250 for one-bedroom units and $1,487 for two-bedroom units. Mr. Rayner argued that these were not comparable because those rents included utilities where rents at the Subject Property did not.

19First, the Board concurs with MPAC that the rent subsidies were akin to encumbrances which were not accounted for in the Appellant’s calculations. To address this in its analysis, the Board took a similar approach to that taken by MPAC and identified the monthly rents below $1,000 as 15 of the 20 subsidized rents at the Subject Property. Instead of using those actual rents which were assumed to be subsidized in its calculation of PGI, the Board used the median of the remaining rents for each of the one and two-bedroom units and used the actual rents for the two three-bedroom units.

20To be more specific, only two one-bedroom units had rents above $1,000, and the median rent for those was $1,067.50. That rent amount was substituted for the remaining eight one-bedroom units that had rents below $1,000 in the Board’s analysis. The total monthly rent collected for the one-bedroom units was therefore assumed to be $10,675.

21Seven two-bedroom units had rents below $1,000, and the median of the remaining monthly two-bedroom rents, $1,320 was replaced for those units. The monthly rent collected for the two-bedroom units was therefore assumed to be $68,257.50.

22Only two units at the Subject Property were three-bedroom units and neither appeared to be subsidized. The actual monthly rent for those two units was $2,891.85.

23The annual total of these amounts, including the actual rents for the two three-bedroom units, was $981,892, slightly less than MPAC’s total of $1,002,264.

24The Board used a FMR of $1,067.50 for the subsidized one-bedroom units, where the median monthly rent for one-bedroom units including utilities from MPAC’s comparable properties was $1,250, a difference of $182.50. Similarly, the Board used a FMR of $1,320 for two-bedroom units where MPAC’s comparable properties had a median rent of $1,487 per month including utilities, a difference of $167 per month. There was no evidence before the Board as to the actual cost of utilities for those units at the Subject Property which excluded them. The differences were, however, within a reasonable range of what one might think such utilities would cost. In addition, the rents in the Board’s analysis were also within the range of rents for one and two-bedroom units at the Appellant’s comparable property at 510 Canatara Court which Mr. Rayner specifically referenced at the hearing.

25As noted earlier, the Appellant’s position was that the PGI was $883,245, nearly $100,000 less than what the Board determined it to be. MPAC argued that the Board should draw an adverse inference because the Appellant failed to detail the subsidies, but it was unclear as to how such an inference would factor into the analysis.

26In the end, the Board is satisfied that its analysis above is the most accurate estimation of the PGI based on the evidence before it, particularly when compared to the rents at MPAC’s comparable properties.

Findings on Issue 1

27The PGI for the Subject Property is $981,892.

28As noted earlier, the parties agreed to a vacancy allowance of 3.3%, which in this instance would amount to $32,402. The running balance after deducting that amount would therefore be $949,490.

29The parties further agreed to an expense allowance of 21.5%, which in this instance would amount to $204,140. The running balance would therefore be the NOI of the Subject Property which is $745,350.

Issue 2 – What is the cap rate for the Subject Property?

30In Jay Patry LLC v Municipal Property Assessment Corporation, Region 05, 2022 CanLII 9922 (“Patry”), a Board decision co-authored by this Member that was not reviewed nor appealed, the Board considered appeals relating to a different multi-residential property owned by the Appellant in Kingston. The same experts appeared at that hearing and made reference to the same comparable properties in their cap rate analyses.

31In this case, MPAC’s position was that the cap rate should be 5.5% plus 1.27% for taxes, totaling 6.77%. The Appellant took the position that the cap rate should be 7% plus the same 1.27%, for a total of 8.27%.

32The Subject Property is different from the one considered in Patry if for no other reason than the NOI here is $745,350, where in the previous one the NOI was almost double at $1,439,426. However, the Board applies the same criteria here as it did at para. 35 of Patry. This was to exclude properties that were substantially older with fewer amenities; that were significantly smaller in number of units, building area and land; and that had significantly different NOIs than the Subject Property.

33Similarly, the Board adopts the same reasoning in its analysis here as it did in para. 37 and 38 of Patry to disregard MPAC’s time adjustment factors. It does so for the same two reasons: first, because MPAC’s analysis took into account sales in localities far from the property at issue; and, second, so that its decision is consistent with the Board’s decision in Sundararaj v Municipal Property Assessment Corporation, Region 03, 2018 CanLII 104619 and the other cases listed in Patry.

34MPAC’s four comparable properties were 655 Princess Street, 1 Mack Street, 59 Stanley Street and 148 Pine Street, and the Board sees no reason to deviate from its conclusions in para. 39 of Patry where it rejected all but 1 Mack Street. This was because the sale of 655 Princess Street took place too far from the valuation date to be reliable, and 59 Stanley Street and 148 Pine Street were significantly smaller than the property at issue in that decision. The Subject Property in this instance is smaller than the property in Patry with 65 units instead of 113. However, that difference is still stark when those two properties transacted for $1,172,000 and $1,641,000 respectively in 2016, when the Appellant’s position of the current value of the Subject Property is $8,183,000.

35The Appellant also relied on the same properties as it did in Patry: 97 and 100 Bagot Street, 14 Vine Street, 67 Notch Hill Road, 73 Fraser Street and 204-206 William Street. At para. 41 of Patry, the Board rejected 97 and 100 Bagot Street, 73 Fraser Street and 204-206 William Street because those had 10, 12 and 12 units respectively, also far fewer than the 65 units at the Subject Property in this case. The Board also rejected 73 Fraser Street because of environmental contamination and because it was an outlier at an unexplained cap rate of 8.59%. At this hearing, Mr. Rayner testified that there were no remediation orders affecting 73 Fraser Street, but the Board still excludes it because of his evidence of chloroform and leaching of dry-cleaning chemicals at that property. The Board similarly rejects the 67 Notch Hill Road property because the sale took place on August 31, 2018, a date “too far away from the valuation date to be reliable” as noted at para. 42 of Patry.

36Ms. Corsi also referenced her evidence in Patry as to the Appellant’s comparable property at 204-206 William Street, confirming that it is multi-residential when previously she testified it was not. However, that property and others were rejected at para. 42 of Patry because they were significantly smaller than the Subject Property and not comparable. The Board adopts the same conclusion here even though the differences are less.

37As in Patry, the Board relies on the Appellant’s property at 14 Vine Street and MPAC’s 1 Mack Street property to determine the cap rate of the Subject Property. It adopts the same reasoning as in para. 43 of Patry, that “while significantly smaller than the Subject Property, 14 Vine Street was the largest property sale by number of units of those provided by the Appellant that occurred within one year of the valuation date having sold on April 15, 2016.”

Findings on Issue 2

38The Board’s findings here are identical to the ones made at paras. 44 to 47 of Patry repeated here:

[44] Based on the evidence before it, the Board finds that the appropriate base cap rate for the Subject Property is between 4.82% and 6.95%, which was derived from the respective cap rates for the two properties relied upon by the Board: 1 Mack Street from MPAC’s evidence and 14 Vine Street from the Appellant’s evidence.

[45] Based on the available evidence and the above analysis, the Board finds that 5.89%, representing the midpoint of the above cap rates, is the appropriate base cap rate for the Subject Property.

[46] Taking the 5.89% base cap rate and adding the 1.27% property tax rate results in a cap rate of the Subject Property of 7.16%.

[47] The Board finds that 7.16% is the cap rate to be used in determining the value of the Subject Property.

Issue 3 – What is the current value of the Subject Property?

39The NOI was determined above to be $745,350.

40The cap rate determined above was 7.16% including property tax. The NOI divided by this cap rate yields a current value of $10,409,916.

Finding on Issue 2

41The current value of the Subject Property is $10,040,916.

CONCLUSION

42The Board finds that the current value of the Subject Property is $10,409,916. After to an agreed to adjustment in equity of 8% downward, the adjusted current value of the Subject Property is $9,577,122 or $9,577,000 rounded.

43As the assessment of the Subject Property was higher at $9,970,000, a determination as to notice that MPAC would be seeking a higher assessment than returned is not necessary.

ORDER

44The Board orders that the assessment of 810 Blackburn Mews in the City of Kingston be reduced from $9,970,000 to $9,577,000. It remains in the new multi-residential property class with no change in classification.

"Jean-Paul Pilon"

JEAN-PAUL PILON MEMBER Assessment Review Board Website: www.tribunalsontario.ca/arb