Tribunals Ontario

Assessment Review Board

Issue Date: August 30, 2022 File No.: WR 181143 Assessed Person: 1575 Highland Road Self Storage Appellant: Storagevault Canada Inc. Respondent: Municipal Property Assessment Corporation Region 21 Respondent: City of Kitchener Property Location: 1575-1585 Highland Road West Municipality: City of Kitchener Roll Number: 3012-060-012-06801-0000 Appeal Numbers: 3436937 and 3489900 Taxation Years: 2021 and 2022 Hearing Event No.: 773167 Legislative Authority: Section 40 of the Assessment Act, R.S.O. 1990, c. A.31

Appearances:

Parties	Representative
Storagevault Canada Inc.	Kim van Vliet
Municipal Property Assessment Corporation	Christeen Mattat
City of Kitchener	Amboka Wameyo

Heard: August 23, 2022 by video conference Adjudicator: Jean-Paul Pilon, Member

DECISION

OVERVIEW

1Storagevault Canada Inc. (the "Appellant") is the owner of a property at 1575-1585 Highland Road West in the City of Kitchener (the "Subject Property").

2The Appellant appealed its assessment for the 2021 taxation year on the basis the assessment was incorrect as in too high. A further appeal was deemed pursuant to section 40(26) of the Assessment Act, R.S.O. 1990, c. A.31 (the "Act").

3The Municipal Property Assessment Corporation ("MPAC") and the City of Kitchener (the "Municipality") participated in these appeals.

Background

4MPAC returned an assessment for the Subject Property of $8,766,000.

5The Appellant's position was that the correct current value of the Subject Property was $8,193,000 and, after an adjustment for equity, should be reduced to $7,455,000.

6MPAC's position was that the correct current value of the Subject Property was $8,923,000 and, after an adjustment for equity, should be reduced to $7,941,000.

7The Municipality's revised position was that the current value of the Subject Property was $10,807,383 and, after an adjustment for equity, should be reduced to $10,159,000.

8The parties took no issue with the returned classification of the Subject Property in the Commercial (New Construction) Property Class.

Areas of Agreement

9The parties agreed that the cost approach was the correct method of determining the current value of the Subject Property and that an adjustment for equity was required. They did not, however, agree on the quantum of that adjustment.

10No party argued that there should be any adjustment for functional obsolescence.

Issues for the Hearing

11At issue in this proceeding is:

1. The costing of the Subject Property, and specifically: a. Which party's reproduction cost new ("RCN") should be used; b. Whether there should be any adjustment for physical depreciation; c. Whether there should be any adjustment for external obsolescence; d. Whether yardwork should be added separately;
2. Land value; and
3. The quantum of the equity adjustment.

Result

12The Assessment Review Board (the "Board") accepts the RCN submitted by MPAC and the Appellant of $8,373,495.

13The Board finds that there should not be any adjustment for physical deterioration.

14The Board finds that there should be a reduction of 11.37% or $952,066 for external obsolescence, which was in fact a further reduction for equity.

15The Board finds that yardwork should be included in the Board's analysis in the amount of $21,774.

16The Board finds that the current value of the land at the Subject Property is $850,422 per acre or $1,658,323.

17There Board finds that should be an adjustment for equity of 5% or $455,026.

18The Board ultimately concludes that the current value of the Subject Property after an adjustment for equity is $8,645,000.

ANALYSIS

Description of Subject Property

19The Subject Property is a two-storey purpose-built self-storage facility, comprising approximately 96,473 square feet (sq. ft.) on 1.95 acres of land.

Issue 1a – Costing: Which RCN Should be Used?

20The first step in the cost approach is to determine the RCN for all improvements on the Subject Property.

21MPAC's expert Allison Haffner used MPAC's costing program entitled Automatic Costing System ("ACS"), and the Appellant and the Municipality used a different system called Marshall & Swift ("M&S").

22MPAC and the Appellant took the position the RCN per sq. ft. should be $86.80 or $8,373,495. The Municipality argued it should be $9,832,383.

23The Appellant's expert witness Jashen So testified that he also used ACS to confirm the RCN he arrived at using M&S, and that the resulting number was within 1% of the other.

24The issue at the hearing was not which of ACS and M&S was the better choice of costing system for the Subject Property or similar properties. Instead, the issue was essentially whether M&S was used by the Municipality in a manner that would produce the most accurate result.

25The Municipality's expert Daniel Van Houtte testified that M&S has no "class and type" for this kind of property and that it was a matter of discretion as to what inputs had to be used to obtain the correct result. To that end, he chose "Storage Warehouse" as the type of building to describe the Subject Property. He added a parameter that it was located in an extreme climate, and then added a number of additional items: cost adjustments for "Package AC", presumably air conditioning, a wet sprinkler, an elevator, an amount for other improvements such as signage, a cost multiplier and a local multiplier. From this he arrived an adjusted cost rate per sq. for of $112.65 from which Harmonized Sales Tax or HST needed to be deducted. This resulted in an RCN of $9,832,383.

26Mr. So raised several issues with these inputs. As to the description of the Subject Property, he argued that the Subject Property was misdescribed as a "Storage Warehouse" and should instead have been described as "Mini-warehousing" containing far more partitions than a regular warehouse. He testified that the descriptions in his version of the manual did not match the Municipality's, that the construction class used indicated masonry walls when they were made of steel, that incorrect multipliers were used, and raised other issues.

27One of the more significant issues he raised was whether the correct base rate for storage warehouses was used at $58.26 and not $101.00. In addition, Mr. So testified that using the same system, he arrived at an RCN that was $3,403,000, significantly lower than the Municipality's result.

28The Municipality's expert revised some of these inputs prior to the hearing but those revisions were filed in the form of revised pleadings and not a revised expert report. Among other changes made, the description of the building was changed to having excellent quality, when the Appellant's expert testified that it was good quality given its lack of additional features. In addition, the Municipality's expert testified that this and other changes were made after consulting colleagues who were not present at the hearing to explain their analyses.

29The Board does not doubt the best efforts of the Municipality's expert to correctly and objectively determine the RCN of the Subject Property. It is, however, problematic that the same costing system produced such a significantly different result, particularly when its use required the exercise of such discretion described in Mr. Van Houtte's testimony several times.

30MPAC's costing using ACS was essentially corroborated by the Appellant's expert using M&S. In addition, the further issues raised by the Appellant's expert and the repeated references to discretionary inputs by the Municipality raised concerns as to the accuracy of its analysis.

31As a result, the Board prefers the MPAC and Appellant analyses accepting that the RCN is $86.80 per sq. ft. or $8,373,495.

Finding on Issue 1a

32The Board finds that the RCN of the improvements at the Subject Property is $86.80 per sq. ft., or $8,373,495.

Issue 1b – Costing: should there be an adjustment for physical depreciation?

33MPAC argued that there should be an adjustment downward of 1% or $83,734 for physical depreciation on the basis that the Subject Property would immediately have depreciated when it was built in 2017. No evidence was provided to support that adjustment, nor was there any evidence of any depreciation to the Subject Property during the taxation years at issue.

Finding on Issue 1b

34There should be no adjustment for physical depreciation because it was unsupported by any evidence.

Issue 1c – Costing: should there be an adjustment for external obsolescence?

35MPAC argued that there should be an adjustment of 11.37% for external obsolescence. At the hearing, however, it became evident that the intended adjustment was to make this part of the assessment equitable with that of other properties of similar size rather than account for any external obsolescence. Its basis in the evidence was from MPAC's expert report which said that "properties located in the Waterloo Region greater than 30,000 sq. ft. were showing increasingly larger disparities between the predicted and the same price as the building size increased." MPAC's expert report also included a graph supporting that submission.

36Section 44(3)(b) of the Act provides that the Board is to "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."

37Equity is normally an issue dealt with separately after determining a current value of a property. However, when faced with a specific indication of inequity such as demonstrated here that is as described in the statute, there is no reason that a similar adjustment should not be made to the RCN. In addition, there were no arguments before the Board at the hearing that it would be unfair to do so because it was misdescribed in MPAC's expert report.

38As a result, the Board finds that there should be an additional adjustment in the nature of an equitable adjustment of 11.37%.

Finding on Issue 1c

39There should be an adjustment downward of 11.37%. As the determined RCN is $8,373,495, the adjustment should be $952,066. The running total is therefore $7,421,429.

Issue 1d – Costing: should yardwork should be added separately?

40Only the Appellant added yardwork to their costing, specifically 0.3 acres of paving, in amount of $24,568. That amount was depreciated by 50% and, on cross-examination, its expert could not explain why. Its expert report also provided no clarification other than it was MPAC's standard practice to make that deduction which did not make sense when the building was essentially new and when MPAC did not include yardwork as a separate item in its analysis.

41There was clearly yardwork at the Subject Property that was subject to assessment, and there was no reason to exclude it or depreciate it. The Board finds however that it should also be subject to the 11.37% deduction above for equity.

42The undepreciated RCN of the yardwork is identified in the Appellant's report as $24,568. With a 11.37% adjustment, this amount is $21,774.

Finding on Issue 1d

43Yardwork should be added separately with the adjusted addition of $21,774. The running total is therefore $7,443,203 which is the current value of the buildings and the yardwork at the Subject Property.

Issue 2 – Land Value

44The next step in the cost approach is to determine and add the value of the land at the Subject Property. To this end, each party submitted lists of property sales involving vacant land.

45The Appellant focused its submissions on two properties: 10 Executive Place and 1792 Glasgow Road.

46These properties were similar in size to the Subject Property and, according to the Appellant's report, had similar traffic counts. There were, however, issues with them including that 10 Executive Place transacted on May 30, 2014, well before the valuation date of January 1, 2016. The Appellant also acknowledged that 1792 Glasgow Street was slightly inferior to the Subject Property because of its location.

47In addition, the time adjustments applied were clearly incorrect where 10 Executive Place, which transacted for $500,000, was shown in the expert report as having a time adjusted sale price of $4,316,911. 1792 Glasgow Street, with a sale price of $528,410 on January 28, 2016, somehow had a time adjusted sale price of $2,262,124 to simulate what its sale price would have been four weeks earlier. With these uncertainties and differences, the Board rejects these two properties from its analysis.

48The Municipality's submissions also focused on two properties: 1545 Victoria Street North and 83 Elmsdale Drive. The former was over 2.5 times the size of the Subject Property and transacted on June 16, 2014. The latter, while transacting on August 13, 2015, was 12.11 acres compared to the Subject Property's 1.95 acres and not comparable. For these reasons, the Board also rejects these properties from its analysis.

49That left three properties that MPAC argued were similar to the Subject Property.

50The first was a property described only as Victoria Street North (roll number 3012-060-016-02200) of 1.73 acres that sold on September 13, 2016 at a time adjusted price of $761,327 per acre.

51The second was 4341 King Street East, a property of 0.97 acres, or half the size of the Subject Property, which sold on November 4, 2014 but closer to the January 1, 2016 valuation date. Despite this size difference, the Board finds that this property is more appropriate for comparison to the Subject Property than 1545 Victoria Street North because it transacted almost within a year of the valuation date. Its adjusted sale price was $981,765.

52The third was 873 Fairway Road North which transacted on March 28, 2014, farther from the valuation date. However, it was closer in size to the Subject Property than 1545 Victoria Street at 3.31 acres. It sold for a time adjusted rate per acre of $808,174.

53The Board finds that the correct land value should be derived from the mean of the three most similar properties above in MPAC's evidence: Victoria Street North, with a time adjusted sale price of $761,327, 4341 King Street East at a rate of $981,765 and 873 Fairway Road North at $808,174. These yield a time adjusted price per acre of $850,422.

54As the Subject Property includes 1.95 acres of land, the land value is $1,658,323.

Finding on Issue 2

55The value of the land is $1,658,323. Added to the value of the building and yardwork of $7,443,203, this means that the current value of the Subject Property prior to any equitable adjustment is $9,101,526.

Issue 3 – Quantum of the Adjustment for Equity

56All three parties made submissions on equity in the form of assessment-to-sale ratio ("ASR") studies that listed properties that sold in 2015 and 2016 applying MPAC's time adjustments.

57The Municipality relied on its study of 14 properties, all of which appeared in the other two studies submitted. There was no expert evidence to support them at the hearing.

58The Appellant relied on a list of 18 properties, all of which also appeared in MPAC's study.

59MPAC's study listed 27 properties, 8 of which did not appear in the Appellant's study. In addition, the Municipality challenged 8 of the 27, some of which were among the 8 not included in the Appellant's study. MPAC correctly summarized these issues in its report as including anomalies such as sale leasebacks, vendor takeback mortgages, one that was intended for a large office building not comparable to the Subject Property, a sale of two properties combined, and two transactions involving related parties.

60When asked about some of these, MPAC's witness testified that other people at MPAC had determined these properties in question had transacted at fair market value or were appropriate for use in the analysis with those people not present at the hearing to explain. There was no other evidence before the Board to support those conclusions. Without any additional information on any of them, there was sufficient doubt as to whether they should be included in the Board's analysis on equity. As a result, these were excluded.

61However, the Board determined that those properties only appearing in MPAC's report to which no party raised any objections should remain in the analysis.

62This left 19 properties that appeared in MPAC's equity report as numbers 2, 3, 4, 5, 10, 12, 14, 15, 16, 17, 18, 19, 20, 21, 22, 24, 25, 26 and 27. The median of the time adjusted ASRs for these properties was 0.95 which would not normally have resulted in any adjustment for equity. However, one of the few issues that the parties agreed on prior to the hearing was that there should be an adjustment for equity and left the quantum to be decided by the Board.

63As a result, the Board finds that the current value of the building and yardwork should be reduced by 5% based on a median time adjusted ASR of 0.95 as follows:

$9,101,526 * 0.95 = $8,645,450

CONCLUSION

64The Board finds that the current value of the Subject Property is $9,101,526. After an equitable adjustment, the returned assessment should be reduced to $8,645,000 rounded.

ORDER

65The Board orders that the assessment of the Subject Property should be reduced from $8,766,000 to $8,645,000 and remain in the Commercial (New Construction) Property Class.

"Jean-Paul Pilon"

JEAN-PAUL PILON MEMBER Assessment Review Board

Website: www.tribunalsontario.ca/arb