Tribunals Ontario - Assessment Review Board

ISSUE DATE: October 6, 2022

FILE NO.: WR 168642A

AMENDED DECISION ISSUED: October 12, 2022

Assessed Person(s): TKS Holdings Inc.

Appellant(s): TKS Holdings Inc.

Respondent(s): Municipal Property Assessment Corporation Region 03

Respondent(s): City of Ottawa

Property Location(s): 274 Rideau Street

Municipality(ies): City of Ottawa

Roll Number(s): 0614-021-001-04300-0000

Appeal Number(s): 3216961, 3216969, 3216962, 3140728, 3233658, 3291144, 3346493, 3396690, 3439407 and 3486305

Taxation Year(s): 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021 and 2022

Hearing Event No.: 735973

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

APPEARANCES:

Parties	Counsel
TKS Holdings Inc.	Alexander Pletsch
Municipal Property Assessment Corporation	Melissa VanBerkum
City of Ottawa	No one appeared

HEARD: November 6, 2020 by telephone conference call

ADJUDICATOR(S): Dirk VanderBent, Vice-Chair

AMENDED DECISION

In accordance with Rule 99 of the Assessment Review Board’s Rules of Practice and Procedure, effective April 1 2021, related to the correction of minor errors and in accordance with Rule 21.1 of the Statutory Powers and Procedure Act regarding the correction of errors, this Amended Decision is issued to correct the name of an expert witness in paragraph 24. The amendment has been underlined for ease of reference. There are no other changes in this Amended Decision.

OVERVIEW

1TKS Holdings Inc. (the “Appellant”) is the owner of the property located at 274 Rideau Street, the City of Ottawa (the “Subject Property”), and has filed an appeal pursuant to s. 40 of the Assessment Act, S.O. 1990, c. A.31 (the “Act”) for the 2013 to 2017 taxation years. The ground of each appeal is that the current value of the Subject Property, which was determined by the Municipal Property Assessment Corporation (“MPAC”) in its general reassessment of the current value of the Subject Property for these taxation years, is too high, and, therefore, is incorrect.

2The valuation day for the general reassessment of current value for the 2013 appeal is January 1, 2012. Pursuant to the deeming provision under s. 40(26) of the Act, the Appellant is deemed to have brought the same appeals to which the general reassessment applies, i.e. the 2014 to 2016 taxation years (the “2012 assessment cycle”).

3The valuation day for the general reassessment of current value for the 2017 appeal is January 1, 2016. Pursuant to the deeming provision under s. 40(26) of the Act, the Appellant is deemed to have brought the same appeals to which the general reassessment applies, i.e. the 2018 to 2020 taxation years. Furthermore, s. 19.2(5) also authorizes the Minister of Finance to prescribe a valuation day that is different from the valuation day set out in s. 19.2(1). Pursuant to s. 48.6 of O. Reg. 282/98, the Minister of Finance has set January 1, 2016 as the valuation day for the 2021 to 2023 taxation years. In effect, therefore, the assessment cycle is extended to include seven taxation years from 2017 to 2023 (the “2016 assessment cycle”). Therefore, in this case, there are deemed appeals for the 2018 to 2022 taxation years.

4In its appeals for both assessment cycles, the Appellant also claims that the assessed value should be further reduced, pursuant to s. 44(3)(b), to make it equitable with the assessment of similar properties in the vicinity (“Equitable Reduction of the Correct Current Value” or, for ease of reference, “Equitable Reduction”).

5Pursuant to s. 40(11) of the Act, MPAC and the Municipality (the City of Ottawa) are parties to this appeal proceeding, although the Municipality has not participated in this proceeding. As described in greater detail below, MPAC disagrees with the Appellant’s position on the correct current value for both assessment cycles.

6Under property appraisal theory, the choice of an appropriate valuation methodology to determine a property’s value is based on a property’s use. The Appraisal of Real Estate, 3^rd Canadian Edition (British Columbia: The Appraisal Institute of Canada, 2010) (“The Appraisal of Real Estate”) is a recognized authority on the appraisal of real property in Canada. In overview, at page 12.1, it states that a property must be valued based on its ‘Highest and Best Use’, which is the use that is: (1) physically possible; (2) legally permissible; (3) financially feasible; and (4) maximally productive. An appraiser must first identify all uses which meet the first two criteria. Then, for each of these qualifying uses, the appraiser must assess whether the use is financially feasible. This includes identifying a value of the property based on an analysis of market supply and demand. The appraiser then chooses the use that is maximally productive, (i.e. results in the highest value of the property).

7A property’s current use may not be its Highest and Best Use. In this appeal proceeding, the main issue in dispute is the determination of the Highest and Best Use of the Subject Property. The Appellant asserts that its Highest and Best Use is its current use as a surface parking lot. MPAC asserts that its Highest and Best Use is as mixed-use development (office, commercial, multi-residential) as permitted by local zoning by-laws.

8The Appellant does not dispute that it is both physically possible and legally permissible for the Subject Property to support mixed-use development. However, the Appellant argues that MPAC has adduced no evidence to indicate that such development is probable, because the Appellant has not taken any steps to develop the Subject Property. The Appellant further maintains that there is no probability of such development in the foreseeable future. In addition, the Appellant’s appraisal expert does not agree with MPAC’s assertion that mixed-use development is financially feasible, more specifically, that there is market demand for mixed-use development properties. Therefore, the Appellant maintains that mixed-use development is not a reasonably probable use of the Subject Property. However, if there is market demand for mixed-use development, the Appellant agrees that the value of the Subject Property, if sold as a development property, would be higher than its value if sold as a parking lot, and, therefore, this indicates that that mixed-use development is the maximally productive use of the Subject Property when compared to its current use.

9In this case, the determination of the Highest and Best Use has a significant impact on the current value of the Subject Property. In its general reassessment, MPAC assessed the current value of the Subject Property for the 2012 and 2016 assessment cycles (“General Reassessment Value”) at $3,528,000 and $8,233,000, respectively. However, MPAC's position is that the correct current value for each assessment cycle is much higher than the General Reassessment Value because the Highest and Best Use of the Subject Property is as mixed-use development.

10The Appellant maintains that the correct current value of the Subject Property for the 2012 assessment cycle is slightly higher than the General Reassessment Value, and the correct current value for the 2016 assessment cycle is much lower.

11The positions of the Appellant and MPAC respecting the correct current value of the Subject Property, as well as the application of an Equitable Reduction made pursuant to s. 44(3)(b) of the Act, are set out in the following tables.

MPAC	2012 Assessment Cycle	2016 Assessment Cycle
Correct Current Value	$10,980,000	$18,520,000
Equitable Reduction	$4,172,400	$10,186,000
Assessed Value*	$6,807,600	$8,334,000

Appellant	2012 Assessment Cycle	2016 Assessment Cycle
Correct Current Value	$3,750,000	$5,000,000
Equitable Reduction	$236,000	$1,112,000
Assessed Value*	$3,514,000	$3,888,000

*Assessed value to be returned on the Assessment Roll

12It is important to note that the Appellant concedes that, should the Assessment Review Board (“Board”) determine that the Highest and Best Use of the Subject Property is as mixed-use development, then the Appellant concurs with MPAC's position on the Assessed Value for both assessment cycles.

Result

13The Board finds that the Highest and Best Use of the Subject Property is as mixed-use development as permitted by local zoning by-laws. Based on this finding, the Appellant does not dispute MPAC's determination of the correct current value and the Equitable Reduction that MPAC applied to arrive at the Subject Property’s Assessed Value as set out in the above tables. Therefore, the Board accepts these values.

Issues for the Hearing

14The issues to be addressed in this Decision are:

1. What is the Highest and Best Use of the Subject Property?

2. What is the correct current value of the Subject Property?

3. Should there be an Equitable Reduction in the Correct Current Value, and, if so, what should the quantum of this reduction be?

ANALYSIS

Description of Subject Property

15The following evidence respecting the description of the Subject Property is not in dispute.

16The Subject Property parcel is vacant land 26,136 square feet in size currently used as a surface parking lot. There are no other improvements on the Subject Property.

17The Subject Property fronts on both Rideau Street and Besserer Street in the City of Ottawa. The lot is located on the boundary of an area known as the Byward Market, a tourist area consisting of restaurants, speciality retail shops, offices and heritage sites.

18The City’s Official Plan designation, regarding Rideau Street in particular, provides that:

Rideau Street, Bank Street, and Sparks Street will flourish as vibrant shopping streets with enhanced pedestrian environments and office, residential and other uses above the street, which serve as important components of the Central Business District.

Therefore, the Subject Property is located within Ottawa’s Central Business District.

19The Subject Property is zoned ‘Mixed Use Downtown MD S61’ in the City of Ottawa's Zoning By-law 2008-250. Mixed Use Downtown permits a number of uses, including high-density apartment buildings. S61 limits the as-of-right height to 146.6 metres (481 feet). The Subject Property's "as-of-right" zoning permits many different uses of greater intensity than its current parking lot use.

20The Official Plan states that the purpose of this zoning is to support the Central Area of the City, as the central place in the region for employment and shopping while also allowing residential, cultural and entertainment uses. More particularly, it is to facilitate more intense, compatible and complementary development to ensure that the active, pedestrian-oriented environment at street level, particularly along Bank Street, Sparks Street and Rideau Street is sustained. Permitted uses in the MD zone, include low, mid and high rise apartment dwellings, and offices (referenced in this Decision as “Mixed‑Use Development”).

21Full municipal services that are necessary to support development are provided for the Subject Property. No engineering reports were adduced into evidence. However, based on existing developments in the area, the Subject Property appears to be physically capable of supporting development. It is also of sufficient size to allow for Mixed‑Use Development, so land assembly with adjacent properties would not be required.

Issue 1: What is the Highest and Best Use of the Subject Property?

Expert Evidence

Appellant’s Evidence

22Glenn Lucas (the “Appellant’s Expert”) is a qualified property valuation appraiser who conducted a valuation of the Subject Property for both assessment cycles. At page 9 of his report, he states his evidence and opinion on the Highest and Best Use of the Subject Property:

Land in this area is undergoing transition to high density residential use with a mix of commercial. Several sales have occurred in the area with residential condo development planned for those sites. It is not known how many such developments the market will bear. It is known that several such developments in the area have gone into receivership over the last few years. The subject site has not undergone any development review nor site plan approval from the City of Ottawa. The highest and best use of the Subject Property is its current use as a parking lot.

Mr. Lucas then proceeded to form an opinion as to the current value of the Subject Property by applying the Income Approach.

MPAC's Evidence

23Edward Osmar (“MPAC's Expert”) is a qualified property valuation appraiser who also conducted a valuation of the Subject Property for both assessment cycles. His analysis of the Subject Property’s Highest and Best Use is brief. He reviews the Subject Property’s location, lot size, improvements, land use, and access to municipal services, as has been described earlier in this Decision, and then states his conclusion:

Taking into account the above information, the highest and best use for the Property would be represented by a mixed use development as permitted by local zoning bylaws.

24Mr. Osmar then proceeded to form an opinion as to the current value of the Subject Property by applying a comparable sales analysis based on the sale value of properties that were marketed based on their development potential.

Submissions

25While the Board has reviewed and considered all of the parties’ submissions, in this Decision, the Board summarizes only the most relevant submissions.

Appellant’s Submissions

26The Appellant relies on the opinions of its Expert witness.

27The Appellant submits that MPAC’s assertion that the Subject Property’s Highest and Best Use is as Mixed‑Use Development, is dismissive and makes a hypothetical and unfounded conclusion respecting the Highest and Best Use of the Subject Property.

28In support of this submission, the Appellant states there are no development applications, re-zoning requests, change in height allowance, development plans or any other relevant actions that would insinuate that there was any probability of development of the Subject Property.

29In this regard, the Appellant asserts that MPAC's Expert’s conclusion that the Highest and Best Use of the Subject Property is as development land is speculative and without any foundation presented to show that a redevelopment is “reasonably probable”. In this regard, the Appellant maintains that MPAC's Expert did not provide any detailed analysis to substantiate that the Highest and Best Use of the Subject Property was anything other than the current use as a parking lot.

30The Appellant further submits that the lack of any substantiated analysis by MPAC in relation to the probability or even contemplation of development of the Subject Property does not serve to rebut the presumption that the Highest and Best Use of the Subject Property is as a parking lot.

MPAC's Submissions

31MPAC submits that the sales of properties with comparable development potential presented in MPAC's Expert’s report indicate that the Subject Property's land value is higher than its current use value.

32MPAC agrees that a development application by an owner is good evidence that the owner considers the current use not to be a property's Highest and Best Use. However, MPAC argues that it does not follow that a particular owner's intentions for a property or the failure to seek planning approval for a property means that the current use is a property's Highest and Best Use. MPAC maintains that the assessor must look at the totality of the evidence to determine a property's Highest and Best Use.

33MPAC emphasizes that, in this case, the Board is not being asked to determine the probability of a rezoning to satisfy the "legal permissibly" prong of the Highest and Best Use analysis, because the as-of-right zoning permissions for Mixed‑Use Development are in effect as of the valuation days for both assessment cycles.

Findings on Issue 1

Introduction

34The appraiser’s opinions, and the parties’ submissions raise three questions.

35First, the Appellant has submitted that Mixed-Use Development cannot be considered in the Highest and Best Use analysis because no actions have been taken to develop the Subject Property, and none are anticipated for the foreseeable future. Therefore, the question is whether a property owner’s intentions respecting a change in use are a relevant consideration in the circumstances of this case.

36Second, the Appellant submits that a property’s current use is presumed to be its Highest and Best Use. This raises the question whether there is an evidentiary or statutory presumption that a property’s current use is presumed to be the Highest and Best Use?

37Third, assuming that Mixed-Use Development is physically possible and legally permissible, does the evidence adduced establish that such use is financially feasible?

38In order to address these questions, it is first necessary to consider the regime imposed by the Act as it relates to Highest and Best Use, in terms of statutory versus evidentiary criteria.

Statutory versus Evidentiary Criteria

39Neither the Act nor the Regulations define or use the term “Highest and Best Use.” However, s. 19(2) of the Act provides:

(2) The Minister may make regulations,

(a) providing that the current value of eligible land be based only on current use if the land would otherwise have a higher current value because of other uses to which the land could be put;

40There are provisions in the Act which prescribe that the current value of land must be determined based on a specific use (see, for example, s. 19(5) of the Act - farm lands), none of which apply in the circumstances of this case.

41As noted by the Board in KTH Shelburne Mfg Inc. v. Municipal Property Assessment Corp., Region No. 22, [2005] O.A.R.B.D. No. 651 52 OMBR 214, s. 19(2), the Act implicitly recognizes the application of the concept of Highest and Best Use when forming an opinion as to current value. However, the fact remains that determining a property’s Highest and Best Use is not statutorily regulated. Instead, the Act makes it clear that the determination of current value is a matter of opinion (see s. 32 (1.1) of the Act), and, as such, in a proceeding before the Board, the determination of current value must be based on opinion evidence. It is well established in the Board’s jurisprudence that such opinion evidence requires the application of accepted property value appraisal theory.

42In summary, the criteria to be considered when determining a property’s Highest and Best Use are evidentiary criteria, not statutory criteria. In other words, the criteria which govern the determination of Highest and Best Use are found in appraisal theory, not the Act or the Regulations.

43Regarding the parameters of appraisal theory, the Board, in previous decisions, has accepted The Appraisal of Real Estate as a leading authority on appraisal theory and practice.

44The Board also notes that s. 16(b) of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22 provides that the Board may “take notice of any generally recognized scientific or technical facts, information or opinions within its specialized knowledge.” Therefore, the Board may refer to and rely on generally recognized principles in The Appraisal of Real Estate in its analysis when making a determination of current value, which includes making a determination of a property’s Highest and Best Use.

1. What is the relevance of the Appellant’s intentions respecting alternate uses of the Subject Property?

45The Appellant has submitted that the fact the Appellant has taken no actions to develop the Subject Property indicates that there is no probability of development. In addressing this submission, the Board first observes that it is not entirely clear whether the Appellant is asserting that Mixed-Use Development is not legally permissible, or, alternatively, that it is not financially feasible.

46Regarding the criteria that a use must be legally permissible, the Appellant’s submissions refer to circumstances where current zoning does not permit the proposed Highest and Best Use. The decisions the Appellant has cited in support of this submission address the required level of probability that rezoning will occur in order for a proposed use to qualify as being legally permissible. However, the Board finds these submissions are irrelevant in this case because no rezoning is required. As noted above, the current zoning permits Mixed-Use Development. It is, as MPAC has described in its submissions, ‘zoning as-of-right’.

47If the Appellant’s argument is that its intention not to develop the Subject Property disqualifies Mixed-Use Development from being considered as the Highest and Best Use, this argument is not supported by appraisal theory. The Appraisal of Real Estate states, at page 12.5:

APPLICATION OF HIGHEST AND BEST USE ANALYSIS

Highest And best use analysis builds on the conclusions of market marketability analysis. The analysis of land as though vacant focuses on alternative uses, with the appraiser testing each reasonably probable use for legal permissibility, physical possibility, financial feasibility, and maximum productivity. [emphasis added]

48The Board also notes that, at page 3.3, the Appraisal of Real Estate also states that “[v]alue is created by the anticipation of future benefits.” Therefore, in this case, it is entirely appropriate to consider Mixed-Use Development as a potential alternate use.

49In addressing the Appellant’s submission such alternate use is not reasonably probable, the Board notes that the fact that the Appellant has taken no steps to develop the Subject Property does not establish that the Appellant could not take those steps. Furthermore, The Appraisal of Real Estate confirms that the methodology to determine whether an alternate use is reasonably probable requires that the appraiser analyze all of a property’s characteristics, as well as existing market conditions. This analysis is clearly not restricted to an enquiry of whether or not the owner has decided to pursue an alternate use.

50For the above reasons, the Board finds that the Appellant’s submission, i.e. that no actions have been taken to develop the Subject Property and that none are anticipated for the foreseeable future, is not a probative or determinative consideration when determining Highest and Best Use.

2. Is there an evidentiary or statutory presumption that a current use is presumed to be the Highest and Best Use?

51In support of its submission that a property’s current use is presumed to be its Highest and Best Use, the Appellant cites a Board decision, Toronto (City) Revenue Services and Municipal Property Assessment Corp., Region 09, 2017 CanLII 81707 (“Toronto (City)”) at para. 63, where the Hearing Member stated:

The basis for any valuation is to value the highest and best use of the land. The Board has taken the view that where a property has a current use, then there is a rebuttable presumption that the current use is the highest and best use. This is based on the entirely reasonable assumption that it already meets the test of being physically possible, legally permissible and financially feasible.

52Toronto (City) also cites General Motors of Canada Co. v. Municipal Property Assessment Corp., Region No. 27, 2017 CanLII 3664, at paragraph 18, where the Hearing Panel stated:

However, the use a property is put to at any given time is presumed to be its highest and best use. Parties seeking to prove a different highest and best use will require compelling evidence of how another legally permissible, physically possible, and financially feasible use is more productive than the current use . . .

53The Board has already observed that the criteria for determining Highest and Best Use are evidentiary criteria which are found in appraisal theory. The Board has also observed that The Appraisal of Real Estate states that, when determining Highest and Best Use, the appraiser must consider each reasonably probable use of the property. The Appraisal of Real Estate does not state that the current use is presumed to be the Highest and Best Use.

54Respecting the observation in Toronto (City) that it is entirely reasonable to assume that the current use already meets the four Highest and Best Use criteria, the Board reiterates that appraisal theory does not state that the appraiser may make such assumptions. To the contrary, The Appraisal of Real Estate requires that the appraiser test each reasonably probable use, which includes its current use, to determine if the use satisfies the four Highest and Best Use criteria. An appraiser cannot assume that a property’s current use is its maximally productive use. Chapter 12 of The Appraisal of Real Estate discusses several classes of property, but nowhere does it indicate that their current use is presumed to be the Highest and Best Use. As the Subject Property’s use as a parking lot is a legal nonconforming use, the Board notes that the Appraisal of Real Estate addresses legal nonconforming uses, stating at page 12.15:

Legally nonconforming uses that correspond to the highest and best use of the property as improved are often easy to recognize. However, sometimes it is not clear whether an existing nonconforming use is the site’s highest and best use. The question can only be answered by careful analysis of the income or selling price produced by the nonconforming use and the incomes or selling prices that would be produced by alternate uses if the property were brought into conformity with existing regulations. [emphasis added]

Therefore, The Appraisal of Real Estate clearly indicates that a property’s legal nonconforming use cannot be presumed to be its Highest and Best Use.

55The Board also notes that the observation that the current use is often ultimately identified as being its Highest and Best Use, does not establish a presumption that its current use is the Highest and Best Use.

56A presumption that current use is the Highest and Best Use is based on the assumption that property owners behave in a manner where they seek to maximize the value of their properties by implementing their maximally productive use. However, this is not always the case. An owner may not be aware that an alternate use is maximally productive, particularly if the market is in transition, or the owner may not have the resources to convert the property to its alternate maximally productive use.

57Furthermore, the owner may not be motivated to implement an alternate maximally productive use. In this regard, it is important to note that a property’s current use is the owner’s actual use of the property, whereas the definition of ’current value’ under the Act is based on a notional sale of the property on the valuation day, not an actual sale based on its current use. Therefore, current use may not reflect how the owner would market the property, if the owner actually, not notionally, proceeded to sell the property. Furthermore, The Appraisal of Real Estate, at page 2.12, states: that:

Real property has both a use value and a market value, which may be the same or different depending on the property and the market.

A current use may have considerable ‘use value’ to a particular property owner, thus motivating the owner to maintain the current use, even though an alternate use would produce the maximally productive market value.

58The Subject Property is a case in point. The Appellant’s Expert testified that the Appellant runs a business, named Capital Parking, which is the largest owner of the parking lots in the city. He stated that the Appellant is receiving a reasonable rate of return on investment, and that, although developing the lot would earn the Appellant more money, it would not earn a higher percentage rate of return on investment. He also indicated that both the corporate Appellant’s controller and owner advised him that they would never sell the Subject Property, stating that the Subject Property was part of the larger organization and, if the land was disposed of, it would jeopardize the entire Capital Parking organization.

59In summary, the owner has maintained the current use, even though it is acknowledged by the Appellant that the value of the Subject Property as Mixed-Use Development land (assuming that it is established that there is a market for this use) is higher than its value as a parking lot.

60Accordingly, the findings in the above cited decisions are not supported by the evidentiary criteria prescribed in appraisal theory. Furthermore, the above discussion indicates that the Board cannot make a blanket assumption that a property’s current use is its maximally productive use, because that assumption may be incorrect. Whether a property’s current use is its Highest and Best Use can only be determined after conducting the Highest and Best Use analysis.

61The Board also notes that this ‘presumption issue’ was addressed by the Ontario Divisional Court in Municipal Property Assessment Corporation v. Claireville Holdings Limited, 2022 ONSC 3293 (“Claireville”):

22The articulation of the presumption in favour of current use value must be considered in the context in which disputes such as this one come before the Board, namely: (i) that the assessed value of the property has, in the past, been based on its actual use, which has not changed; (ii) the current value of the property has been assessed anew based on a different use of the property; (iii) the owner contests the current value as assessed and takes the position before the Board that the property’s current or actual use should continue to be the basis for valuation; and (4) in accordance with s. 40(17) of the Act the burden of proof as to the correctness of the current value as assessed by MPAC rests with MPAC.

23In this context, the articulation of the presumption is little more than a re-statement of the burden of proof. [emphasis added]

62In light of the Board’s analysis above and the Divisional Court’s ruling in Claireville, the Board does not accept that there is an evidentiary or statutory presumption that a property’s current use is its Highest and Best Use. In order to determine a property’s Highest and Best Use, the Board requires evidence respecting each reasonably probable use identified in a Highest and Best Use analysis, which includes the property’s current use. Each party must adduce its evidence in support of its position respecting Highest and Best Use, where the burden of proof as to the correctness of the current value advanced by MPAC rests with MPAC. In this case, the Appellant is not required to prove a negative, i.e. that Mixed-Use Development is not the Highest and Best Use, MPAC is required to establish that it is.

3. Does the evidence adduced establish that Mixed-Use Development is financially feasible?

The Experts’ Opinions on Highest and Best Use

63Unfortunately, neither of the Experts’ reports provide a detailed analysis of the financial feasibility requirement when stating their opinions on Highest and Best Use.

64The Appellant’s Expert acknowledges that properties in the area are undergoing transition to high density residential use with a mix of commercial. He states that it is not known how many such developments the market will bear, and that “[i]t is known that several such developments in the area have gone into receivership over the last few years.” In his report, he critiques some of the properties on which MPAC relied in conducting its comparable sales analysis to determine the quantum of the Subject Property’s current value, asserting that they are not comparable to the Subject Property.

65MPAC's Expert’s analysis in support of his conclusion, focusses on whether it is physically possible and legally permissible to develop the Subject Property, but, in the section of his Report where he provides his analysis and conclusion on Highest and Best Use, he makes no specific reference as to whether Mixed-Use Development is financially feasible and maximally productive. In his Report, he then proceeds to present a comparable sales analysis to support his conclusion regarding the quantum of the Subject Property’s current value. To be fair, the properties presented in his comparable sales analysis do provide data that are relevant to the financial feasibility criterion, but the fact remains that his analysis leading to his conclusion on Highest and Best Use, as set out in his Report, did not include an analysis of whether this data is sufficient to establish that there was a market demand for development properties in the Subject Property’s market area, as of the valuation days for the two assessment cycles.

66Respecting standards when reporting Highest and Best Use, The Appraisal of Real Estate states, at page 12.19:

REPORTING HIGHEST AND BEST USE CONCLUSIONS

One misconception is that it is acceptable to simply state the highest and best use conclusion. Appraisals typically require some analysis of highest and best use. Solely providing data is not addressing highest and best use - the data must be analyzed.

… an appraiser may need to include a discussion of or reference to a separate marketability study (either inferred or fundamental) prior to the discussion of the highest and best use determination.

67The Board observes that the reports prepared by both experts did not fully address this requirement. Apart from the fact that appraisal theory requires such analysis before arriving at a conclusion regarding Highest and Best Use, this analysis is doubly important where the appraisers’ conclusions are being advanced in the context of a disputed appeal proceeding and their respective conclusions are diametrically opposed. That being said, the Board does not question that both experts are highly qualified and experienced. As noted below, appraisal opinions require not only data, but the exercise of judgement and instinctive knowledge. On this basis, their opinions must be given due weight, and the Board has considered their opinions in this context.

68In Municipal Property Assessment Corporation v. Zarichansky, 2020 ONSC 1124, the Ontario Divisional Court stated:

In combination, these provisions [s.40(1)(a), s.44(3), and s.45 of the Act] make clear that an assessment must be based on the current value of the property. The Board has no power to dodge this responsibility based on a finding that MPAC has not met its burden of proof.

Accordingly, the Board must evaluate the evidence to determine whether it is sufficient to make a determination of current value, which, in this case, requires that the Board evaluate whether the evidence is sufficient for the Board to determine whether the Subject Property’s Highest and Best Use is as Mixed-Use Development.

69Therefore, absent more detailed analyses in support of the experts’ conclusions on Highest and Best Use, more specifically, the financial feasibility criterion, it falls to the Board to conduct its own analysis based on the evidence adduced in this hearing. For this reason, the Board first turns to a review of the applicable appraisal theory as set out in The Appraisal of Real Estate, focusing on the financial feasibility criterion.

Relevant Appraisal Theory

70It is beyond the scope of this Decision to fully digest all of the information provided in The Appraisal of Real Estate. For purposes of this Decision, a digest of the most pertinent statements are as follows.

71Chapter 7 of The Appraisal of Real Estate is entitled “Highest and Best Use Analysis.” It describes an analysis of a property’s Highest and Best Use as a necessary component of the valuation process. As stated at page 7.11:

When a market value opinion is developed, some degree of highest and best use analysis is necessary. If a market value opinion is developed of the land as though vacant, analysis of the highest and best use of the land as though vacant is essential. If a market value opinion is developed for the improved property analysis at the highest and best use as improved is essential. Through highest and best use analysis, the appraiser interprets the market forces that affect the subject property and identifies the use or uses on which the final opinion of value is based. Chapter 12 discusses highest and best use analysis in detail.

Analyzing the highest and best use of the land as though vacant helps the appraiser identify comparable properties. Whenever possible, the property being appraised should be compared with similar properties that have been sold recently in the same market. Potentially comparable properties that do not have the same highest and best use are usually eliminated from further analysis. Estimating the land’s highest and best use as though vacant is a necessary part of deriving an opinion of land value.

[Emphasis added.]

72Chapter 12 of The Appraisal of Real Estate is entitled “Highest and Best Use Analysis.” Relevant excerpts from this chapter are as follows:

Page 12.1:

The analysis of relevant data to develop a market value opinion requires two important steps in the valuation process before the applicable approaches to value are applied. Market marketability analysis begins the process of narrowing the focus from a broader macro view to data that is especially pertinent to the appraised property. Highest and best use relies on that analysis to identify the most profitable, competitive use to which the subject property can be put. The highest and best use is shaped by the competitive forces within the market where the property is located and provides the foundation for a thorough investigation of the competitive position of the property in the minds of market participants.

An understanding of market behavior developed through market analysis is essential to the concept of highest and best use. Market forces create market value, so the interaction of market forces that identifies the highest and best use is of crucial importance.

Page 12.2:

The Four Tests

As market/marketability analysis progresses to Highest and Best Use analysis, appraisers first consider the reasonably probable uses of a site that can be legally undertaken. In the analysis of pertinent data, four steps are implicit and are applied in the following order to develop adequate support for the appraiser's highest and best use opinion:

1. legally permissible

2. physically possible

3. financially feasible

4. maximally productive

An appraiser generally considers these criteria sequentially. The tests of physical possibility and legal permissibility can be applied in either order, but they both must be applied before the tests of financial feasibility and maximum productivity. A use may be financially feasible, but this is irrelevant if it is legally prohibited or physically impossible.

Page 12.3:

An appraiser must also consider the competition among various uses for a specific site. …

Page 12.4 – 12.5:

. . .The market may define the highest and best use of land in the CBD [Central Business District] simply as high rise development, which often includes a mix of uses such as office, retail, hotel, and residential apartment or condominium use. At times the highest and best use conclusion for a CBD site does not indicate a specific highest and best use, but rather a class of uses that is supported by market area trends and reflects a consistent density of development. [emphasis added]

Page 12.8:

Testing the Financial Feasibility of Land as though Vacant

. . .Successful application of the financial feasibility test to land as though vacant relies on interpretation of relevant and credible market evidence collected and analyzed in the market area and in the subject property’s competitive market. …

Page 12.10:

…The conclusion of the highest and best use of a parcel of land should be as specific as the appraiser’s research allows and the assignment requires. Available data might only support general conclusions as to use. … Sometimes there is ample sales evidence available on highly similar sites, so it is unnecessary to refine the highest and best use conclusion. In any case, the appraiser should provide market evidence that leads to an understanding of the use or uses, the timing for those uses, and the probable users and buyers. …

[Emphasis added.]

73Chapter 12 indicates that the determination of Highest and Best Use requires market evidence obtained from a market/marketability analysis, and refers to Chapter 9 entitled “Market and Marketability Analysis. Relevant excerpts from this chapter are as follows:

Page 9.9

Inferred Analysis and Fundamental Analysis

An appraiser can use current and historical market conditions to infer future supply and demand conditions. In addition, to forecast subject-specific supply, demand, absorption, and capture over a property’s projection period, the appraiser can augment the analysis of current and historical market conditions with fundamental analysis. Table 9.2 summarizes the distinctions between inferred and fundamental demand analysis and indicates the level of analysis associated with each.

Inferred analysis, which is sometimes called trend analysis, is descriptive and emphasizes historical data rather than future projections. The focus can be general, with selected comparable properties representing the larger market, or more specific and include area-wide market data and subject-specific conclusions.

Fundamental Analysis is a more detailed study of market conditions, focusing on the specific submarket of the subject property and providing strong reasoning and quantifiable evidence for projections of future development. This level of analysis is based on the premise that real estate value is tied to the services the property provides and that a study of the market for those services will reveal influences on the value of the real estate.

[Emphasis added.]

Table 9.2: Types and Levels of Analysis

Levels of Analysis*	Inferred Demand Studies	Fundamental (Derived) Demand Studies
Level of Study	A B	C D
	Inferred subject attributes Inferred locational determinants of use and marketability by macroanalysis Inferred demand from general economic base analysis conducted by others Inferred demand by selected comparables Inferred supply by selected comparables Inferred equilibrium/highest and best use and capture conclusions Emphasis is on: • Instinctive knowledge • Historical data • Judgment	Quantified subject attributes Quantified and graphic analysis of locational determinants of use and marketability by macro-and microanalysis Inferred demand derived by original economic base analysis Forecast demand by subject-specific market segment and demographic data Quantified supply derived by inventorying existing and forecasting planned competition Quantified equilibrium • Highest and best use - graphic – map • Timing - quantified capture forecast Emphasis is on: • Quantifiable data • Forecast • Judgment Quantifiable data Quantifile data Highest and best use - graphic

Note: An appraisal without a fundamental demand study - e.g., Level C or D market/marketability analysis - is designed to estimate value only in a certain and stable market.

• As defined in Stephen F. Fanning, Market Analysis for Real Estate: Concepts and Applications in Valuation and Highest and Best Use {Chicago: Appraisal Institute, 2005), 18-30.

Trend Analysis – Evidentiary Requirements

74The Appraisal of Real Estate does not provide any specific commentary on Table 9.2. However, a review of this table indicates that there is an increasing level of detailed analysis (categories labelled A to D), although it does not specify the specific requirements for each category. The Table confirms that an inferred analysis, which identifies past and current conditions to infer current market conditions, requires a lower level of analysis than a fundamental analysis, which provides more in-depth research to forecast future market conditions.

75The Appraisal of Real Estate recognizes that the economic principle of supply and demand, among other factors, will indicate the Highest and Best Use of a parcel of land (see page 3.4). The Appraisal of Real Estate also clearly states that a trend analysis, based on historical market data, is an acceptable appraisal method to determine market supply and demand. While a fundamental analysis is not required, this does not exclude consideration of a fundamental analysis when forming an opinion of a property’s value, particularly if there is insufficient available historical market data to support a trend analysis.

76Regarding the requirements for a trend analysis, The Appraisal of Real Estate states that sometimes there is ample sales evidence available on highly similar sites, so it is unnecessary to refine the Highest and Best Use conclusion. However, The Appraisal of Real Estate does not specify the number of market sales that are required to be representative of the larger market. Each case must be determined on its own merits. The above referenced excerpts from The Appraisal of Real Estate indicate that, when relying on a trend (inferred) analysis, such market sales data must:

• be based on sales of comparable properties (i.e. the sales that occurred in the same or similar market area, where the properties were marketed based on the proposed alternate use of for the property, which would include consideration of any sales of the subject property itself);

• establish that the market is stable (i.e. market demand has not fluctuated over the time period in which the market sales occurred); and

• establish that market demand for the proposed alternate use has not been satisfied by existing properties in the market area (referenced in Table 9.2 as ‘capture conclusions’).

77Therefore, the question the Board must address is whether the properties identified in MPAC's Expert’s comparable sales analysis meet the above criteria and, if so, does this data identify a trend which supports the conclusion that there is market demand for Mix-Use Development properties in the Subject Property’s market area?

Analysis of the evidence adduced in this proceeding

78For purposes of the Board’s analysis, the Board does not find it necessary to recite a detailed description of each proposed comparable property. However, the Board will address the Appellant’s objections that some these properties are not comparable to the Subject Property. In this regard, however, it must be emphasized that the issue here is whether there is demand for Mixed-Use Development properties in the market area, not the issue of determining the specific quantum of the current value of the Subject Property.

79The Board begins by first noting that all of MPAC's proposed properties are located within the immediate vicinity of the Subject Property, some of them being adjacent to the Subject Property or across the street. Therefore, they are located in the same market area as the Subject Property. Furthermore, the evidence indicates that all of these properties were marketed as development properties.

80For the 2012 assessment cycle, where the valuation day is January 1, 2012, there are five proposed comparable property sales. The sale dates ranged from January 2008 to December 2012. The Appellant did not object to comparability of the three property sales which occurred over the period from January 2008 to January 2011.

81Regarding the sale in September 2011 of 256 Rideau Street / Besserer Street (a land assembly of two properties owned by the same owner), MPAC's Expert’s evidence is that these properties were marketed as a residential condominium development property. The Appellant’s Expert states that the properties were purchased as a land assembly, were the subject of subsequent sale transactions, and eventually became the focus of an investor mortgage fraud case. As MPAC has stated in its submissions, this property was subsequently sold twice in 2015 and 2017. MPAC has pointed out that the Appellant’s Expert incorrectly thought the 2015 sale, was a forced sale. Instead, it was the 2017 sale that was forced, and MPAC's expert has not relied on this sale. Regarding the 2015 sale, MPAC’s Expert reports that, at the time of this sale, the property had an approved development plan for a student residence. The Appellant’s Expert agrees that the property was sold in 2015 with considerable development plans and approvals in place, but states that there was no evidence the property was ever exposed to the market until the receivership sale, and he does not consider this a comparable sale for the Subject Property. However, MPAC's Expert’s evidence is that the 2011 sale was marketed as a development site.

82In addressing the Appellant’s Expert’s opinion, the Board notes that the evidence is unclear whether the sales which occurred in 2011 and 2015 were not exposed to the market. However, it is not disputed that this sale was based on the property’s development potential. In this regard, the Board notes that, subsequent to the 2011 sale, planning approvals were granted. Therefore, for purposes of a trend analysis, the Board accepts that these are comparable sales.

83The Appellant’s Expert also disputes consideration of a sale which occurred in December 2012, which is a land assembly sale of five properties, where one of the properties had a large operating grocery store. MPAC's expert reported this information, indicating that the site was proposed for a 30-storey residential condominium building. However, the Appellant’s Expert indicated that the lands were not sold on the open market and, therefore, he does not consider the sale a valid sale for comparison to the Subject Property.

84In addressing the Appellant Expert’s opinion, the Board notes that the fact that the sale did not occur on the open market might disqualify this sale for consideration when determining the quantum of the Subject Property’s current value. However, for purposes of a trend analysis to determine the market for development properties in the Central Business District, the evidence is clear that this land assembly purchase of these properties was based on the land assembly’s development potential for Mixed-Use Development.

85Turning to the 2016 assessment cycle, where the valuation day is January 1, 2016, MPAC's expert proposed five comparable properties, two of which were also relied on for the 2012 assessment cycle. The sale dates ranged from September 2011 to November 2018. Interestingly, regarding the November 2018 sale of two properties, one of which was improved by a retail building, the Appellant, TKS Holdings Inc., was the owner/vendor. MPAC's Expert’s evidence is that this property was purchased for its development potential, noting that, upon purchase, a 24-storey mixed-use development proposal, which includes a hotel and residential uses, was approved. For this sale, the Appellant’s Expert stated that TKS Holdings Inc. and the purchaser were known to each other, and, as such, he expressed his view that this was not a reliable sale. However, the Board accepts MPAC's submission that, as the Appellant’s Expert provided no documentary evidence in support this assertion, this evidence does not contradict the sales evidence provided by MPAC's expert. Furthermore, as the Board has previously stated, the fact that the parties to this sale transaction may not have been arm’s length, does not change the fact that the property was sold for its development potential.

86The same can be said for the other proposed properties which were improved by buildings occupied by commercial businesses at the time of their sales. The fact that there are existing improvements on these properties might disqualify these sales for consideration when determining the quantum of the Subject Property’s current value. However, the Board reiterates that, for purposes of a trend analysis to determine the market for development properties in the Central Business District, the evidence is clear that these sales were based on their potential for Mixed-Use Development.

87In summary, the Board accepts that all MPAC's Expert’s proposed properties are comparable properties for purposes of determining whether the Subject Property’s use as Mixed-Use Development is financially feasible. More specifically, these properties are comparable for the purpose of determining whether there is market demand for Mixed-Use Development properties in the Central Business District. While some of the sales that occurred are somewhat distant from each valuation day, a trend analysis, by its very definition, infers market demand by analysis of market activity over a reasonable period time. In this case, the Board concludes that the comparable sales are not so distant from the valuation days that they should reasonably be excluded from consideration. In other words, they can be considered to be indicative of market demand on the applicable valuation days. In this regard, the Board also observes that the Appellant’s Expert did not object to MPAC's proposed property sales on the basis that they were too far removed from the applicable valuation days. For these reasons, the Board finds that all of MPAC's proposed properties can considered in a trend analysis.

88The Board now turns to the question whether a trend analysis using this data indicates that the Board can infer that there was a market demand for Mixed-Use Development properties as of the applicable valuation days. In this regard, the Board notes that the evidence indicates that properties in the immediate vicinity of the Subject Property have continued to be sold as development properties over the ten-year period from January 2008 to November 2018, which the Board finds is sufficient to infer that there was a market demand for properties with Mixed-Use Development potential as of the two valuation days. Furthermore, the fact that the sales continued to take place after each valuation day also indicates that market demand had not been exhausted by existing development in the market area or the sales of properties marketed for their development potential, which occurred prior to each valuation day. In this regard, the Board notes that the Appellant was the vendor of the property in the latest comparable sale which occurred in November 2018. The Board’s conclusion is further reinforced by the facts that: (i) the existing zoning permits and promotes Mixed-Use Development in the Central Business District; (ii) development approvals have been issued for some of the comparable properties; and (iii) the comparable properties are in very close proximity to the Subject Property, which reflects the market demand in the immediate area surrounding the Subject Property within the broader market area of the Central Business District.

89In arriving at the above conclusion, the Board has given due consideration to the Appellant’s Expert’s opinion on Highest and Best Use. In this regard, the Board notes that he does acknowledge that land in this market area is undergoing transition to “high density residential use with a mix of commercial”, and that several sales have occurred with development planned for those sites. The Board also notes that the Appellant’s Expert agreed that some of the properties presented by MPAC were comparable to the Subject Property. Furthermore, the Board has already found that: (i) all the properties presented by MPAC's Expert can be considered comparable for purposes of a trend analysis to determine market demand in the context of a Highest and Best Use analysis; and (ii) the Board has found the sales evidence adduced respecting these properties supports the conclusion that there was an on-going market demand for development properties on both valuation days. For the above reasons, the Board finds that the Appellant’s Expert’s opinion that it is not known how many such developments the market will bear, is not persuasive.

Conclusion on Highest and Best Use

90Based on the above analysis, the Board finds that: (i) the market data provided by MPAC is both sufficient to conduct a trend analysis; (ii) it establishes that there was an on-going demand for properties which could be developed for Mixed-Use Development as of both valuation days; and (iii) the market demand for such properties had not been exhausted by existing development within the Central Business Area where the Subject Property is located.

91The Appraisal of Real Estate indicates that the Highest and Best Use may be analyzed on the basis that a property is vacant, or, if it has been improved, the costs of any required demolition will be considered when forming the final conclusion as to financial feasibility (an example of this approach is found in the decision of the Ontario Court of Appeal in Re Tyandaga Golf & Country Club and Town of Burlington 1970 CanLII 251 (ON CA)). In this case, it is not disputed that there are no other circumstances respecting the Subject Property, such as excessive re-development costs, which would render Mixed-Use Development of the Subject Property financially infeasible, notwithstanding that there is market demand for the Subject Property based on this use.

92In conclusion, therefore, the Board finds that use of the Subject Property as Mixed-Use Development is physically possible, legally permissible, and financially feasible. As previously noted, it is not disputed that this use is also maximally productive. Therefore, the Board finds that the Highest and Best Use of the Subject Property is as Mixed-Use Development.

Issue 2: What is the correct current value of the Subject Property?

Issue 3: Should there be an Equitable Reduction in the Correct Current Value, and, if so, what should the quantum of this reduction be?

Findings on Issues 2 and 3

93As noted in the Overview, the Appellant agrees that, if the Board determines that the Subject Property’s Highest and Best Use is as Mixed-Use Development, then the Board should accept MPAC's determination of the quantum of both the correct current value and equitable reduction of the Subject Property for both assessment cycles. In light of this agreement, the Board accepts MPAC’s position on the Assessed Values for both the 2012 and 2016 assessment cycles.

94In light of this finding, it is also unnecessary to address the parties’ evidence and submissions regarding the Assessed Value of the Subject Property based on its current use as a surface parking lot.

ORDER

95The Board orders that:

1. the Assessed Value to be returned on the Assessment Roll for the 2013 to 2016 taxation years is $6,807,600; and

2. the Assessed Value to be returned on the Assessment Roll for the 2017 to 2022 taxation years is $8,334,000.

"Dirk VanderBent"

DIRK VANDERBENT VICE-CHAIR Assessment Review Board

Website: www.tribunalsontario.ca/arb