Tribunals Ontario
Tribunaux décisionnels Ontario
Assessment Review Board
Commission de révision de l’évaluation foncière
ISSUE DATE:
November 08, 2024
FILE NO.:
WR 185793
Assessed Person(s):
Canadian Niagara Hotels Inc.
Appellant(s):
Canadian Niagara Hotels Inc.
Respondent(s):
Municipal Property Assessment Corporation Region 18
Respondent(s):
City of Niagara Falls
Property Location(s):
5685 Falls Avenue
Municipality(ies):
City of Niagara Falls
Roll Number(s):
2725-030-002-04000-0000
Appeal Number(s):
See Schedule A
Taxation Year(s):
See Schedule A
Hearing Event No.:
782771
Legislative Authority:
Sections 33 and 40 of the Assessment Act, R.S.O. 1990, c. A.31
APPEARANCES:
Parties
Representative/Counsel
Canadian Niagara Hotels Inc.
Mark Blidner
Municipal Property Assessment Corporation
Francis X. Shea
City of Niagara Falls
John O’Kane
HEARD:
February 26 to 29, 2024 by video conference
ADJUDICATOR(S):
Dan Weagant, Member
DECISION
OVERVIEW
1Canadian Niagara Hotels Inc. (“CNHI”, the “Appellant”) has appealed to the Assessment Review Board (the “Board”) the omitted assessments made under s. 33 of the Assessment Act, R.S.O. 1990, c. A.31 (the “Act”), applied by the Municipal Property Assessment Corporation (“MPAC”) to the property at 5685 Falls Avenue, in the City of Niagara Falls (the “subject property”) for the 2015, 2016 and 2017 taxation years. The Appellant has also appealed the annual property assessment applied by MPAC for the 2017 taxation year under s. 40 of the Act. Pursuant to section 40(26) of the Act, the Appellant is deemed to have brought the same appeals for the 2018 to 2024 taxation years.
2MPAC originally applied a 2016 current value assessment (“CVA”) of $42,328,000 to the subject property. Over time, since the appeals were launched by the Appellant, MPAC revised its position on the current value of the subject property to $26,502,000. Through the same process, MPAC altered its approach to value when it amended its response to the appeals, first by changing the approach to value of the waterpark from the cost approach to the income approach and second, by removing the omitted assessments previously applied for the 2015, 2016 and 2017 taxation years.
3The Appellant’s position is that MPAC’s revised position is still too high and therefore, incorrect. The Appellant believes the correct current value of the subject property is correctly determined by first applying the income approach to the property or, by deriving a current value based on the Highest and Best Use (“HABU”) of the property as vacant land. The Appellant’s position on current value based on these two approaches is between $5,520,000 and $6,282,000. The Appellant agrees with MPAC that there should be no value attributed to the waterpark feature because its value, as determined by its income, is ‘subsumed’ in the assessments of the four hotels and the casino property that are all part of the same business enterprise.
4The City of Niagara Falls (the “City”) believes the assessments returned by MPAC are too low and require an increase for them to be considered correct. The City’s position is that the correct approach to determining the current value of the waterpark is the cost approach and that the current value of the parking structure is correctly derived by applying the income approach to value. The City’s position of the current value of the subject property is $62,207,000 for the 2017 through 2024 taxation years and $15,317,000 for the omitted assessments of the 2015 and 2016 taxation years.
Background
5The subject property is unique in its physical characteristics and in its relationship with other properties in the area as part of a business enterprise. This enterprise, referred to by the Parties throughout the proceeding as a Resort, includes four hotels, a casino and the subject property. The Appellant owns all of the properties identified in the Resort. CNHI leases the casino property to a casino operator.
6The subject property is a six-level parking structure with 1,606 parking spaces. It was originally constructed in the 1990s to provide parking for the four hotels in the Resort, the casino operation and for visitors to Niagara Falls who were there for the day or who were staying in other hotels in the area.
7In 2005, a waterpark was added to the roof of the structure. This waterpark has continued operation since and is one of the amenities of CNHI’s Resort complex.
8Each of the elements of the Resort is assessed separately. The Board heard that the assessments of the four hotels were also appealed and that those appeals had been resolved through negotiated settlements in three cases and a withdrawal of the fourth. The casino assessment was not appealed.
9For the 2015, 2016 and 2017 taxation years, MPAC applied omitted assessments to the subject property to reflect the additional value of the waterpark addition on the top of the subject structure that had not been captured in earlier assessments.
10Both MPAC and the Appellant submit that a significant portion of the revenue received from the waterpark is captured in the revenue / expense reporting of the Resort hotels. They submit further that the revenue generated by the waterpark was assessed when the appeals on the Resort hotels were settled. For that reason, MPAC amended its cost approach to the valuation of the waterpark component and adopted the income approach to value for both the waterpark and the parking garage components of the property.
11The Appellant submits that the operating agreements with the casino operator for parking at the subject property evolved over time and, for the years under appeal, there was no parking revenue from the casino. With regard to the waterpark, the Appellant considers that part of the Resort to be a ‘loss leader’ attraction; the sole function of which is to attract visitors to the Resort hotels and that it operates at a loss.
12The Appellant also submits that the revised annual assessment applied by MPAC for the 2018 taxation year (subsequently deemed for 2019 through 2024) was not properly made and that its consideration ought not be made by the Board. Alternatively, the Appellant submits the assessment of the subject property could be established through either the income approach to value or the direct comparison approach to value.
13MPAC derives the current value of the parking garage by attributing revenue from casino parkers, daily parkers, guests of the Resort hotels and other hotels in the area. For the waterpark, MPAC submits that the best approach to valuation is the income approach.
14The City disagrees and submits that the Board cannot simply ignore revenue attributable to the subject property and further that the circumstances present indicate missed assessment as it relates particularly to revenue that is correctly attributed to the subject parking garage and waterpark components.
Areas of Agreement
15The Parties agree on the physical components of the subject property and the relationship the subject property has with the other properties in the Resort.
16The Parties also agree on the data related to the parking garage usage, occupancy and income and expenses, although they disagree on the interpretation of that data for their respective positions of current value.
17The Parties agree that the current value assessment of the subject property is apportioned between the Commercial property class, with some components of the waterpark Exempt from taxation by regulation.
Issues for the Hearing
18This case is ultimately concerned with how revenue at the Resort is attributed to the subject property. The Appellant submits that the value of the subject property can correctly be determined by valuing the land as vacant, representing its Highest and Best Use. Alternatively, the Appellant submits the current value can also be determined from the revenue of the parking garage portion of the subject property using the income approach and adjusting that value by the negative value derived by the waterpark through the income approach.
19MPAC submits that the current value of the subject property should be derived from the income approach to value and is dependent on the revenue attributed to the parking operation. Neither the Appellant nor MPAC believe any revenue should be attributed to the subject property resulting from the waterpark operation. They believe any value found from the parking garage component needs to be adjusted downward to account for the waterpark’s operating loss and subsequent negative value using the income approach.
20The City submits that the correct current value of the subject property should be derived using the income approach for the parking garage operations and that the current value of the waterpark operation is most appropriately determined through the cost approach to value.
21At issue in this proceeding are:
Were the higher assessments made by MPAC for the 2018 through 2024 taxation years properly made? If the Board determines they were properly made, then;
Is the HABU of the subject property its current use or some other use?
What is the correct current value of the subject property? and
Does the current value determined require a reduction for it to represent equitable assessment when reference is made to the assessments of similar lands in the vicinity?
Result
22The Board finds that the omitted assessments and subsequent higher assessments for the 2017 through 2024 taxation years were properly made by MPAC.
23The Board also finds that the HABU of the subject property is its current use as of the years under appeal.
24The Board finds that it is most appropriate to use the cost approach to determine the current value of the waterpark, while the income approach is the most appropriate to determine the current value of the parking garage.
25The Board finds that the correct current value of the subject property is $48,476,000 for the 2017 through 2024 taxation years, with $14,989,000 attributed to the waterpark and $33,487,000 attributed to the parking garage.
26The Board also finds that the correct current value of the s. 33 omitted assessments applied by MPAC to the 2015 and 2016 taxation years is $15,317,000. The correct current value of the s. 33 omitted assessment applied by MPAC to the 2017 taxation year is $14,989,000.
27Further, the Board finds that there is no evidence to support a reduction in the current values determined when reference is made to the assessments of similar lands in the vicinity, for the purposes of equitable assessment.
PRELIMINARY MATTERS
28The Appellant challenged the City’s submission to qualify its witness as an expert. In cross-examination the Appellant sought the specific credentials of this witness and, in so doing, determined the witness had no appraisal accreditation. The Appellant submitted that the City’s witness should not be considered an expert owing to the absence of these accreditations, adding that qualification as an expert witness is a high standard to meet.
29The Board recognizes that membership in certain organizations can reflect a heightened level of expertise because the organizations have standards that need to be met and when a person carries the designation of that organization, the public can be confident that the individual meets those certain standards. Such memberships are not the only measure of the qualifications of a witness as an expert.
30In considering whether a witness meets the expert standard, the Board considers the following:
Whether the witness has filed the required ‘Acknowledgement of Expert Duty’ form.
The experience gained in the field of assessment or appraisal pertinent to the issues at hearing.
Credentials bestowed upon the witness by external authorities, associations, institutes, or similar organizations.
Frequency and specifics of qualification before this Board in the past.
The depth and breadth of valuation, assessment and appraisal issues experienced in the past.
31The witness testified that he has appeared before the Board and was previously qualified as an expert witness. He explained that his opinions have been considered by the Board in the past on the application of the cost approach to value and the income approach to value and that both approaches are relevant to this case. He acknowledged that he has no appraisal credentials but demonstrated through his curriculum vitae an ongoing process of professional development. He indicated his years of experience in complex valuation and assessment matters were of particular interest in this case owing to the irregularities of some of the evidence.
32This witness has been practicing in the assessment and appraisal fields for decades. The Board accepts that he has been qualified at this Board in the past. But, in order to decide qualification, the Board must assess the specifics of this case. The concepts involved in these appeals are complex, multi-faceted and unique. The Board finds that the witness would be a benefit to the Board in testifying before this panel owing to his extensive experience in a variety of complex assessment and appraisal cases and, most particularly (but not exclusively), his experience in the application of the cost approach to value, and his demonstrated expertise in MPAC’s Automated Costing System (“ACS”).
33The City’s witness is therefore qualified as an expert in this proceeding.
ANALYSIS
Description of Subject Property
34The subject property is a seven-storey structure comprised of a six-level parking garage containing 1,606 parking spaces and an approximately 125,000 square foot indoor waterpark on the seventh level. The waterpark was constructed in 2005-2006. The waterpark features 16 slides, an indoor wave pool, a house play structure, activity pools and an outdoor sundeck. There is direct indoor and covered access to the parking garage/waterpark from the Resort hotels and Casino Niagara.
Issue 1 – Were the higher assessments made by MPAC for the 2018 through 2024 taxation years properly made?
The Appellant’s Evidence and Submissions
35The Appellant submits that the re-assessment of the parking garage by MPAC for the 2017 taxation year and subsequent years was illegal and not authorized by the Act as interpreted by the Divisional Court of Ontario in Municipal Assessment Corporation v. Claireville Holdings Limited, 2022 ONSC 3293, (“Claireville – Div. Court”). The Appellant cites paragraph 27 of that decision:
27Annual assessments are done so that changes in assessment can be made when there is a change in the state or condition of the property. If there is no change in the state or condition of the property, the assessed value would be expected to remain unchanged until current value is re-assessed for a new four-year cycle.
36The Appellant submits that there was no change in the state and condition of the subject property that would have warranted a re-assessment by MPAC in 2018 and that, as a result, the increase in assessment levied for the parking garage by MPAC should be rolled back to the initial 2017 assessment of $3,324,000, and that MPAC’s revised valuation for 2018 indicates a clear change of opinion in value by changing its determination of gross income, expenses and vacancy.
37To further support its position, the Appellant cites National Car Rental (Canada) Inc. v Municipal Property Assessment Corporation, Region 15, 2022 CanLII 53352 (ON ARB) (“National Car”), at paragraph 129:
In summary, sections 32, 33, 34, 39.1, 40, and 40.1 of the Act provide a comprehensive scheme for making amendments to a property’s General Reassessment Value on the Assessment Roll. However, only s. 33 and s. 34 provide that current value may be determined based on a valuation day which follows the general reassessment valuation day prescribe by s. 19.2 of the Act. Section 36 does not allow for an annual reassessment of current value, nor is it necessary to impose an interpretative gloss on the wording of the legislation by adopting and applying a ‘state and condition’ paradigm.
38The Appellant submits National Car is even more restrictive in terms of when changes can be made to assessed values mid-cycle. Specifically, the Appellant submits that MPAC changed its opinion of value mid-cycle from 2017 to 2018 and further amended its opinion in its statement of response and its expert report filed for the hearing by the MPAC assessor. According to the Appellant, MPAC’s actions amounted to an annual reassessment which is not permitted by s. 36 of the Act as set out in National Car and should have led MPAC to the conclusion that it could not undertake a reassessment of the parking garage in 2018.
39Further, the Appellant submits the Board does not have the authority to reassess a property mid-cycle through a s. 40 appeal as set out in paragraph 99 in National Car:
99The powers of the Board on appeal are set out in sections 44 and 45 of the Act, which state:
Assessment may be open upon appeal
44 (1) Upon an appeal on any ground against an assessment, the Assessment Review Board or court, as the case may be, may reopen the whole question of the assessment so that omissions from, or errors in the Assessment Roll may be corrected, and the amount for which the assessment should be made, and the person or persons who should be assessed therefor may be placed upon the roll, and if necessary the Assessment Roll, even if returned as finally revised, may be opened so as to make it correct in accordance with the findings made on appeal.
Powers and functions of Assessment Review Board
45 Upon an appeal with respect to an assessment, the Assessment Review Board may review the assessment and, for the purpose of the review, has all the powers and functions of the assessment corporation in making an assessment, determination or decision under this Act, and any assessment, determination or decision made on review by the Assessment Review Board shall be deemed to be an assessment, determination or decision of the assessment corporation and has the same force and effect.
40The Appellant submits that these sections clearly provide that the Board has the same jurisdiction under the Act as MPAC to make changes to a property’s General Reassessment Value. Therefore, if MPAC does not have the authority under the Act to change a property’s General Reassessment Value, then neither does the Board in a s. 40 appeal proceeding (see the decision of the Ontario Divisional Court in Toronto (City) v. Municipal Property Assessment Corporation, 2013 ONSC 6137 (“Toronto City”) at paragraph 51.
41According to the Appellant, if a taxpayer is “stuck” with an assessment based on a past date, so should be MPAC and the municipality. The Appellant adds that no degree of predictability and planning was afforded the Appellant in this case, when MPAC increased the assessment on the parking garage from 2017 to 2018, eightfold.
42The Appellant submits that, as no section of the Assessment Act requires or authorizes a redetermination of the assessed value of the subject property, MPAC’s attempts to do so must fail. The Appellant submits that MPAC’s reassessment of the parking garage at the subject property for the 2018 taxation year was illegal and unauthorized by the provisions of the Act, as interpreted by the Ontario Divisional Court and various Assessment Review Board decisions. The Appellant submits that it also runs contrary to MPAC’s submissions in many cases as in Ivanhoe Cambridge Inc. v Oshawa (City), 2023 CanLII 116832 (“Ivanhoe”) where the Board stated:
64The Board also concludes that the requirement for an annual return of the assessment roll pursuant to s. 36 of Act does not require a redetermination of Defined Current Value. Therefore, as stated in National Car, the Defined Current Value determined in the general reassessment will be the property’s current value for all four years in the assessment cycle unless another section of the Act requires a redetermination of this value.
43In conclusion, the Appellant submits that MPAC has taken the clear position in the past that absent a physical change to the property or change in its use, the assessment for any property cannot change mid-cycle and that the assessment of the parking garage must be rolled back to its 2017 value of $3,324,000.
MPAC’s Evidence and Submissions
44MPAC submits that:
By making the annual assessment required by s. 36 of the Act, MPAC may at any time before the return of the roll, correct any defect, error, omission or misstatement and alter the roll accordingly and, that is exactly what MPAC did when returning the assessment for the 2018 taxation year. Based on information obtained, MPAC increased the 2016 CVA for the 2018 taxation year for the parking garage.
In respect to the Appellant’s submissions, MPAC agrees that it has changed its opinion of value of the parking garage and was entitled to do so. MPAC had the jurisdiction to change the assessment for the 2018 taxation year.
The Appellant misreads the Act, and the National Car decision. Subsection 32(1) of the Act allows MPAC, prior to roll return in each year, to “correct any defect, error, omission or misstatement in any assessment”. In National Car the Board noted, at paragraph 168, “… that a change in opinion of value can be corrected under s. 32 (1)”.
Subsection 32(1.1) allows MPAC to amend the roll to correct factual errors after roll return but not for changes to opinion of value. "at any time during the taxation year" to "correct any error in the assessment or classification of a property that has resulted from incorrect factual information about the property and not from a change in opinion as to current value…" Unlike s. 32(1.1), s. 32(1) does not contain any restriction concerning a change in opinion as to current value.
Section 33 requires MPAC to make any assessment necessary to assess land omitted from assessment for the current year and for all or part of the last two preceding years.
Section 34 allows MPAC to make supplementary assessments to reflect, among other things, changes due to increases in value after the return of the roll and before the end of the taxation year.
Subsection 44(1) provides that upon an appeal on any ground against an assessment, the Board “may reopen the whole question of the assessment so that omissions from, or errors in the assessment roll may be corrected”.
Subsection 44(3)(a) requires the Board, on appeal, to determine the correct current value.
Section 45 of the Act provides that:
Upon an appeal with respect to an assessment, the Assessment Review Board may review the assessment and, for the purpose of the review, has all the powers and functions of the assessment corporation in making an assessment, determination or decision under this Act, and any assessment, determination or decision made on review by the Assessment Review Board shall be deemed to be an assessment, determination or decision of the assessment corporation and has the same force and effect.
45MPAC cited National Car where the Board conducted an analysis of the proper interpretation of section 32(1), quoting the following from Toronto Airways Ltd. v. Municipal Property Assessment Corp., Region 14 2014 CarswellOnt 15057:
This Board has considered the proper interpretation of s. 32, and the legality of mid-cycle assessment changes, in two decisions: Reininghaus v. Municipal Property Assessment Corp., Region No. 15 (2013), 77 O.M.B.R. 485 (Ont. Assess Review Bd.) ("Reininghaus") and Ritchie v. Municipal Property Assessment Corp., Region No. 15 (2013), 76 O.M.B.R. 125(Ont. Assess. Review Bd.) [“Ritchie”]. In both instances the Board concluded that the Act permits a new assessment each taxation year and that s. 32 cannot be read in a limited manner. In Reininghaus Member Wyger held, at para. 19: "It makes eminent sense to allow MPAC to correct an assessment for practically any reason prior to the roll being fixed." We agree. Section 32 must be read as a whole and by clarifying in s. 32.(1.1) that "a change in opinion as to current value" was not a change permitted after the return of the roll, the legislature has made its intention clear that an opinion of value is a valid correction pursuant to s. 32(1). This is further supported by the requirement in s. 36.(1) that an assessment be returned each year. Assessing property requires an assessor to form an opinion on the value of that property. Thus, in requiring an assessment to be returned each year, the legislature left it open to MPAC to change its opinion of value each taxation year. [Emphasis added.]
46MPAC submits that the Board has consistently held that MPAC may alter its opinion of value within an assessment cycle even absent a physical or legal change to a property, provided that the land is valued as of the statutory valuation day. The combined effect of s. 31(1) and s. 36(1) is that MPAC may correct any “defect, error, omission or misstatement in assessment”, provided that the change is made “any time between January 1 and the second Tuesday following December 1” of the calendar year prior to the taxation year for which the assessment roll is being returned.
47In respect to the Appellant’s submissions, MPAC does not agree that paragraph 27 of the Claireville – Div. Court decision is relevant to these proceedings, submitting that the case at the Board concerned MPAC’s attempt to have the Board find the correct current value of the subject properties based on HABU (see: Claireville Holdings Limited v Municipal Property Assessment Corporation, Region 9, 2021 CanLII 26729 (ON ARB) (“Claireville”). MPAC submits that Claireville did not deal with the correction of an error on the assessment roll.
The City’s Evidence and Submissions
48The City submits that:
CNHI’s “illegality” arguments are fundamentally wrong. MPAC did not merely change its opinion of value about the subject property. There was “land” at the subject property it had not assessed for years and there were errors in MPAC’s assessment. Both those circumstances engaged specific statutory directions to alter the assessment.
The first of those circumstances is the s. 33 omitted assessments.
i. In 2017 MPAC issued omitted assessments for 2015 and 2016 taxation because the waterpark had not been assessed for over a decade.
ii. Section 33 of the Act contains an imperative direction to the assessing authority where, as here, land liable to assessment (the waterpark) has been omitted from the tax roll and no taxes have been levied, and that direction is the “assessment corporation shall make any assessment necessary to correct the omission” (emphasis added).
iii. As reflected in the Board’s decision in National Car, s. 33 omitted assessments are part of the statutory scheme for revising the “General Reassessment Value on the Assessment Roll”.
iv. MPAC’s evidence that in 2017 it discovered the waterpark had not been assessed for a decade was uncontradicted. In such circumstances MPAC had no discretion not to issue the s. 33 omitted assessments.
v. The Act requiring those omitted assessments cannot support an argument of ‘illegality’.
- The second of those circumstances is the error in MPAC’s assessment of the subject property for 2017 taxation.
i. Section 32(1) of the Act authorizes MPAC “... at any time before the time fixed for the return of the roll may correct any defect, error, omission or misstatement in any assessment and alter the roll accordingly”.
ii. Section 32(1.1) of the Act authorizes MPAC to “. . . correct any error in the assessment . . . that has resulted from incorrect factual information about the property …”.
iii. As reflected in the Board’s decision in National Car, s. 32 error corrections are part of the statutory scheme for revising the “General Reassessment Value on the Assessment Roll”.
iv. The change from the $3,324,000 assessment that CNHI argues is illegal is specifically authorized by s. 32 of the Act.
49The City submits that, while it takes no issue with the Divisional Court’s comment in Claireville – Div. Court that “If there is no change in the state and condition of the property, the assessed value would be expected to remain unchanged …” (see paragraph 27), it also submits that the comment must be understood on the facts of that case, specifically:
The issues before the Board were articulated at paragraph 7 of the Board’s Claireville decision. The central issue arose because MPAC sought to increase the CVA based on a HABU analysis.
The Board’s determination of the central issue is captured at paragraph 81 of the Board’s Claireville decision.
MPAC appealed the Board’s decision citing three errors (1) the Board presuming that current use was the property’s HABU; (2) the Board interpreting the Act as requiring a HABU determination at roll return each year rather than at the statutory valuation date; (3) the Board determining that an earlier Board decision was in error in its HABU methodology.
Paragraph 21 of the Board’s decision in Claireville, made in the context of its discussion of the state and condition date, is as follows:
21The assessor’s task is to determine, annually, at the state and condition date, the Highest and Best Use of the land assessed, then establish the correct value of such annual determination by reference to the valuation of land of similar Highest and Best Use on the legislated valuation day.
- Annual assessments are done so that changes in assessment can be made when there is a change in the state or condition of the property. If there is no change in the state or condition of the property, the assessed value would be expected to remain unchanged until current value is re-assessed for a new four-year cycle.
50The City submits that when the Claireville decision is read in context the Board is saying that the assessor must necessarily turn his or her mind to whether there has been a change to the state or condition of the property that affects its HABU when determining the assessed value for the return of the assessment roll. If there has been such a change, a new assessed value must be established for that HABU effective on the applicable valuation date prescribed in s. 19.2.
51Further, the City submits that, understood in its full factual context, the Claireville case did not involve either omitted assessments or correction of errors on the assessment roll, and any precedential authority of that case to the present facts is not applicable.
52Finally, the City submits that there were no mid-cycle changes to the assessment of the subject property. All years of the 2016 assessment cycle are under appeal and the roll for the entire cycle is open before the Board.
Findings on Issue 1
53The Board finds that in the context of the Act, MPAC properly applied higher assessments for the 2017 through 2024 taxation years. Section 36 of the Act states that not only was MPAC able to make these adjustments to the assessment, it was MPAC’s duty to do so.
54The Appellant’s citations of National Car and of both Claireville decisions are not applicable here, as the context of those decisions relate not to the assessment per se, but to the question of whether circumstances outside of the use and state and condition of a property can require an annual adjustment to an assessment outside of the valuation years. The salient circumstances in those cases related to the impact on business of the COVID 19 pandemic that affected the operations of businesses and detrimentally affected their ability to meet financial targets and goals derived from the subject properties. That is not the case here.
55In this case, MPAC, as is its duty, reviewed the assessment and corrected omissions in that assessment that had not previously been applied during the applicable assessment cycles.
56The Board finds therefore that the higher assessments made by MPAC for the 2017 through 2024 taxation years were properly made.
Issue 2 – Is the HABU of the subject property its current use or some other use?
The Appellant’s Evidence and Submissions
57In its written submission MPAC states that HABU is “…one of the most essential concepts in the valuation of real estate. It is the foundation on which market value is based”. There is little disagreement of that description. Equally accepted in this case are the four elements of consideration that weigh on the determination of HABU for a given property:
The use is legally permissible.
The use is physically possible.
The use is financially feasible.
The use is maximally productive.
58The Appellant submits that the HABU of the subject property is other than its current use. Specifically, the Appellant submits that the HABU of the subject property is as vacant land.
59The Appellant submits that the subject property is not a viable stand-alone business and that it relies entirely on the income received by the other elements of the Resort. Users of both components of the subject property are derived from the four, member hotels and the casino. Without that revenue stream, the Appellant submits, the parking garage and waterpark would not exist. Further, the Appellant submits an interested purchaser would be beholden to the other elements of the Resort for revenue and in the Appellant’s view, this makes the subject property in its present form non-viable to a separate party.
60Finally, the Appellant submits that this situation constitutes a business encumbrance and for that reason any valuation based on the subject property’s present use is inappropriate for the purpose of determining current value as defined in the Act.
MPAC’s Evidence and Submissions
61MPAC submits that the subject property is in the Clifton Hill tourist subdistrict in the Official Plan of the City of Niagara Falls and that it lies within an area zoned as ‘Tourist Commercial’ (“TC”). A parking garage in the location and configuration of the subject land is such that most any development would be physically possible, adding that the only restricting factor may be the size of improvements as regulated by the zoning by-law.
62MPAC also submits that the first two criteria in the HABU four-part test (physical possibility and legal permissibility) are clearly met by the existing improvements, leading to the interim conclusion that the HABU would be a tourism entertainment development.
63MPAC’s opinion evidence indicated that the existing improvements demonstrate a ‘critical piece of infrastructure of the…Resort’, with the waterpark serving as an added attraction to the greater Clifton Hill area and the parking garage function that includes operating agreements extended until 2040. This leads MPAC to the conclusion that the subject property as improved is of a higher value than if the property was vacant as indicated by the Appellant.
64MPAC’s opinion at hearing was that the subject property as improved is legally permissible, physically possible, financially feasible and maximally productive. MPAC’s position is that the subject property’s HABU is its current use.
The City’s Evidence and Submissions
65The City analyzed the subject property from the perspective of it being both vacant and as improved, concluding that a 125,000 square foot waterpark in a 1,606 space, multi-level parking garage would not likely sell based on the value of the vacant land, noting that both elements of the subject improvements are operating as going concerns.
66The City analyzed the improvements from the perspective of a re-development of the existing structure, pointing out that a re-purposing of the structure was not likely owing to the specific design elements of the parking garage in particular, where sloping floors on each level are required to move vehicles from one level to another.
67The City submitted that with the revenue generated by the subject property, its ongoing function in its present uses and the difficulty in re-purposing the existing structure, its HABU is as currently improved.
Findings on Issue 2
68There is no factual difference of opinion about the use of the subject property. It is a functioning waterpark attraction combined with an active and functional parking garage. The Parties agree that in determining HABU, the Board must consider four criteria; legal permissibility, physical possibility, financial feasibility and maximum productivity.
69The only area of dispute among the Parties lies in whether the subject property as improved is maximally productive. The expert witnesses of the City and MPAC testified that the current use is maximally productive. The Appellant’s opinion is that the subject property as improved cannot be considered maximally productive, because it does not function independently of the other components of the Resort. As a result, the Appellant submits that the HABU would be some other, unspecified tourism attraction or service offering that would be built on the land as vacant.
70The Board understands the Appellant’s position, that because the property does not generate any of its own revenue, it isn’t viable on its own and hence, cannot be considered to be “maximally productive”. The Board finds that this approach defies logic and ignores the use that is made of the subject property, not only by hotel and casino guests, but by the general public. The Appellant’s position is entrenched in the lack of financial feasibility it attributes to the subject property as improved.
71From the evidence available to the Board and the testimony given at hearing, the Board finds that this position is flawed because the financial loss attributed to the waterpark and the minimal financial gain attributed to the parking garage are not in fact intrinsic elements of their existence, but rather a function of the assignment of revenue between and among the elements of the Resort. Thousands and thousands of tourists used the waterpark during the years under appeal; the parking garage was by all accounts in evidence, an active, well maintained and substantially used element of the Resort and the Clifton Hill area.
72This property has ongoing activity that is attributable to its physical improvements. Millions of dollars in revenue are generated each year by the parking garage. And while the Appellant insists that there is no inherent value of the parking structure because it is dependent entirely on the other elements of the Resort, the Board cannot ignore its going concern.
73The fact is that if the hotels and casino did not have this property to support parking for their respective operations, they would have had to seek alternatives. That is good evidence that the physical attributes of the subject improvements have value, and it demonstrates that the HABU of the property is a parking garage and waterpark. The Board rejects the Appellant’s position that the value of the subject property is strictly the value of the land that the improvements rest on.
74More to the point, the definition of HABU is not determined by a property’s relationship with other properties, but rather by its use.
75The Board finds that the existing use of the subject property meets the four criteria established in considering the subject property’s HABU. Accordingly, the Board finds that the Highest and Best Use of the subject property during the years under appeal is its current use.
Issue 3 - What is the correct current value of the subject property?
76The Parties agree that the use of the subject property is separated into two parts; the waterpark and the parking garage. For that reason, they also agree that the valuation of those two components is best determined separately. However, the Parties are divided on the most appropriate approach to determining the current value of the two components.
3A – The Waterpark
77MPAC and the Appellant adopted the income approach to value for the waterpark component of the subject property. The only Party to apply the direct comparison approach to value was the Appellant, in the context of its position that the subject property’s HABU is the land as vacant. As an alternative, the Appellant adopted the income approach for the waterpark. The City’s position is that the best valuation approach for the waterpark is the cost approach.
MPAC’s Evidence and Submissions
78MPAC originally completed a cost approach valuation of the waterpark using its proprietary Automated Cost System (“ACS”). That valuation was completed early in the life of these appeals. That approach took into account all of the existing components of the waterpark and placed a value on those components to arrive at a replacement cost. From that value, physical depreciation, functional obsolescence and economic obsolescence were deducted from the replacement cost to arrive at a current value.
79For the 2015 and 2016 taxation years, the omitted assessments applied by MPAC, pursuant to s. 33 of the Act, totaled $15,317,000, apportioned between the Commercial property class ($11,833,000) and Exempt ($3,484,000). For taxation year 2017 MPAC assessed the 2016 CVA omitted value at $14,989,000, apportioned $3,399,000 as Exempt and $11,590,000 in the Commercial property class.
80Subsequent to the production of the cost approach, MPAC adopted a different approach as it delved more deeply into the relationship between the waterpark and the Resort hotels. Through that investigation MPAC developed an income approach to value, based on the income and expense data produced by the Appellant. In summary, that data showed that the Resort hotels record the revenues for the waterpark as part of overall room revenue. As a result, MPAC formed the opinion that the income approach was the appropriate valuation method.
81Based on Revenue Per Available Room (“REVPAR”) comparisons between the member hotels in the Resort and other comparable hotels in the area without waterpark packages, MPAC determined the Resort hotels generated more revenue per room and that this additional revenue was accounted for in the resolved appeals filed for the Resort hotels. MPAC concluded that the assessable value of the waterpark is assessed in the Resort hotels and attributing that revenue to the waterpark would result in double assessment, leading to its recommendation that the omitted assessments issued for the 2015, 2016 and 2017 taxation years should be cancelled.
82MPAC’s valuation of the waterpark relied on documents received from the Appellant, including a ‘Waterpark Departmental Summary’ and ‘Hotel Operating Statements.’ From those documents, MPAC determined Effective Gross Income (“EGI”) values of $2,295,766 for 2014, $4,739,789 for 2015 and $5,050,456 for 2016. From these figures and, in accordance with the normal methods used in the income approach, MPAC deducted operating expenses. Those operating expense figures for 2014, 2015 and 2016 amounted to $5,552,378, $5,847,333 and $6,033,955 respectively.
83MPAC calculated the Net Operating Income (“NOI”) of the waterpark by subtracting the reported expenses from the EGI to arrive at annual losses of approximately $1,000,000 in each of the three years for which results are recorded. When applying its selected capitalization rate (“cap rate”) of 11.28% (including both the base rate and an effective tax rate) MPAC arrived at an indicated waterpark value of -$8,953,000 (rounded).
84In making its final reconciliation of value of the subject property as a whole, MPAC deducted this value from the value it attributed to the parking garage component of the subject property.
The City’s Evidence and Submissions
85In determining the value of the waterpark, the City decided to abandon the direct comparison approach because there were no suitably comparable properties that sold on a date proximate to the statutory valuation day. Similarly, it abandoned the income approach owing to its view that the income and expense data in evidence was not reliable owing to the disparate attribution of expenses and revenues at the subject property that were distributed throughout the Resort hotels.
86As a result, the City adopted the cost approach to value and in doing so, started with a review of MPAC’s ACS. The City did not conduct its own cost approach but relied entirely on MPAC’s ACS cost method.
87The cost approach requires a calculation of what the subject property and improvements would cost to construct. This is the Reproduction Cost New, or “RCN.” The City views MPAC’s RCN calculation to be reasonable after a review of the construction elements and quantities identified in the RCN, finding for its purpose that the RCN of the waterpark is $13,188,382.
88The cost approach then requires a reduction of the RCN to reflect any costs related to excess capital cost, physical deterioration, excess operating costs and external obsolescence. The City determined that no excess capital costs, excess operating costs or external obsolescence were applicable as the facility is relatively modern, has little unused area in its operation and operates in any external or economic conditions applicable to this type of improvement that would affect its value.
89The City did apply, as MPAC did in its ACS, a physical deterioration reduction of $1,714,489 to the RCN thereby reducing the current value of the improvements to $11,473,893. The City further agreed with the ACS result, that no other depreciation was applicable given the design, layout and use of the subject waterpark. To the depreciated or current value of the improvements, the City added the estimated value of the yardwork component of the subject property, also reduced for physical deterioration, of $3,514,955, resulting in a total of $14,988.848.
90The City testified that, in most cases, a land value is added to the improvement value under the cost approach. In this case the City chose not to add land value in its determination because the waterpark sits atop a parking garage, valued using the income approach that already accounts for the value of the land.
91The City’s position is that the current value of the waterpark, derived from the cost approach is $14,988,848 or $14,989,000 rounded for the 2017 through 2024 taxation years.
92The City submitted that the cost approach applied to the 2016 valuation base year by MPAC was essentially the same for the 2012 base year applicable to the 2015 and 2016 omitted assessments under appeal. The only difference between the 2016 and 2012 calculations in the ACS was the adjustment for physical depreciation, with a higher value applied for the later valuation day as the waterpark was four years older by 2016 than it was in 2012.
93The City’s position therefore is that the values of the omitted assessments applied by MPAC for the 2015 and 2016 taxation years should remain as returned as those returned values were derived by the ACS cited by the City. That value is $15,317,000.
The Appellant’s Evidence and Submissions
94In developing its second opinion of value, the Appellant adopted a similar approach to MPAC, using the income approach, where portions of the revenue produced by the waterpark were attributed to other properties and where operating expenses were attributed to the waterpark. The Appellant’s result was similar to MPAC’s.
95That approach resulted in a current value for the waterpark based on the following:
Stabilized EGI of $4,818,656, derived from annual revenues income and expense documents from the Appellant for 2014, 2015 and 2016;
A reduction of the EGI for non-recoverable expenses, again derived from the Appellant’s income and expense documents, with a stabilized amount of $6,158,580, resulting in a NOI of -$1,340,000.
In summary, based on the Appellant’s position that the waterpark is integrated into the operations of the Resort hotels and that any benefit derived from its operation is reflected in the financial results and current value of those Resort hotels, the net impact is that the waterpark has a negative value and that negative value needs to be deducted from the parking garage value to arrive at a total current value for the property as a whole.
Findings on Issue 3A
96The Appellant stated that the waterpark is simply an attraction, indivisibly linked to the Resort hotels. The waterpark was described by the Appellant’s witness as a ‘loss leader’ because, as the revenue and expense summaries in evidence indicate, the waterpark loses money, but contributes to the overall success of the Resort.
97When questioned by the Board the Appellant’s expert witness admitted that there really is no way to determine if this waterpark makes money or loses money on its own, because its full revenue is not in evidence. A large, undeterminable portion of the revenue attributed to waterpark operations is attributed to the Resort hotels.
98The total expense born by the waterpark facility is in evidence, but only a fraction of the revenue because a very large part of the revenue generated by the waterpark is earned by the Resort hotels in room ‘package’ promotions. The revenue for the ‘upcharge’ from a regular room rate goes into the REVPAR calculation of the Resort hotels.
99The Appellant and MPAC agree that this additional revenue generates assessment in the income approach calculations of the Resort hotels and so it is accounted for at those hotels and the right thing to do is to take in all the expenses of operating 100% of the waterpark annually while attributing only the ‘walk-in’ revenue generated from all sources of users not related to any of the Resort hotels.
100This is an insufficiently detailed approach to determine the current value by the income approach. It was based on an internet search of advertised rates, comparing the rates at the Resort hotels with the rates at other hotels it deems to be similar, and uses the differences in these rates as an indicator of the revenue attributed to the subject property, but attributed to the hotels. No such approach was taken in attributing the corresponding expenses to the Resort hotels. Those expenses appear to be attributed to the waterpark.
101The result is that the data available at the hearing includes all of the expenses attributable to the waterpark without the entire income derived from its operation. That is not a correct application of the income approach, and because it is not based on facts before the Board, the Board rejects this approach as a means of determining the current value of the waterpark. The assertion at hearing argued by the Appellant and MPAC, that this ‘missing revenue’ is subsumed in the assessments of the participating hotels, is not evidence of the revenue of the subject property. The Board cannot find the current value of one property using the income approach by considering partial financial data that may or may not be attributable to one of four other properties whose assessments are not before the Board in this proceeding.
102The Appellant and MPAC take issue with the City’s position that MPAC’s ACS is the best indication of current value. They submit that former employees at MPAC had not relied on it in this case because they deemed it to be unreliable. Those employees did not testify at this hearing. The only witness that testified to the cost approach was the City’s expert. During his qualification as an expert as part of this hearing, the Board heard about that witness’s particular expertise in the application of the cost approach and specifically, his experience with the ACS used by MPAC.
103The Board finds that the only valuation approach in evidence that has complete data and that specifically makes a finding on current value that is attributable to the subject property under appeal is the cost approach relied on by the City. The correct current value of the waterpark is $15,317,000 for 2015 and 2016 and $14,988,848 or $14,989,000, rounded for 2017 through 2024.
3B – The Parking Garage
104While the Parties disagree on the current value of the parking garage component of the subject property, they all agree on the income approach to value as the best means of determining that current value.
MPAC’s Evidence and Submissions
105MPAC undertook the valuation of the parking garage component of the subject property with the income approach, using both a ’market value’ method and a ‘hybrid’ method. Both methods are variations on the income approach.
106In its market value method MPAC used its Market Valuation Report (“MVR”) for Office Buildings in Ontario which includes parking garages as a property type, noting that the data used in this context is derived from Property Income and Expense Returns provided to MPAC by property owners across the province.
107In its hybrid method MPAC relied on property specific data including the Appellant’s ‘Parking Garage Departmental Summary 2014-2016’, ‘Parking Data Stats 2014-2016’ and the parking licence agreements between the Appellant and its tenant Casino Niagara.
The Market Value Method
108Any income approach to value requires a determination of potential gross income (‘PGI’) for the subject property. In order to determine PGI in this case MPAC referenced the daily parking rates of 12 parking garages outside of the Greater Toronto Area (“GTA”) and compared those rates to monthly rates at the same garages. From that analysis, MPAC determined a ‘median conversion factor’ of $9.51 ($9.50, rounded) and applied that factor to the 2014 through 2016 ‘average garage regular rate’ as reported by the Appellant in its expert report.
109This calculation resulted in an estimated annual fair market rent of $2,465, $2,453 and $2,546 per parking space for 2014, 2015 and 2016 respectively, leading to PGI values for the same years of $3,945,953, $3,927,701 and $4,075,538 for the 1,606 parking spaces at the subject property.
110From that PGI, MPAC applied an 8% vacancy and collection loss allowance, consistent with its MVR for Office Buildings in the Niagara market area. This resulted in an EGI of $3,630,277, $3,613,486 and $3,749,495 for 2014, 2015 and 2016 respectively.
111To arrive at a NOI, MPAC applied a non-recoverable expenses allowance of 25%, consistent with the allowance applied to parking garages across the province. The resulting NOI values derived by MPAC were $2,722,708, $2,710,114 and $2,812,121 for 2014 through 2016 respectively.
112In order to arrive at a current value of the parking garage, MPAC adopted $2,800,000 as a NOI that represented the stabilized NOI expected at or near the 2016 valuation day.
113MPAC testified that the 2016 CVA of the Crowne Plaza Fallsview Hotel included revenue described as ‘parking allocation’. MPC removed this amount from the total parking revenue calculation it completed under the market value method. When the applicable cap rate is applied to this reduced NOI MPAC arrived at a 2016 CVA estimate of $33,381,000 for the parking garage.
The Hybrid Method
114MPAC’s hybrid method attempts to adopt as much property specific data as possible and in doing so, simplified the typical income approach process by adopting the actual revenue generated by the three sources of revenue (‘regular spots’, ‘casino spots’ and ‘hotel spots’) as the EGI. This approach eliminates the necessity of reducing a theoretical PGI by a vacancy allowance that is difficult to determine.
115MPAC made separate calculations of EGI for the three sources of revenue. For the hotel spots, the EGI determined by MPAC is $2,451,824, $2,643,639 and $2,615,862 for 2014, 2015 and 2016 respectively. For the regular spots, the EGI determined by MPAC is $496,787, $422,836 and $467,111 for 2014, 2015 and 2016 respectively. These figures were based on the average rate charged for each use multiplied by the number of spaces used over those three years.
116The approach to the EGI for casino users used by MPAC was less straight forward. Citing the evolution of the agreements between the Appellant and the casino, MPAC believed there was not a determinative value to apply as revenue from the casino, although it acknowledged there was casino revenue for parking reflected in those agreements. In the absence of a specific rate being evident in those agreements, MPAC adopted the approach of discounting the hotel rate it used above for that revenue source and arrived at a revenue per use of $10. When applied to the number of used spaces in 2014, 2015 and 2016, MPAC arrived at EGI values for those three years of $3,461,070, $3,067,890 and $3,096,280 respectively. MPAC noted these three figures are very close to the parking licence fee paid to the Appellant by the casino as reflected in the 2005 and 2007 operating agreements between the two parties.
117MPAC’s total EGI from the three sources was $6,319,722, $6,134,365 and $6,179,453 for the 2014, 2015 and 2016 years respectively. As a result, MPAC adopted a total stabilized EGI value of $6,150,000.
118To determine the NOI, MPAC adopted the Appellant’s operating expenses from its 2014 through 2016 operating statements. From these statements, MPAC removed costs associated with valet wages, valet benefits and municipal taxes because it believed the valet wages and benefits were allocated to Resort hotels and the municipal taxes recorded as expenses by the Appellant are more appropriately accounted for in the cap rate.
119MPAC’s NOI was derived from a reduction of the EGI by the expenses it deemed to be appropriate from the Appellant’s Property Income and Expense Returns. Those expenses were expressed as a percentage of the EGI in 2014, 2015 and 2016 at 33.27%, 31.29% and 32.20% respectively. From these results, MPAC adopted a stabilized expense percentage of 32%. When this value is removed from the stabilized EGI above, MPAC determined the stabilized NOI of the parking garage to be $4,182,000.
120In applying a base cap rate, MPAC referenced two sources. The first was a summary of the cap rates applied by MPAC to the income approach valuations of the Resort hotels and the casino. These cap rates ranged from 7.00% to 7.5%. Next, MPAC referenced the cap rate applied to two municipally-owned parking garages in St. Catharines. Those cap rates were 10.0%.
121MPAC found the St. Catharines properties to be too dissimilar to the subject property owing to location, use and the nature of the use of those garages and the motivations of the users. MPAC adopted an 8% cap rate because:
The subject property is a component of the Resort. 8% lies in proximity to the range of cap rates applied to the Resort hotels.
8% is in the middle of the range of parking garages in the GTA (5.75 – 6.00%) and parking garages in St. Catharines (10%).
The 8% cap rate is near the mid-range of the cap rates disclosed in the 2016 MVR for Office Buildings, where commercial parking garages are considered. (7% to 10%) and is therefore, consistent with the methods prescribed province-wide.
122To account for the impact of property tax on the current value calculation, MPAC elected to add an effective tax rate to the cap rate. It selected an effective tax rate of 3.28% and when added to the cap rate of 8% MPAC concluded with an overall cap rate of 11.28%.
123When the stabilized NGI is divided by the overall cap rate of 11.28% the result is $37,074,468. Prior to concluding its case on the parking garage valuation, MPAC elected to remove a portion of the overall NOI that represents an allocation from the current value determined for the Crowne Plaza Fallsview Hotel. When that amount ($1,619,000) is removed from the total NOI the result is $35,455,000, representing MPAC’s opinion of the current value of the parking garage using its hybrid method.
124MPAC believes the range created by its two methods is reasonable and that any finding of value in that range can be considered correct. The midpoint of that range is $34,418,000.
The City’s Evidence and Submissions
125The City developed its opinion of the current value of the subject property by a similar approach to that used by MPAC. It used the Property Income and Expense Returns provided by the Appellant, by applying the calculations in the Appellant’s income and expense reports and the vacancy reflected to arrive at a PGI. That PGI was reduced in accordance with the Appellant’s income and expense reports to arrive at an EGI of $6,989,254.
126Secondly, the City adopted the average EGI of the three years reported of hotel and regular or non-Resort users of $3,113,212. To that value, the City added the EGI derived from the casino users.
127The City drew its conclusion of the casino EGI from the series of agreements that were entered into by the Appellant and the casino. Starting in 2007, the City submits that the amendment to the agreement provides for monthly installments of $265,000 for an annual total of $3,000,000.
128The City submitted that the 2009 amending agreement removed the separate payment for parking and combined it with the casino lease. The City’s opinion was that the $3,000,000 was still attributable to the parking garage revenue and that, in the application of the amending agreement, the correct revenue attributable to the parking garage from casino use for 2016 was $3,000,000 plus the Consumer Price Index (“CPI”) as set out in the amending agreement for an annual 2016 payment of $3,417,040.
129When the casino revenue and the hotel / regular user revenue are added, the City arrived at an EGI of $6,530,252. The City then adopted the average of this EGI and the EGI derived directly from the income and expense reports.
130The NOI derived from the income and expense reports was calculated by applying a vacancy loss to a PGI figure of $8,765,475. That PGI was, in turn, calculated by multiplying an estimated daily rate by 1,606 parking spaces and then multiplying that figure by the 365 days in an average year. The City’s result from that calculation was an EGI of $6,989,254.
131The resulting average of these two EGIs is $6,759,753.
132Like MPAC, the City deducted annual expenses from the EGI determined. Using the average non-recoverable expenses over the three reporting years of $1,589,460 to arrive at an NOI of $5,170,294.
133The City’s base cap rate is 8%, the same as MPAC’s. The City’s opinion differs however on the Commercial tax rate to be added. The City determined a Commercial tax rate of 2.94941%. When the NOI is divided by the resulting total cap rate of 10.94941%, the result is $47,219,000. This is the City’s opinion of the current value of the parking garage component of the subject property.
The Appellant’s Evidence and Submissions
134Using the same parking revenue and expense information as the other Parties, the Appellant noted the EGI between the 2015 and 2016 reports varied by only $20,000. The Appellant submitted that weighting of the three years’ results was necessary owing to their differing time difference to the January 1, 2016 valuation day. By applying different weights to the 2014 – 2016 results, the Appellant arrived at a stabilized EGI for the parking garage of $3,056,545. In determining those expenses to be deducted from the EGI, the Appellant testified that expenses related to valet parking had to be removed from the income approach analysis to avoid ‘double counting’. It is the opinion of the Appellant’s witness that 30% of the Resort hotel and non-hotel user revenue was drawn from the valet service of one of the Resort hotels and that the expenses associated with that revenue needs to be removed from this income approach calculation. To do otherwise would be to apply the expenses twice; once on this subject property and once on the hotel that, presumably, applied the same expenses to its value calculation.
135Like the revenue, the Appellant stabilized the expenses applicable to the parking garage and determined a stabilized expense amount from the 2014 through 2016 income and expense reports and arrived at a stabilized non-recoverable expense amount of $913,043. When deducted from the Appellant’s opinion of EGI, the result is a NOI of $2,143,500.
136The Appellant submits that while there was a licence for the use of the parking garage by the casino originally signed, the amending agreement signed in 2009 removed that licence and the monthly payment of licence fees and attributed a larger lease payment of $5,500,000 (plus the CPI), or $5,700,000, whichever is less. According to the Appellant, this 2009 amending agreement shows there was no parking licence payment, and as a result there is no revenue attributable to the subject parking garage from the casino operation.
137The Appellant submits that the total NOI of the parking garage is therefore $2,143,500, representing Resort hotel and non-hotel or ‘regular’ users.
138The Appellant’s opinion of the applicable cap rate is 10%, reflecting the subservient role the subject property has in comparison with the Resort hotels. To that cap rate, the Appellant added 2.79 % based on the effective tax rate in 2015, the last known rate prior to the January 1, 2016 valuation day, arriving at a total cap rate of 12.79%.
139When applied to the NOI of $2,143,500 the total cap rate results in a current value of $16,759,186.
Findings on Issue 3B
140The dispute among the Parties relating to the current value of the parking garage portion of the subject property arises from differing interpretations of the use and revenue generating data and the agreements between CNHI and the tenant casino. There are three sources of revenue from the parking garage; guests of the four Resort hotels, daily or other parking garage users and guests of the casino.
141The Parties all agree that the best approach to determining the current value of the parking garage is the income approach. That approach requires a series of calculations to arrive at a current value that represents what a purchaser would expect to pay for the future benefit derived from the subject property’s revenue stream. In normal practice, the process taken is as follows:
Calculate the Potential Gross Income (PGI) from the property’s revenue stream.
Deduct an allowance for ongoing vacancy to arrive at the Effective Gross Income (EGI).
Reduce non-recoverable expenses from the EGI to arrive at Net Operating Income (NOI).
Divide the NOI by a cap rate, derived from sales and revenue data from other properties in the market, to arrive at a current value.
142All three Parties undertook this normal path, except the application of a vacancy allowance. Determining vacancy in this case is difficult because the source of users (Resort hotel guests, casino guests and others unrelated to the Resort), the duration of use (hourly, daily or otherwise) and the rates charged are very difficult to derive from the data available.
143Rather than extrapolate figures that may have been drawn from misinterpretation of use, the Parties all adopted the approach of determining the EGI straight from the revenue generated by the parking garage over 2014, 2015 and 2016, assuming those revenue figures already reflected the operating amount of vacancy. The Board accepts this approach as being reasonable in the circumstances.
144The revenue from the parking garage is drawn from three separate sets of users; Resort hotel guests, non-Resort hotel guests and casino guests. The Parties were consistent in developing the EGI from Resort hotel guests and non-Resort hotel guests. Using the 2016 results as shown in the Appellant’s parking garage financial results summary, the Parties adopted an EGI for these two user groups of $3,083,173 (City and MPAC) and $3,087,657 (Appellant). The Board finds that a reasonable value for the EGI from Resort hotel guests and non-Resort hotel guests is the mid-point of these two figures, or $3,085,415.
145The Parties differ in their approaches to the EGI derived from casino guests. There were several agreements between the Appellant and the casino, initiated in 2005 and subsequently amended. Those agreements set out the terms and conditions of the relationship with the casino and the Appellant. The July 2005 agreement included specific amounts as a licence, for the use of parking spaces by the casino of $267,500 per month, including GST for an annual amount of $3,000,000, net of GST. The net amount was confirmed in a March 2007 amendment to the 2005 agreement.
146That 2007 agreement included a long series of terms and conditions regarding CNHI’s responsibilities as landlord. Those responsibilities included the maintenance and upkeep of the property; essentially all of the costs associated with running a for-profit parking garage facility. In addition, the casino required CNHI as the landlord to facilitate the use of ‘Priority Card’ bearers at the parking facility. There is no detail in evidence about the specific costs of any of these operational responsibilities, however, in the revenue and expense summaries adduced at hearing, the total expenses are logged.
147In December 2009 an amending agreement (the “amending agreement”) was signed between the Appellant and the casino operator that extended the term of the lease of the casino and the licence of the parking garage agreements to March of 2025. That amending agreement set out an “Annual Aggregate Basic Rent and Licence Fees for the Extended Term…” The revised terms of the agreement provided step up payments from the casino to the Appellant in three stages. The first stage applied to the period March 2010 through March 2015. The second stage applied to the period March 2015 through March 2020 and the third stage applied to the period March 2020 through March 2025.
148It is clear from the wording of the amending agreement that the payments set out included both the ‘lease’ for the casino use and the ‘licence’ for the use of the parking garage:
The term of the Lease and the Licence is hereby extended by an additional term of fifteen (15) years from March 10,2010 (the “Effective Date”) to expire on March 9, 2025 (the “Extended Term”). OLG shall have no right to early termination of the Extended Term. Reference in the Existing Agreements to “Term” shall as of and from the Effective Date be deemed to include the Extended Term. (Article 2 Term and Rent; section 2.1 Extended Term
149Prior to the amending agreement, the revenue attributed to the parking garage from the casino was specifically set out at $3,000,000 with the lease of the casino itself set out at $3,900,000, for a total of $6,900,000. At the January 1, 2016 valuation day applicable to these appeals, the amending agreement provided for an annual payment by the lesser of $5,700,000 or $5,500,000 increased annually according to the effective CPI as at December 31 of the immediately preceding year.
150The Appellant submits the all-encompassing lease payment no longer included parking revenue, as of March 2010. The City submits that is absurd and that the year previous set out parking fees at $3,000,000 and the net effect of the lease agreement change was to increase the casino proper lease payment from $3,000,000 to $6,000,000, indicating that the parking revenue from that point on did not disappear, but was included in the larger catch-all payment to the Appellant. MPAC agrees with the City in its interpretation of the amending agreement.
151The Board finds that the amending agreement clearly states that fees paid by the casino include licence fees for the use of parking at the subject property. The resulting question is: What proportion of that payment is attributable to the use of the parking garage?
152From the terms of the amending agreement the minimum lease and licence payment in 2016 was either $5,700,000 or $5,500,000 indexed to the CPI. The amount attributed to the parking garage is a portion of either of those two totals. The CPI for 2016 was not in evidence. Therefore, the lowest possible payment by the casino for 2016 would have been $5,500,000.
153Prior to the amending agreement, the revenue from the casino attributed to the parking garage was 43.5% of the overall payments made by the casino to the Appellant. The Board finds that this is the best indication in evidence of what the proportion of the total revenue in the amending agreement should be attributed to the parking garage. Forty-three point five percent of $5.5 million is $2,392,500.
154The Board finds therefore that the total EGI of the subject parking garage is $3,085,415 from non-casino users and $2,392,500 from casino users for a total of $5,477,915.
155Reported expenses to operate the parking garage are also presented in the Appellant’s financial summary. For 2016 those expenses totaled $1,569,931 and included payroll costs and other fixed and non-fixed operating costs. When this figure is removed from the EGI above, the result is a NOI of $3,907,984.
156To determine the current value of the parking garage component of the subject property, this NOI must be divided by an effective cap rate. Cap rates in evidence vary from 8% to 10% as a base rate and an effective tax rate of 2.79 to 3.28. The total cap rates adduced at hearing were 10.95% (City), 11.28% (MPAC, in its hybrid method) and 12.79% (Appellant). This variance is mostly due to the Parties’ differing opinions of the base rate, varying from 8% to 10%. None of the Parties included property taxes as part of non-recoverable expenses.
157The average cap rate value of the three in evidence is 11.67%. The Board finds that, on a balance of probabilities, and in the context of the totality of the evidence adduced by the Parties, this average cap rate represents the best evidence. When this cap rate is applied to the NOI determined above of $3,907,984 ($3,907,984 divided by 0.1167) the result is $33,487,437.
158The Board finds, therefore, that the total correct current value of the parking garage is $33,487,437, or $33,487,000, rounded.
159Adding the correct current values of the waterpark at $14,988,848 and the parking garage at $33,487,437 together produces the total correct current value of the subject property of $48,476,285 or $48,476,000, rounded.
Issue 4 – Does the current value determined require a reduction for it to represent equitable assessment when reference is made to the assessments of similar lands in the vicinity?
160None of the Parties advanced any argument with respect to whether a finding of current value should be reduced for it to be considered equitable. It was well demonstrated though evidence at the hearing that this property is unique, both in terms of its function and its location. The function and location combine to make this a one-of-a-kind property in the marketplace. This is important because the basic test of equitable assessment is the concept of similarity of the subject property to other properties in the vicinity with respect to those properties’ characteristics and their respective assessments.
Findings on Issue 4
161As there was no evidence presented of similar properties in the vicinity of the subject property, the Board finds that there is no evidence to support a reduction of the current value determined, for it to be considered equitable assessment.
CONCLUSION
162The Board finds that the current value of the subject property is $48,476,285 or $48,476,000, rounded.
ORDER
163The Board orders that:
The current value of the subject property is $48,476,000 for the 2017 through 2024 taxation years.
The omitted assessment values returned for the 2015 and 2016 taxation years are confirmed.
The apportionment of these values and their classification are to be applied consistent with the ‘change to’ columns in Schedule A, attached.
"Dan Weagant"
DAN WEAGANT
MEMBER
Assessment Review Board
Website: www.tribunalsontario.ca/arb
SCHEDULE A
Roll Number: 2725-030-002-04000-0000 Address: 5685 FALLS AVE Assessed/Appellant: CANADIAN NIAGARA HOTELS INC
Appeal No.
Effective
Section No.
ASSESSMENT
CHANGE TO
CLASSIFICATION
VALUE
CLASSIFICATION
VALUE
3278156
JAN 01, 2015
33
Commercial (Full)
$11,833,000
Confirmed
Confirmed
3278157
JAN 01, 2015
33
Exempt (Non-assessable unit)
$3,484,000
Confirmed
Confirmed
3278159
JAN 01, 2016
33
Commercial (Full)
$11,833,000
Confirmed
Confirmed
3278158
JAN 01, 2016
33
Exempt (Non-assessable unit)
$3,484,000
Confirmed
Confirmed
3228568
JAN 01, 2017
40
Commercial (Full)
$3,324,000
Parking Lot (Full)
$33,487,000
3278161
JAN 01, 2017
33
Commercial (Full)
$11,590,000
Confirmed
Confirmed
3278160
JAN 01, 2017
33
Exempt (Non-assessable unit)
$3,399,000
Confirmed
Confirmed
3309227
JAN 01, 2018
40
Parking Lot (Full)
$27,340,000
Confirmed
$33,487,000
Commercial (Full)
$11,589,000
Confirmed
$11,590,000
Exempt (Non-assessable unit)
$3,399,000
Confirmed
Confirmed
TOTAL
$42,328,000
$48,476,000
3363149
JAN 01, 2019
40
Parking Lot (Full)
$27,340,000
Confirmed
$33,487,000
Commercial (Full)
$11,589,000
Confirmed
$11,590,000
Exempt (Non-assessable unit)
$3,399,000
Confirmed
Confirmed
TOTAL
$42,328,000
$48,476,000
3407922
JAN 01, 2020
40
Parking Lot (Full)
$27,340,000
Confirmed
$33,487,000
Commercial (Full)
$11,589,000
Confirmed
$11,590,000
Exempt (Non-assessable unit)
$3,399,000
Confirmed
Confirmed
TOTAL
$42,328,000
$48,476,000
3446800
JAN 01, 2021
40
Parking Lot (Full)
$27,340,000
Confirmed
$33,487,000
Commercial (Full)
$11,589,000
Confirmed
$11,590,000
Exempt (Non-assessable unit)
$3,399,000
Confirmed
Confirmed
TOTAL
$42,328,000
$48,476,000
3489555
JAN 01, 2022
40
Parking Lot (Full)
$27,340,000
Confirmed
$33,487,000
Commercial (Full)
$11,589,000
Confirmed
$11,590,000
Exempt (Non-assessable unit)
$3,399,000
Confirmed
Confirmed
TOTAL
$42,328,000
$48,476,000
3513242
JAN 01, 2023
40
Parking Lot (Full)
$27,340,000
Confirmed
$33,487,000
Commercial (Full)
$11,589,000
Confirmed
$11,590,000
Exempt (Non-assessable unit)
$3,399,000
Confirmed
Confirmed
TOTAL
$42,328,000
$48,476,000
3525859
Jan 01, 2024
40
Parking Lot (Full)
$27,340,000
Confirmed
$33,487,000
Commercial (Full)
$11,589,000
Confirmed
$11,590,000
Exempt (Non-assessable unit)
$3,399,000
Confirmed
Confirmed
TOTAL
$42,328,000
$48,476,000