3022056 Canada Inc. v. Municipal Property Assessment Corporation Region 32, 2024 CanLII 126281

Tribunals Ontario / Tribunaux décisionnels Ontario

Assessment Review Board / Commission de révision de l’évaluation foncière

ISSUE DATE: December 17, 2024

FILE NO.: WR 187156

Assessed Person(s): 3022056 Canada Inc.

Appellant(s): 3022056 Canada Inc.

Respondent(s): Municipal Property Assessment Corporation Region 32

Respondent(s): City of Thunder Bay

Property Location(s): 767-805 Memorial Avenue

Municipality(ies): City of Thunder Bay

Roll Number(s): 5804-010-037-91400-0000

Appeal Number(s): 3502729, 3514225 and 3526522

Taxation Year(s): 2022, 2023 and 2024

Hearing Event No.: 784096

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

APPEARANCES:

Parties	Counsel/Representative
3022056 Canada Inc.	Paul Grosman
Municipal Property Assessment Corporation	Carrie Carone
City of Thunder Bay	Guy Tudino

HEARD: June 25 and 26, 2024 by video conference

ADJUDICATOR(S): Dan Weagant, Member

DECISION

OVERVIEW

13022056 Canada Inc. (the “Appellant”) believes the current value of 767-805 Memorial Avenue (the “subject property”) returned on the assessment roll for the 2022 taxation year is too high. That value is $54,985,000. For that reason, the Appellant appealed the assessment pursuant to s. 40 of the Assessment Act (the “Act”). In accordance with s. 40(26) of the Act, that appeal was deemed to apply to the 2023 and 2024 taxations years.

2As a respondent to these appeals, the City of Thunder Bay (“City”) believes the assessment returned is too low and that it should be increased to reflect current value.

3The Municipal Property Assessment Corporation (“MPAC”) believes the correct current value is less than the value returned on the roll and that the assessment should be reduced accordingly.

Background

4The parties advance different approaches and results in their respective current value positions. MPAC believes the best method to determine the current value is the income approach. The Appellant believes the best method of determining the correct current value is based on a sale of the subject property.

5The City considered both approaches and opted for an assessment based on an average of the 2013 time-adjusted sale value of the subject property and the value determined by the income approach. That average was reduced by the City to reflect an equitable assessment of $61,442,000.

6In reviewing the mass appraisal approach used by MPAC to set the returned assessment, MPAC determined that adjustments were needed to bring the correct assessment in line with market conditions. That review resulted in a recommended reduction in the current value assessment returned to $54,322,000.

7The Appellant’s position on current value was determined from a sale of the subject property that took place in 2021. That value is $27,500,000.

Areas of Agreement

8There is no dispute among the parties that the property is correctly assessed in the Commercial property class and the Shopping Centre property class.

9The parties agree that the highest and best use of the subject property is its present use.

Issues for the Hearing

10At issue in this proceeding is:

1. The correct current value of the subject property.
2. Whether the current value determined should be reduced for the purpose of equitable assessment.

Result

11The Board finds that the best method of determining current value is based on the sales of the subject property that took place in 2013 and 2021. The Board finds that the correct current value of the subject property for the 2022, 2023 and 2024 taxation years is $51,013,000.

12The Board also finds that there is no evidence to support a reduction in this value for the purposes of equitable assessment.

ANALYSIS

Description of Subject Property

13The subject property is a 26.96-acre site, improved with 333,993 square feet of gross leasable area (“GLA”). At the time of the appeal, the land was improved with seven separate buildings, ranging in size from 4,617 square feet to 167,685 square feet. Each building contains between one and three separate units. The largest building accommodates an anchor tenant that occupies the entire 167,685 square foot structure.

Issue 1 – What is the correct current value of the subject property?

MPAC’s Evidence and Submissions

14MPAC began its income approach calculation by reviewing the fair market rents (“FMRs”) used in its returned value. Those FMRs varied among MPAC’s tenancy types and the design types at the subject property. Of the nine returned FMRs, MPAC reduced four of them as a result if its review. The most notable reduction was related to the retail anchor Walmart store, with approximately one half of the total square footage of GLA at the subject property.

15These adjustments were made after the review of similar tenancies and leases in the market, including MPAC’s consideration of the actual rent rolls at the subject property. The result of these changes was a calculated annual potential gross income (“PGI”) of $3,754,369.

16The next step in the income approach method is the determination of a vacancy allowance. MPAC’s returned vacancy rate was consistent with the wider market at 3.0% of the PGI determined. MPAC reviewed the vacancies at the subject property and determined it did not experience a higher-than-average vacancy condition and therefore, adopted the returned vacancy allowance rate of 2% for the anchor tenant and 3% for the remainder of the subject property.

17MPAC also undertook a review of its returned expense allowance at the subject property. In reviewing the financial statements produced by the Appellant, MPAC revised its opinion of the correct expense allowance from 3% to 4%.

18After deducting the vacancy allowance and the expense allowance from the PGI determined earlier, MPAC determined a net operating income (“NOI”) of $3,530,941. MPAC then conducted a capitalization rate (“cap rate”) study using the sales of five properties as compared to their respective NOIs, along with the resulting cap rate from the 2013 sale of the subject property. The result was a range of cap rates of the most comparable properties in its sample. That range is 5.62 % to 6.89%. MPAC considered a cap rate of 6.5% as being reasonable as it falls within that range.

19When applied to the NOI of the subject property, the resulting current value determined by MPAC is $54,322,164 ($54,322,00, rounded).

The City’s Evidence and Submissions

20The City conducted two separate valuations based on two different methods. The first of these was a direct comparison approach, relying on paired sales of proposed comparable properties that took place before and after the applicable January 1, 2016 valuation day and sales of two other properties that occurred in Thunder Bay. The City then considered the current actual rents of other Walmart stores, derived from 2008 through 2010 leases in other cities. The City considered those rents to be more applicable in determining current value than the rent reflected in the 1995 lease of the subject Walmart store and adjusted the income accordingly.

Paired Sales / Time Adjustment

21The City analyzed the sales of three properties it deemed to be comparable to the subject property. For each of the three properties two sales occurred, one prior to the valuation day and one following the valuation day. Table A summarizes the City’s data.

Table A

Address	Gross Leasable Area (GLA)	Sale 1 Date and Value	Sale 2 Date and Value	Value Difference (%)	Number of Months	Value Difference / Month (%)
1186 Memorial Avenue, Thunder Bay	66,801 sq. ft.	December 2010, $15,500,000	October 2017, $16,300,000	5.2	81.2	0.06
870 Red River, Thunder Bay	19,000 sq. ft.	December 2010, $2,700,000	October 2017, $3,300,000	22.2	81.2	0.27
349-389 Main Street, Thunder Bay	168,047 sq. ft.	February 2012, $37,972,328	June 2017, $39,750,000	4.7	64.5	0.07

22The City adopted the average value change per month of these paired sales, of 0.14% and applied that to the April 2013 sale price of the subject property. That sale took place 33 months before the valuation day for $62,769,900 When the City applied its average sale value difference per month over 33 months, it arrived at a value of $65,620,805 on January 1, 2016.

23In its analysis of the leases at the subject property, the City determined that the lease-based rent of the anchor Walmart store was too low and did not represent the correct fair market rent (“FMR”) for that space and therefore required a correction. The City noted that the rent paid at the subject property by Walmart was $7.17 per square foot based on a 1995 lease. To make its case, the City referenced the leases of three other Walmart stores in New Tecumseth, Bradford and Sudbury Ontario where the average rents were $9.35 per square foot based on leases signed in 2008, 2009 and 2010. From this data, the City concluded that the FMR of the subject anchor lease should be $9.40 per square foot.

24According to the City, this increase in FMR of the anchor tenant results in an additional PGI of $373,938 and when capitalized, results in an additional current value of $5,752,885. When added to the value derived from the City’s time-adjusted 2013 sale, the current value is $71,373,690 ($71,373,000, rounded).

Sales Comparison

25The City also undertook a direct comparison approach to value of the subject property by comparing it to sales that occurred in 2013 and 2017 of two properties the City deemed comparable to the subject property. The first sale at 1000 Fort William Road occurred in December of 2013 at a sale price of $130,840,200. The City time adjusted that sale price by 0.14% per month, to $135,353,784, or $289 per square foot on the valuation day.

26The second sale at 349 Main Street occurred in June of 2017 at a sale price of $39,750,000. The City time adjusted that sale price by 0.14% per month, to $38,776,184, or $231 per square foot on the valuation day. The City submitted that the resulting range of time-adjusted values per square foot verifies its value determined of $71,373,000, representing a per square foot value of $213.

Capitalization of Actual Income

27The City also considered the actual reported net income generated by the subject property for 2014 through 2017 and corrected those results by removing amortization interest. The result of this analysis was an average value of $58,562,000. The City then further corrected that value by adding the additional lease value from its market lease analysis of the anchor Walmart. That increase in value was $5,752,000. When added to its corrected net income average from 2014 through 2017 the City arrived at a value of $64,314,000.

The City’s Conclusion

28The City concluded that the current value of the subject property is the average of the two values produced by its analysis, $71,373,000 and $64,314,000, or $67,751,000. The Board notes that the actual average of those two figures is $67,843,500.

The Appellant’s Evidence and Submissions

29The Appellant took two approaches to the valuation of the subject property. The first was an income approach to value. The second approach was described as a direct comparison approach, but only considered the sale of the subject property in 2021.

Income Approach

30The Appellant undertook an analysis of the actual income of the subject property as cited by the other parties. In doing so, the Appellant made a number of adjustments to the actual financial results reported. Those adjustments included corrections to GLAs for some tenancies, adjustments to the vacancy and expense allowances and revisions to the FMR of vacant units. Finally, the Appellant conducted a capitalization rate study that increased the cap rate to 8.50%. The income approach calculation produced by the Appellant resulted in a current value of $39,648,000.

31Ultimately, the Appellant determined its opinion of current value from the sale of the subject property in July of 2021, of $27,500,000. Time adjustments were not made to this sale and according to the Appellant, “Since the appeals for the subject property are for the 2022 and 2023 taxation years and the sale occurred in 2021, my opinion is that making further time adjustments is not required.”

Findings on Issue 1

32The Board disregards MPAC’s income approach to value. The Board finds no fundamental failure or inconsistency in MPAC’s income approach findings. However, the income approach to value is, by nature, a proxy for current value calculations where sale evidence is not available. The Board has widely held that the best evidence of the current value of a property is its sale value, or failing that, the sale values of comparable properties.

33In this case, the Board has sales information in evidence and for that reason a valuation using the income approach is not necessary.

34The Board also disregards the City’s approach to the valuation of the subject property because:

1. The adjusted rate per square foot for the anchor tenant Walmart was based on lease rates at Walmart stores that are more than 1,000 kilometres from the subject property and were not proven to be representative of the Thunder Bay market.
2. The time-adjustment method was based on the paired sales of properties that were far smaller than the subject property and therefore, not representative of the market for a property of the size of the subject.

35The Board disregards the Appellant’s premise that the 2021 sale of the subject property is the best evidence of its current value because it is proximate to the years under appeal. This ignores the statutory requirement for the Board to determine the assessment of the subject property, based on its correct current value as of January 1, 2016 (s. 10.2 of the Act). The Appellant’s approach ignores this relationship to the statutory valuation day.

36Sales of a subject property, all other things being equal, are superior indicators of current value, noting that the definition of current value in the Act refers to the value in exchange between a willing buyer and a willing seller.

37The Board finds that the best evidence of the current value of the subject property is a combination of sales of the subject property in evidence. One of these sales occurred in 2013, 33 months before the valuation day. The other sale occurred in 2021, 66 months after the valuation day. The earlier sale value was $62,769,900 and the later sale value was $27,500,000.

38The Board notes the 2019 ‘Strategic Advisory Report’ prepared by CBRE and adduced by the Appellant. That document determined a value of $42,296,217 in February 2019; 37 months after the valuation day. That document was not subjected to any examination by the other Parties as the author was not a witness at this proceeding. However, it is an indication that, during the 99 months between the two subject sales, the value of the subject property was declining.

39The Board views the benefit of this method over all others in evidence as being its reliance on sales of the subject property.

40When the difference in these two sale prices is divided by the 99 months between them, the result is $356,262 per month.

41The 2021 sale was 66 months after the valuation day at a price of $27,500,000. Sixty-six multiplied by the monthly value difference of $356,262 equals $23,513,292. When added to the 2021 sale price, the result on the valuation day is $51,013,292.

42The 2013 sale was 33 months before the valuation day at a price of $62,769,900. Thirty-three multiplied by the monthly value difference of $356,262 equals $11,756,646. When subtracted from the 2013 sale price, the result on the valuation day is $51,013,254.

43The average of these two figures is $51,013,273 ($51,013,000 rounded) and represents the correct current value, based on the best evidence at hearing.

Issue 2 – Does the current value determined need to be reduced for it to reflect equitable assessment?

Appellant’s Evidence and Submissions

44The Appellant did not adduce any evidence to support a reduction in the current value determined, for the purpose of equitable assessment.

MPAC’s Evidence and Submissions

45MPAC produced a comparison of the assessments of 13 properties in the ‘427’ property code as it applies to the subject property. That sample included the subject property. The median assessment per square foot of MPAC’s sample was $259.66. The assessment per square foot of the subject property was $164.14, based on the value returned by MPAC. MPAC submitted that this indicates the subject property is assessed at a rate below the assessments of similar properties in the vicinity and that a reduction in the current value determined is not necessary for it to be considered equitable.

46Secondly, MPAC produced an assessment to sales (“ASR”) study including 11 commercial properties that sold in Thunder Bay between November 2013 and June 2018. That study compared the 2016 current value assessment applicable to each of the 11 properties to their corresponding sales prices. The sale values used by MPAC were not time adjusted to the valuation day.

47MPAC determined that based on this data, the median ASR was 1.0, indicating that similar properties in the vicinity are assessed at their respective sale values.

City’s Evidence and Submissions

48The City also produced an ASR study and compared the assessments of 13 properties to their respective time-adjusted sale value.

49The City’s study found that the median ASR of the 13 properties in its sample was 0.91, indicating that similar properties in the vicinity of the subject property are assessed below their sale value and hence their current value. The City submitted that the current value determined should be reduced by 9% to reflect equitable assessment.

Findings on Issue 2

50Section 44(3)(b) of the Act requires the Board, having determined the current value of a property, to “have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment of the land.”

51Both MPAC and the City advanced their case on equitable assessments by producing an ASR study comparing the 2016 CVA of commercial properties in Thunder Bay to their respective current values, based on sales. The Board disregards MPAC’s ASR study as the comparisons made are between the 2016 CVA and actual sale values and not time-adjusted sale values. Without these time adjustments, there is no means of comparing the 2016 assessments to 2016 current values.

52In considering whether a reduction in the current value is necessary to reflect equitable assessment there are two elements to consider as set out in the Act; vicinity and similarity. There is no issue with vicinity in this case. All of the sales cited are for properties in Thunder Bay. However, upon review of the properties cited by the City in its ASR study, the Board finds that the properties used for comparison for the purposes of determining equitable assessment are not suitably similar to the subject property because:

1. Only one property in the sample has the same property code as the subject property (code 427). This property code reflects the big box retail nature of the subject property.
2. Of the 13 properties cited by the City, 10 of those had time-adjusted sale prices less than $10,000,000, with five of those having time-adjusted sale prices of less than $1,000,000.
3. One property cited had a time-adjusted sale value of over $130,000,000.

53The Board finds that these differences cast doubt on the findings of the City’s ASR study owing to a lack of similarity.

54The Board finds therefore, there is no evidence to support a reduction of the current value determined for the purposes of equitable assessment.

CONCLUSION

55The Board finds that the correct current value of the subject property is $51,013,000. The Board also finds that there is no evidence to support a reduction in this value for the purposes of equitable assessment.

56The apportionment of this value between the Commercial and Shopping Centre property classes is the same proportion as was applied to the value returned on the roll for the years under appeal.

ORDER

57The Board orders that the assessment of the subject property located at 767-805 Memorial Avenue is reduced to $51,013,000 for the 2022, 2023 and 2024 taxation years, apportioned as follows:

Shopping Centre: $47,209,500

Commercial: $3,803,500

"Dan Weagant"

DAN WEAGANT MEMBER Assessment Review Board Website: www.tribunalsontario.ca/arb