city of saskatoon – corporate services – assessment branch

CITY OF SASKATOON – CORPORATE SERVICES – ASSESSMENT BRANCH

2012 Appeals Panel PresentationSAAA Conference May 16, 2012

A

2012 APPEALS PANEL - CITY O

F SASKATOO

N2009 Revaluation Cycle Stats

Number of Appeals heard:

•2009 Board of Revision Appeals 210




A

Back ground:

• 3 enclosed mall sales between 2004 – 2006

• Median cap rate of the three sales – 8.26%

• Only 1 Power Centre sale – not used.

• Cap rate of 8.26% was applied to the Power Centres

• Enclosed Malls and Power Centres had their own models to develop Net Operating Income.


F SASKATOO

NEncl. Mall & Power Centre Valuation Over the 2009 Cycle

A


F SASKATOO

N

Mall Sale Year AdjustedSale Price

CapRate

Midtown Plaza 2004 $129,000,000 9.55%Lawson Heights 2005 $45,500,000 8.26%

Market Mall 2004 $28,100,000 8.12%Median 8.26%

StatisticalMeasures 2009

ASR 0.995

COD 5.8%

The Sales

A


F SASKATOO

N

Vacancy Overview

• Income and Expense forms were analyzed between 2004 and 2006 for the Enclosed Shopping Centres

• A vacancy of 5% was determined

• A typical rent for CRU space per square foot was developed $32.50/ft2

• The 5% vacancy was applied to the gross building area to determine a typical vacant space.

• The $32.50/ft2 was then applied to that vacant space to estimate an annual vacancy to be used in the analysis of the sales.

Vacancy Analysis

A


F SASKATOO

N

Square FootageVacancy × of CRU Space = Vacant Space

5% 300,000 ft2 15,000 ft2

Typical CRU Rent × Vacant Space = Vacancy Allowance$32.50 15,000 ft2 $487,500

Vacancy Application Example

A


F SASKATOO

N

Ground: The assessment value is too high and in turn in error.

Fact: The vacancy adjustment calculated does not correctly account for the vacancy. The assessor used the square footage of the total area instead of the proportionate value of each area which affects the vacancy allowance. [EMPHASIS ADDED]

The Agent advocated that the 5% vacancy should be applied to the Potential Gross Rent instead of a square footage.

The effect of changing the vacancy for the subject property would reduce the allowance by $8,990 resulting, based on this ground, a slightly lower assessment.

The City pointed out at the hearing that any change in methodology used to develop the rent, vacancy, structural allowance, or non recoverables would have an effect on the sales analysis and in turn affect the cap rates.

The Appeal

A


F SASKATOO

N

The BOR requested an undertaking to review what affect, if any, the change in vacancy methodology would have on the sales cap rates.

The City responded with the following table:

The BOR found that the Vacancy method used by the City was an error. They reduced the value in part based on the change in vacancy.

Mall Sale Year AdjustedSale Price

CapRate

Midtown Plaza 2004 $129,000,000 9.54%

Market Mall 2004 $28,100,000 8.00%

Lawson Heights 2005 $45,500,000 7.97%

Median 8.00%

The BOR Decision

A


F SASKATOO

N

The City appealed the BOR decision to the AAC on the basis that an alternative method of estimating vacancy did not indicate error.

The AAC disagreed.

The AAC found that the variation in the range of CRU rents from $10 to $180 was not properly accounted for with a rate of $32.50/ft2

The AAC decision did not indicate an assessment value for the subject property.

The decision did state:

[24] The Committee finds that the method used by the assessor to calculate the vacancy adjustment is in error and in correcting that error the assessor should recalculate the capitalization rate based on the three sales in paragraph 3 above and apply the new rate if a change is warranted. [EMPHASIS ADDED]

The AAC Decision

A


F SASKATOO

N

The new method of estimating vacancy changed the cap rate for the subject property to a value higher than the original assessment.

In Alberta the value would have been corrected and set at $151,210,711.• City of Edmonton v. Army & Navy Department Stores Ltd., MGB BO 112/02• FHR Real Estate Corp. v. Jasper, MGB BO 051/05• Huntington Galleria v. The City of Edmonton, November 20, 2009, ARB

But the property is in Saskatchewan so the assessment remained at the lower value.

• Prince Albert (City) v. 101027381 Saskatchewan Ltd., 2009 SKCA 59

Mall Org. Cap Rate8.26%

Revised Cap Rate8.00% Change

Midtown Plaza $146,599,800 $151,210,711 + $4,610,911

Decision Results

A


F SASKATOO

N

The AAC did not render the decision until April 4, 2011.

The affect of the decision was to change the vacancy allowance method which also reduced the cap rate from 8.26% to 8.00%.

All the Enclosed Malls and Power Centres in Saskatoon were corrected to a cap rate of 8.00%.

This correction was not applied in 2010 as the decision was not rendered until 2011.

Application of the Decision

A


F SASKATOO

N

The Agents requested change in vacancy allowance methodology had the following affect on the Enclosed Mall and Power Centre population:

Mall / Power Centre

Assessed Value at 8.26%

Assessed Value at 8.00%

Increase % change

Midtown Plaza $146,599,800 $151,210,711 $4,610,911 3.15%

Centre at Circle $62,544,500 $63,064,300 $519,800 0.83%

Stonebridge Power Centre

$51,727,400 $53,408,600 $1,681,200 3.25%

Lawson Heights $44,809,900 $44,817,600 $7,700 0.02%

Preston Crossing $44,372,800 $45,800,500 $1,427,700 3.22%

Confed. Park Plaza $28,173,300 $28,959,500 $786,200 2.79%

Market Mall $27,059,000 $27,692,500 $633,500 2.34%

River City Mall $20,428,900 $21,092,800 $663,900 3.25%

8th Street $14,649,400 $15,124,500 $475,100 3.24%

Preston Crossing Walmart

$14,124,900 $14,584,000 $459,100 3.25%

Stonebridge Power Centre

$9,571,700 $9,882,800 $311,100 3.25%

Preston Crossing Rona $8,530,100 $8,759,300 $229,200 2.69%

The Effect on the Population

13


F SASKATOO

NStatistical Effect of the Change

StatisticalMeasures

Cap Rate8.26%

Cap Rate8.00%

ASR 0.995 0.990

COD 5.8% 6.3%

A


F SASKATOO

N

There were a number of other Enclosed Malls and Power Centres under appeal in 2009 though 2012.

Circle Centre Mall was appealed in 2009 and 2010.

One of the grounds in 2010 was the vacancy adjustment.

When the 2010 Circle Centre appeal was heard by the BOR in May 2010 the Midtown AAC decision had not yet been rendered.

The Precedent Set

A


F SASKATOO

N

At the hearing and reflected in the decision, the Agent stated that the vacancy ground of appeal was protective and they accept the Boards decision for the subject from the previous years appeal (2009).

Circle Centres 2009 appeal was based upon carry forward of the evidence and argument from the 2009 Midtown appeal.

The result of the 2009 Midtown appeal changed the vacancy and cap rate.

How would this affect Circle Centres 2010 appeal?

Circle Centre BOR 2010 Appeal

A


F SASKATOO

N

The BOR concluded:

As agreed by the Appellant and Respondent, the evidence presented and decision of the Board in Appeal No. 375-2009 applies to the first two grounds of appeal. … This recalculation resulted in the assessed value of the property under appeal being increased by $266,200 from $56,607,700 to $56,873,900, the same assessed value as determined in 2009.

…the Appellant should have been aware that the impact of agreeing to a protective appeal pending a decision by the Saskatchewan

Municipal Board on the findings of 375-2009 would be an increase in the assessed value to the amount determined in 2009. This issue will ultimately be resolved by the appeals currently at SMB.

Circle Centre BOR Hearing

17


F SASKATOO

N

Vacancy Allowance Change-$8,990AAC Appeal

2009-0143 2009-0143 ResultCap Rate-0.26%Power Centre Cap Rate 8.00%

Enclosed Mall Cap Rate 8.00%

Inventory Value Increased +$11,805,411

Circle Centre Increased +$226,200

2009

2010

2011

Doing the Math

18


F SASKATOO

NThe Saga Continues

The Agent appealed Circle Centres 2010 BOR decision based on the following:

1. The Board erred in increasing the assessment when the appeal specifically asked for the assessment to be reduced.

2. The Board erred in changing the Cap Rate based on a change in the vacancy adjustment for the subject property.

The AAC hearing is scheduled for 3:00 pm today.

19


F SASKATOO

N

Questions?

city of saskatoon – corporate services – assessment branch

Documents

vacancy allowance

total vacancy

annual vacancy

vacancy adjustment

1a2012 appeals panel

new appeals

typical vacant space

power centres enclosed