# Properties L. Banette v. Clackamas County Assessor

> Oregon Tax Court · May 30, 2014

URL: https://www.frixlaw.com/law-library/cases/10606312

## Case

- **Court:** Oregon Tax Court
- **Decided:** May 30, 2014
- **Precedential status:** Unpublished
- **Opinion:** Opinion
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Property Tax

PROPERTIES L. BANETTE, )
)
Plaintiff, ) TC-MD 130284D
)
v. )
)
CLACKAMAS COUNTY ASSESSOR, )
)
Defendant. ) FINAL DECISION

The court entered its Decision, signed by Presiding Magistrate Tanner, in the above-

entitled matter on May 12, 2014. The court did not receive a request for an award of costs and

disbursements (TCR-MD 19) within 14 days after its Decision was entered. The court’s Final

Decision incorporates its Decision without change.

Plaintiff appeals the real market value and real market exception value of property

identified as Account 00235766 (subject property) for the 2012-13 tax year. A trial was held in

the courtroom of the Oregon Tax Court on February 3, 2014, in Salem, Oregon. Jack L.

Orchard, Attorney at Law, appeared on behalf of Plaintiff. Eric Shoemaker (Shoemaker),

developer and land use consultant, testified on behalf of Plaintiff. Kathleen J. Rastetter, Senior

Clackamas County Counsel, appeared on behalf of Defendant. Ronald R. Saunders (Saunders),

registered appraiser, testified on behalf of Defendant. No exhibits were received from Plaintiff.

Defendant’s Exhibit A was received without objection.

Plaintiff’s representative stated that the parties agree that the 2012-13 subject property’s

real market value was $9,700,000 and the 2011-12 land real market value was $3,800,973.

(Def’s Ex A at 3, 94.) Plaintiff’s representative stated that Plaintiff agrees the 2012-13 real

market exception value is the difference between the 2011-12 real market value and 2012-13 real

FINAL DECISION TC-MD 130284D 1
market value. Plaintiff disputes Defendant’s 2011-12 improvement real market value in the

amount of $1,184,068. (Def’s Ex A at 94.) Plaintiff disputes Defendant’s 2012-13 real market

exception value (exception value) in the amount of $5,000,000. (Id.)

Defendant’s trial motion to dismiss offered at the conclusion of Plaintiff’s case was

denied.

I. STATEMENT OF FACTS

Shoemaker testified that the subject property, also known as Lake Grove Village, was

completed in late 1962 or early 1963. The parties agree that the subject property currently has

three one-story buildings that Shoemaker testified was a “grocery-drug retail center” located on a

“bull’s-eye corner” (Bryant Road and Boones Ferry Road in Lake Grove), with adequate

“parking” and “classic” neighborhood demographics. Shoemaker testified that two “national”

businesses, Starbucks and Rite-Aid, were long-term tenants. Saunders testified that the subject

property’s “gross leasable area is 38,944 square feet” and the current anchor tenants are Zupan’s

(18,530 square feet) and Rite-Aid (5,579 square feet). (Def’s Ex A at 16.)

Shoemaker testified that the subject property’s “repurposing” and “rehabilitation” was

started in 2011, explaining that the decision by a grocery tenant not to renew its lease provided

Plaintiff with an opportunity to “refurbish” the “older but functional” subject property. He

testified that there was no doubt that the subject property would remain anchored by a grocery

store because Plaintiff received four unsolicited inquiries from grocers interested in leasing the

vacated space. Shoemaker described in detail the changes that were made to the existing

buildings including replacement of load bearing walls (“back wall and two cuts in front; 85

percent kept”), installation of covered pedestrian walkways to a second paved parking area

(“connect indoor/outdoor space to 40-50 new parking spaces”), “storm water facility was

FINAL DECISION TC-MD 130284D 2
installed,” “new store front systems” for all buildings except “Starbucks and Rite-Aid,” increase

in the roof height for the new grocery tenant (“14 foot to 18 foot clear; more natural light”),

extensive electrical amperage upgrade, and how existing material was recycled for the

refurbished buildings. Shoemaker testified that there were no changes made to the space

occupied by Starbucks and Rite-Aid. The project was substantially complete as of January 1,

2012. In response to questions, Shoemaker testified that “$6.8 million was spent on the

refurbishing” and approximately “90 percent” was completed as of January 1, 2012. He testified

that it was “not necessary to spend $6.8 million to retain existing tenants;” the goal was to

“restore the value of the asset and not worry about it for another 20 years.” Shoemaker testified

that there was “$500,000 excess soft costs” and Plaintiff was “generous with the restaurants,”

specifically tenant improvements. Saunders testified that “in his experience a property owner

could not spend $6.8 million for completed costs to receive $2 million in additional value. It

would be better to sell, take the money and invest it.”

Shoemaker testified that in his opinion the subject property’s 2011-12 real market value

was “eight to nine million,” stating land real market value was $5 million and improvements

“three to four million.” He testified that Defendant’s 2011-12 real market value is “flatly wrong”

and is “artificially low.” Shoemaker testified that Defendant’s 2011-12 improvement real market

value “does not account for the inherent value in the buildings that were not new but not falling

over.” He testified that a $75 to $100 price per square-foot for the improvement real market

value as of January 1, 2011, was an “as is basis” and when added to the land real market value of

$3.8 million would result in a total real market value of approximately $7.6 million. Shoemaker

testified that the 2012-13 exception value should be no more than $2.5 million. In response to

questions, Shoemaker testified that as of January 1, 2011, a letter of intent had been signed with

FINAL DECISION TC-MD 130284D 3
the new grocery tenant and leases for two restaurants were “largely baked.” He testified that it

“was a managed liquidation of tenants” during 2011.

Saunders testified that he has been “an appraiser for more than 30 years” and appraised

“in excess of 5,000 commercial properties.” Saunders reviewed his appraisal report, supporting

his determination of the subject property’s 2012-13 real market value of $9,700,000 and

exception value of $5,000,000. (Def’s Ex A at 3.) Saunders testified that he concluded the

subject property’s highest and best use was commercial and that its existing developed use was

its highest and best use.

Saunders testified that he considered all three valuation approaches (cost, sales

comparison and income) and concluded that the cost approach “was not relied upon * * * due to

the age of the improvements and the difficulty in estimating accrued depreciation.” (Id. at 56.)

Saunders testified that after considering four land sales occurring between February, 2008 and

March, 2011 and ranging from $24.89 to $43.18 per square-foot, he concluded that the subject

property’s 2011-12 and 2012-13 real market land value was $3,800,973, stating that “[t]here has

been no change in land values between 1/1/11 and 1/1/12.” (Id. at 58-59, 79.) He testified that

he added “an additional 13% for indirect costs” or $575,905 for a total 2012-13 real market land

value of $4,376,818. (Id. at 59.)

“In estimating the value of the subject property by the Sales Comparison Approach,

research was conducted in the Portland metropolitan area to locate sales of similar shopping

center properties with which to compare the subject property.” (Id. at 60.) Saunders stated that

for tax year 2012-13:

“The [four] sales occurred between June 2010 and August 2010. They range in
gross leasable area from 35,392 SF [square feet] to 123,922 SF GLA [gross lease
area]. The unadjusted price per SF ranges from $108.29 to $327.76 SF.

FINAL DECISION TC-MD 130284D 4
“* * *

“The four sales all required several adjustments and indicate a unit price range for
the subject property of substantially more than $180.29 per SF by sale 4,
substantially more than $190.05 per SF by sale 1, less than $327.76 per SF by sale
2 and less than $326.79 per SF by sale 3. * * * The estimated value of the * * *
subject property * * * is $10,203,486.”

(Id. at 60- 61.) For the 2011-12 tax year, Saunders stated that:

“The [four] sales occurred between January 2008 and August 2011. They range
in gross building area from 11,885 SF to 28,472 SF GLA. The unadjusted price
per SF ranges from $103.70 to $150.15 SF GLA. The four sales used in this
section occurred before the date of valuation and were used to show the market
for the subject property, trends and pertinent valuation indicators. * * * These
sales are compared to the subject property which contains 39,547 SF GLA. It was
constructed in 1961 and had not been previously remodeled. The site area
contained 136,016 SF and the land to building ratio was 3.44 to 1. There were
155 open asphalt parking spaces which is 3.92 spaces per 1,000 SF GLA. The
improvements were nearing the end of their economic life according to Mr. Eric
Shoemaker, the plaintiff’s representative, who estimated that there was $2 million
in deferred maintenance that needed to be cured. The subject property was 19.2%
occupied by three tenants.”

“* * *

“The four sales all required several adjustments and indicate a unit price range for
the subject property of substantially more than $103.70 per SF by sale 4, slightly
less than $150.00 per SF by sale 3, and more than $133.70 and more than $131.25
per SF by sales 1 and 2, respectively. Most weight was placed upon sale 3 which
is most similar in size but newer in age, higher occupancy, superior in condition
and inferior in location with further support by the other sales. * * * The
estimated value * * * of the subject property * * * is $4,985,041 [including land
real market value of $3,800,973] as of January 1, 2011.”

(Id. at 77-79.) Saunders stated that the “income approach measures the value of an

income producing property based on the property’s income producing ability. The direct

capitalization approach will be used.” (Id. at 65.) Saunders selected eight “comparable leases”

for the 2012-13 tax year that were “compared on a dollar per square foot per year unit of

comparison, on a triple net lease basis which reflects typical market behavior.” Saunders stated:

///

FINAL DECISION TC-MD 130284D 5
“The shop space lease comparables (#1 - #5) range from May 2010 to December
2011 in date signed with four to ten year terms. The initial rent ranges from $26
to $29 per SF with no free rent and $8 to $11 TI [tenant improvement] allowances
on second generation space. The average estimated market rent is $28.00 per SF
for the subject’s smaller shop space under 5,000 SF and $24 per SF for the
subject’s (Rite-Aid) shop space which is over 5,000 SF in size. These rent
estimates are supported by the recently signed pre-leases in the center which
range from $16.50 to $29.33 per SF.

“The grocery store leases range from 24,000 to 41,300 SF in size, from August of
2006 to November of 2011 and from $10.00 to $21.00 per SF in rent. There is no
free rent and TI allowances range from none to $10.00 per SF. * * * The subject’s
space had a lease signed in November 2011 for $16.50 per SF which falls in this
range and is judged to be market rent.

“* * * * *

“The estimated potential gross annual income for the subject property as of
January 1, 2012 is $855,021 or $21.96 per SF.”

(Id. at 73.) Saunders testified that he concluded a “5 % vacancy rate” and estimated annual

operating expenses to be “4 %” resulting in an “estimated annual net operating income of

$779,779.” (Id. at 74.) He testified that using “the four comparable sales in the prior sales

comparison approach * * * he concluded that the subject property “would sell at an overall rate

of 7%.” (Id.) Saunders testified that “[w]hen the estimated net annual operating income of

$779,779 is divided by an overall capitalization rate of 7.0%” and adjusted for “remodeling costs

remaining to be spent” the “indicated market value of the fee simple interest in the subject

property * * * is $9,659,986” as of January 1, 2012. (Id. at 75.)

For the 2011-12 tax year, Saunders stated that:

“The shop space lease comparables (#1-6) ranged from September 2008 to April
2011 in date signed all with five year terms. The initial rent ranges were from
$13.00 for a unit with no arterial exposure to $20.00 for SF for a unit with good
arterial exposure that had received some remodeling. Concessions ranged from
none for five leases to equivalent to three and a half months free for one lease.
There were no TI allowances and annual escalation clauses ranged from none to
3% per year. The market rent is estimated to be $17.00 per SF for the subject’s

FINAL DECISION TC-MD 130284D 6
smaller shop space under 5,000 SF and $15.00 per SF for the subject’s (Rite-Aid)
shop space which is over 5,000 SF in size.

“The large retail leases for the subject’s anchor store range from 20,000 to 34,370
SF in size, from October 2011 to November of 2011 in date signed and from
$8.00 to $8.20 per SF in rent. There is no free rent, no TI allowances and annual
escalation ranging from 3% per year to step increases. * * * It is the appraiser’s
opinion that the subject’s 20.733 SF anchor space would lease for $10.00 per SF
in comparison.

“* * *

“The estimated potential gross annual income for the subject property as of
January 1, 2011 is $515,730 or $13.04 per SF.”

(Id. at 91-92.) Saunders testified that he concluded an “8 % vacancy rate” and estimated annual

operating expenses to be “6 %,” resulting in an “estimated annual net operating income [of]

$446,004.” (Id. at 92.) He testified that “[g]iving consideration to the overall rate indications

from all four [comparable] sales” he concluded that the subject property “would sell at an overall

rate of 8.5%.” (Id. at 93.) Saunders testified that “when the estimated net annual operating

income of $446,004 is divided by an overall capitalization rate of 8.5%, the indicated market

value of the fee simple interest in the subject property is * * * $4,695,567 as of January 1, 2011.”

(Id.) In response to questions, Saunders stated that the 2011-12 land real market value was

$3,800,973 and the improvement real market value was $894,594. In response to questions,

Saunders acknowledged that sale #4 was “after the valuation date” and was “a one-story retail

building consisting of both retail and office users” with 14,947 square feet of gross lease area

and was not a grocery-drug retail center. (Id. at 78.)

Saunders testified that “[a]fter considering factors relevant to the valuation of the subject

property and the quality of available data for analysis, most weight was placed on the value

indication from the income approach, which indicated a market value estimate of the fee simple

interest in the subject property as of January 1, 2012 of $9,700,000. The estimated exception

FINAL DECISION TC-MD 130284D 7
value is the difference in market value between January 1, 2012 of $9,700,000 and January 1,

2011 of $4,700,000, which is $5,000,000.” (Id. at 94.) Saunders stated in his appraisal report:

“According to information provided by the property owner’s representative,
approximately $5,676,000 was spent on the overall shopping center property as of
January 1, 2012. The actual costs included approximately $300,000 in demolition
costs and $104,175 in site improvements for tax lot 3100 [not before the court]
leaving $5,271,825 as of January 1, 2012. Actual costs provide additional support
to the reasonableness of the appraiser’s exception value estimate of $5,000,000
as of January 1, 2012.”

(Id. at 94-95.) In response to questions, Saunders testified that he did not inspect the

subject property until 2013. Saunders testified that in making his determination of real market

value he did not “focus on what portion of the existing improvements were retained” as part of

the subject property’s completed refurbishment. He testified that if he had considered the “actual

leases of Rite Aid and Starbucks which were below rates,” he would have determined a “lower

value of lease fee.”

II. ANALYSIS

The only issue before the court is the 2012-13 exception value of Plaintiffs’ property.

“Real market value is the standard used throughout the ad valorem statutes except for special

assessments.” Richardson v. Clackamas County Assessor, TC-MD No 020869D, WL 21263620

at *2 (Mar 26, 2003) (citing Gangle v. Dept. of Rev., 13 OTR 343, 345 (1995)). Real market

value is defined in ORS 308.205(1), which reads: “Real market value of all property, real and

personal, means the amount in cash that could reasonably be expected to be paid by an informed

buyer to an informed seller, each acting without compulsion in an arm’s-length transaction

occurring as of the assessment date for the tax year.”1 The assessment date for the 2012-13 tax

year was January 1, 2012. ORS 308.007(2).

1
The court’s references to the Oregon Revised Statutes (ORS) are to 2011.

FINAL DECISION TC-MD 130284D 8
The parties agree the subject property’s 2012-13 exception value is the difference

between the subject property’s 2011-12 real market value and 2012-13 real market value.2

Plaintiffs stated that they accept Defendant’s 2012-13 real market value of $9,700,000 which

includes real market land value of $4,376,818 and real market improvement value of $5,323,182.

(Def’s Ex A at 17.) Plaintiffs did not appeal the subject property’s 2011-12 real market value.

Plaintiffs’ Complaint listed the 2012-13 tax year as the year appealed. The fact that the 2012-13

exception value is before the court does not automatically open the door for the court to

determine the subject property’s 2011-12 real market value. That tax year is closed unless

Plaintiffs can meet the statutory requirements of ORS 305.288(3), showing good and sufficient

cause for failing to exercise their statutory right of appeal for the 2011-12 tax year. Plaintiffs

have not made a claim that ORS 305.288(3) is applicable and offered no evidence to show good

and sufficient cause for failing to appeal the subject property’s 2011-12 real market value.

Plaintiffs cite no statutory authority for the court to determine the subject property’s 2011-12 real

market value.

A. Burden of Proof

As the party seeking affirmative relief, Plaintiff bears the burden of proving that the

subject property’s real market value is incorrect on the tax roll. ORS 305.427. Plaintiff must

establish his claim “by a preponderance of the evidence, or the more convincing or greater

weight of evidence.” Schaefer v. Dept. of Rev., TC No 4530, WL 914208 *2 (Jul 12, 2001)

(citing Feves v. Dept. of Revenue, 4 OTR 302 (1971)). This court has stated that “it is not

2
The court notes that the exception value of a property “is the amount by which the RMV [real market
value] of the new improvements to it exceeds the RMV of any retirements. ORS 308.153(2)(a).” Magno v. Dept. of
Rev., 19 OTR 51, 62-63 (2006). The parties’ stipulation that exception value is the difference between the subject
property’s real market value stated on the tax roll for the year prior to the subject property’s refurbishing and the
subject property’s real market value after the refurbishing may or may not meet the statutory requirements; the
parties submitted no evidence for the court to consider.

FINAL DECISION TC-MD 130284D 9
enough for a taxpayer to criticize a county’s position. Taxpayers must provide competent

evidence of the [real market value] of their property.” Poddar v. Dept of Rev., 18 OTR 324, 332

(2005) (quoting Woods v. Dept. of Rev., 16 OTR 56, 59 (2002) (citation omitted)). “Competent

evidence includes appraisal reports and sales adjusted for time, location, size, quality, and other

distinguishing differences, and testimony from licensed professionals such as appraisers, real

estate agents, and licensed brokers.” Danielson v. Multnomah County Assessor, TC-MD No

110300D at 7 (Mar 13, 2012). Evidence that is inconclusive or unpersuasive is insufficient to

sustain the burden of proof. Reed v. Dept. of Rev., 310 Or 260, 265, 798 P2d 235 (1990).

Assuming that there was statutory authority for the court to determine the subject

property’s 2011-12 real market value, Plaintiffs did not determine the subject property’s 2011-12

real market value using any of the three approaches of value. There are three approaches to

valuation (income, cost, and sales comparison) that must be considered when determining the

real market value of a property. Allen v. Dept. of Rev., 17 OTR 248, 252 (2003); Gangle v. Dept.

of Rev., 13 OTR 343, 345 (1995); see also OAR 150-308.205-(A)(2)(a). All three approaches

must be considered, although all three approaches may not be applicable to the valuation of the

subject property. OAR 150-308.205-(A)(2)(a). The valuation approach to be used is a question

of fact to be determined on the record. Pacific Power & Light Co. v. Dept. of Revenue, 286 Or

529, 533, 596 P2d 912 (1979). The real market value of property “shall be determined by

methods and procedures in accordance with rules adopted by the Department of Revenue * * *.”

ORS 308.205(2).

Plaintiffs relied on the testimony of Shoemaker, an experienced broker with development

expertise. Shoemaker testified that the 2011-12 real market land value was “$5 million” but later

Plaintiffs agreed that Defendant’s 2011-12 real market land value of $3,800,973 was correct.

FINAL DECISION TC-MD 130284D 10
Plaintiffs offered no evidence to support Shoemaker’s 2011-12 real market land value of

$5 million. Shoemaker testified that the subject property’s real market improvement value as of

January 1, 2011, was “three to four million.” Shoemaker offered no evidence other than his own

testimony to support his value determination. As of January 1, 2011, the subject property was

not “repurposed” or “refurbished.” There is no evidence that a willing buyer would pay more for

the subject property prior to the refurbishing than the real market value determined by Saunders

using the income approach. There was no evidence that a willing buyer would pay a purchase

price in excess of a real market value determined by Defendant’s income approach (gross

potential income is supported by revenue generated by existing leases) knowing that additional

costs to “refurbish” or “repurpose” the subject property would need to be incurred to secure new

tenants who were willing to pay higher rents. (Def’s Ex A at 91-92.) Plaintiffs offered no

evidence to the contrary. Other than Shoemaker’s personal opinion, no other evidence was

offered to support Plaintiffs’ determination of value and contrary evidence rebuts Shoemaker’s

determination.

Plaintiffs failed to provide statutory authority that the court can determine the subject

property’s 2011-12 real market value. Even if the court had statutory authority to determine the

subject property’s 2011-12 real market value, Plaintiffs failed to submit adequate evidence for

their requested 2011-12 real market value. Plaintiffs’ requested 2012-13 exception value is

unproven.

B. Defendant’s Evidence

The court finds that Plaintiffs did not meet their burden of proof to support the requested

subject property’s 2011-12 real market value and 2012-12 exception value. Even though

Plaintiffs failed to carry their burden of proof and “the burden of going forward with the

FINAL DECISION TC-MD 130284D 11
evidence” has not shifted, the court has jurisdiction to determine the “real market value or correct

valuation on the basis of the evidence before the court, without regard to the values pleaded by

the parties.” ORS 305.427; ORS 305.412. Defendant’s evidence is now considered.

Saunders concluded that for each of the tax years (2011-12 and 2012-13) the subject

property’s real market value should be more than was stated on the tax roll (2011-12 tax year)

and determined by the Clackamas County Board of Property Tax Appeals (2012-13 tax year).

Plaintiffs only appealed the 2012-13 tax year and Defendant did not file an appeal or

counterclaim challenging the subject property’s 2011-12 real market value. The court cannot

consider Defendant’s evidence challenging the subject property’s 2011-12 real market tax roll

value because it is not properly before the court. The court need not consider Defendant’s

evidence of the subject property’s 2012-13 real market value because Plaintiffs accepted

Defendant’s determination.

III. CONCLUSION

After careful review of the testimony and evidence, the court concludes that Plaintiffs

failed to carry their burden of proof. Plaintiffs accepted Defendant’s determination of the subject

property’s 2012-13 real market value. That value was in excess of the Clackamas County Board

of Property Tax Appeals determination of real market value ($8,260,508). The parties agreed

that the 2012-13 exception value is the difference between the subject property’s 2011-12 real

market value ($4,324,469) and the 2012-13 real market value ($9,700,000) or $5,375,531.

(Def’s Ex D at 1.) Now, therefore,

IT IS THE DECISION OF THIS COURT that Plaintiffs’ appeal is denied.

///

///

FINAL DECISION TC-MD 130284D 12
IT IS FURTHER DECIDED the 2012-13 real market values for property identified as

Account 00235766 are:

Real market value: $9,700,000; and

Real market exception value: $5,375,531.

Dated this day of May 2014.

ALLISON R. BOOMER
MAGISTRATE

If you want to appeal this Final Decision, file a Complaint in the Regular
Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR
97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.

Your Complaint must be submitted within 60 days after the date of the Final
Decision or this Final Decision cannot be changed.

This document was signed by Magistrate Allison R. Boomer on May 30, 2014.
The court filed and entered this document on May 30, 2014.

FINAL DECISION TC-MD 130284D 13

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10606312. Public record. Not legal advice.