# Mater Investment Company v. Benton County Assessor

> Oregon Tax Court · March 24, 2016

URL: https://www.frixlaw.com/law-library/cases/10606702

## Case

- **Court:** Oregon Tax Court
- **Decided:** March 24, 2016
- **Precedential status:** Unpublished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

MATER INVESTMENT COMPANY and )
CATHERINE M. MATER, Managing Partner, )
)
Plaintiffs, ) TC-MD 150050N
)
v. )
)
BENTON COUNTY ASSESSOR, )
)
)
Defendant. ) FINAL DECISION

This Final Decision incorporates without change the court’s Decision, entered March 7,

2016. The court did not receive a statement of costs and disbursements within 14 days after its

Decision was entered. See TCR-MD 16 C(1).

Plaintiffs appeal Defendant’s exemption denial, dated November 24, 2014, for part of

property identified as Account 144778 (subject property) for the 2014-15 tax year. A trial was

held in the Oregon Tax Courtroom on November 4, 2015, in Salem, Oregon. Catherine M.

Mater (Mater), Managing Partner of Mater Investment Company, appeared and testified on

behalf of Plaintiffs. Richard Newkirk (Newkirk), Commercial/Industrial Appraiser, and Jenny

Anderson (Anderson), Exemption Specialist, each appeared and testified on behalf of Defendant.

Plaintiffs’ Exhibits 1 through 15, 18, and 19 were received without objection. Defendant

objected to the relevance of Plaintiffs’ Exhibits 16 and 17, appraisals from 2009 and 2010 of the

Elements building. The court excluded Plaintiffs’ Exhibits 16 and 17. Defendant’s Exhibits A

through AG were received without objection.

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FINAL DECISION TC-MD 150050N 1
I. STATEMENT OF FACTS

A. The Subject Property; Leases

The subject property is a 6,000 square foot commercial office building located in

downtown Corvallis.1 (Ptfs’ Ltr at 1, Oct 26, 2015.) Mater testified that her family built the

subject property in 1980 as an investment and renovated it in 2009. She testified that the subject

property has two unique design features: (1) a larger HVAC system for cooling because the

subject property was initially leased to high tech companies; and (2) an on-site parking lot with

17 designated parking spaces for tenants and their employees. Mater testified that no other

downtown office buildings except the Renaissance building have a similar HVAC system. She

testified that the additional cooling capacity is available to potential tenants who need it. Mater

testified that no other downtown office buildings have similar “dedicated” parking. She testified

that downtown riverfront parking is at a premium. Mater testified that the subject property is

located on the riverfront and has a river view. (See Ptfs’ Ex 6 at 4-5 (photos).) She testified that

there is no road between the subject property and the river, and that the subject property’s view

space is spectacular.

Mater testified that she is an engineer in the forest products industry and she works in the

field of sustainable natural resource development. She testified that Plaintiffs have sought to rent

to companies and organizations operating in the natural resources industry. Mater testified that

Plaintiffs’ tenants are mostly nonprofit organizations recognized by the IRS under IRC section

501(c) and she charges lower rent to those tenants.

Mater testified that Greenbelt Land Trust (Greenbelt), a registered 501(c)(3) nonprofit

organization, leased 26 percent of the space in the subject property. (See Ptfs’ Ltr at 1, Oct 26,

1
Newkirk wrote that the subject property contained 6,616 square feet of space. (Def’s Ex B at 1.)

FINAL DECISION TC-MD 150050N 2
2015; Def’s Ex P at 3.) Within the subject property, Greenbelt leased 1,672 square feet of office

space and 67 square feet of additional storage space as of April 1, 2014. (Ptfs’ Ex 1 at 6.) Mater

testified that Greenbelt’s lease rate was the “nonprofit lease rate.” (See Ptfs’ Ltr at 1, Oct 26,

2015.) She testified that Greenbelt received property tax exemptions for its leased space in the

subject property in 2007, 2009, 2011, and 2013.2 Plaintiffs’ 2014 lease with Greenbelt stated:

“The 10% non-profit discount stays in effect as long as the tax exemption from Benton County

for the leased premises obtained in 2007 remains in effect.” (Ptfs’ Ex 1 at 7.) Under the lease,

Plaintiffs are obligated to pay all taxes due on the real property. (Id. at 10.)

Mater testified that, in 2013, Greenbelt’s monthly rental rate was $1.44 per square foot.

She testified that Greenbelt’s rent increased by three percent from 2012 to 2014 to account for

cost of living increases. Greenbelt’s total rent in 2014 was $2,468.60 per month, which was

comprised of $2,406.29 per month for the office space and $62.31 per month for the storage

space. (Ptf’s Ex 1 at 6.) Mater testified that Greenbelt’s lease rate in effect from 2014 to 2016 is

$1.48 per square foot per month. She testified that Greenbelt’s lease rate is “gross” or “all

inclusive”--it includes utilities, garbage, cleaning, and similar expenses.

Mater testified that Plaintiffs lease two other spaces in the subject property to nonprofit

organizations: Mary’s River Watershed Council leases 750 square feet of office space for $1.29

per square foot and Ten Rivers Food Web leases 377 square feet of office space for $1.00 per

square foot. (See Ptfs’ Ex 3 at 6; Ex 4 at 5.) Mater testified that Mary’s River Watershed

Council and Ten Rivers Food Web are both nonprofit organizations recognized by the IRS.

Mater testified that the space leased to Mary’s River Watershed Council has only one window

overlooking the river and the space leased to Ten Rivers Food Web has no windows or natural

2
Mater testified that Greenbelt had to submit a new exemption application in 2014 because it executed a
new lease on the subject property.

FINAL DECISION TC-MD 150050N 3
light. (See Ptfs’ Ex 6 at 3 (subject property layout).) She testified that the different lease rates

charged to Greenbelt, Mary’s River Watershed Council, and Ten Rivers Food Web reflect the

different views from the office spaces leased by each organization.

Mater described the lease rates to Mary’s River Watershed Council and Ten Rivers Food

Web as “non-profit lease rates.” (Ptfs’ Ltr at 2, Oct 26, 2015.) Neither lease includes any

explicit reference to a nonprofit lease rate or a discount for property tax exemption. (See Ptfs’

Exs 3, 4.) Newkirk testified that those leases have not received property tax exemption from

Defendant. (See Def’s Ex G at 1 (categorizing both leases as typical downtown leases, not

exempt leases).)

B. The Subject Property’s Market

Mater testified that she considers the subject property’s market area to be the downtown

riverfront. She testified that the riverfront has developed as a unique market since around 2007.

Mater testified that riverfront properties are rarely vacant. Newkirk testified that he thinks the

presence of homeless people is negatively impacting the riverfront market. (See Def’s Ex AG.)

He testified that he has had discussions with two landlords of properties located near the subject

property about an increase of homeless people in the past year or two. Mater testified that a

homeless camp is located across the river in Linn County. She testified that the real issue was

proposed “damp shelters” that would allow intoxicated individuals to stay in the area. The

shelters would have been on 4th Street, but the proposal was defeated.

Newkirk testified that he found three distinct market segments in the Corvallis downtown

central business district office market: (1) exempt leases; (2) typical leases; and (3) newer, high

end leases. (See Def’s Ex G at 1.) He arranged his leases into those categories. (See id.)

///

FINAL DECISION TC-MD 150050N 4
1. Plaintiffs’ Market Evidence and Comparable Leases

Mater testified that, if Greenbelt’s space in the subject property were leased for profit, the

lease rate would be in the range of $1.80 to $2.00 per square foot, gross. She testified that

Plaintiffs originally gave a 10 percent discount to their nonprofit tenants, but in reality the

discount has been 20 to 30 percent.

Mater testified that Plaintiff Mater Investment Company owns 1,300 square feet of

“second floor commercial office space in the Renaissance building[, which was] constructed in

2008 and [is] located immediately adjacent” to the subject property. (See Ptfs’ Ltr at 1, Oct 26,

2015.) “The remainder of the second floor of the [Renaissance building] is owned by Carone

Partnership Ltd (CARONE).” (Id.) Mater testified that Plaintiffs leased its space to

Conservation Biology Institute (CBI) at a rate of $2.24 per square foot, full-service, in 2014.

(See Ptfs’ Ex 5 at 3.) She testified that Plaintiff’s lease rate to CBI is a nonprofit lease rate.

Plaintiffs’ lease to CBI makes no reference to a nonprofit lease rate or a discount for property tax

exemption. (See Ptfs’ Ex 5.) Mater testified that Carone also leases space in the Renaissance

building to CBI; Carone’s lease rate is $2.82 per square foot and is not a nonprofit lease rate.

(See Ptfs’ Ltr at 2, 4, Oct 26, 2015.)

2. Defendant’s Market Evidence and Comparable Leases

Newkirk identified leases and listings within each of the three market segments he

identified in the Corvallis downtown central business district office market. (See Def’s Ex B at

2; G at 1.) He listed both “effective gross” rent and “NNN” (triple net) rent for each of his

comparable leases and listings. (See Def’s Ex G at 1.) Newkirk testified that he adjusted the

triple net leases to gross using a 75 percent of gross adjustment. (See id.)

///

FINAL DECISION TC-MD 150050N 5
a. Exempt Leases

Newkirk identified 10 “exempt leases,” one of which was Greenbelt’s lease of the subject

property. (See Def’s Ex G at 1.) Newkirk testified that he only included leases in the “exempt”

category if the property had received a property tax exemption from Defendant; he did not

include a property simply because it was leased to a nonprofit organization. He testified that he

did not include the property leased by Carone to CBI in the exempt category because it does not

receive a property tax exemption; he put that lease in the “high end” category. (See id.)

Newkirk testified that he was not aware of Plaintiffs’ lease to CBI. He testified that exempt

lease 9 included some dedicated parking, but maybe not enough for all of the tenant’s

employees. (See id.) Newkirk testified that the exempt leases he used ranged from $6.68 to

$20.68 per square foot, gross. (See id.) On a per-month basis, that range is $0.56 to $1.72 per

square foot.

Newkirk provided a copy of the lease for each of his exempt leases. (See Def’s Ex I

through R.) Relevant details of each exempt lease is set forth in the following table:

///

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FINAL DECISION TC-MD 150050N 6
Lease Size (SF)3 Rent/Mo. Rent/ Yr. Expenses4 Tax/SF5 Lease date Ex
1 6,124 $0.54 $6.52 NNN $0.15 Jan 1, 2011 I
2 2,340 $0.82 $9.89 NNN $0.80 Apr 4, 20116 J
3 2,237 $1.33 $15.96 Gross $1.71 Sept 1, 2011 K
4 9,809 $0.88 $10.59 NNN $1.13 Jan 1, 2012 L
5 4,7507 $1.43 $17.16 Gross $1.82 Mar 16, 2006 M
6 3,280 $1.56 $18.67 NNN $2.55 Jan 11, 2002 N
7 894 $0.78 $9.39 Mod gross $1.35 Mar 10, 2014 O
88 1,672 $1.48 $17.72 Gross $1.53 Apr 1, 2014 P
9 2,350 $1.18 $14.10 Mod gross $2.24 Jun 30, 2010 Q
10 1,400 $0.50 $6.00 NNN $0.85 Mar 1, 2007 R

With the exception of exempt leases 1, 5, and 10, the rental rates stated are as of 2014. The lease

1 rental rate was as of January 2011; the lease 5 rental rate was as of March 2006; and the lease

10 rental rate was as of March 2007. (See Def’s Exs I, M, R.)

b. Typical Downtown Leases and Listings

In his “typical downtown listings and leases” category, Newkirk identified six listings

and two leases. (See Def’s Ex G at 1.) Newkirk testified that he included Plaintiffs’ leases to

Mary’s River Watershed Council and Ten Rivers Food Web in that category. (See id.) Those

leases are the only two leases in that category; the rest are listings. (See id.) Newkirk testified

3
For the sizes of exempt leases 2, 7, and 10, see Def’s Ex G at 1.
4
A “gross lease” is one “in which the landlord receives stipulated rent and is obligated to pay all of the
property’s operating and fixed expenses; also called full-service lease.” Appraisal Institute, Dictionary of Real
Estate Appraisal 91 (5th ed 2010). A “modified gross lease” is one “in which the landlord receives stipulated rent
and is obligated to pay some, but not all, of the property’s operating and fixed expenses. Since assignment of
expense varies among modified gross leases, expense responsibility must always be specified.” Id. at 127. A “triple
net lease,” or “a net net net lease,” is one “in which the tenant assumes all expenses (fixed and variable) of operating
a property except that the landlord is responsible for structural maintenance, building reserves, and management.”
Id. at 134, 200.
5
Tax per square foot per year is listed in Def’s Ex G at 1; see also Def’s Ex Q at 2, 7 (cover letter to
exempt lease 9 expressly states the amount of the property tax reduction due to exemption).
6
Lease was amended March 13, 2014, with rent established at $1,794 per month. (Def’s Ex J at 14.)
7
The lease size and rental rates listed are for the first floor of this property; the lease also included 1,600
square feet of “lower level” space rent at $1.13 per square foot per month and 3,950 square feet of “mezzanine”
space rented at $1.33 per square foot per month. (Def’s Ex M at 2.)
8
Comparable lease 8 is the subject property leased to Greenbelt.

FINAL DECISION TC-MD 150050N 7
that annual rents for “typical downtown listings and leases” ranged from $9.43 to $21.60 per

square foot, gross. (See id.) On a per month basis, that range is $0.79 to $1.80 per square foot.

Newkirk’s typical listing 1 was $1,000 per month for 700 square feet of professional

office space with on-site parking. (Def’s Ex S.) That asking rent is $1.43 per square foot per

month, or $17.16 per square foot per year, gross. (See id.) Newkirk’s typical listing 2 was for a

variety of office spaces ranging from 366 to 6,000 square feet, with rates “starting at” $1.00 per

square foot per month, full service. (Def’s Ex T.) Newkirk’s typical listing 3 was 3,000 square

feet of professional office with on-site parking with rates “starting at” $1.25 per square foot per

month, triple net. (Def’s Ex U.) Newkirk’s typical listing 4 was 3,000 square feet of class B

office built in 1951, with an annual asking rent of $16.20 per square foot, triple net. (Def’s Ex

V.) That asking rent is $1.35 per square foot per month. (See id.) Newkirk’s typical listing 5 is

a sublease of 2,000 square feet of commercial space “[l]ocated inside Mother Goose Resale.”

(Def’s Ex X.) The asking rent is $2,300 plus electricity for a month-to-month lease, or $2,000

plus electricity for a one year lease. (Id.) That is $1.15 per square foot per month for a month-

to-month lease. (See id.) Newkirk’s typical listing 6 is a two-story, 3,904-square foot

“commercial space” that includes a “[l]arge storage area.” (Def’s Ex Y.) Asking rent is $2,300,

or $0.59 per square foot. (See id.) No expense structure or proposed lease terms are identified.

(Id.)

c. High End Leases and Listing

In his “high end” category, Newkirk identified five leases and one listing. (See Def’s Ex

G at 1.) Newkirk testified that the high end properties were all newer, built in 2001 or later.

(See id.) He testified that several were located within the Renaissance and Elements buildings.

(See id.) Newkirk testified that the high end properties are multiuse properties located on the

FINAL DECISION TC-MD 150050N 8
river, typically with six or seven stories and unique attributes. He testified that some have

underground parking. Newkirk testified that, although the Renaissance and Elements buildings

are on the riverfront, they lack a river view from the ground floor commercial spaces. Newkirk

testified that rents for high end properties ranged from $23.40 to $36.00 per square foot, gross,

with an average of $28.02 per square foot. (See id.) On a per month basis, that range is $1.95 to

$3.00 per square foot, with an average of $2.34 per square foot.

d. Greenbelt’s Lease of the Subject Property

Newkirk testified that Greenbelt’s lease rate is in the top 10 percent of the exempt leases

and at the bottom of the range of high end leases. He testified that the subject property is located

next door to his high end leases 1 and 2, but he does not consider the subject property part of the

high end category because it was built in 1980. Newkirk testified that, in his view, the subject

property commands a lease rate of $13 to $15 per square foot, gross. On a per month basis, that

range is $1.08 to $1.25 per square foot.

3. Plaintiffs’ Rebuttal

Mater testified that Newkirk failed to properly account for triple net leases as compared

with gross or full service leases. She testified that Newkirk misunderstood the for-profit vs.

nonprofit market, noting that he included leases to nonprofit organizations among his for-profit

lease categories. Mater testified that several of Newkirk’s exempt leases are not comparable to

the subject property: exempt lease 1 is industrial warehouse space, not office space, and exempt

leases 2, 7, and 10 are houses converted to office space. (See Def’s Exs I, J, O, R.) She testified

that Newkirk used the basement rental rate rather than the first floor rental rate for his exempt

lease 5. (See Def’s Ex G at 1, Ex M at 1-3.) She testified that Newkirk’s high end lease listing 6

in the Jax, was triple net, not gross. (See Def’s Ex W.) That listing was for $1.65 per square foot

FINAL DECISION TC-MD 150050N 9
per month, or $19.80 per square foot per year. (See id.) Mater testified that the Jax has parking

for residential condo owners, but not for commercial tenants. Newkirk disagreed.

Mater testified that she thinks the subject property competes with the Renaissance and the

Elements buildings insofar as the subject property is located on the river, but she agrees with

Newkirk that there are relevant differences between the subject property and those buildings.

II. ANALYSIS

A. Motion to Dismiss

Defendant filed a motion to dismiss (motion) in its Answer, arguing that Plaintiffs are not

aggrieved under ORS 305.275(1).9 (Def’s Answer at 1.) The parties submitted written

arguments on Defendant’s motion. On July 1, 2015, the court entered an Order concluding that

Plaintiffs are aggrieved under ORS 305.275(1) and denying Defendant’s motion. The court’s

Order entered July 1, 2015, is hereby incorporated in this Decision.

B. Property Tax Exemption

The issue presented is whether the subject property lease to Greenbelt qualifies for

property tax exemption under ORS 307.112 for the 2014-15 tax year.

ORS 307.112 allows a property tax exemption for property owned by a “taxable owner”

and leased to an organization entitled to property tax exemption under ORS 307.090, 307.130,

307.136, 307.140, 307.145, 307.147, or 307.181(3) if certain requirements are met:

“(a) The property is used by the lessee * * * in the manner, if any, required by
law for the exemption of property owned, leased, subleased or being purchased by
it; and

“(b) It is expressly agreed within the lease * * * that the rent payable by the * * *
organization * * * has been established to reflect the savings below market rent
resulting from the exemption from taxation.”

9
The court’s references to the Oregon Revised Statutes (ORS) are to 2013.

FINAL DECISION TC-MD 150050N 10
ORS 307.112(1).10

“If the assessor is not satisfied that the rent stated in the lease * * * has been
established to reflect the savings below market rent resulting from the tax
exemption, before the exemption may be granted the lessor must provide
documentary proof, as specified by rule of the Department of Revenue, that the
rent has been established to reflect the savings below market rent resulting from
the tax exemption.”

ORS 307.112(3).

Plaintiffs bear the burden of proof and must prove their case by a preponderance of the

evidence. See ORS 305.427. “Preponderance of the evidence means the greater weight of

evidence, the more convincing evidence.” Feves v. Dept. of Rev., 4 OTR 302, 312 (1971). In

property tax exemption cases, “[t]axation is the rule and exemption from taxation is the

exception.” Dove Lewis Mem. Emer. Vet. Clinic v. Dept. of Rev., 301 Or 423, 426, 723 P2d 320

(1986). Property tax exemption statutes are strictly but reasonably construed. SW Oregon Pub.

Def. Services v. Dept. of Rev., 312 Or 82, 88-89, 817 P2d 1292 (1991). “Strict but reasonable

construction does not require the court to give the narrowest possible meaning to

an exemption statute. Rather, it requires an exemption statute be construed reasonably, giving

due consideration to the ordinary meaning of the words of the statute and the legislative intent.”

North Harbour Corp. v. Dept. of Rev., 16 OTR 91, 95 (2002).

It is clear under ORS 307.112 that the benefit of the property tax exemption must flow to

the lessee, the organization entitled to exemption. The benefit of the property tax exemption is

not intended for the taxable owner. The lease expense structure--triple net or gross--is an

important consideration in determining whether the tax savings from exemption flow to the

tenant or the landlord. See e.g., Four Rivers Community School, Inc. v. Malheur County

10
There is no dispute in this case that the subject property was leased to and used by Greenbelt, an
organization entitled to property tax exemption under ORS 307.130.

FINAL DECISION TC-MD 150050N 11
Assessor, TC-MD 040924E, WL 1432552 at *3 (May 12, 2005) (concluding the requirements of

ORS 307.112 are satisfied by a triple net lease, assuming the lease rate is not above market,

because “the landlord experiences no tax savings” under a triple net lease. “With a gross lease,

the landlord bears the burden of the property tax expense. If the property becomes exempt, the

landlord no longer pays that expense.”). Greenbelt’s lease of the subject property is gross. Thus,

Plaintiffs (the lessor) would receive the benefit of Greenbelt’s property tax exemption unless the

lease rate is sufficiently below market rent to reflect the savings from the exemption.

1. The Subject Property Lease

ORS 307.112(1)(b) requires that the lease expressly state that the rent payable “has been

established to reflect the savings below market rent result from the exemption from taxation.”

Greenbelt’s lease states that “[t]he 10% non-profit discount stays in effect as long as the tax

exemption from Benton County for the lease premises obtained in 2007 remains in effect.”

(Ptfs’ Ex 1 at 7.) Thus, the express language of Greenbelt’s lease references a reduced rental rate

contingent upon Greenbelt’s property tax exemption. That language is sufficient to satisfy the

requirements of ORS 307.112(1)(b). However, Defendant disagrees that the rent stated in

Greenbelt’s lease “has been established to reflect the savings below market rent resulting from

the tax exemption[.]” ORS 307.112(3). Under those circumstances, Plaintiffs are required to

provide documentary proof as specified by the Department of Revenue’s administrative rule. Id.

2. The Department of Revenue’s Applicable Administrative Rule

The Department of Revenue’s administrative rule promulgated pursuant to ORS 307.112,

states in pertinent part,

“(5) The assessor must be satisfied that the amount of rent charged is below
market rent. ‘Market rent’ is defined as the rental income a property would most
probably command in the open market and includes an element for property taxes.

FINAL DECISION TC-MD 150050N 12
“(6) To reflect the savings below market rent, the actual rent must be less than
market rent in an amount that is at least equal to what the property tax would be if
the property were taxable.

“* * * * *

“(8) Acceptable documentary proof to show the property tax savings is passed on
to the lessee may include but is not limited to the following comparisons:

“(a) Current rental rate for any portion of that property occupied by
nonexempt tenants;

“(b) Historic rental rate data of that property;

“(c) Rental rate used in a real market value appraisal for that property;

“(d) Rent study of comparable or similar properties.

“(9) The savings must be clearly evident. Insufficient proof or failure to show
the rent is below market rent as described above is grounds for denial of the
exemption.

“(10) A statement that the ‘lessee is responsible for the taxes’ is not sufficient
proof of a tax savings.”

OAR 150-307.112.

Of the types of documentary proof identified in OAR 150-307.112(8)(c), the court

received evidence of all but the “rental rate used in a real market value appraisal for that

property.” The court will review the evidence presented under the other types of proof listed in

the rule.

a. Current Rental Rates for Portions of the Subject Property Occupied By
Nonexempt Tenants

Portions of the subject property are leased to two other tenants: Mary’s River Watershed

Council and Ten Rivers Food Web. Both of those tenants are nonprofit organizations and Mater

described their lease rates as “non-profit lease rates.” (Ptfs’ Ltr at 2, Oct 26, 2015.) Neither

lease expressly references a nonprofit discount or rate and neither space has received a property

FINAL DECISION TC-MD 150050N 13
tax exemption. Mater’s testimony suggests that Plaintiffs provide a reduced rental rate to

nonprofit organizations whether or not they receive property tax exemption. Plaintiffs’

commitment to providing reduced rates to nonprofit organizations is laudable, but it undermines

Mater’s assertion that Greenbelt’s lease rate was “established to reflect the savings below market

rent resulting from the tax exemption[.]” ORS 307.112(3) (emphasis added). If Plaintiffs

provide the same rent discount to all of their nonprofit tenants regardless of whether those

tenants receive property tax exemptions, it is difficult for the court to conclude that the reduction

in Greenbelt’s rent is due to its property tax exemption. That said, Greenbelt’s lease expressly

references a 10 percent nonprofit discount, whereas none of Plaintiffs’ other leases reference a

discount or reduced rental rate. If Plaintiffs’ other tenants receive a rent discount, the court

cannot determine the amount.

Plaintiffs’ lease rates to Mary’s River Watershed Council and Ten Rivers Food Web are

both less than Greenbelt’s lease rate. Mater testified that the different lease rates are attributable

to differences in the layout of the subject property’s office spaces. Greenbelt enjoys river views

and natural light, whereas Mary’s River Watershed Council has only one window and Ten

Rivers Food Web has no windows or natural light. The fact that other spaces within the subject

property are leased for less than the space leased to Greenbelt tends to weigh against a finding

that Greenbelt’s lease rate is below market. However, Mater provided a reasonable explanation

for the differences in rent charged for different spaces within the subject property.

b. Historic Rental Rate Data of the Subject Property

Greenbelt received property tax exemptions from Defendant for its leased space in the

subject property in 2007, 2009, 2011, and 2013. Greenbelt’s monthly rental rate was $1.44 per

square foot in 2013. Mater testified that Plaintiffs increased that rate to $1.48 per square foot in

FINAL DECISION TC-MD 150050N 14
2014 to account for cost of living increases. She testified that Greenbelt’s rent increased three

percent from 2012 to 2014. The increase in Greenbelt’s rental rate from 2013 to 2014 is

reasonable in light of Mater’s explanation. No evidence was presented to indicate that the

subject property has ever been leased to a for-profit organization. As a result, the court has no

way to compare Greenbelt’s lease rate with the rate paid by a for-profit tenant for the same

space. The evidence of historical rental rate data for the subject property is inconclusive.

c. Rent Studies of Comparable or Similar Properties

Newkirk provided evidence from the Corvallis downtown market of exempt leases,

“typical” lease listings, and “high end” leases and one listing. Of Newkirk’s exempt leases, the

court gives no weight to exempt leases 1, 2, 6, 7, and 10 because they are not comparable to the

subject property. Exempt lease 1 is warehouse space and exempt leases 2, 7, and 10 are houses

converted to offices. Exempt lease 6 is a long term lease that started in 2002, so it has little

relevance to the 2014 market. The court finds that exempt leases 3, 4, 5, and 9 are the most

similar to the subject property, and indicate a lease rate range of $1.17 to $1.43 per square foot

per month, gross.11 Greenbelt’s lease rate of $1.48 per square foot per month is slightly above

that range. However, exempt leases 3, 4, 5, and 9 started in September 2011, January 2012,

March 2006, and June 2010, respectively. Those lease rates may be lower than Greenbelt’s in

part due to different market conditions as compared to 2014.

Newkirk presented evidence of lease listings from what he described as the “typical”

downtown office market. Listings are not actual leases, so they provide the court with only

limited help in determining market rent. Of the typical listings Newkirk provided, the court

gives no weight to listings 5 and 6 because they are not comparable to the subject property.

11
Exempt lease 4 is $0.88 per square foot per month triple net. Applying Newkirk’s adjustment for triple
net leases (75 percent of gross) indicates an adjusted rate of $1.17 per square foot per month, gross.

FINAL DECISION TC-MD 150050N 15
Listings 5 and 6 are both described as “commercial space” and it is unclear whether either

includes office space. Listing 5 is a sublease. Neither listing identified the expense structure.

Listings 1, 2, 3, and 4 are for professional office space and are roughly comparable to the subject

property. They indicate a rent range of $1.00 to $1.80 per square foot per month, gross.12

Listings 2 and 3 ($1.00 and $1.67 per square foot per month) are both presented as “starting at”

rental rates, suggesting that parts of those properties rent for more than the stated asking rate.

Greenbelt’s lease rate of $1.48 per square foot is within the range of Newkirk’s typical

lease listings. If Greenbelt’s lease rate were adjusted to include property taxes, it would be $1.61

per square foot per month, which is still in the middle of the typical lease listing range.13

Greenbelt’s lease rate is below the rental range of Newkirk’s high end leases and listing,

which ranged from $1.95 to $3.00 per square foot per month, gross. Even if the property taxes

are added to Greenbelt’s lease rate, the resulting lease rate of $1.61 per square foot per month is

below the range of high end leases and listings. That is consistent with Mater and Newkirk’s

testimony that the subject property is inferior to the high end properties identified by Newkirk.

Greenbelt’s actual lease rate is at the high end of the exempt lease rate range, within the

range of similar lease listings, and below the range of high end leases. When Greenbelt’s actual

lease rate is adjusted to include a property tax element, the resulting rate is within the range of

office lease listings and below the range of high end leases, suggesting it is “market rent.” See

OAR 150-307.112(5). That leads the court to find that Greenbelt’s actual lease rate is

sufficiently below its market rent to account for the property tax reduction resulting from

12
Typical listings 3 and 4 are $1.25 and $1.35 per square foot per month, triple net. Applying Newkirk’s
adjustment for triple net leases (75 percent of gross) indicates adjusted rates of $1.67 and $1.80 per square foot per
month, gross.
13
Newkirk reported that the subject property’s tax is $1.53 per square foot per year, which is $0.13 per
square foot per month. Adding that amount to Greenbelt’s lease rate of $1.48 per square foot per month results in a
rental rate of $1.61 per square foot per month with taxes.

FINAL DECISION TC-MD 150050N 16
exemption. See OAR 150-307.112(6). The court concludes that Greenbelt’s lease of space

within the subject property is entitled to property tax exemption under ORS 307.112.

III. CONCLUSION

After careful consideration of the testimony and evidence presented, the court finds that

Greenbelt’s lease rate for space within the subject property has been established to reflect the

savings below market rent resulting from the property tax exemption, and is therefore entitled to

property tax exemption under ORS 307.112 for the 2014-15 tax year. Now, therefore,

IT IS THE DECISION OF THIS COURT that Defendant’s motion to dismiss is denied.

IT IS FURTHER DECIDED that Plaintiffs’ appeal is granted.

Dated this day of March 2016.

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. TCR-MD 19 B.

This document was filed and entered on March 24, 2016.

FINAL DECISION TC-MD 150050N 17

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10606702. Public record. Not legal advice.