The opinion
IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Property Tax
GLC-SOUTH HILLSBORO, LLC, )
)
Plaintiff, ) TC-MD 180141R
)
v. )
)
WASHINGTON COUNTY ASSESSOR, )
)
Defendant. ) DECISION
Plaintiff appealed a Washington County board of property tax appeals (BOPTA) order,
mailed March 12, 2018, for the 2017-18 tax year. A trial was held in the courtroom of the
Oregon Tax Court. Alex Robinson, of CKR Law Group P.C., appeared on behalf of Plaintiff.
David Brentlinger (Brentlinger) and Matthew Call (Call) testified on behalf of Plaintiff. Jason
Bush, Assistant County Council, appeared on behalf of Defendant. Sean Morrison (Morrison)
and Kathryn Vai (Vai) testified on behalf of Defendant. Plaintiff’s exhibits 1 to 9 were received
into evidence without objection. Defendant’s exhibits A, G, H, I, J and M were received into
evidence without objection. Defendant’s exhibit L was received into evidence, for rebuttal
purposes only, over Plaintiff’s objection.
I. STATEMENT OF FACTS
This appeal involves a select portion of the largest master-planned community in
Washington County history. Plaintiff purchased approximately 1,400 acres of vacant land
between Tualatin-Valley Highway and Farmington Road, for $9 million in 2000 in a then
unincorporated area just south of the city of Hillsboro (the City). Part of that tract, known as
“Reed’s Crossing,” was brought within the urban growth boundary with some other land in 2014
in what Defendant refers to as “the grand bargain” to create “South Hillsboro.” The tract was
DECISION TC-MD 180141R 1
annexed into the City in 2015 and planned development was approved in late 2016. Plaintiff
plans to develop the land as part of a master-planned community comprised of single-family
homes, multi-family homes, and commercial units. The parties agreed that for purposes of this
appeal the issues to be decided by the court are confined to the real market value of
approximately 140.2 acres out of a 240.63 tax lot for the 2017-18 tax year, which contains a mix
of residential and commercial zoning. Reed’s Crossing is bounded on the west by Southeast
29th and on the east by a BPA power line; on the north by Tualatin-Valley highway, and on the
south by Blanton road. The parties agreed that the net developable area of the subject property is
107.72 acres. It is comprised of: 21.32 acres of Single-Family Residential 4.5 (SFR-4.5); 5.94
acres of Single-Family Residential 6 (SFR-6); 8.91 acres of Multi-Family Residential 1 (MFR-
1); 18.28 acres of Multi-Family Residential 2 (MFR-2); 7.84 acres of Multi-Family Residential 3
(MFR-3); and 45.43 acres of Mixed Use Village Town Center (MU-VTC). (Ex 1 at 29.)
A. Plaintiff’s Evidence of Value
Plaintiff is a joint venture LLC comprised of two primary investors with Newland
Communities (Newland) as the general and managing partner. Brentlinger testified he is a vice-
president of Newland with general management responsibility for Reed’s Crossing. Brentlinger
testified he has a 30-year background in real estate having worked with home builders, master
planned communities, lenders, and equity investors. He testified that master planned
development is much different than residential subdivisions because the land lacks
“entitlements” i.e.—the ability to immediately build upon the land. Brentlinger testified that a
rough estimate of the scope of the whole development includes about 2,800 single-family homes,
1,250 apartments/condominiums, parks, trails, and retail space.
///
DECISION TC-MD 180141R 2
Brentlinger testified that as of January 1, 2017, Plaintiff needed to complete the
“Gateway Project”—a majority of which included a railroad crossing adjacent to Tualatin Valley
Highway and an extension to Cornelius Pass road. Minor projects included the construction of
Blanton Street. He estimated that the Gateway Project alone would cost $30 million, not
including the necessary storm drainage system. He testified that any potential buyer would have
to incur those costs to make the site developable. The costs involved were greater than typical
land development and represented risk to potential investors. Brentlinger noted that as of the
assessment date a final plat had not been approved and the tract had not been divided into
individual lots that could be sold and built upon. Brentlinger testified that because of the size of
the tract, the amount of investment required, the long period it would take to generate cash flow,
and the risks involved with receiving entitlements; market participants would have used a
Discounted Cash Flow (DCF) analysis to evaluate the subject property’s value. In discussing the
risks of a potential buyer, he stated that there are conditions of approval that have to go through
public hearings which can alter the end use of the property and its value.
1. Plaintiff’s Sales Comparison Approach
In October 2018, Plaintiff sold 15.16 acres of MU-VTC zones land located in the
northwest corner of Reed’s Crossing to Nash Holland for $5,650,000 ($373,184 per acre).
Brentlinger testified that Mr. Holland is an investor in Plaintiff and in Newland. He testified that
he believed the sale represented an arm’s-length transaction because the sale was “consistent
with other offers we’ve had for multi-family land.” Brentlinger testified on that Plaintiff sold
the local school district a 40-acre parcel without a specific location, but the sale was a special
deal that involved a lot line adjustment and no other purchaser could do that.
///
DECISION TC-MD 180141R 3
Call testified he has been a commercial real estate appraiser in Oregon and Washington
since 1999, a certified general appraiser in Oregon since 2003, and is a member of the Appraisal
Institute (MAI). Call performed a physical inspection of the subject property in March 2018 and
prepared a retrospective appraisal as of January 1, 2017. (Ex 1.) Call testified that the entire
parcel being developed is about 1,400 acres brought into the urban growth boundary and is being
developed with three main properties: Reed’s Crossing, Rosedale Park, and Butternut Creek.
The subject property is the northwest portion of Reed’s Crossing.
Call explained that as of January 1, 2017, the subject property had been annexed into
Hillsboro, had zoning in place, and there was an agreement allowing completion of
infrastructure, but no master plan for actual developments had been approved. At the end of
2016, a Local Improvement District (LID) was approved by the City. Call determined the
highest and best use of the subject property was as a large master-planned community with
developed single-family, multi-family, and commercial/mixed-use development. He estimated
that vertical construction would be possible within 18 to 24 months from the date of assessment.
Call also concluded that the significant holding period reduces the value of the subject property
as of the assessment date.
Call considered the sales comparison and income approaches but dismissed the cost
approach as inappropriate for raw land. Call considered a variation of the income approach, the
DCF analysis, as superior because of the unique size of the property and because, in his
experience, that is how market participants would determine its value. Call’s appraisal report
describes the DCF analysis as “where the gross revenue from future developable land sales is
estimated (using the values concluded in the Sales Comparison Approach), development and
sales costs are deducted, and the anticipated future cash flows are discounted to a present value
DECISION TC-MD 180141R 4
at an appropriate rate to reflect the as-is value of the property as of January 1, 2017.” (Ex 1 at
10.)
For the sales comparison approach to value, Call used three general land-use categories:
single family residence (SFR), multi-family residence (MFR), and commercial/mixed use village
town center (MU-VTC). Call considered SFR and MFR values based on a price per acre basis
and MU-VTC value based on price per square foot. Call could not find sales of large tracts
similar to the subject property in the Portland Metropolitan area, so he used lots which had
entitlements and infrastructure and made qualitative adjustments. (See Ex 1 at 44-60.)
a. SFR
Call selected four comparable properties in Washington County and in the Portland area
with similar density. (Ex 1 at 45-48.) Comparable #1 is a 74.29-acre lot in Cornelius which sold
for $208,642 per acre in September 2016 and brought within the urban growth boundary at the
same time as the subject property. Call rated this property as inferior to the subject property due
to its location and condition. Comparable #2 is a 57.71-acre lot in the South Cooper Mountain
area that sold for $410,918 per acre in May 2018 but had been under contract since 2015. Call
considered this location superior due to its location and a high indicator of value and adjusted the
price to $436,161 per acre. Comparable #3 is a 19.79-acre lot in Hillsboro which sold for
$400,000 per acre in January 2017. Call viewed this sale as “a reasonable to slightly low
indicator” of value because the transaction agreement was made in 2016 even though it closed in
2017. Comparable #4 is a 27.95-acre lot in Beaverton which sold for $522,081 per acre in June
2018. Call viewed the location and density, including apartment units, superior to the subject
property making this sale a high indicator of value for the SFR category. Call found his
comparables indicated a range of $208,642 to $522,081 per acre for SFR sites and concluded that
DECISION TC-MD 180141R 5
the value of the subject property’s SFR lots (SFR 4.5 and SFR 6) was $425,000 per acre based
on bracketing Comparable #3 with Comparable #2.
b. MFR
Call found five comparable sales with a range of $373,184 to $723,445 per acre for MFR
sites between 3.13 acres and 22.44 net acres. (Ex 1 at 53.) Comparable #1 is a 22.44 net acre
site in South Cooper Mountain that sold for in June 2018 for $522,081 per acre. Call found the
location slightly superior to the subject property. Comparable #2 is a 10.45 net acres site,
adjacent to Comparable #1, that sold in April 2016 for $723,445 per acre. Call found the site had
a superior location and an established market area and thus it was a high indicator of value for
the subject property. Comparable #3 is a 7.37 net acre site in Happy Valley that sold in August
2015 for $512,212 per acre. The site is part of a developing area in Happy Valley with similar
density and a planned commercial area. Call determined that the lower cost of development
makes this site a slightly high indicator of value for the subject property. Comparable #4 is a
3.13 net acre site in Beaverton that sold in April 2016 for $552,716 per acre. Call found the
density and locations reasonably similar to the subject property with slightly higher density, but
its smaller size makes it a high indicator of value for the Subject Property. Comparable #5 is a
15.14 net acre site in Hillsboro that sold in October 2018, but was negotiated in late 2016 and
early 2017, for $373,184 per acre. This site is multi-zoned MFR-1, MFR-4 and MU-VTC. Call
found that because of the higher costs of the MU-VTC zone, this comparable is a slightly low
indicator of value for the subject property. Call determined that Comparable #5 on low end and
#3 on the high end bracketed the subject property, leading to his concluded value at $450,000 per
acre for the MFR zone.
///
DECISION TC-MD 180141R 6
c. MU-VTC
Call selected four comparable sales for the MU-VTC zone. He used a price per square
foot to analyze the tracts and then converted the price into acres. Call noted that expenses for
development of this zone type significantly affect the price. Comparable #1 was 259,182 square
feet and sold for $3.8 million in Feb 2015, equating to $15 per square feet. The site was
purchased by Nike and not for development and thus Call determined this comparable was a low
indicator of value. Comparable #2 was 217,800 square feet and sold for $3.6 million in April
2015, equating to $17 per square foot. Comparable #3 was 197,762 square feet and sold for
$3.956 million in May 2016, equating to a price of $20 per square foot. The site was an
industrial zone site without retail appeal, and thus inferior to the subject property. Call believed
the location was slightly superior and the small size put an upward pressure on the price. Call
found it a slightly high indicator of value for the subject property. Comparable #4 was a 158,994
square foot site and sold in March 2017, for $4.057 million equating to $26 per square foot. Call
found the comparables indicated a range of $15 to $26 per square foot and concluded that
because of its large size the subject property would have to be sold in phases thus reducing its
value on balance with the comparables. Additionally, Call found the high LID costs associated
with the subject property also puts downward pressure on the value. Call’s concluded value for
this zone is $16 per square foot which translates to approximately $700,000 per acre.
d. Sales Comparison Approach Value Totals
Call multiplied the acreage for each of the three zones identified above by the price per
acre resulting in a total of $59,150,000. (Ex 1 at 67.) From that figure he deducted the allocated
infrastructure costs of $17,920,771, resulting in a net value of $41,230,000. Call testified he did
not make any adjustments for reimbursement amounts for infrastructure LID or TDT because
DECISION TC-MD 180141R 7
that would go into a DCF analysis, which he performed separately. Call testified that his sales
comparison approach was not as accurate as the DCF approach because it does not address the
significant investment required, the timing of development, and the revenue spread out over
time.
e. Butternut Creek comparison
As alternate to the sales comparison approach, Call analyzed a large related development
property known as Butternut Creek located just south of the subject property. This property
includes SFR, MFR and MU-VTC zoning with approximately 1,252 units planned for the 176-
acre site. In 2016, a builder entered a purchase contract for Butternut Creek broken into nine
parts, with one part per year. The initial transaction occurred in September 2017, with the sale of
44.97 acres for $5,863,250. The second transaction in August 2018 involved 20.77 acres for
$4,095,466. The remaining sales were tied to the county real estate index but capped at five
percent. (Ex 1 at 69.) Based on the net developable property, Call determined the net sales
prices, in the range of $235,000 to $289,000 per acre represented the “absolute top end of a
supportable market value for the entire property.” (Id.) Using that range, Call determined that
the price of the subject property, using Butternut Creek as the model, would be in the range of
$25,310,000 to $31,130,000.
2. Discounted Cash Flow Analysis
The DCF analysis is an income approach that starts with a sales comparison approach and
modifies it to “simulate the anticipated cash flows during the sellout period” and discounting the
yield “to reflect the time value of money and required profit.” (Ex 1 at 61.) Call testified that
this approach more accurately represents how market participants would evaluate the subject
property. Call grouped the value of the residential zones together from his comparison approach
DECISION TC-MD 180141R 8
values and found a blended rate for that category at $439,059 per acre allocated to 62.29 acres.
To that value he added the MU-VTC zones at $700,000 per acre allocated to 45.43 acres. (Id.)
He assumed appreciation at four percent which he felt was in line with the Butternut Creek sale
which was capped at five percent. (Id.)
Call estimated a three-phase sellout period with the first phase beginning in 2018 and the
second and third phase beginning in 2020 and 2022. Call calculated the expenses related to
completion of the Gateway infrastructure which include the rail crossings at Cornelius Pass Road
at Tualatin Valley Highway, construction of Cornelius Pass Road and Blanton Street, and off-site
transportation improvement costs. (Id. at 62.) Because this appeal was only for 140 acres out of
a 240-acre tax lot, Call allocated the expenses to the subject property at $6,796,612 for 2017 and
$11,124,159 for 2018. (Id.) Call used estimates from Plaintiff in calculating TDT credits at 50
percent of the road costs or $9,770,043. (Id. at 63.) Call asserted that TDT credits are realized at
the time of vertical construction, but that timeline was uncertain, so he amortized the amounts
over five years or $1,954,009 per year (total $9,770,043). (Id.) Call also anticipated a $10.5
million future payment for LID and estimated the payment to come in 2023. (Id.) Allocating
that amount to only the subject property, Call included a credit for LID at $6,489,570 in 2022
which is the last year of the hypothetical sell-out period. (Id.)
Call described the discount rate as the amount a potential buyer would need to account
for “entrepreneurial profits and overhead, and the cost of capital.” (Id.) Call used the first
quarter 2017 Developer Survey published by Realty Rates.com for residential/mixed-use
subdivisions over 500 units in the Pacific Northwest which ranged from 14.32 to 32.13 percent
and averaging 21.54 percent. (Id.) Call also considered Brentlinger’s discount rate for similar
projects ranging from 22 to 25 percent. (Id.) Call considered the discount rate in D.R. Horton’s
DECISION TC-MD 180141R 9
2016 annual report which ranged from 10 to 14 percent and homebuilder Lennar’s rate at 20
percent. (Id.) Call noted that home builder discount rates are lower because the properties they
purchase are generally ready to build, whereas the subject property requires infrastructure
development prior to vertical construction. (Id. at 64.) Balancing the above rates, Call concluded
a discount rate of 20 percent was appropriate. (Id.) Next, Call took the anticipated income
stream over six years with four percent appreciation, added TDT credits and LID
reimbursements from the City, subtracted the allocated infrastructure costs and discount rate to
arrive at a value of $28,760,000.
Call testified that he had prepared other appraisals on all or part of the Reed’s Crossing
property in August 2014 (Ex G), December 2016 (Ex H), February 2017 (Ex I), and October
2017 (Ex J). He testified that his appraisal for the subject property as of January 1, 2017, is the
most accurate opinion of value as of the assessment date. He further testified that the other
appraisals were prepared for other purposes—such as internal decision making and were done
quicker and with less precision. Additionally, Call testified those appraisals did not define the
same area parameters as those in the appraisal submitted by Plaintiffs in Exhibit 1.
Call testified that Defendant’s approach to value—estimating revenue of $85 million
minus costs to come up with $67 million—does not capture the timing of the costs relative to
development (actual construction), does not account for timing of revenue and expenses, the
risks of obtaining entitlements, final approvals, and unknown conditions that may arise during
construction. The retail values used by Defendant assume that infrastructure—streets, water,
power, drainage—are already in place and that vertical construction could be accomplished. As
to TDT credits, Call asserted that a market participant would estimate the amounts as he did in
his appraisal. With respect to the projected building density used by Defendants, Call used an
DECISION TC-MD 180141R 10
average density not maximum density because in his experience “zoning does not dictate density,
the market does.”
B. Defendant’s Evidence of Value
Morrison testified he has been the Development Services Manager in Public Works for
the City since June 2017. He oversees the administration of development activities for Public
Works, which includes permitting, Geographic Information System (GIS) and certain
transportation funding tools/fees. Three funding tools that impact the subject property are the
Transportation Development Tax (TDT), the Transportation System Development Credits
(TSDC), and the Local Improvement District (LID). Washington County offers these credits to
be earned by developers when doing certain capacity improvements, agreed by the City, in
connection with their development. The credits can be applied to development costs and can be
sold or transferred to others up to ten years after issuance, however, unused credits lapse.
Morrison testified that certain criteria that must be met to qualify for the credit and to determine
the percentage of credit applicable. Morrison acknowledged that although the standards for
determining the reimbursement were in place, the conditions were not met as of January 1, 2017.
Vai testified she has worked as an appraiser for Washington County Assessment and
Taxation since November 2018 and holds a general commercial license. She formally worked
for PGP Valuation which became Colliers and then CBRE. Vai performed a retrospective
appraisal of the subject property as of the assessment date. (Ex A.) She noted that although
Plaintiff and the City have an overall plan for the subject property, the plan is flexible. Vai
testified she made an extraordinary assumption that the subject property was an independent lot,
rather than part of a larger tract. She testified that the housing market in the Hillsboro and
Portland Metropolitan areas are “very hot” and proximity to high paying jobs makes the subject
DECISION TC-MD 180141R 11
property more valuable.
Vai testified that she looked at the subject parcel by zoning component, because that is
what the market would do. Vai testified that market participants would treat the subject property
as already partitioned and under contract even though technically, the lots were not ready for
development. To counter Plaintiff’s assertion that the lots could not be sold, she observed that
Plaintiff had sold a 40-acre parcel to the school district, with location to be determined.
Vai agreed that market participants would likely use the sales comparison approach as
modified by the DCF analysis. However, Vai preferred the sales comparison approach alone,
because the DCF requires too many assumptions. She believes that the approaches should yield
similar results, and because Plaintiff’s values between the sales comparison approach and DCF
were dramatically different, then their conclusions are unreliable.
1. Defendant’s sales comparison approach
Vai focused on 107 developable acres and reduced that figure in the analysis by ten
percent for streets. She testified that one big difference for her appraisal is the importance of
zoning density to value. Vai did not believe the SFR-4.5 and SFR-6 zones should be lumped
together the way Plaintiff did because in her view developers would try to maximize density to
minimize cost per unit and maximize profit. Vai’s report stated that based on the City code, the
zoning would allow for 2,007 to 2,484 units on the subject property. Vai reviewed density data
for Butternut Creek (phase 1 & 2) and Rosedale Parks (phase 2 & 3) to determine the density
market participants were building at and concluded an average density of approximately 90
percent of maximum allowable density. (Ex A at 49.) Vai later clarified that her it should have
been calculated at 90 percent of the average density builders in the area are actually building.
///
DECISION TC-MD 180141R 12
a. SFR 4.5
Vai selected six comparable land sales. (Ex A at 64.) Comparable #1 was the sale of
58.5 acres of development land at $649,573 per acre with a density of 8.48 lots per acre. (Id.)
Some entitlements were done, but the buyer had to get their own permits. (Id. at 66.) The price
was negotiated in August 2014 and the deed was recorded one year later. Comparable #2 was
the sale of 29.22 acres near Comparable #1 at $499,658 per acre with a density of 5.92 lots per
acre. This lot was purchased without entitlements, in an inferior market, and had terrain and
wetland issues. (Id. at 66-67.) Comparable #3 was the sale of 31.4 acres in Portland at $496,105
per acre with a density of 4.62 lots per acre. Vai testified the purchaser decided to wait for better
market conditions prior to developing the property. Comparable #4 was the sale of 36.42 acres
in Rosedale Parks (Hillsboro) at $496,105 per acre with a density of 7.22 lots per acre.
Comparable #5 was the sale of 31.72 acres in West Hills (Beaverton) at $533,346 per acre. (Id.
at 64.) The purchaser built a 192-lot development that is near other planned developments and
adjacent to Comparable #2. (Id. at 63, 68.) Comparable #6 was the sale of 34.29 acres in North
Plains at $460,871 per acre with a density of 8.81 lots per acre. (Id. at 64.) This lot had terrain
issues requiring retaining walls.
Based on her concluded average density of 90 percent of maximum (Ex A at 49), and a
density range of 8 to 10 lots per acre for SFR-4.5, Vai concludes that the density would be 9.01
for the subject property. (Ex A at 65.) Vai did quantitative analysis instead of Call’s qualitative
analysis—adjusting for location, size, shape, topography, density, entitlements, and time. (Id. at
69.) Based on data from the RMLS, property in the area of the subject property was increasing
at an average of 11.1 percent over a five-year period. That rate roughly matched Defendant’s
records for residential land at 10 percent per year, and thus Vai used the lower figure. Vai also
DECISION TC-MD 180141R 13
adjusted for physical characteristics. (Id. at 64.) She adjusted 25 percent downward for
entitlements to Comparable #1. (Id. at 69.) She adjusted for density for example, Comparable
#2 that had 5.92 units per acre compared to the subject’s 9.01, which means the lots in
Comparable #2 would be bigger and generate less revenue for the developer. To verify her
hypothesis, Vai looked at the range homebuilders are paying for each unit at $50,000 to
$105,000 and settled on an adjusted price per unit of $64,000. (Ex A at 69-70.) Vai determined
that 213 lots could be built yielding a rounded per lot value of $64,959 equating to a price per
acre rounded to $649,594. (Id. at 70.) With that value multiplied by the number of acres, the
total value of the SFR-4.5 was determined to be $13,850,000. (Id.)
Vai criticized Plaintiff’s Comparable #1 as being in an inferior market, and Comparable
#3 as not relevant because it was not yet inside of the Urban Growth Boundary. She felt that
Comparable #2 was a reasonable choice but the location and distance from OR-217 did not
justify categorizing it superior to the subject property.
b. SFR-6
Vai created a separate analysis for the SFR-6 category because of the density difference.
She selected six sales in her analysis of the SFR-6 zone. Vai used a density of 6.75 units per acre
for the SFR-6 land. (Ex A at 72.) She acknowledged that smaller lot sizes increase the price.
Vai adjusted for time, size, topography, and density. (Id. at 76.) Comparable #2 was a 5-acre
tract sold for a high-density townhouse development. (Id. at 74.) Vai’s net adjustments for that
comparable were 47 percent. (Id. at 76.) Comparables #4 and #6 received similar large
adjustments of 30 percent and 33 percent respectively. (Id.) Comparable #3 had the least
adjustment at 10 percent. (Id.) Vai placed the greatest weight on Comparables #3 and #4
because of their similar in size and design to the subject property. (Id.) She opined that 40 lots
DECISION TC-MD 180141R 14
could be built indicating a range of value of $2,886,840 to $2,967,030 and concluded that the
rounded value for the subject property’s 5.94 acres was $496,633 per acre for a total indicated
value of $2,950,000. (Id.)
c. MFR
Vai considered the multifamily, MFR-1, MFR-2, and MRF-3 zones together, and used a
range of 10 comparable sales. (Ex A at 79.) Vai considered the density range of these zones to
be from 11 to 28.75 dwelling units per acre. (Id. at 78.) In the appraisal report, Vai opined that
developers would base their projections on 90 percent of allowable density to maximize their
profit. (Id.) Based on that methodology, Vai estimate that MFR-1 would have a density of 14.4
units per acre and a total value of $5,200,000. (Id. at 86.) For the MFR-2, Vai estimated that it
would have a density of 19.15 units per acre for a total value of $11,500,000. (Id.) Lastly, for
the MFR-3, Vai estimated it would have a density of 25.87 units per acre for a total value of
$5,600,000. (Id.) Vai concluded that her approach to the MFR zones was superior to Plaintiff’s
because she broke them into components based on different permissible densities, whereas
Plaintiff’s appraisal lumped them all together. In reviewing Plaintiff’s comparable sales, Vai
testified that she would not have used a Happy Valley sale because that market area is very
different. (Comparable #3, Ex 1 at 50). She also did not use Plaintiff’s Comparable #5 because
in her view it was an “outlier.”
d. MU-VTC
For the MU-VTC, Vai’s research indicated that commercial land would be sold in smaller
increments and that apartments would fill in the remainder, restricted only by parking
limitations. (Ex A at 88.) The 50.47-acre zone allows for a variety of uses which Via broke up
into one-third commercial and two-thirds multi-family housing. (Id. at 87.) As in the other
DECISION TC-MD 180141R 15
zones, Vai assumed a 90 percent density, which would allow for 1,322 net units. (Id.) Vai
calculated that the multi-family component of this zone would yield about $1 million per acre for
a total of $30,500,000. (Id. at 88.) Vai found six commercial sales with adjusted prices ranging
from $908,154 and $1,115,640. (Id. at 94.) Vai concluded that the price per acre was
$1,051,180 resulting in an indicated value for this zone of $5,300,000. (Id. at 95.) Adding the
two components together yield an aggregate value for the zone at $15.9 million. (Id.)
2. Sales Comparison Approach Totals
After concluding on each of the zones separately, Vai added the values for each
component zone which equaled $85,650,000. (Id. at 96.) Vai testified she spoke a number of
national developers and formed the opinion that a 20 percent discount would be applied if a
purchaser bought the entire property as a whole. With the discount, Vai arrived at a concluded
market value of $67,300,000. 1 Vai did not take into account “extraordinary costs” because she
did not have those figures. Vai did not include LID costs, because she felt the costs and
reimbursements “nets out to zero.”
3. DCF Analysis
Vai used estimated absorption figures of two to three months for the SFR zone, three to
five months for the MFR zone, and six to nine months for the MU-VTC. (Ex A at 98.) Vai
considered holding expenses of three years, which she considered minimal, marketing/sales
commissions at five percent, and a discount rate for planned unit developments in the pacific
northwest region ranging for 14.91 to 33.46 percent and averaging 22.25 percent. (Id. at 99-
100.) She did not consider costs and reimbursements because she was not provided with those
figures and she opined that they probably would be “a wash” anyway. She concluded that with a
1
This is different that the value on Ex A at 97 due to a calculation error.
DECISION TC-MD 180141R 16
12-quarter sell-out period that a 24.1 percent discount rate was appropriate, resulting in a bulk
value of $67,300,000 million.
On cross-examination, Vai clarified that her density computation on Exhibit A at 49 was
that builders were building to 90 percent of average density, not maximum density. (See Tr at
464-65). She testified that, after recalculating with the correct figures, the data supports 77
percent of maximum allowable density instead of 90 percent. (Id. at 468.) She stated that the 20
percent discount rate used above captures risk, but not costs of the developer. (Id. at 473.) Vai
admitted she did not adjust for LID because she had “insufficient data.” (Id. at 490.) She
testified that master planned communities are subject to higher costs, a longer time frame of
development, and are subject to more governmental approvals, than a subdivision. (Id. at 501.)
II. ANALYSIS
This appeal involves a select 140-acre portion of a larger development site known as
Reed’s Crossing, which in turn is a subset of a larger planned community development known as
South Hillsboro. As of the assessment date, January 1, 2017, the subject property was vacant
land, with some grading and a zoning plan in place, but without entitlements that would allow
vertical development. Prior to building, a number of conditions needed to be met which both
parties agree were not in place as of the assessment date. The parties considered and rejected the
cost approach and relied on the sales comparison approach while offering different modifications
using a variation of the income approach known as the Discounted Cash Flow (DCF) analysis.
The court is asked to determine the real market value of the subject property. Real
market value is defined in ORS 308.205(1), 2 which states:
“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
2
The court’s references to the Oregon Revised Statutes (ORS) are to 2015.
DECISION TC-MD 180141R 17
seller, each acting without compulsion in an arm’s-length transaction occurring as
of the assessment date for the tax year.”
The assessment date for the 2017-18 tax year is January 1, 2017. ORS 308.007; ORS
308.210. 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). The
three approaches to value that must be considered are: (1) the cost approach; (2) the sales
comparison approach; and (3) the income approach. OAR 150-308-0240(2)(a). Although all
three approaches must be considered, all three approaches may not be applicable in each case.
Id. Here, both parties relied primarily on the sales comparison approach and then overlaid an
income approach, the DCF, to adjust the value. Using the sales comparison approach, the “court
looks for arm’s length sale transactions of property similar in size, quality, age and location” to
the subject property. Richardson v. Clackamas County Assessor, TC-MD 020869D, 2003 WL
21263620 at *3 (Or Tax M Div, Mar 26, 2003). Plaintiff bears the burden of proof and must
establish its case by a preponderance of the evidence. ORS 305.427. “[T]he 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 305.412.
A. Sales Comparison Approach
The parties generally agree that the sales comparison approach, divided into several
zoning sections is the best starting point for valuing of the subject property. The parties disagree
on how finely to categorize and analyze the many differently zoned sections and whether the
sales comparison approach standing alone is the best method to determine value. Plaintiff
combined the SFR zones into a single analysis and averaged them. They followed the same
approached for the MFR and MU-VTC zones. Defendant broke out each zoning type
individually and found comparable sales for each category. Defendant’s analysis focused on the
DECISION TC-MD 180141R 18
probable density as the main factor in determining value of those zones.
Both parties acknowledged that there were no comparable sales in the general area
matching the size and raw condition of the subject property. Plaintiff approached the challenge
by finding comparable sales in zone categories of SFR, MFR, and MU-VTC, and adjusting them
qualitatively. Defendant approached the challenge by finding comparable sales for zone
categories of SFR-4.5, SFR-6, MFR-1, MFR-2, MFR-3 and MU-VTC and adjusting them by
looking at average density of homes being built in the area and their associated sales price, and
using that figure to arrive at a price per acre. Defendant also adjusted the sales prices
quantitatively. The court views each parties’ approach as viable methods for determining the
value of subject property. That said, in this instance the court views Plaintiff’s sales comparison
approach, averaging the zones, as superior given the raw undeveloped condition of the subject
property as of the assessment date for the reasons set forth below.
1. Combining zoning areas
In theory, Defendant’s approach promises greater precision because the density and value
of each of the zones are different. However, the parties each independently acknowledged that
although zoning areas have been approved, there will be further changes to zoning and density
limits, based topography, market demand, and agreements with the City. The court is persuaded
by Plaintiff’s witnesses that market participants seeking to purchase the subject property at this
early stage of development would account for the uncertainty by grouping zones together.
2. Density calculations based on zoning
During the trial and in their closing brief, Defendant acknowledged errors in their
appraiser’s calculations. Specifically, Vai reviewed the average density that homebuilders were
actually building in nearby areas and found they were building at 90 percent of average density
DECISION TC-MD 180141R 19
or 77 percent of the maximum allowable density. The court agrees that builders in the vicinity of
the subject property are currently building at nearly 80 percent of maximum allowable density.
But the evidence was not persuasive that potential purchasers of the subject property would
negotiate their purchase price based on the higher density figures. Universally, witnesses
testified that potential buyers/home builders scrupulously analyze expenses. It is hard, then, to
accept that those individuals would make their purchase assumption at, or near, the maximum
possible densities because any problems with entitlements, geology, or topography would
diminish their profitability. See Appraisal Institute, The Appraisal of Real Estate 348 (15th ed
2020) (“Without surveys and engineering studies, an appraiser cannot know exactly how many
lots can be created from a particular parcel of land.”) Defendant’s assumption of near maximum
density results in an overly optimistic valuation because at the date of assessment the property
was still in the initial stages of development. To put this another way; the stage of development
as of the assessment date is too early for the appraisers to be determining value by counting
doors. The court is persuaded by Plaintiff’s witnesses that market participants seeking to
purchase the subject property at this early stage of development would not base their purchase
price on zoning maximization.
3. Adjustments to Plaintiff’s comparable sales
Plaintiff’s comparable sales for the SFR zoning areas appear reasonable and the court
adopts its value of $425,000 per acre. A majority of Plaintiff’s comparables for the MFR
residential development zone appear reasonable. However, Comparable #3 in Happy Valley and
Comparable #5 purchased by Newland Communities (Nash Holland) are problematic. The court
agrees with Vai’s assessment that the market in Happy Valley is not similar to South Hillsboro
and thus it should be given less weight. As to Comparable #5, Defendant’s challenged the nature
DECISION TC-MD 180141R 20
of the sale as not being an arm’s-length transaction. Although Brentlinger and Call testified that
they believed this sale represented an arm’s-length transaction because the parties had a motive
to maximize their own self-interests, that explanation is not convincing. The court finds
Comparable #5 unreliable for three reasons, first, the sale is between related parties. Mr.
Holland the purchaser has an interest in Plaintiff. Second, the sale at $373,184 per acre is
substantially lower than all the other comparables; more than 15 percent below Call’s MFR value
and more than 45 percent below Call’s MU-VTC value. Third, the land is zoned MFR-1, MFR-
3, and MU-VTC which would potentially make it more valuable than other MFR land given its
flexible commercial component. Those factors cast doubts as to the arm’s-length nature of the
sale and whether it is a good comparable. See OAR 150-308-0240(2)(c) (“In utilizing the sales
comparison approach, only actual market transactions of property comparable to the subject, or
adjusted to be comparable, may be used.”) Plaintiff’s testimony does not overcome those
doubts. Thus, the court rejects that comparable. The court gives greater weight to Comparable
#4 which was a Beaverton sale at approximately $550,000 per acre. The court agrees with Call
that this sale is a slightly higher indicator of value. The court finds the value of MFR zone at
$525,000 per acre.
Call estimated the value of the MU-VTC at a rounded value of $700,000 per acre after
considering four comparable sales ranging from $16 square foot to $26 square foot. Call
determined that the subject should be valued on the lower end of the range because of high LID
costs of $3 per square foot. In reviewing the comparables, the court places little weight on
Comparable #1 because it was not marketed and/or purchased for development. The best
comparable matching the MU-VTC zoning is Comparable #4, with an adjusted value of $26
square foot. That figure closely matches Call’s October 2017 appraisal which estimates a value
DECISION TC-MD 180141R 21
for the MU-VTC portion at $24 to $26 per square foot. (Ex J at 21-24.) It also matches a
contemporaneous letter of intent for the subject property, from a prospective purchaser,
mentioned in the October 2017 appraisal. (Id. at 24.) Finally, it closely matches Vai’s value of
approximately $24 per square foot ($1,050,000 per acre.) Thus, the court finds that value of the
MU-VTC using the sales comparison approach at $1,050,000 per acre. A summary of the values
determined by the court using the sales comparison approach are as follows:
Zone Acres Value/acre Total
SFR 27.26 $425,000 $11,585,500
MFR 35.03 $525,000 $18,390,750
MU-VTC 45.43 $1,050,000 $47,701,500
$77,677,750
B. The DCF Analysis
The parties generally agree that market participants would utilize a DCF analysis to
evaluate the real market value of the subject property. Plaintiff asserts that a DCF analysis is
essential to account for the cost, time, and risk in completing the infrastructure improvements
and the remaining hurtles needed to take place to sell the land, especially with irregular flows of
income. Vai asserts that a comparable sales approach is more accurate because the DCF analysis
involves too many assumptions. Further she argued that the difference in the values concluded
by Plaintiff’s sales comparison approach and the DCF analysis suggest that the DCF analysis
results are questionable.
In First Interstate Bank of Oregon, N.A. v. Dept. of Rev., 306 Or 450, 760 P2d 880
(1988), Oregon’s Supreme Court considered whether the “developer’s discount” under a DCF
analysis applied to a fully developed subdivision. The court concluded that “[t]he developer’s
DECISION TC-MD 180141R 22
discount does not assess the value of the properties if put to their highest and best use, but
reduces their value to arrive at the value of the properties considered as an investment.
Investment is not the highest and best use of the properties.” Id. at 455. The court emphasized
the fact that the subdivision at issue had “been subdivided and roads and utilities provided to
each lot” such that “there [were] no longer development costs that would affect the present
market value of each lot.” Id. The court went on to state that:
“Although we reject a developer’s discount in the situation in which the original
holding has been subdivided into several lots and the subdivision has been fully
developed, it is appropriate to take into account the present legal and physical
status of the property. Even if the best use of a property would be for subdivision,
the property’s present value would take into account the fact that the property
would not be presently usable for the sale of individual lots.”
In Powell St. I, LLC v. Multnomah Cty. Assessor, 365 Or 245, 259-60, 445 P3d 297 (2019), this
court considered the holding in First Interstate and concluded that it did not, as argued by the
department, “prohibit a valuation methodology that takes into account the property owner’s cost
to sell or improve properties” where the properties highest and best use was “as part of a group
of lots.” Here, the parties agree that the highest and best use of the subject property was to a
developer or group of builders who could invest in the infrastructure and entitlements necessary
to begin vertical construction. (Ex 1 at 41, Ex A at 58.) The court agrees it was simply not
feasible to sell the subject property in individual lots on the assessment date of January 1, 2017.
Accordingly, the court agrees that a DCF analysis is necessary in this case to determine the real
market value and that market participants would use this approach. The court attributes the
divergent value differences between the sales comparison approach and the DCF analysis to the
fact that none of the comparables were easily adjustable to the raw conditions of the subject
property.
///
DECISION TC-MD 180141R 23
Defendant’s DCF analysis discounted 20 percent for risk but assumed that 100 percent of
Plaintiff’s development costs would be reimbursed and would be a “wash.” Defendant chose a
25 percent discount rate but did not include in the analysis extraordinary costs, because it did not
have those figures. The court believes that the market would not ignore such a potentially
significant factor such a multi-million-dollar investment. It leaves the analysis incomplete.
As between the parties’ variations, the court generally agrees with Plaintiff’s approach.
Call’s assumption of a four percent appreciation rate appears reasonable as do the assumptions of
an initial sale in 2018 and subsequent phases in 2020 and 2022. The court adopts Plaintiff’s
estimated a 5-year sellout period with future TDT credits and reimbursements at 50 percent or
$9.7 million. Morrison testified that reimbursement is from 50 to 100 percent depending on
several factors, and that he would decide after Plaintiff filed an application. At this early stage of
development, a potential market participant would have to estimate the credits. Further, they
would not likely pay 100 percent of a future credit now, especially if unused credits were not
refundable. For the reimbursements, Plaintiff will receive $10.5 million for the rail crossing, to
which Call allocates $6.5 million to the subject property. He allocated payments over five years
which also appears appropriate.
Having concluded that that the subject property had a total real market value of
$77,677,750 under the sales comparison approach, the court applies Plaintiff’s DCF analysis
(Attachment 1) 3, resulting in a 2017-18 real market value of $40,398,320.
///
///
3
The court’s DCF calculation corrected what appeared to be errors contained in Plaintiff’s calculations.
While the court initially believed that in theory the SFR and MFR should not be averaged for the calculation, the
difference was so proportionally small that the original formula was used.
DECISION TC-MD 180141R 24
III. CONCLUSION
After careful consideration the court finds the real market value of the subject property as
of January 1, 2017, was $40,398,320. Now, therefore,
IT IS THE DECISION OF THIS COURT that the 2017-18 real market value of the
subject property is $40,398,320.
Dated this ____ day of June 2021.
RICHARD DAVIS
MAGISTRATE
If you want to appeal this 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 this Decision
or this Decision cannot be changed. TCR-MD 19 B.
Some appeal deadlines were extended in response to the Covid-19 emergency.
Additional information is available at https://www.courts.oregon.gov/courts/tax
This document was signed by Magistrate Richard Davis and entered on June 4,
2021.
DECISION TC-MD 180141R 25
Attachment 1
REVISED DCF ANALYSIS
2017 2018 2019 2020 2021 2022
Residential Land Value (4% appreciation) $ 480,000 $ 499,200 $ 519,168 $ 539,935 $ 561,532 $ 583,993 4%
Commercial/Mixed (4% appreciation) $ 1,050,000 $ 1,092,000 $ 1,135,680 $ 1,181,107 $ 1,228,351 $ 1,277,486
Residential Acres Sold 0.00 31.15 31.14 0.00 0.00 0.00
Commercial/Mixed acres sold 0.00 15.15 0.00 15.14 0.00 15.14
Revenue
Residential Land $ - $ 15,550,080 $ 16,166,892 $ - $ - $ -
Commercial/Mixed $ - $ 16,543,800 $ - $ 17,881,963 $ - $ 19,341,131
TDT Credits $ - $ 1,954,009 $ 1,954,009 $ 1,954,009 $ 1,954,009 $ 1,954,009
LID Reiumbursement Railroad Crossing $ - $ - $ - $ - $ - $ 6,489,570
Allocated Gateway Costs $ (6,796,612) $ (11,124,159) $ - $ - $ - $ -
Annual Cashflow $ (6,796,612) $ 22,923,730 $ 18,120,901 $ 19,835,972 $ 1,954,009 $ 27,784,710 20%
Net Present Value @ 20 percent $40,398,320.20