The opinion
IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Property Tax
RONALD P. HOXIE, )
)
Plaintiff, ) TC-MD 210218N
)
v. )
)
CLATSOP COUNTY ASSESSOR, )
)
Defendant. ) DECISION
Plaintiff appealed the real market value (RMV) of property identified as Account 12048
(subject property) for the 2020-21 tax year. A trial was held on May 18, 2022, in the courtroom
of the Oregon Tax Court. Plaintiff appeared and testified on his own behalf. Steve Gibson
(Gibson), senior appraiser, appeared and testified on behalf of Defendant. Plaintiff’s Exhibit 1
and Defendant’s Exhibit A were received without objection.
I. STATEMENT OF FACTS
The subject property is the former Beacon Hotel, a two-story mixed-use building in
Seaside, Oregon. (Ptf’s Ex 1 at 1; Def’s Ex A at 1.) It was built in 1920 and renovated
beginning in 2013. (Id.) During renovations, Plaintiff installed an elevator, a new stairwell,
refinished the banquet hall, and added skylights. (Def’s Ex A at 5.) The parties considered the
renovations complete as of the January 1, 2020, assessment date. (Id.) The first floor is 5,677
square feet and consists of a pub (or restaurant) space and two retail spaces. (Id.) The northeast
retail space has street frontage, and the southeast retail space has alley frontage. (Id.) The
second floor is 5,767 square feet and consists of office space, a banquet hall with a catering area,
and communal bathrooms. (Id.) The subject property’s 2020-21 tax roll RMV was $1,353,615,
and its maximum assessed value was $964,246. (Compl at 2.) Plaintiff appealed to the Board of
DECISION TC-MD 210218N 1
Property Tax Appeals, which sustained the tax roll values. (Id.) Plaintiff requests a RMV of
$650,000. (Id. at 1.) Defendant requests a RMV of $1,466,282. (Def’s Ex A at 1.)
A. Plaintiff’s Evidence
Plaintiff has been a real estate developer for decades. He testified as to the actual
monthly rent received in 2020 for the subject property: $850 per month for the northeast retail
space with street frontage; $500 per month for the southeast retail space with alley frontage;
$2,700 per month for the pub; and $700 per month for the second-floor office space. Plaintiff
could not provide an exact amount for the banquet hall because he rented it out sporadically for
events. Plaintiff testified that Defendant’s estimate of the cost to renovate the subject property
was likely accurate, but the cost was not reflective of value. He could not sell the subject for the
amount Gibson had concluded, noting he would have if he could.
Plaintiff also submitted an appraisal report by Louis J. Moscato, MAI, (Moscato), though
Moscato did not testify at trial. (Ptf’s Ex 1.) Moscato valued the subject property using only the
income and sales comparison approaches, explaining that “investors of properties like the subject
do not analyze them based upon depreciated costs * * *.” (Ptf’s Ex 1 at 12.) He determined the
cost approach was unhelpful for calculating value. Moscato concluded that, “as improved, the
subject does not represent the highest and best use of the subject site due to the cost associated
with renovating the second floor versus the rent that can be obtained.” (Id. at 42.) Nevertheless,
he treated the current use as the highest and best use (HBU). (Id.)
1. Sales comparison approach
Moscato found that “there were few sales in Seaside consisting of two-story buildings
with similar locational and physical characteristics as the subject.” (Ptf’s Ex 1 at 44.) Due to the
difficulty in finding comparable sales, he placed less weight on this approach. (Id.) Only one of
DECISION TC-MD 210218N 2
Moscato’s six sales was located in Seaside, with the rest in Astoria. (Id. at 62.) Four of the six
properties were two or three stories, and all six reflected multi-tenant use. (Id. at 46-61.) The
sale in Seaside was Salmonberry Square, an 11,237-square foot two-story building constructed in
1965 as a furniture store and renovated into a “retail mall” with multiple spaces in 2004-05. (Id.
at 46.) It sold for $67.77 per square foot in January 2018. (Id. at 62.) The six sales occurred
between May 2017 through March 2018, reflecting sales prices from $50.27 to $81.67 per square
foot of estimated rentable area. (Id.) Moscato was unable to determine “an appropriate time
adjustment,” but noted that “some upward adjustment for market conditions is considered
warranted” based on the January 1, 2020, valuation date. (Id.) Moscato concluded a value of
$77 per square foot or $670,000 under the sales comparison approach. (Id. at 65.)
2. Income approach
Moscato considered six comparable properties as well as the subject’s actual rents in
determining market rent for the subject property. Five of his six comparable rentable properties
were mixed-use, multi-tenant buildings with leases to tenants such as a salon, a coffee house, a
massage studio, and H&R Block. (Ptf’s Ex 1 at 67.) Four of the six were in Seaside. (Id.) One
of the properties – Salmonberry Square – was two stories, with an 1,820-square foot space on the
first floor leased to a pub for $13.19 per square foot starting August 2018 and a 1,080-square
foot second floor space leased to a massage business for $8.33 per square foot starting June
2019. (Id. at 69-70.) Moscato attributed the lower second floor rent to the lack of street
exposure. (Id. at 70.) Rents for the six properties ranged from $8.33 to $15.31 per square foot,
modified gross. (Id.) The subject property’s rents ranged from $7.22 to $13.97 per square foot,
depending on usage and size. (Id. at 70-71.)
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DECISION TC-MD 210218N 3
Moscato concluded the subject property would lease for $14.00 per square foot for the
retail space with street frontage; $11.50 per square foot for the pub space; $7.00 per square foot
for the rear, alley-facing retail space; $10.00 per square foot for the second-floor office; and
$8.00 per square foot for the second-floor banquet hall space. (Ptf’s Ex 1 at 70-71.) Subtracting
vacancy and credit loss, and expenses, he calculated net operating income (NOI) of $55,097 and
multiplied that by a market-derived overall capitalization rate of 8.45 percent, for an indicated
value of $650,000 under the income approach. (Id. at 77.)
3. Reconciliation
Due to a lack of comparable sales in Seaside, Moscato placed little weight on the sales
comparison approach. (Ptf’s Ex 1 at 78.) He put the most weight on the income approach
because investors typically use it to evaluate multi-tenant property. (Id.) Moscato concluded
that the subject property’s RMV as of January 1, 2020, was $650,000. (Id.)
B. Defendant’s Evidence
Gibson’s appraisal report does not include a HBU analysis, but it reflects a conclusion
that the HBU of the second-floor banquet space is conversion to office space. (See Def’s Ex A at
15.) He explained that Plaintiff’s addition of the elevator is vital to use of the second floor as
office space. (See also id.) Gibson used all three approaches to value.
1. Sales comparison approach
Gibson considered five comparable sales, reflecting retail, office, and restaurant mixed-
use. (Def’s Ex A at 16.) Three of the properties were in Seaside, close to the subject, but single
level. (Id. at 16-19.) The other two properties were in Astoria and in Cannon Beach, each multi-
level. (Id.) The sales occurred from December 2015 to November 2021 and Gibson adjusted for
market conditions (time), location, quality, condition, building area, and floor area ratio. (Id. at
DECISION TC-MD 210218N 4
16.) He wrote, “[w]hile there isn’t a ‘perfect’ comparable, these comps all have similar
characteristics indicating a value range from $123.95 to $143.35 per square foot.” (Id.) Gibson
chose the median value of $129 per square foot and concluded a value of $1,476,276. (Id.)
Gibson reviewed the comparable sales selected by Moscato, explaining why he did not
consider any of them comparable to the subject property. (Def’s Ex A at 21-28.) Even though
the Salmonberry Square building had been remodeled, he found it still suffered from “extensive
functional obsolescence with the largely open [first] floor and staircase access to the [second]
floor mezzanine.” (Id. at 21.) Other comparable sales suffered from functional obsolescence
and required significant repairs and updates. (See id. at 22-23.) Gibson rejected two of the sales
based on vacancy at the time of sale or a history of vacancy. (See id. at 24-26.)
2. Income Approach
Due to the subject’s mixed-use, Gibson considered multiple different property types to
determine market rent for each of the subject’s discrete uses. (Def’s Ex A at 9.) He separately
considered retail, restaurant, and office rent, seemingly based on single-use occupancy, except
for rent comparable 11, which was his sale in Cannon Beach. (Id. at 9-11.) For example, one
restaurant was a standalone Taco Time. (Id. at 10.) Gibson found annualized rent of $14 for
retail space, $15.75 for restaurant space, and $18 for office space. (Id. at 9.) Subtracting
vacancy and credit loss, and expenses, he calculated NOI of $120,856 and multiplied that by a
market-derived overall capitalization rate of 7.45 percent for value of $1,621,634. (Id. at 15.)
Consistent with his HBU conclusion, Gibson subtracted the cost of transforming the
banquet hall into office space. (Def’s Ex A at 15.) Using the Marshall & Swift cost estimator,
he calculated it would cost $40.70 per square foot, or $155,352, to convert the banquet hall into
office space. (Id.) Gibson subtracted that amount from the indicated value under the income
DECISION TC-MD 210218N 5
approach, concluding a value of $1,466,282 for the subject property. (Id.)
3. Cost Approach
Gibson found the cost approach applicable because the subject “has been totally
remodeled and renovated.” (Def’s Ex A at 20.) He found the subject property’s effective age to
be 13 years. (Id. at 1.) Gibson used the Marshall & Swift cost estimator to determine the subject
improvement value and deducted 17 percent depreciation. (Id. at 8.) For cost calculations, he
broke the subject’s occupancy into office, retail, bar/tavern, and banquet hall. (See id.) Gibson
determined the value of “raw land” and added the cost of on-site developments, concluding a
land value of $339,950 for the subject property. (Id.) Adding that to the improvements, he
concluded a value of $1,492,911 under the cost approach as of January 1, 2020. (Id.)
4. Reconciliation
Although all three approaches indicated a similar value, Gibson placed primary weight on
the income approach. (Def’s Ex A at 20.) He testified that the cost approach was a reasonable
indication of value due to the complete remodel, and the sales comparison approach tested the
reasonableness of his conclusions under the other approaches. Gibson concluded that the subject
property’s value was $1,466,282 as of January 1, 2020. (Id.)
II. ANALYSIS
The issue is the subject property’s RMV for the 2020-21 tax year. RMV is “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.” ORS 308.205(1).1 The assessment date for the 2020-21 tax year was
January 1, 2020. See ORS 308.007; 308.210. RMV is determined using three methods: the cost,
1
The court’s references to the Oregon Revised Statutes (ORS) are to 2019.
DECISION TC-MD 210218N 6
sales comparison, and income approaches. Allen v. Dept. of Rev., 17 OTR 248, 252 (2003).
Although all three approaches to value must be considered, not all three apply to each property.
OAR 150-308-0240(2)(a).
The party seeking affirmative relief bears the burden of proof by a preponderance of the
evidence. ORS 305.427. Plaintiff bears the burden of proof with respect to his requested RMV
reduction, and Defendant bears the burden of proof with respect to its requested RMV increase.
A “[p]reponderance of the evidence means the greater weight of evidence, the more convincing
evidence.” Feves v. Dept. of Revenue, 4 OTR 302, 312 (1971). Evidence that is inconclusive or
unpersuasive fails to meet the burden of proof. See Reed v. Dept. of Rev., 310 Or 260, 265, 798
P2d 235 (1990). “[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.
As this court has stated, “it is not enough for a taxpayer to criticize a county’s position.
Taxpayers must provide competent evidence of the RMV of their property.” Woods v. Dept. of
Rev., 16 OTR 56, 59 (2002) (citing King v. Dept. of Rev., 12 OTR 491 (1993)). “Competent
evidence includes appraisal reports and sales adjusted for time, location, size, quality, and other
distinguishing differences, and competent testimony from licensed professionals such as
appraisers * * *.” Yarbrough v. Dept. of Rev., 21 OTR 40, 44, (2012).
A. Highest and Best Use
HBU is the first question to be addressed because it impacts the selection of comparable
sales and leases. OAR 150-308-0240(2)(i); Hewlett-Packard Co. v. Benton County Assessor, 21
OTR 186, 188 (2013). HBU is “the reasonably probable use of vacant land * * * that is legally
permissible, physically possible, financially feasible, and maximally productive, which results in
DECISION TC-MD 210218N 7
the highest real market value.” OAR 150-308-0240(1)(e). Moscato concluded that the subject
property as improved “does not represent the highest and best use of the subject site due to the
cost associated with renovating the second floor versus the rent that can be obtained.” (Ptf’s Ex
1 at 42.) It is unclear how he accounted for that conclusion in his appraisal report, and he was
not available to explain at trial. Gibson also concluded that the subject property, as improved,
did not represent its HBU, determining that the second-floor banquet hall should be converted to
office space. Plaintiff did not challenge Gibson’s HBU conclusion, thus the court accepts that
the HBU of the subject property is mixed-use with first floor retail and second floor office space.
B. Sales Comparison Approach
The sales comparison approach derives the subject property’s value by comparing it to
the sales of other similar properties. Magno v. Dept. of Rev., 19 OTR 51, 58 (2006). “[T]he
sales comparison approach relies on sale prices of other properties that can serve the same
highest and best use as the subject property.” Hewlett–Packard Co. v. Benton County Assessor,
357 Or 598, 603, 356 P3d 70 (2015). To be comparable, properties should be “similar in size,
quality, age and location” to the subject property. Richardson v. Clackamas County Assessor,
TC–MD 020869D, WL 21263620 at *3 (Or Tax M Div Mar 26, 2003).
Moscato selected sales of two-story, multi-tenant, mixed-use properties similar to the
subject property. However, only one was in Seaside and each of the sales required “some
upward adjustment” due to market changes between 2017 and 2018, and January 1, 2020. (Ptf’s
Ex 1 at 63.) It is unclear in the report where Moscato adjusted for market changes, and he was
not available at trial to clarify the issue. In his review of Moscato’s sales, Gibson noted that
several suffered from functional obsolescence, significant deferred maintenance, and chronic
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DECISION TC-MD 210218N 8
vacancy. Taking those factors together, the court finds Moscato’s value conclusion under the
sales comparison approach is likely understated and given little weight.
Gibson also selected mixed-use properties similar to the subject. Two were two-story but
located outside of Seaside. The other three were single-story but located in Seaside. The sales
reasonably reflect the value of the subject property at its highest and best use. However, Gibson
failed to subtract the necessary costs of converting the subject property’s banquet hall into office
space. “If the subject property requires some expenditure immediately after the purchase to
reach its full utility, the adjustment amount is subtracted from the sale prices of all comparable
sales that do not require a similar expenditure to adjust those transactions for differences from
the subject property.” The Appraisal of Real Estate 386, (15th ed 2020). In his income approach
analysis, Gibson concluded it would cost $155,352 to convert the banquet hall into office space.
This is not a negligible amount, and a prospective buyer would account for the expense in the
purchase price. Gibson’s value conclusion under the sales comparison approach is inflated due
to his failure to deduct the cost associated with achieving the subject property’s HBU.
Accepting Gibson’s cost estimate to convert the banquet hall into office space, the court
finds an indicated value of $1.3 million, rounded, under the sales comparison approach.2
C. Income Approach
The income approach is based on what a hypothetical investor believes the property
would produce in income. Allen, 17 OTR at 253. Both parties focused primarily on the income
approach, using the direct capitalization method. The key components of this method are the
NOI and the capitalization rate. Id.
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2
That is Gibon’s value conclusion of $1,476,276 minus the cost of $155,352 equals $1,320,924.
DECISION TC-MD 210218N 9
The NOI is calculated by determining the property’s gross income and deducting the
operating expenses. Allen, 17 OTR at 254. “To calculate the NOI, appraisers look at historical
gross income and expenses for the subject, adjusted by reference to market data.” Id. Moscato
selected primarily multi-tenant properties with a mix of uses similar to the subject property. His
market rents aligned with the subject property’s actual rents. However, Moscato’s analysis does
not reflect the highest and best use of the second-floor banquet space: converting into to office
space. Thus, his NOI conclusion of $55,097 is likely somewhat understated.
Gibson calculated NOI of $120,856 based on rents achieved by single-use and standalone
buildings. He testified that he did not have access to comparable rental properties with a similar
mix of uses as the subject, so he isolated each of the uses of the subject to determine rent. That
method discounts differences between single-use and multi-use properties. In addition, smaller
buildings tend to command higher prices per square foot compared to larger ones.3 See, e.g.,
Kohl’s Dept. Stores v. Washington County Assessor, TC-MD 130220D, WL 196150 at *10 (Or
Tax M Div, Jan 14, 2015) (noting appraiser testimony that “larger buildings generally sell for a
lower unit price than smaller ones”). It is unclear from Gibson’s report if he made any size or
other adjustments to his comparable rental properties. Gibson applied the same retail rental rate
to each of the subject’s retail spaces without distinction for size or exposure, even though the
retail space with street frontage leased for more than the rear space on the alley. Plaintiff
credibly testified that the lack of street frontage for the rear space reduced the achievable rent.
Gibson discounted the subject property’s actual rents without offering a persuasive
reason why they did not reflect the market. He mentioned lease-up periods and management
3
Gibson’s comparable properties range in size from 1,092 to 6,210 square feet, except for the one multi-
tenant property located in Cannon Beach, which was 20,765 square feet. (Def’s Ex A at 9.)
DECISION TC-MD 210218N 10
issues as reasons why a newly remodeled building might not achieve market value but did not
clearly explain how those issues impacted the subject property, particularly given that subject
property was leased up with the exception of the banquet hall. Based on Gibson’s reliance on
single-use properties and his failure to account for the subject property’s actual rent, the court
finds that his value conclusion under the income approach is likely overstated.
Having concluded that the parties’ comparable rental rates are unreliable, the court need
not develop an analysis as to the appropriate capitalization rate. The court finds the income
approach evidence inconclusive and is unable to determine a value under this approach.
D. Cost Approach
The cost approach looks to the estimated value of the land and the cost of constructing a
replacement minus depreciation. Magno, 19 OTR at 54. “The cost approach is ‘particularly
useful in valuing new or nearly new improvements,’” but is “less useful where the evidence of
cost is incomplete, distorted, or otherwise unreliable.” Id. at 55 (citations omitted). Only Gibson
prepared a cost approach, finding the subject property’s value to be $1,492,911. Plaintiff agreed
the cost estimate was probably accurate, though he disagreed that it reflected value because the
building was not worth the money he spent renovating it. The court agrees with Plaintiff that the
cost indicator tends to overstate the subject’s value in this case. The parties agreed that the
second-floor banquet space was not the HBU of the subject property, so the cost approach
reflects an over-improved building that requires additional work to achieve its HBU.
E. Reconciliation
The subject property is income-producing, and a potential buyer would likely find the
income approach most persuasive. Unfortunately, the income approach evidence presented was
inconclusive due to unreliable evidence of market rent for the subject property at its HBU. The
DECISION TC-MD 210218N 11
sales comparison approach evidence better reflects the value of the subject and indicated a value
of $1.3 million. The cost approach indicated a value of $1,492,911, an accurate reflection of the
as-is cost but an overstatement of value because the banquet hall was not the subject’s HBU.
“As has often been said, ‘true cash value’ is a range of value, rather than an absolute.”
Price v. Dept. of Rev., 7 OTR 18, 25 (1977). The evidence presented indicates that the tax roll
RMV of $1,353,615 is within the range of the subject’s true RMV as of January 1, 2020. As
such, no change to the subject property’s RMV is supported in this case.
III. CONCLUSION
Upon careful consideration, the court concludes that neither Plaintiff nor Defendant has
proven by a preponderance of the evidence that the subject property’s 2020-21 tax roll RMV was
in error. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is denied.
IT IS FURTHER DECIDED that Defendant’s request to increase RMV is denied.
_____________________________
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.
This document was signed by Presiding Magistrate Boomer and entered on
August 12, 2022.
DECISION TC-MD 210218N 12