Meijer Stores Ltd. Partnership v. Franklin County Board of Revision

[Cite as Meijer Stores Ltd. Partnership v. Franklin Cty. Bd. of Revision, 122 Ohio St.3d 447,

2009-Ohio-3479.]

MEIJER STORES LIMITED PARTNERSHIP, APPELLANT AND CROSS-APPELLEE, v.

FRANKLIN COUNTY BOARD OF REVISION ET AL., APPELLEES AND CROSS-

APPELLEES; LICKING HEIGHTS LOCAL SCHOOL DISTRICT BOARD OF

EDUCATION, APPELLEE AND CROSS-APPELLANT.

[Cite as Meijer Stores Ltd. Partnership v. Franklin Cty. Bd. of Revision, 122

Ohio St.3d 447, 2009-Ohio-3479.]

Real property taxation — Value of newly constructed, owner-occupied big-box

store — Conflicting appraisal evidence — Decision of Board of Tax

Appeals affirmed.

(No. 2008-1248 — Submitted May 19, 2009 — Decided July 22, 2009.)

APPEAL and CROSS-APPEAL from the Board of Tax Appeals,

Nos. 2005-T-441 and 2005-T-443.

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O’CONNOR, J.

{¶ 1} Meijer Stores Limited Partnership (“Meijer”) seeks to reverse a

decision of the Board of Tax Appeals (“BTA”) that determined the value of a

newly constructed Meijer store for the 2003 tax year. The BTA rejected the

appraisal Meijer offered and adopted an appraisal presented on behalf of the

Licking Heights Local School District Board of Education (“school board”). For

purposes of this appeal, the most important difference between the two appraisals

rests in the selection of comparable-sale properties and comparable-rent

properties: the school board’s appraiser utilized a range of properties that

included “build-to-suit” properties that, unlike the property at issue, were not

owned by the business that operated on the premises.

{¶ 2} The school board contends that we should defer to the factual

findings of the BTA. (The school board has also filed a cross-appeal, but has not

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set forth any propositions of law in support of that appeal. As a result, we regard

the assignments of error in the cross-appeal as abandoned. See E. Liverpool v.

Columbiana Cty. Budget Comm., 116 Ohio St.3d 1201, 2007-Ohio-5505, 876

N.E.2d 575, ¶ 3.) For its part, Meijer asserts that the BTA violated prior holdings

by this court and committed legal error in its evaluation of the evidence. We

agree with the school board, and we therefore affirm the decision of the BTA.

I. Facts

A. Background

{¶ 3} On March 25, 2004, Meijer filed a complaint against valuation

with the Franklin County Board of Revision (“BOR”) for the 2003 tax year. The

property comprised 32.508 acres, consisting of a main parcel of 24.03 acres on

which the Meijer store is situated and four adjacent outparcels: one 2.483-acre

parcel sold to Max & Erma’s in late January 2003 as a site for a future restaurant;

one parcel at the corner of East Broad Street and Waggoner Road, on which a

Meijer service station and convenience store had been constructed; and two other

parcels, one fronting Broad Street and the other Waggoner Road.

{¶ 4} The most significant point of contention between the litigants lies

in valuing the big-box Meijer store on the main parcel, a building that

encompasses approximately 193,000 square feet and that Meijer built to its

specifications. Construction occurred during 2001 and was completed in August

2002. For the tax year 2003, the auditor valued the property at $13,290,000 based

on reconciling a cost and an income approach. Meijer’s complaint asked for a

reduction to $9,500,000.

{¶ 5} Meijer presented the appraisal report and testimony of Robin

Lorms to both the BOR and the BTA. The BOR declined to reduce the value of

the property on two grounds. First, the BOR found that Meijer had declined to

submit actual-cost information. Second, the BOR found Lorms’s analysis to be

unpersuasive.

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{¶ 6} When Meijer appealed to the BTA, the school board presented the

testimony and appraisal of Samuel Koon in opposition to Meijer’s claim for

reduction. Both Lorms and Koon used cost, income-capitalization, and sales-

comparison approaches in their appraisal reports. Both relied most heavily on the

values obtained from the income-capitalization and sales-comparison approaches.

B. The conflicting appraisal evidence

{¶ 7} The testimony of the appraisers, the expository passages of their

appraisal reports, and the values they determined for the property reflect a

fundamental dispute. Lorms looked at the big-box store as adding only modest

market value because the structure would not be easily adaptable to the needs of a

potential buyer, a factor that he opined would impair the property’s marketability.

According to Lorms, most potential buyers would be hard-pressed to utilize such

a large space for their own business and would probably have to significantly

renovate or even tear down the existing structure in order to use the property.

Lorms called this limitation on the property’s marketability “external

obsolescence” and looked at second-generation purchasers and tenants to

determine value by the sales-comparison and income-capitalization approaches.

{¶ 8} By contrast, Koon looked at Meijer’s own use as the touchstone for

determining market rent and comparable sales. When asked, in the context of his

income approach, who would lease the space, Koon answered: “Meijer.”

Accordingly, “market rent” for Koon consisted in part as what rent Meijer itself

would be willing to pay to an owner other than itself. Comparable sales in

Koon’s view included sales by developers who built big-box retail facilities on a

build-to-suit basis and then sold them to third parties.1

1. As for the cost approach, both appraisers minimized its importance, but for very different

reasons. Lorms, who set the value at $10,200,000 under his cost approach, stated that functional

and external obsolescence led him to attach little weight to that approach. Koon, who set the value

at $16,000,000 under his cost approach, stated that he would need actual-cost figures “as a check

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{¶ 9} The selection of other properties as comparables by the two

appraisers bears out this general point of contrast. For his sales-comparison

approach, Lorms used eight properties that included four Kmarts that had been

abandoned by that entity during its bankruptcy, two Ames stores that had also

been abandoned during bankruptcy, a WalMart abandoned by the retailer when it

moved into a new supercenter, and a Sam’s Club that “went dark” in 1995 and

took five years to sell. On the other hand, Koon’s comparable properties included

seven properties, four of which were purchased subject to long-term leases. Koon

opined that the value of the Meijer store is “at a point which lies somewhere

between selling prices of properties which are leased to first generation users * *

* and prices of properties which are vacant and available for occupancy.”

{¶ 10} Similar differences pervade the rent comparables used by the two

appraisers. Lorms used a “market rent” approach that deliberately excluded data

derived from build-to-suit leases and newly developed discount stores because

under Lorms’s theory, the rent in such cases reflected values other than market

rent that pertained to the fee-simple estate. Koon took the contrary approach: by

viewing Meijer itself as the potential lessee of the property, Koon justified using

seven first-generation properties and five second-generation properties as rent

comparables. The first-generation comparables were all build-to-suit properties.

In those arrangements, an independent developer constructed the store to the

retailer’s specifications with a lease in place that provided recovery of costs and a

profit. The developer was then the owner of the property and could continue to

collect rent or resell the property with the lease in place to a new owner.

{¶ 11} In his report, Koon opined that “second-generation rents will never

adequately reflect market rent” for property such as that at issue. Koon

emphasized the newness of the construction and stated that “the fact that the

against the estimated construction costs,” but that absent such figures, he could give only

“marginal consideration” to that approach.

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subject facility continues to operate under the auspice of its first generation user

indicates that it possesses certain attributes which make it inherently more

desirable than second-generation space.” Accordingly, Koon opined that the

market rent applicable to the property at issue “is considered to lie somewhere

between the ranges indicated by the first and second generation comparables, with

a strong bias towards those rents indicated by the first generation lease

comparables.”

{¶ 12} The appraisers’ conflicting methodologies yielded significantly

different valuations. Lorms’s sales-comparison approach determined the value of

all the parcels at issue (including the main parcel on which the Meijer store had

been constructed) to be $8,800,000. Koon concluded that the value of the main

parcel was $12,100,000, and by adding that figure to the value he derived for the

adjacent service station and convenience store and other land, Koon arrived at a

total value of $15,100,000 under the sales-comparison method.

{¶ 13} With regard to the income-capitalization approach, Lorms arrived

at a value of $7,800,000 for all the parcels. Under this approach, Koon

determined the value of the main parcel to be $11,600,000, and when added to the

value of the other parcels, the value totaled $14,600,000. After reconciling the

different approaches, Lorms certified a total value of $8,800,000, and Koon

certified a total value of $14,850,000.

C. The BTA’s decision

{¶ 14} While acknowledging that it had considered Lorms’s theory of

obsolescence as probative in other cases, the BTA stated that “this theory has not

always been accepted by the board where it has been shown that the obsolescence

factors advanced by the appraiser do not exist in a particular market.” Meijer

Stores Ltd. Partnership v. Franklin Cty. Bd. of Revision (May 27, 2008), BTA

Nos. 2005-T-441 and 2005-T-443, at 17. The BTA also cited Meijer, Inc. v.

Montgomery Cty. Bd. of Revision (1996), 75 Ohio St.3d 181, 661 N.E.2d 1056, as

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supporting the proposition that the proponent of functional and external

obsolescence must shoulder the burden of establishing the obsolescence.

{¶ 15} After reviewing the competing appraisals, the BTA found itself

“unable to conclude * * * that Meijer has met this burden,” inasmuch as “Mr.

Lorms’ facts and figures have been successfully refuted by the facts and figures

presented by the [school board].” Meijer Stores Ltd., BTA Nos. 2005-T-441 and

2005-T-443, at 18. In particular, the BTA quoted Koon’s statements – quoted in

part above – relating to why he emphasized first-generation rent as opposed to

second-generation rent. Id. at 19. The BTA distinguished the present case from

those cases in which obsolescence was considered an important factor in

determining value. Namely, the present case involved “nearly new

improvements,” and the property “is located in a retail corridor that is both

flourishing and growing.” Id. Also significant was the superior quality of

evidence in this case that supported a higher value of the property.

{¶ 16} Finally, the BTA considered and rejected the school board’s

contention that the cost approach should be regarded as probative. It instead

adopted Koon’s valuation of $14,850,000 for tax year 2003 ($14,075,0002 for

2004).

II. Analysis

A. Meijer has not met its burden to show an abuse of discretion by the BTA

{¶ 17} We will “ ‘reverse a BTA decision that is based on an incorrect

legal conclusion.’ ” Satullo v. Wilkins, 111 Ohio St.3d 399, 2006-Ohio-5856, 856

N.E.2d 954, ¶ 14, quoting Gahanna-Jefferson Local School Dist. Bd. of Edn. v.

Zaino (2001), 93 Ohio St.3d 231, 232, 754 N.E.2d 789. But “ ‘[t]he BTA is

responsible for determining factual issues and, if the record contains reliable and

probative support’ ” for the BTA’s decision, this court will affirm. Id., quoting

2. In January 2003, one of the outparcels was sold.

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Am. Natl. Can Co. v. Tracy (1995), 72 Ohio St.3d 150, 152, 648 N.E.2d 483.

More specifically, we “ ‘will not reverse the BTA’s determination on credibility

of witnesses and weight given to their testimony unless we find an abuse of * * *

discretion.’ ” Strongsville Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 112

Ohio St.3d 309, 2007-Ohio-6, 859 N.E.2d 540, ¶ 15, quoting Natl. Church

Residence v. Licking Cty. Bd. of Revision (1995), 73 Ohio St.3d 397, 398, 653

N.E.2d 240.

{¶ 18} In the present case, the BTA weighed the probative value of two

appraisals and found one to be more probative than the other. This decision rests

within the core of the BTA’s competence as fact-finder and deserves the highest

degree of deference from this court.

{¶ 19} Against this general principle of deference, Meijer criticizes the

BTA’s decision as being inconsistent with other BTA decisions wherein the BTA

had accepted Lorms’s appraisals of big-box properties and specifically found his

analysis probative. However, as the BTA explained, some of the cases cited by

Meijer were factually distinguishable from this case, and in the other cases,

insufficient evidence had been presented to rebut Lorms’s theory of obsolescence.

Meijer Stores Ltd. Partnership v. Franklin Cty. Bd. of Revision (May 27, 2008),

BTA Nos. 2005-T-441 and 443, at 21-22. For example, in a case the BTA

decided the same day it decided the present case, Target Corp. v. Greene Cty. Bd.

of Revision (May 27, 2008), BTA No. 2006-V-751, affirmed, 122 Ohio St.3d 142,

2009-Ohio-2492, 909 N.E.2d 605, the school board did not appear, and the county

presented no evidence to counter the appraisal and testimony of Lorms. In the

absence of contrary evidence, the BTA adopted the value as determined by

Lorms, and we affirmed that decision. By contrast, in this case, the BTA found

that the appraisal and testimony of Koon rebutted Lorms’s appraisal.

{¶ 20} Meijer also specifies a number of alleged deficiencies in Koon’s

appraisal and testimony. But determining the probative value of an appraiser’s

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testimony lies within the competence of the BTA, and we will defer to the BTA’s

rejection of Meijer’s contention in this regard.

B. Meijer’s specific legal objections to the BTA’s decision have no merit

{¶ 21} Meijer argues that the value of its property should not be

determined by comparing it to properties that are subject to long-term leases that

are favorable to the owner. According to Meijer, such a comparison involves a

valuation of a speculative “leased fee” interest rather than of the fee simple.3

{¶ 22} To be sure, the present case does not involve a build-to-suit

situation. Meijer both owns and uses its property; it acquired the land and then

constructed a store on it. By contrast, in the build-to-suit situation, the owner

builds a structure to the tenant’s specifications and then enjoys the benefit of rent

under a long-term lease that provides the owner with recovery of the costs of

construction and a profit. Alternatively, the owner can turn around and sell the

property, and the price the property commands will be enhanced by the

anticipated revenue stream from the lease. AEI Net Lease Income & Growth

Fund v. Erie Cty. Bd. of Revision, 119 Ohio St.3d 563, 2008-Ohio-5203, 895

N.E.2d 830, ¶ 13, citing Rhodes v. Hamilton Cty. Bd. of Revision, 117 Ohio St.3d

532, 2008-Ohio-1595, 885 N.E.2d 236.

{¶ 23} Although Meijer’s property is currently not encumbered with a

lease, Meijer’s contention that its property cannot be compared to build-to-suit

properties is mistaken. As recent cases have demonstrated, the possibility of

encumbering a property like the one at issue here constitutes – as a purely factual

matter – one method of realizing the value of legal ownership of the property.

3. The first syllabus paragraph in Alliance Towers, Ltd. v. Stark Cty. Bd. of Revision (1988), 37

Ohio St.3d 16, 523 N.E.2d 826, militates in favor of Meijer’s position: the “fee simple estate is to

be valued as if it were unencumbered.” We have recently observed that our later case law raises a

“serious question” whether the Alliance Towers pronouncement may still be applied. Woda Ivy

Glen Ltd. Partnership v. Fayette Cty. Bd. of Revision, 121 Ohio St.3d 175, 2009-Ohio-762, 902

N.E.2d 984, ¶ 22. But we decline to address the continued vitality of the Alliance Towers syllabus

because the present case does not involve the effect on value of actual “encumbrances.”

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See Cummins Property Servs., L.L.C. v. Franklin Cty. Bd. of Revision, 117 Ohio

St.3d 516, 2008-Ohio-1473, 885 N.E.2d 222, ¶ 27 (“encumbering property

typically represents an owner’s attempt to realize the full value of the property”);

AEI Net Lease Income & Growth Fund, 119 Ohio St.3d 563, 2008-Ohio-5203,

895 N.E.2d 830, ¶ 21 (sale-leaseback, in its totality, constituted an arm’s-length

transaction in which seller/lessee and buyer/lessor each pursued the objective to

realize value of the realty). Moreover, by drawing the distinction between “fee

simple” and “leased fee,” Meijer predicates its argument on a legal premise that

our cases have rejected.4 We have held that a recent arm’s-length sale price

should not be adjusted to remove the economic effect of such encumbrances when

they exist. Cummins, ¶ 24. And we have also determined that a sale price does

not have to be adjusted to remove the effect of above-market rent paid by a

creditworthy tenant. AEI, ¶ 12, 26, 30. It follows that an appraiser, when

determining the value of Meijer’s store, may take into account the possibility that

at some point, the store could be held as a rental property subject to an above-

market lease that would enhance its value.

{¶ 24} Meijer is also mistaken in arguing that the school board’s appraisal

essentially amounts to a constitutionally prohibited value-in-use appraisal. This

court deemed unconstitutional a legislative act that required consideration of

“current use” to the exclusion of market value in the valuation of property. State

ex rel. Park Invest. Co. v. Bd. of Tax Appeals (1972), 32 Ohio St.2d 28, 30, 32, 61

O.O.2d 238, 289 N.E.2d 579. However, we have also held that the constitutional

prohibition does not bar consideration of current-use value in the context of the

4. The distinction between “fee simple” and “leased fee” is one drawn in the context of appraisal

practice. See Appraisal Institute, The Appraisal of Real Estate (13th Ed.2008) 114. The appraisal

industry uses the term “fee simple” to refer to unencumbered property – or to property appraised

as if it were unencumbered. Id. This distinction is not one recognized by the law, however. A

“fee simple” may be absolute, conditional, or subject to defeasance, but the mere existence of

encumbrances does not affect its status as fee simple. Black’s Law Dictionary (8th Ed.2004) 648-

649.

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“special-purpose property” doctrine. Dinner Bell Meats, Inc. v. Cuyahoga Cty.

Bd. of Revision (1984), 12 Ohio St.3d 270, 271, 12 OBR 347, 466 N.E.2d 909.

{¶ 25} In Dinner Bell Meats, the appraisal adopted by the BTA employed

a cost approach based on the appraiser’s finding that the property was developed

for a “special purpose.” Id. at 271, 12 OBR 347, 466 N.E.2d 909. In upholding

the BTA’s decision, we concluded that “in utilizing the ‘cost approach’ for a

‘special purpose’ building, [the appraiser] simply considered the utility of the

properties in conjunction with the highest and best use of the meatpacking

facility.” Id. at 272, 12 OBR 347, 466 N.E.2d 909. In so holding, we

acknowledged that the present use of a property may be considered when “ ‘a

building in good condition [is] being used currently and for the foreseeable future

for the unique purpose for which it was built’ ”; otherwise, “the owner of a

distinctive, but yet highly useful, building [would be able] to escape full property

tax liability.” Id., quoting Fed. Res. Bank of Minneapolis v. State (Minn.1981),

313 N.W.2d 619, 623. We have followed the doctrine of Dinner Bell Meats in

later cases, including a case involving the valuation of a Meijer store. See

Oakwood Club v. Cuyahoga Cty. Bd. of Revision (1994), 70 Ohio St.3d 241, 243-

244, 638 N.E.2d 547; Meijer, Inc. v. Montgomery Cty. Bd. of Revision (1996), 75

Ohio St.3d 181, 661 N.E.2d 1056.

{¶ 26} Of particular importance here is the 1996 Meijer case, in which we

affirmed a BTA decision against which were raised arguments similar to those

advanced in this case. In the context of resolving a battle of appraisals, the BTA

had in Meijer declined to adopt the larger amount of obsolescence found by the

owner’s appraiser. The BTA had found “nothing about the present property

which is obsolete or useless to the owner due to changing business conditions.”

Meijer, Inc. v. Montgomery Cty. Bd. of Revision (Feb. 8, 1995), BTA Nos. 93-M-

731, 93-M-732, and 93-M-733. Indeed, “[t]he owner, by purchasing the land and

constructing the building, evidences a market need for such a property.

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Therefore, the costs of purchase and construction evidence that a prospective

purchaser was willing to pay at least the costs of the property as newly

constructed.” Id. Although the owner had argued that such reasoning constituted

value-in-use appraisal prohibited by the Ohio Constitution, the BTA disagreed,

citing the court’s decision in Dinner Bell Meats, 12 Ohio St.3d 270, 12 OBR 347,

466 N.E.2d 909. We affirmed the BTA. Meijer, 75 Ohio St.3d 181, 661 N.E.2d

1056. Our reasoning in the 1996 Meijer case applies in this case as well.

{¶ 27} Finally, Meijer’s citation of Higbee Co. v. Cuyahoga Cty. Bd. of

Revision, 107 Ohio St.3d 325, 2006-Ohio-2, 839 N.E.2d 385, is unavailing. In

Higbee, the court rejected an appraiser’s computation of obsolescence when that

calculation rested upon the current owner’s failure to meet sales goals it had set

for itself. Id. ¶ 43, 44. Our discussion of Meijer’s other points shows that its

reliance on Higbee is misplaced. Higbee did not involve a situation in which the

improvement of the property enhanced its utility to the business that occupied the

property while not greatly increasing its marketability. To the contrary, the record

in Higbee showed that the occupant was underperforming at the location. And no

evidence showed that special adaptation of the property had reduced its value in

the eyes of potential buyers. Simply put, Higbee does not present the special-

purpose situation and is not apposite.

III. Conclusion

{¶ 28} For the reasons stated above, we hold that the BTA did not abuse

its discretion when it adopted the value as determined by the school board’s

appraisal, and we therefore affirm the decision of the BTA.

Decision affirmed.

MOYER, C.J., AND PFEIFER, LUNDBERG STRATTON, O’DONNELL,

LANZINGER, AND CUPP, JJ., concur.

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Siegel, Siegel, Johnson & Jennings Co., L.P.A., Nicholas M.J. Ray, and

Jay P. Siegel, for appellant and cross-appellee.

Rich & Gillis Law Group, L.L.C., Jeffrey A. Rich, and Mark H. Gillis, for

appellee and cross-appellant.

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