ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter comes before the Administrative Law Judge Division (“ALJD”) pursuant to S.C.
Code Ann. §12-60-2540 (A) (2000) and S. C. Code Ann. §§1-23-310 et seq. (1986 and Supp. 2000)
for a contested case hearing. The Petitioner, Meeting Street Ventures, LLC (“Taxpayer”), contests
the Charleston County Assessor’s (“Assessor”) valuation of certain real property, identified as Tax
Map No. 459-09-03-114 (“the Property”), for the 2001 tax year. After notice to the parties, a
hearing was conducted on September 17, 2003. Based on the evidence, I find that the proper
valuation of the property is $7,830,000 for the 2001 tax year.
FINDINGS OF FACT
Based on the evidence presented and taking into account the credibility of the witnesses, I
make the following findings of fact:
1.Notice of the time, date, place, and nature of the hearing was timely given to all
parties.
2.Taxpayer owns a 2.5 acre tract of land in Charleston County located at 411 Meeting
Street, Charleston, South Carolina. The property is in an area zoned light commercial and occupies
a city block, bordering on Meeting, King, Mary, and Reid streets, north of Calhoun Street. Upon the
property is an apartment complex consisting of 159 units: 69 efficiency apartments, 18 one-bedroom
apartments, 48 one-bedroom with study apartments, and 24 two-bedroom apartments. The
apartment complex contains 95,949 square feet and also has an office, clubhouse, on-site laundry
facilities, and a swimming pool.
3.The Property is identified as Charleston County Tax Map No. 459-09-03-114.
4.Taxpayer bought the Property on September 10, 1999 for $8,200,000. Taxpayer paid
a premium price for the Property because it intended to convert the apartment complex into a hotel.
Taxpayer was unable to obtain financing for the acquisition of the Property at the purchase price.
Taxpayer obtained the required financing by granting its lender a second priority mortgage on other
hotel property owned by affiliates of the Taxpayer located in the vicinity of the Property.
5.Charleston County undertook a countywide reassessment of all real property within
the county for tax year 2000. Pursuant to S.C. Code Ann. § 12-43-217, implementation of the
reassessment was delayed one year and was to occur no later than January 31, 2001. As a result of
the reassessment, Taxpayer’s property was revalued as of December 31, 1998.
6.Stephen J. Everman (“Appraiser”), a certified general mass real estate appraiser
employed by the Assessor, inspected the Property on behalf of the Assessor. The Appraiser
determined that the highest and best use of the Property was as an apartment complex. The
Appraiser valued the Property using both the income approach and the sales comparison approach.
The Appraiser issued a report valuing the Property at $7,830,000 as of December 31, 1998 for the
tax year 2001.
7.Based upon the Appraiser’s report, the Assessor valued the Property at $7,830,000
as of December 31, 1998 for tax year 2001. Taxpayer appealed the Assessor’s valuation of the
Property to the Board of Assessment Appeals, which affirmed the Assessor’s valuation. Taxpayer
then timely filed an appeal to the ALJD.
8.At the hearing before the undersigned, Taxpayer presented only one witness, Kimberly
Bennett Brown. Ms. Brown is the asset manager for Taxpayer. She oversees the subject property
and manages it on a day-to-day basis, along with other properties. Although Ms. Brown has assisted
in purchasing various properties for her employer, Ms. Brown’s only educational background in
economics constitutes a single course in economics that she took in college. Ms. Brown is not an
expert in appraising real estate.
9.Taxpayer contends that the value of the Property as of December 31, 1998 for the tax
year 2001 should be $5,900,000.
10.In arriving at the figure of $5,900,000 for the Property, Ms. Brown looked at the
income, expenses, cost of funds, and other risk factors involved in the Property. Ms. Brown used the
income and expense figures contained in the Lane Company asset management reports for the
Property for the years 1998, 1999, and 2000 in reaching her opinion. Ms. Brown first determined
the net income of the Property by looking at the net income figure on the Lane Company asset
management report and then deducting further expenses, including capital improvements and
extraordinary repairs noted in the reports.
This resulted in a figure shown on the Lane Company
asset management report as cash flow before debt service. Ms. Brown decided to further deduct
from this a figure that she “felt” would be the additional tax that the Property would incur with the
new assessment. Ms. Brown estimated this figure to be $60,000, although she admitted at the hearing
that the figure may be lower than $60,000. After making these deductions, Ms. Brown applied a
capitalization rate of 11% to reach the final value of $5,900,000.
In coming up with the capitalization rate of 11%, Ms. Brown looked at what she considered
to be the cost of funds and the risk factors associated with the investment. The risk factors Ms.
Brown looked at included the ability to use the Property for a particular use, the tenant mix, the
availability of parking, and security. Although Ms. Brown did not provide written evidence of the
calculation she used in coming up with the 11% capitalization rate, she testified as to how she came
up with that number. She testified that the interest rate at the time Taxpayer purchased the Property
was 8.4%, which she used as the cost of funds. Ms. Brown then added an additional 2.6% to that
figure to come up with the capitalization rate of 11%. In coming up with the additional 2.6%, Ms.
Brown looked in general at the size of the units, the location, and the costs to bring the Property up
to the standards of a hotel at the location. Ms. Brown further considered the rate that she “felt” that
Taxpayer would need to have in order to get a return on its investment, since Taxpayer had paid a
premium price for the Property. Based on these general factors, Ms. Brown “felt like” the risks
associated with the investment came to 2.6%.
Ms. Brown also looked at the comparable sales provided to her by the Appraiser in opining
as to the value of the Property under a sales comparison approach. She placed more emphasis on the
per square footage cost of the apartment complexes the Appraiser looked at than the per unit cost.
Rather than looking at the actual sales comparison as used by the Appraiser, though, Ms. Brown used
the figure at which the Assessor valued each apartment complex for tax valuation. Ms. Brown then
calculated a per square footage value for the apartment complexes and compared it to a per square
footage value for the subject Property, which she calculated based upon the $5,900,000 valuation
that she opined the Property is worth under the income approach to valuation. In comparing the
figures, Ms. Brown noted that the value of the Property was still higher than the values of the other
apartment complexes to which the Appraiser compared the Property.
Ms. Brown further testified that when the Taxpayer purchased the Property for $8,200,000
in September 1999, it did not base its calculation of the purchase price on the then current value of
the Property or on the value of the Property under an income approach to valuation, but rather it paid
a premium for the Property because of its desire to convert the apartment complex into a hotel. After
purchasing the Property, however, Taxpayer discovered that it would not be able to convert the
apartment complex into a hotel because it would be displacing residences of the City of Charleston.
Taxpayer continues to operate the Property as an apartment complex.
CONCLUSIONS OF LAW
1.S.C. Code Ann. § 12-60-2540 (2000) authorizes the South Carolina Administrative
Law Judge Division to hear contested cases arising from controversies involving the valuation of real
properties by county assessors.
2.S.C. Code Ann. § 12-37-210 (2000) defines property subject to taxation in South
Carolina as “all real and personal property in this State.” All such property must be assessed uniformly
and equitably throughout the State pursuant to regulations promulgated by the S.C. Department of
Revenue. S.C. Code Ann. § 12-43-210(A) (Supp. 2003). “All taxes upon property, real and personal,
shall be laid upon the actual value of the property taxed.” S.C. Const. Art. III § 29.
3.“While our constitution requires equality and uniformity in tax assessments, ‘[a]bsolute
accuracy with respect to valuation and complete equality and uniformity are not practically
attainable.’” Reliance Ins. Co. v. Smith, 327 S.C. 528, 537, 489 S.E.2d 674, 679 (Ct. App. 1997)
(quoting Wasson v. Mayes, 252 S.C. 497, 502, 167 S.E.2d 304, 306-07 (1969)).
4.The taxable status of real property for a given year is to be determined as of December
31 of the preceding tax year. S.C. Code Ann. § 12-37-900 (2000).
5.A taxpayer may appeal a property tax assessment made by a county board of
assessment by requesting a contested case hearing before the ALJD. S.C. Code Ann. § 12-60-2540(A) (2000). As the party contesting the assessing authority’s valuation, the taxpayer has the
burden of proving the actual value of the property at issue. See Reliance, 327 S.C. at 534-35, 489
S.E.2d at 677. Thus, in this case, the Taxpayer has the burden of proving the correctness of the
valuation it is seeking, which is $5,900,000. Because this proceeding is in the nature of a de novo
hearing, the Administrative Law Judge is not sitting in an appellate capacity and therefore is not
restricted to a review of the decision below. Id. at 534, 489 S.E.2d at 677. Findings of fact shall be
based exclusively on the evidence and on matters officially noticed. S.C. Code Ann. § 1-23-320(i)
(Supp. 2000).
6.S.C. Code Ann. Sec. 12-37-90 (2000) provides that all counties shall have an assessor,
whose responsibility is appraising and listing all real property.
7.In S.C. Code Ann. Sec. 12-37-930 (Supp. 2003) the legislature set forth how property
must be valued as follows:
All property must be valued for taxation at its true value in money which in all cases
is the price which the property would bring following reasonable exposure to the
market, where both the seller and the buyer are willing, are not acting under
compulsion, and are reasonably well informed as to the uses and purposes for which
it is adapted and for which it is capable of being used.
Therefore, fair market value is the measure of true value for taxation purposes. Lindsay v. S.C. Tax
Comm’n, 302 S.C. 504, 397 S.E.2d 95 (1990).
8.The property’s highest and best use must be considered in calculating the property’s
value. “Highest and best use” may be defined as “the reasonable, probable and legal use of vacant
land or improved property, which is physically possible, appropriately supported, financially feasible,
and that results in the highest value.” The Appraisal of Real Estate, Appraisal Institute, p. 45 (10th
ed. 1992). Highest and best use is the use which will most likely produce the highest market value,
greatest financial return, or most profit from the use of a particular piece of real estate. State Nat’l
Bank v. Planning and Zoning Comm’n, 239 A.2d 528 (Conn. 1968). The highest and best use of land
must be legally permissible. Appraisal Institute, Appraisal of Real Estate 303 (11th ed. 1996).
9.Although Taxpayer, when it purchased the Property, intended to transform the
apartment complex into a hotel, the City of Charleston will not allow Taxpayer to do so. The highest
and best use of the Property is as an apartment complex.
10.The purchase price of property, while not conclusive, is some evidence of its value.
Belk Dep’t Stores v. Taylor, 259 S.C. 174, 191 S.E.2d 144 (1972).
11.While not conclusive, market sales of comparable properties present persuasive
evidence of fair market value of similar property. 84 C.J.S. Taxation § 512 (2001).
12.In estimating the value of property, all of its elements or incidents which affect market
value or would influence the mind of a purchaser should be considered, such as location, quality,
condition, and use. 1969-70 Op. S.C. Att’y Gen., No. 3045 at 337; see also 84 C.J.S. Taxation § 410
at 784; § 411 at 794 (1954). Appraisal, of course, is not an exact science, and the precise weight to
be given to any one factor is necessarily a matter of judgment.
13.The income capitalization approach “looks at property value through the eyes of a
typical investor. In this approach, typical rental income and its relationship to sales price is analyzed
by using a capitalization rate which represents the ratio of sales price to net rental income obtained.”
Reliance, 327 S.C. at 531, 489 S.E.2d at 675.
14.“The qualification of a witness as an expert in a particular field is within the sound
discretion of the trial judge.” Smoak v. Liebherr-Am., Inc., 281 S.C. 420, 422, 315 S.E.2d 116, 118
(1984). When the expert’s testimony is based upon facts sufficient to form a basis for an opinion, the
trier of fact determines its probative weight. Berkeley Elec. Co-op. v. S.C. Pub. Servs. Comm’n, 304
S.C. 15, 402 S.E.2d 674 (1991); see also Smoak, 281 S.C. at 422, 315 S.E.2d at 118. Further, a trier
of fact is not compelled to accept an expert’s testimony, but may give it the weight and credibility he
determines it deserves. Florence Co. Dep’t of Soc. Serv. v. Ward, 310 S.C. 69, 425 S.E.2d 61
(1992). He also may accept the testimony of one expert over another. S.C. Cable Television Ass’n
v. So. Bell Tel. & Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992).
15.“As a general principle, a landowner, who is familiar with her property and its value,
is allowed to give her estimate as to the value of the land and damages thereto, even though she is
not an expert.” Bowers v. Bowers, 349 S.C. 85, 92, 561 S.E.2d 610, 614 (Ct. App. 2002).
There is no presumption that a person is competent to give his opinion as to the value
of real property. His competency must be shown. If the person is someone other
than the owner of the property, the source of his knowledge must be revealed to
remove his opinion from the real of mere conjecture. A bare declaration of his
knowledge of the value of the property is insufficient.
Id. (citations omitted).
16.Taxpayer’s sole witness in this case, Ms. Brown, is not an expert at valuing real
property. As an asset manager, she is familiar with the Property, and many of the figures used in her
testimony about her opinion of the value of the Property came from an identifiable source, the Lane
Company asset management reports. However, several portions of Ms. Brown’s testimony were
based upon conjecture and speculation. Ms. Brown provide no concrete basis, apart from her own
“feelings,” as to how she calculated the capitalization rate she applied to the net income to determine
the value of the Property under the income approach, in particular the risk factor component. The
net income figure to which Ms. Brown applied the capitalization rate was itself based in large part
upon speculation; from the net income figure reported on the Lane Company asset management
reports, Ms. Brown deducted capital expenditures, extraordinary repairs, and an additional $60,000,
which she speculated to be the additional taxes on the Property as a result of the reassessment. In
her expressing her opinion as to the value of the Property under the sales comparison analysis, Ms.
Brown used the same value figure she reached for the Property under her income approach but
provided no additional basis for her opinion that the appropriate value of the Property is $5,900,000.
Essentially, Taxpayer has failed to show that Ms. Brown is competent to testify as to the value of the
Property. Even considering her testimony, however, the evidence presented by the Taxpayer through
Ms. Brown was insufficient to establish the value sought by the Taxpayer in this matter. Taxpayer
failed to meet its burden of establishing the value it seeks; therefore, the valuation of the Assessor
must be affirmed.
ORDER
Based on the above findings of fact and conclusions of law,
IT IS HEREBY ORDERED that, for the 2001 tax year, the value of Taxpayer’s Property
at 411 Meeting Street, Charleston, South Carolina is $7,830,000;
AND IT IS SO ORDERED.
________________________________________
C. DUKES SCOTT
ADMINISTRATIVE LAW JUDGE
February 19, 2004
Columbia, South Carolina |
