ORDERS:
ORDER AND DECISION
STATEMENT OF THE CASE
This matter came before me pursuant to S.C. Code Ann. § 12-60-2540(A) (Supp.1994) for
a contested case hearing at the Administrative Law Judge Division offices, Columbia, South Carolina,
on October 10, 1995. This case was brought by FCOR Limited Partnership ("FCOR"), a Texas
Limited Partnership, against the Richland County Assessor ("Assessor") contesting the Assessor's
valuation for ad valorem property taxation purposes of its apartment complex on Beltline Boulevard,
Columbia, South Carolina, for the tax year 1993.
After a thorough review of all evidence and testimony presented at the hearing, it is found that
the property subject to this action is properly valued at $2,972,889.00.
ISSUE
Is Petitioner's apartment complex located at 2000-2050 Beltline Boulevard, Columbia, South
Carolina, correctly valued for assessing ad valorem property taxes for the tax year 1993?
EVIDENCE
The Transcript of Testimony taken at the hearing before the Richland County Board of
Assessment Appeals ("Board") and the exchange of evidence by each party were submitted into
evidence.
At the hearing, FCOR placed into evidence, as its Exhibit #1, an asbestos report on the
apartment complex dated February 6, 1991.
ANALYSIS
FCOR asserts the valuation of the property should be the same as the purchase price, since
the date of purchase was one month prior to the valuation date. FCOR further argues that the
purchase price reflects an arms-length transaction, the property having been in a foreclosure action
since May 1991, having been nationally advertised, and subsequently sold at a public auction where
multiple individuals placed bids on the property. Also, FCOR argues that the information contained
in the asbestos report would have a negative effect on any potential purchase of the property.
The Assessor argues that a public sale of property involved in a foreclosure action is a forced
sale and not an arms-length transaction between a willing buyer-willing seller. Further, it argues the
asbestos report did not denote any asbestos problem unusual for a property of its age. The Assessor
argues that the income approach is the more appropriate method to value the property since it had
an historical income stream that could be used to establish its value. Further, the Assessor argues a
10% vacancy rate should be utilized based upon information it had as to vacancies at other apartment
complexes.
FINDINGS OF FACT
After consideration and review of all the testimony, the record below, and evidence submitted
at the hearing, by a preponderance of the evidence, I make the following findings:
1. This Division has personal and subject matter jurisdiction.
2. Notice of the date, time, place and nature of the hearing was timely given to all parties.
3. FCOR Limited Partnership, a Texas Limited Partnership, purchased the Forest
Corners Apartments, now called The Biltmore, on December 11, 1992. It is the sole owner of this
property.
4. The Biltmore apartment complex ("complex") consists of two six-story buildings with
185 units or apartments located on a 7.65 acre parcel of land at 2000 and 2050 Beltline Boulevard,
Richland County, Columbia, South Carolina. One building was constructed in 1969 and the other
in 1972. The buildings are constructed of stucco and brick over concrete block. They are serviced
with elevators and stair wells.
5. The complex is located within walking distance of a major shopping mall, schools and
other commercial establishments. The downtown business district and the University of South
Carolina are within a few minutes drive.
6. The Tax Map Number in Richland County for the apartment complex is R13908-05-09.
7. On December 1, 1992, FCOR purchased the apartment complex for the sum of
$2,972,889.00 paid in cash to the Resolution Trust Corporation ("RTC"), as Conservator for
Goldome Federal Savings Bank. Goldome Federal Savings Bank originally held a mortgage lien on
the complex.
8. Petitioner was unable to obtain financing to assist in purchasing the property because
of its age, the asbestos problem, and the deteriorated condition of the buildings.
9. On December 1, 1992, there was a great deal of deferred maintenance at the apartment
complex, with a need for major renovations. Subsequent to the purchase, FCOR spent approximately
$500,000.00 in refurbishing and renovating costs. However, there was still an outstanding need for
furnishings, replacements and major repairs.
10. As of December 1, 1992, the property had a vacancy rate of 18% to 20%.
11. For the tax year 1993, the Assessor assessed the value of the apartment complex at
$3,552,400.00. FCOR maintained the fair market value of the property on January 1, 1993, one
month after its purchase, was the sales price of $2,972,889.00
12. The Assessor did not consider the recent sales price of the property in its valuation
process nor did it include a discount for asbestos in the apartments. Further, it had no knowledge of
the asbestos concern until the Board hearing.
13. On February 25, 1993, FCOR timely appealed the assessment to the Richland County
Board of Assessment Appeals on the grounds that the assessment exceeded the property's total fair
market value on January 1, 1993.
14. After review, the Board confirmed the Assessor's valuation.
15. Using the cost method form of valuation analysis, the Assessor derived a value of
$5,851,200.00 for the complex.
16. Under the cost method form of analysis, the Assessor valued the buildings at
$5,058,224.00 and the land at $793,000.00
17. The $5,058,224.00 figure included $14,000.00 for fireplaces.
18. Under the cost method analysis, the Assessor applied a depreciation rate of 21% to
the 2000 Beltline Boulevard building and a 20% depreciation rate to the 2050 Beltline Boulevard
building.
19. Using the direct sales comparison method, the Assessor valued the property at
$3,450,000.00.
20. Although there were no comparable sales of multi-story apartment buildings in the
Columbia area, the Assessor used sales of four apartment complexes in arriving at its value under this
method. All four properties were constructed subsequent to The Biltmore. Their sales prices ranged
from $2,800,000.00 to $6,518,000.00 They had a range in price per unit from $17,721.00 ($17.13
per square foot) to $23,585.00 ($31.28 per square foot). No adjustment was made for time or
location differential.
21. The Assessor also used the income method of property valuation to arrive at a
valuation of the property. Using an estimate of gross income of $971,760.00 less an estimated
vacancy and collection loss of 10%, and an estimated annual expense of 60%, net operating income
was determined to be $349,834.00. Applying a capitalization rate of 10.25%, the value using this
method was $3,413,015.00.
22. The Assessor relied upon the income method to value and assess the property,
determining that its historical income stream provided the better indication of its market value. The
value of $3,413,015.00 was reduced by $11,160.00 attributed to personal property (already on file
with the Assessor's office) and was rounded to $3,410,900.00
DISCUSSION
The sole issue in this dispute is the value to be assigned to Petitioner's property on January
1, 1993. Guidance is provided by statutory and decisional law in South Carolina. One must
determine that the value for taxation purposes be based upon a price which the property would bring
following reasonable exposure to the market, where there is a willing buyer and a willing seller, not
acting under any compulsion, and the parties are informed as to its current uses and those for which
it is capable of being used.
In this instance, Goldome Federal Savings Bank ("Bank"), for money loaned, had received
a note and a mortgage on this property as security. When the owner failed to make payments on the
note, the note was called, a foreclosure action was brought, and subsequently the Resolution Trust
Corporation, as Conservator for the Bank, become the record owner of the property.
For a considerable period of time the property was placed on the market for sale. It was
nationally advertised and those investors who make a market in this kind of property were notified.
Subsequently, it was sold at public auction with legal title transferring to FCOR on December 1,
1992. Petitioner paid cash for the property after an unsuccessful attempt to obtain purchase money
financing.
On February 6, 1991, approximately 22 months prior to the sales date, a report titled "Report
of Preliminary Environmental Site Assessment and Limited Asbestos Survey" was prepared. Its
objective was "to identify obvious suspect asbestos - containing materials ("ACM") in the Forest
Corners Apartments. Samplings and inspections were conducted. Asbestos was detected in floor
tile, sheet vinyl installed on concrete floor, ceilings, roofing materials, and drywall joint compounds.
This report was available to all potential investors and/or purchasers of the apartment complex.
Both the expert witness for FCOR, Ms. Betty Sellers of Marvin F. Poer & Company, a
national property tax consulting company, and the expert witness for the Assessor, Robert E.
Jennings, staff appraiser in the Assessor's office, were credible. Each had a great deal of knowledge
and experience in valuing commercial and apartment properties and each gave the Court their honest
judgement as to the property's value. However, I find that the value assigned to the apartment
complex by FCOR's expert witness of $2,972,899.00 more accurately reflects its value as of January
1, 1993.
I find FCOR has shown that the valuation assigned by the Assessor is incorrect. The facts
show the Assessor refused to consider the purchase price as a part of its process in assigning a value.
The Assessor's position was that the purchase price reflected a value obtained at a "forced sale"
resulting from a foreclosure action and thus could not be utilized. It ignored the fact that the sales
date was only 30 days prior to the valuation date, the property had been nationally advertised, and
that an asbestos report identified asbestos in the buildings, albeit in fixable condition, which required
monitoring in the future and the implementation of an Operation and Maintenance Program. Further,
the Assessor ignored the fact that the property had already been acquired by the lienholder (Goldome)
in the foreclosure action and legal title was on the date of sale held by its conservator. Although
absolute accuracy and equality with respect to valuing a property is not practical, the Assessor must
consider all factor involved in valuing property. No evidence is in the record to show any force or
pressure on the RTC to sell the property or any demand for a quick sale. Arguably, the property was
listed for sale for a lengthy period and nationally advertised so investors interested in this type of
property could review its potential. The evidence shows they would review the property's previous
history of income, its age and condition, and ascertain if it had any specific problems, i.e....asbestos,
deferred maintenance. Asbestos can be expensive to remove during which time a complex would
have little or no income. Further, the record here shows that no purchase money financing was
available because of these factors. However, the Assessor, in his Direct Sales Comparison Report
submitted at the hearing before the Board, noted that the four comparables had financing but "no
adjustment for financing was thought to be needed" in this instance.
Since there was no evidence to show the sale which occurred on December 1, 1992, was
"forced," the sales price value must be given credibility as one between a willing buyer and willing
seller. Potential purchasers in this market would know what the use of the property is and what it
could be used for or adapted to in the future.
CONCLUSIONS OF LAW
Based upon the foregoing Findings of Fact, applicable law, the analysis and discussion herein,
I conclude, as a matter of law, the following:
1. S.C. Code Ann. § 12-60-2540 (Supp. 1994) authorizes the South Carolina
Administrative Law Judge Division to hear this contested case pursuant to Chapter 23 of Title I of
the 1976 Code, as amended.
2. S.C. Code Ann. § 12-37-90 (Supp. 1994) grants authority to the South Carolina Tax
Commission to alter values set by the assessor on real property. see S.C. Code Regs. 117-4 (1976).
3. S.C. Code Ann. § 12-4-30(D) (Supp. 1994) provides that an administrative law judge,
after February 1, 1995, shall hear all contested cases as defined by S.C. Code Ann. § 1-23-310 (Supp.
1994) previously heard by the South Carolina Tax Commission.
4. S.C. Code Ann. § 12-37-90 (Supp. 1994) states that all counties shall have a full-time
assessor, whose responsibility is appraising and listing property. Further, the assessor shall:
a) Maintain a continuous record of recorded deed sales transactions, building
permits, tax maps and other records necessary for a continuing reassessment
program;
b) Diligently search for and discover all real property not previously returned by
the owners or agents thereof or not listed for taxation by the county auditor
and list such property for taxation, in the name of the owner or person to
whom it is taxable;
c) When values change, reappraise and reassess any or all real property so as to
reflect its proper valuation in light of changed conditions, except for exempt
property and real property required by law to be appraised and assessed by the
commission, and furnish a list of these assessments to the county auditor;
d) Determine assessments and reassessments of real property in such a manner
that the ratio of assessed value to fair market value shall be uniform
throughout the county.. . .
5. S.C. Code Ann. §§ 12-43-300 and 12-60-2510 through 12-60-2530 (Supp. 1994)
provide the procedure whereby a taxpayer, upon receipt of a notice from the Assessor of the
valuation and assessment placed on his property, may file written notice of objection to the valuation
and assessment within certain time frames. Failure to serve the written notice of objection within the
statutory time limitations is a waiver of the owner's right to appeal. If the objection is timely filed,
the owner may have a conference with the assessor and, if still aggrieved, may appeal that decision
to the Board of Assessment Appeals.
6. An assessor's valuation is presumed correct with the burden being on the property
owner to disprove the assessor's determination. 84 C.J.S. Taxation § 410 (1954).
7. The Legislature, in S.C. Code Ann. § 12-37-930 (Supp. 1994), has decided how real
property must be valued.
"All real property shall be valued for taxation at its true value in money which
in all cases shall be held to be the price which the property would bring
following reasonable exposure to the market, where both the seller and buyer
are willing, are not acting under compulsion, and are reasonably well informed
as to the uses and purposes of which it is adapted and for which it is capable
of being used..."
8. Fair market value is the measure of true value for taxation purposes. Lindsey v. The
S.C. Tax Comm'n, 302 S.C. 274, 395 S.E.2d 184 (1990).
9. A "forced sale" is used in the law of condemnation and foreclosure sales to describe
a sale of property which is inadmissible as evidence of value because elements of compulsion so
affected the seller that the sale could not be fairly representative of market value at the time made.
The conception of a forced or compulsive sale includes force or compulsion as a result of some kind
of legal process. Hickey v. United States, 208 F.2d 269 (1953).
10. Cost minus depreciation can be an acceptable method to determine fair market 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 probative
evidence of the fair market value of similar property. 84 C.J.S. Taxation §411 (1954); see Cloyd v.
Mabry, 295 S.C. 86, 367 S.E.2d 171 (Ct. App. 1988).
12. A taxpayer contesting an assessment has the burden of showing that the valuation of
the taxing authority is incorrect. Ordinarily this would be done by proving the actual value of the
property. The taxpayer may, however, show by other evidence that the assessing authority's valuation
is incorrect. If does so, the presumption of correctness is removed and the taxpayer is entitled to
appropriate relief. Cloyd v. Mabry, 295 S.C. 86, 367 S.E.2d 171 (Ct. App. 1988).
13. There is ample evidence in the record to show that the sale on December 1, 1992, was
not a forced sale but, in the alternative, was a sale between a willing seller and a willing buyer after
a lengthy period of marketing the property nationally to investors and prospective purchasers. It was
sold at a public sale in an open market. The asbestos report and income history were available. The
Assessor cannot matter-of-factly conclude that a public sale by a fiduciary is a forced sale which
includes force and compulsion. The elements and features of the sale must be evaluated to determine
its validity. People in the market place deal with the realities of the moment when they invest their
money. It is the market place value of the real property which determines its value for ad valorem
taxes. S.C.Tax Comm'n v. SC Tax Bd. of Review, 287 S.C. 415, 339 S.E.2d 131 (Ct. App. 1985).
14. It is concluded that the sale on December 1, 1992, was between a willing buyer and
willing seller and meets the definition of S.C. Code Ann. § 12-37-930. The value of the taxpayer's
land and improvements for assessment purposes for the tax year 1993 is $2,972,889.00.
ORDER
Based upon the above Findings of Fact, Discussion and Conclusions of Law, it is hereby
ORDERED that the Richland County Assessor shall assess Petitioner's property (The
Biltmore apartment complex - TM# R13908-05-09) for the tax year 1993 at a value of
$2,972,889.00.
AND IT IS SO ORDERED.
_____________________________________________
Marvin F. Kittrell
Chief Judge
Columbia, South Carolina
October 31, 1995 |
