ORDERS:
23.The Assessor strongly discounts the utility of the income approach in valuing anchor
department stores, largely because of a lack of leased properties for comparison. As a result, the
Assessor’s appraisal under the income approach is relatively undeveloped, relying upon a narrow
range of sources for estimating the relevant market rent and capitalization rate.
I find Mr. Benton’s
more considered and more balanced approach toward valuation under the income capitalization
method to be more credible than the methodology used by the Assessor.
Sales Comparison Approach
24.The sales comparison approach to valuation measures the fair market value of a piece
of real estate by examining the prices at which similar properties have been sold on the open market.
These sales of similar properties provide a good indication of the value the market would place on
the property in question were it to be put up for sale.
25.However, the use of the sales comparison approach for the valuation of anchor
department stores is complicated by several factors. The market for anchor department stores is a
national, not a local or regional, market, involving national tenants such as Dillard’s and Sears. As
such, comparable sales must be drawn from the nation as a whole, not just from one locality. Further,
in order to determine the market value of the real estate alone, the reported sales prices for anchor
stores must be adjusted to account for such factors as the inclusion of personal property in the sales,
the arbitrary assignment of store values in bulk sales of stores, and the structuring of sales to meet
certain tax requirements (e.g., in Section 1031 exchanges). Therefore, contact with individuals
involved in these sales is critical in ascertaining the true value affixed to the real estate in the sales and
in determining whether the reported sales are, in fact, comparable.
26.As noted above, Mr. Benton has appraised over one hundred anchor department stores
in the national market and maintains a national database of the sales of anchor department stores. He
has personally contacted individuals involved in the transactions reported in his database, and has
personally inspected each of the comparable properties used in his sales analysis.
27.Drawing from his database, Mr. Benton presented comparable sales for the properties
in question ranging in value from $42.92 to $59.56 per square foot before any adjustments. After
adjusting the prices for a number of factors, including store age, store size, mall gross leasable area,
anchor gross leasable area, number of anchors, average anchor size, inline shop ratio, fashion image,
inline shop gross sales, mall competition, trade area population, and median household income, Mr.
Benton arrived at a range of $27 to $50 per square foot for the Citadel Property and $22.50 to $40
per square foot for the Northwoods Property. Turning from this range of comparables to the
specifics of the stores in question, Mr. Benton determined that a value of $42.50 per square foot was
appropriate for the Citadel Property and $37.50 per square foot was appropriate for the Northwoods
Property. These figures result in a total value of $7,919,577 for the Citadel Property and $3,734,888
for the Northwoods Property.
28.The Assessor relied upon a far narrower range of comparable sales than that found
in Mr. Benton’s database and depended more on secondary written sources than on direct, personal
knowledge regarding the sales in valuing the properties in question. Further, as roughly 89% of sales
of anchor department stores in the United States fall under a price of $50.00 per square foot, the
Assessor’s valuation of the Citadel Property at $65.00 per square foot and the Northwoods Property
at $63.00 per square foot under the sales approach would place each of these properties in the top
ten percent of all anchor department sales in the nation.
29.I find that Mr. Benton’s valuation of the subject properties under the sales comparison
approach is credible and supported by the evidence in the record. Moreover, these values are
sufficiently similar to the values derived by Mr. Benton under the income capitalization approach
such that the credibility of each approach is reinforced.
Cost Approach
30.The cost approach to valuation measures the value of a property by calculating the
cost of producing a substitute property with the same utility.
31.The Assessor contends that, given a relative lack of comparable sales and rent data,
the cost approach is the best approach for valuing the properties in question. And, both the Assessor
and Mr. Benton conducted extensive cost approach analyses to value the Citadel and Northwoods
Properties. Nevertheless, as discussed above, I find that the cost approach is not a particularly
reliable method for valuing an anchor department store. The value of an anchor department store
depends much more upon its location and its related ability to generate sales than upon the
construction costs of the building itself. Buyers and sellers of anchor department stores simply do
not analyze sales of such stores on the basis of the cost approach. Given the lack of relevance of the
cost approach to an accurate valuation of anchor department stores, this approach will not be relied
upon to determine the fair market value of the properties in question. Further, the Assessor’s
argument that the cost approach is the most appropriate method for valuing the properties at issue
calls into the question the reliability of the Assessor’s overall valuations of these properties.
32.In sum, I find that the fair market value of Taxpayer’s Citadel Property as of
December 31, 2000, was $7,950,000, and that the fair market value of Taxpayer’s Northwoods
Property as of December 31, 2000, was $3,800,000.
CONCLUSIONS OF LAW
Based upon the forgoing Findings of Fact, I conclude the following as a matter of law:
Jurisdiction, General Principles, and Burden of Proof
1.The Administrative Law Judge Division has jurisdiction over this matter pursuant to
S.C. Code Ann. § 12-60-2540(A) (2000). The proceeding before the Division is in the nature of a
de novo hearing. See Reliance Insurance Co. v. Smith, 327 S.C. 528, 489 S.E.2d 674 (Ct. App.
1997).
2.“Generally, the proper valuation of realty for taxation is a question of fact, to be
ascertained in each individual case in the manner prescribed by statute.” 84 C.J.S. Taxation § 510,
at 553 (2001).
3.Under South Carolina law,
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 of the uses and purposes for which it
is adapted and for which it is capable of being used.
S.C. Code Ann. § 12-37-930 (Supp. 2003). In short, the fair market value of property is the measure
of its true value for taxation purposes. See Lindsey v. S.C. Tax Comm’n, 302 S.C. 504, 507, 397
S.E.2d 95, 97 (1990).
4.To determine the fair market value of property, the “highest and best use” of the
property must be considered. The concept of the “highest and best use” of property has been defined
as “the reasonably probable and legal use of vacant land or an improved property, which is physically
possible, appropriately supported, financially feasible, and that results in the highest value.” Appraisal
Institute, The Appraisal of Real Estate 297 (11th ed. 1996).
Both Taxpayer and the Assessor agree
that the highest and best use of both the Citadel and Northwoods Properties is use as an anchor
department store in a regional mall. Accordingly, the sole matter at issue in the instant case is the fair
market value of Taxpayer’s anchor department stores at the Citadel and Northwoods malls in
Charleston, South Carolina.
5.There is a presumption that an assessor’s valuation of a piece of property is correct,
see S.C. Tax Comm’n v. S.C. Tax Bd. of Review, 278 S.C. 556, 562, 299 S.E.2d 489, 492-93
(1983), and, in a challenge to that valuation, the taxpayer bears the burden of demonstrating that the
assessor’s valuation is incorrect. See Newberry Mills, Inc. v. Dawkins, 259 S.C. 7, 15-16, 190
S.E.2d 503, 507 (1972). Ordinarily, the taxpayer meets this burden by proving the actual value of
the property. See Cloyd v. Mabry, 295 S.C. 86, 88-89, 367 S.E.2d 171, 173 (Ct. App. 1988).
Therefore, in the case at hand, Taxpayer bears the burden of proving, by a preponderance of the
evidence, that the Assessor’s valuations of the Citadel and Northwoods Properties are incorrect,
either by demonstrating fatal errors in the Assessor’s valuation or by establishing the actual value of
the properties.
6.The weight and credibility assigned to evidence presented at the hearing of a matter
is within the province of the trier of fact. See S.C. Cable Television Ass’n v. S. Bell Tel. & Tel. Co.,
308 S.C.216, 222, 417 S.E.2d 586, 589 (1992). Furthermore, a trial judge who observes a witness
is in the best position to judge the witness’s demeanor and veracity and to evaluate the credibility of
his testimony. See, e.g., Woodall v. Woodall, 322 S.C. 7, 10, 471 S.E.2d 154, 157 (1996); Wallace
v. Milliken & Co., 300 S.C. 553, 556, 389 S.E.2d 448, 450 (Ct. App. 1990).
7.Under the South Carolina Rules of Evidence, “[i]f scientific, technical, or other
specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact
in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may
testify thereto in the form of an opinion or otherwise.” Rule 702, SCRE. The qualification of a
witness as an expert in a particular field is within the sound discretion of the trial judge. Berkeley
Elec. Co-op, Inc. v. S.C. Pub. Serv. Comm’n, 304 S.C. 15, 20, 402 S.E.2d 674, 677 (1991). An
expert is granted wide latitude in determining the basis of his or her opinion, and where an expert’s
testimony is based upon facts sufficient to form an opinion, the trier of fact must weigh its probative
value. Small v. Pioneer Machinery, Inc., 329 S.C. 448, 470, 494 S.E.2d 835, 846 (Ct. App. 1997).
8.In general, “expert opinion evidence is to be considered or weighed by the triers of
the facts like any other testimony or evidence . . . [;] the triers of fact cannot, and are not required
to, arbitrarily or lightly disregard, or capriciously reject, the testimony of experts or skilled witnesses,
and make an unsupported finding to the contrary of the opinion.” 32A C.J.S. Evidence § 727, at 82-83 (1996). However, the trier of fact may give an expert’s testimony the weight he or she determines
it deserves. Florence County Dep’t of Soc. Servs. v. Ward, 310 S.C. 69, 72-73, 425 S.E.2d 61, 63
(Ct. App. 1992). Further, the trier of fact may accept the testimony of one expert over that of
another. See S.C. Cable Television Ass’n v. S. Bell Tel. & Tel. Co., 308 S.C. 216, 417 S.E.2d 586
(1992). In the instant matter, the parties principally relied upon the expert testimony of their
appraisers to develop the facts at issue in this case. Consequently, the determination of this case
largely depends upon the credibility, reliability, and accuracy of the opinions presented by those
experts.
Valuation Methodologies
9.As noted above, there are three principal methods for the valuation of real estate for
tax purposes: (1) the income capitalization approach, (2) the sales comparison approach, and (3) the
cost approach. See 84 C.J.S Taxation §§ 512, 513, 514 (2001). The application of each method to
the valuation of the properties in question will be addressed in turn.
Income Capitalization Approach
10.The income capitalization approach is a generally accepted means for valuing
commercial property. See S.C. Tax Comm’n v. S.C. Tax Bd. of Review, 287 S.C. 415, 339 S.E.2d
131 (Ct. App. 1985); The Appraisal of Real Estate, supra, at 449-468. “Generally, the rental or net
income-producing capacity of real property which is rented or produces income is an important
element to be considered in determining the actual or market value of the property for purposes of
assessment.” 84 C.J.S. Taxation § 514, at 558.
11.The capitalization of income approach to appraising property is “a process whereby
the appraiser assumes that a purchaser of or investor in commercial real estate buys the real estate
with the expectation of earning an annual percentage of the purchase price (capital investment) of the
commercial property.” S.C. Tax Comm’n, 287 S.C. at 417, 339 S.E.2d at 132. “All income
capitalization methods, techniques, and procedures attempt to consider anticipated future benefits and
estimate their present value.” The Appraisal of Real Estate, supra, at 450. Under the direct
capitalization formula that applies to this type of valuation, the value of the property is derived by
dividing the net operating income of the property by the overall capitalization rate appropriate for an
investment in the property. Id. at 514; see also 84 C.J.S. Taxation § 514, at 558 (stating that, under
the income approach, “an appraiser determines the rental income the property should generate,
subtracts expenses, and then capitalizes the net income at a rate an investor would expect to obtain
for the property”).
12.In the case at hand, I find Mr. Benton’s valuation of the subject properties under the
income capitalization approach to be more credible than the Assessor’s valuation using the income
approach. Mr. Benton arrived at his market rent estimates for the properties from a wealth of
regional and national sources, including information contained in his national database, and derived
his capitalization rate using a multi-factored analysis that balanced several sources of investment-based information. See Finding of Fact #21. The Assessor, however, relied upon a more limited set
of data to estimate the market rent for the properties, and determined a capitalization rate for
investment in the property based upon a simple average taken from a single source.
13.After using his credible market rent data to calculate the net operating incomes of the
two properties, and applying an appropriate capitalization rate, Mr. Benton determined that, under
the income capitalization approach, the value of the Citadel Property was $7,956,850 (rounded to
$7,950,000) and the value of the Northwoods Property was $3,724,930 (rounded to $3,725,000).
Sales Comparison Approach
14.“The sales comparison approach is the process in which a market value estimate is
derived by analyzing the market for similar properties and comparing these properties to the subject
property.” The Appraisal of Real Estate, supra, at 397. This approach is recognized as a valid
method of arriving at the fair market value of a piece of real estate. See Smith v. Newberry County
Assessor, 350 S.C. 572, 580, 567 S.E.2d 501, 505 (Ct. App. 2002); 84 C.J.S. Taxation § 512.
15.In fact, if sufficient information regarding comparable sales is available, the sales
comparison approach “is the most direct and systematic approach to value estimation.” The
Appraisal of Real Estate, supra, at 399. However, the reliability of this approach depends not only
upon having statistical sales data regarding a sufficient number of comparable market transactions
with which to make the required sales comparisons, but also upon having complete information
concerning the motivations and interests of the parties involved in the transactions, particularly where
sales of “large, complex, income-producing properties” are involved. Id. at 399-400.
16.In the instant case, I find Mr. Benton’s valuation of the properties in question using
the sales comparison approach to be more credible than the Assessor’s valuation of those properties
under that method. In making his sales comparisons, Mr. Benton had sufficient information to reach
a reliable valuation for the properties. Drawing from the statistical information on anchor department
store sales in his extensive, nationally-recognized database, and from his own personal knowledge
of comparable transactions, acquired from site visits to the stores and interviews with parties involved
in the transactions, Mr. Benton was in a unique position to evaluate the fair market value of the
subject properties in comparison to sales of other similar properties. The Assessor, however, used
a far narrower range of comparable sales and relied heavily upon written sources in reaching a value
for the properties under the sales comparison approach.
17.Having examined a number of sales of comparable anchor department stores, in an
appropriately national market,
Mr. Benton concluded that the fair market value for the subject
properties under the sales comparison approach was $42.50 per square foot for the Citadel Property
and $37.50 per square foot for the Northwoods Property. Multiplied by the square footage of the
stores, the figures yield a value of $7,919,000 (rounded to $7,925,000) for the Citadel Property and
a value of $3,734,888 (rounded to $3,725,000) for the Northwoods Property. In contrast, the
Assessor valued both properties at well over $60.00 per square foot–a value which would place these
average stores in average malls in the top ten percent of department store sales nationally.
Cost Approach
18.The cost approach to valuation is based upon the principle that “no prudent buyer
would pay more for a property than the cost to acquire a similar site and construct improvements of
equivalent desirability and utility without undue delay.” The Appraisal of Real Estate, supra, at 336;
84 C.J.S. Taxation § 513. In applying this approach, “an appraiser attempts to estimate the difference
in worth to a buyer between the property being appraised and a newly constructed building with
optimal utility.” The Appraisal of Real Estate, supra, at 335.
19.While the cost approach is well-suited for the valuation of new construction or special-purpose properties for which no general market exists, this approach is generally disfavored for
valuing older improved properties, particularly because of the difficulty of estimating accrued
depreciation and entrepreneurial profit in those older properties. See id. at 338-39; see also, e.g.,
Carson Pirie Scott & Co. v. County of Hennepin, 576 N.W.2d 445, 449-50 (Minn. 1998) (upholding
tax court’s decision to not rely upon the cost approach in valuing a retail shopping center and
recognizing that “the cost approach is imprecise, owing to the difficulty of calculating the functional
and economic obsolescence of older buildings”). Similarly, buyers and sellers of anchor department
stores look more to the capacity of a property to produce sales than to its construction costs in
determining the market value of a store. See Finding of Fact #17.
20.Therefore, given the difficulty of valuing older improved, income-producing properties
like the Citadel and Northwoods Properties under the cost approach, I have not relied upon the cost
approach to any significant degree, and have placed greater emphasis on the income capitalization
and sales comparison methods, in determining the value of the properties in question. Further, the
Assessor’s over-reliance upon the cost approach calls into question the reliability of the Assessor’s
overall valuation of these properties.
Conclusion
21.Both the appraisal presented by Taxpayer’s expert, Mr. Benton, and that presented
by the Assessor were properly done in accordance with generally recognized appraisal standards.
However, Mr. Benton’s appraisal report was based upon a broader base of information, used a more
comprehensive analysis, and reached a more reasonable conclusion than the report presented by the
Assessor. Accordingly, I find Mr. Benton’s valuations to be the more accurate valuations of the
properties in question.
22.In his appraisal, Mr. Benton found the value of the Citadel Property to be $7,956,850
(rounded to $7,950,000) under the income capitalization approach and $7,919,000 (rounded to
$7,925,000) under the sales comparison approach. For the Northwoods Property, he determined
values of $3,724,930 (rounded to $3,725,000) under the income approach and $3,734,888 (rounded
to $3,725,000) under the sales comparison approach. The similarity of the values produced by each
method supports the validity of the other approach and buttresses the valuation derived from the
other valuation method.
23.Reconciling these figures and recognizing that Taxpayer has stipulated to the higher
of the values established by its two experts, I find that the appraised value of the Citadel Property
should be $7,950,000 and appraised value of the Northwoods Property should be $3,800,000 for tax
year 2001.
ORDER
Based upon the Findings of Fact and Conclusions of Law stated above,
IT IS HEREBY ORDERED that the Assessor value the Citadel Property, TMS No. 351-09-00-062, at $7,950,000 for tax year 2001, and the Northwoods Property, TMS No. 484-16-00-051,
at $3,800,000 for tax year 2001.
AND IT IS SO ORDERED.
______________________________
JOHN D. GEATHERS
Administrative Law Judge
Post Office Box 11667
Columbia, South Carolina 29211-1667
March 18, 2004
Columbia, South Carolina 23. The Assessor strongly discounts the utility of the income approach in valuing anchor
department stores, largely because of a lack of leased properties for comparison. As a result, the
Assessor’s appraisal under the income approach is relatively undeveloped, relying upon a narrow
range of sources for estimating the relevant market rent and capitalization rate.
I find Mr. Benton’s
more considered and more balanced approach toward valuation under the income capitalization
method to be more credible than the methodology used by the Assessor.
Sales Comparison Approach
24. The sales comparison approach to valuation measures the fair market value of a piece
of real estate by examining the prices at which similar properties have been sold on the open market.
These sales of similar properties provide a good indication of the value the market would place on
the property in question were it to be put up for sale.
25. However, the use of the sales comparison approach for the valuation of anchor
department stores is complicated by several factors. The market for anchor department stores is a
national, not a local or regional, market, involving national tenants such as Dillard’s and Sears. As
such, comparable sales must be drawn from the nation as a whole, not just from one locality. Further,
in order to determine the market value of the real estate alone, the reported sales prices for anchor
stores must be adjusted to account for such factors as the inclusion of personal property in the sales,
the arbitrary assignment of store values in bulk sales of stores, and the structuring of sales to meet
certain tax requirements (e.g., in Section 1031 exchanges). Therefore, contact with individuals
involved in these sales is critical in ascertaining the true value affixed to the real estate in the sales and
in determining whether the reported sales are, in fact, comparable.
26. As noted above, Mr. Benton has appraised over one hundred anchor department stores
in the national market and maintains a national database of the sales of anchor department stores. He
has personally contacted individuals involved in the transactions reported in his database, and has
personally inspected each of the comparable properties used in his sales analysis.
27. Drawing from his database, Mr. Benton presented comparable sales for the properties
in question ranging in value from $42.92 to $59.56 per square foot before any adjustments. After
adjusting the prices for a number of factors, including store age, store size, mall gross leasable area,
anchor gross leasable area, number of anchors, average anchor size, inline shop ratio, fashion image,
inline shop gross sales, mall competition, trade area population, and median household income, Mr.
Benton arrived at a range of $27 to $50 per square foot for the Citadel Property and $22.50 to $40
per square foot for the Northwoods Property. Turning from this range of comparables to the
specifics of the stores in question, Mr. Benton determined that a value of $42.50 per square foot was
appropriate for the Citadel Property and $37.50 per square foot was appropriate for the Northwoods
Property. These figures result in a total value of $7,919,577 for the Citadel Property and $3,734,888
for the Northwoods Property.
28. The Assessor relied upon a far narrower range of comparable sales than that found
in Mr. Benton’s database and depended more on secondary written sources than on direct, personal
knowledge regarding the sales in valuing the properties in question. Further, as roughly 89% of sales
of anchor department stores in the United States fall under a price of $50.00 per square foot, the
Assessor’s valuation of the Citadel Property at $65.00 per square foot and the Northwoods Property
at $63.00 per square foot under the sales approach would place each of these properties in the top
ten percent of all anchor department sales in the nation.
29. I find that Mr. Benton’s valuation of the subject properties under the sales comparison
approach is credible and supported by the evidence in the record. Moreover, these values are
sufficiently similar to the values derived by Mr. Benton under the income capitalization approach
such that the credibility of each approach is reinforced.
Cost Approach
30. The cost approach to valuation measures the value of a property by calculating the
cost of producing a substitute property with the same utility.
31. The Assessor contends that, given a relative lack of comparable sales and rent data,
the cost approach is the best approach for valuing the properties in question. And, both the Assessor
and Mr. Benton conducted extensive cost approach analyses to value the Citadel and Northwoods
Properties. Nevertheless, as discussed above, I find that the cost approach is not a particularly
reliable method for valuing an anchor department store. The value of an anchor department store
depends much more upon its location and its related ability to generate sales than upon the
construction costs of the building itself. Buyers and sellers of anchor department stores simply do
not analyze sales of such stores on the basis of the cost approach. Given the lack of relevance of the
cost approach to an accurate valuation of anchor department stores, this approach will not be relied
upon to determine the fair market value of the properties in question. Further, the Assessor’s
argument that the cost approach is the most appropriate method for valuing the properties at issue
calls into the question the reliability of the Assessor’s overall valuations of these properties.
32. In sum, I find that the fair market value of Taxpayer’s Citadel Property as of
December 31, 2000, was $7,950,000, and that the fair market value of Taxpayer’s Northwoods
Property as of December 31, 2000, was $3,800,000.
CONCLUSIONS OF LAW
Based upon the forgoing Findings of Fact, I conclude the following as a matter of law:
Jurisdiction, General Principles, and Burden of Proof
1. The Administrative Law Judge Division has jurisdiction over this matter pursuant to
S.C. Code Ann. § 12-60-2540(A) (2000). The proceeding before the Division is in the nature of a
de novo hearing. See Reliance Insurance Co. v. Smith, 327 S.C. 528, 489 S.E.2d 674 (Ct. App.
1997).
2. “Generally, the proper valuation of realty for taxation is a question of fact, to be
ascertained in each individual case in the manner prescribed by statute.” 84 C.J.S. Taxation § 510,
at 553 (2001).
3. Under South Carolina law,
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 of the uses and purposes for which it
is adapted and for which it is capable of being used.
S.C. Code Ann. § 12-37-930 (Supp. 2003). In short, the fair market value of property is the measure
of its true value for taxation purposes. See Lindsey v. S.C. Tax Comm’n, 302 S.C. 504, 507, 397
S.E.2d 95, 97 (1990).
4. To determine the fair market value of property, the “highest and best use” of the
property must be considered. The concept of the “highest and best use” of property has been defined
as “the reasonably probable and legal use of vacant land or an improved property, which is physically
possible, appropriately supported, financially feasible, and that results in the highest value.” Appraisal
Institute, The Appraisal of Real Estate 297 (11th ed. 1996).
Both Taxpayer and the Assessor agree
that the highest and best use of both the Citadel and Northwoods Properties is use as an anchor
department store in a regional mall. Accordingly, the sole matter at issue in the instant case is the fair
market value of Taxpayer’s anchor department stores at the Citadel and Northwoods malls in
Charleston, South Carolina.
5. There is a presumption that an assessor’s valuation of a piece of property is correct,
see S.C. Tax Comm’n v. S.C. Tax Bd. of Review, 278 S.C. 556, 562, 299 S.E.2d 489, 492-93
(1983), and, in a challenge to that valuation, the taxpayer bears the burden of demonstrating that the
assessor’s valuation is incorrect. See Newberry Mills, Inc. v. Dawkins, 259 S.C. 7, 15-16, 190
S.E.2d 503, 507 (1972). Ordinarily, the taxpayer meets this burden by proving the actual value of
the property. See Cloyd v. Mabry, 295 S.C. 86, 88-89, 367 S.E.2d 171, 173 (Ct. App. 1988).
Therefore, in the case at hand, Taxpayer bears the burden of proving, by a preponderance of the
evidence, that the Assessor’s valuations of the Citadel and Northwoods Properties are incorrect,
either by demonstrating fatal errors in the Assessor’s valuation or by establishing the actual value of
the properties.
6. The weight and credibility assigned to evidence presented at the hearing of a matter
is within the province of the trier of fact. See S.C. Cable Television Ass’n v. S. Bell Tel. & Tel. Co.,
308 S.C.216, 222, 417 S.E.2d 586, 589 (1992). Furthermore, a trial judge who observes a witness
is in the best position to judge the witness’s demeanor and veracity and to evaluate the credibility of
his testimony. See, e.g., Woodall v. Woodall, 322 S.C. 7, 10, 471 S.E.2d 154, 157 (1996); Wallace
v. Milliken & Co., 300 S.C. 553, 556, 389 S.E.2d 448, 450 (Ct. App. 1990).
7. Under the South Carolina Rules of Evidence, “[i]f scientific, technical, or other
specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact
in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may
testify thereto in the form of an opinion or otherwise.” Rule 702, SCRE. The qualification of a
witness as an expert in a particular field is within the sound discretion of the trial judge. Berkeley
Elec. Co-op, Inc. v. S.C. Pub. Serv. Comm’n, 304 S.C. 15, 20, 402 S.E.2d 674, 677 (1991). An
expert is granted wide latitude in determining the basis of his or her opinion, and where an expert’s
testimony is based upon facts sufficient to form an opinion, the trier of fact must weigh its probative
value. Small v. Pioneer Machinery, Inc., 329 S.C. 448, 470, 494 S.E.2d 835, 846 (Ct. App. 1997).
8. In general, “expert opinion evidence is to be considered or weighed by the triers of
the facts like any other testimony or evidence . . . [;] the triers of fact cannot, and are not required
to, arbitrarily or lightly disregard, or capriciously reject, the testimony of experts or skilled witnesses,
and make an unsupported finding to the contrary of the opinion.” 32A C.J.S. Evidence § 727, at 82-83 (1996). However, the trier of fact may give an expert’s testimony the weight he or she determines
it deserves. Florence County Dep’t of Soc. Servs. v. Ward, 310 S.C. 69, 72-73, 425 S.E.2d 61, 63
(Ct. App. 1992). Further, the trier of fact may accept the testimony of one expert over that of
another. See S.C. Cable Television Ass’n v. S. Bell Tel. & Tel. Co., 308 S.C. 216, 417 S.E.2d 586
(1992). In the instant matter, the parties principally relied upon the expert testimony of their
appraisers to develop the facts at issue in this case. Consequently, the determination of this case
largely depends upon the credibility, reliability, and accuracy of the opinions presented by those
experts.
Valuation Methodologies
9. As noted above, there are three principal methods for the valuation of real estate for
tax purposes: (1) the income capitalization approach, (2) the sales comparison approach, and (3) the
cost approach. See 84 C.J.S Taxation §§ 512, 513, 514 (2001). The application of each method to
the valuation of the properties in question will be addressed in turn.
Income Capitalization Approach
10. The income capitalization approach is a generally accepted means for valuing
commercial property. See S.C. Tax Comm’n v. S.C. Tax Bd. of Review, 287 S.C. 415, 339 S.E.2d
131 (Ct. App. 1985); The Appraisal of Real Estate, supra, at 449-468. “Generally, the rental or net
income-producing capacity of real property which is rented or produces income is an important
element to be considered in determining the actual or market value of the property for purposes of
assessment.” 84 C.J.S. Taxation § 514, at 558.
11. The capitalization of income approach to appraising property is “a process whereby
the appraiser assumes that a purchaser of or investor in commercial real estate buys the real estate
with the expectation of earning an annual percentage of the purchase price (capital investment) of the
commercial property.” S.C. Tax Comm’n, 287 S.C. at 417, 339 S.E.2d at 132. “All income
capitalization methods, techniques, and procedures attempt to consider anticipated future benefits and
estimate their present value.” The Appraisal of Real Estate, supra, at 450. Under the direct
capitalization formula that applies to this type of valuation, the value of the property is derived by
dividing the net operating income of the property by the overall capitalization rate appropriate for an
investment in the property. Id. at 514; see also 84 C.J.S. Taxation § 514, at 558 (stating that, under
the income approach, “an appraiser determines the rental income the property should generate,
subtracts expenses, and then capitalizes the net income at a rate an investor would expect to obtain
for the property”).
12. In the case at hand, I find Mr. Benton’s valuation of the subject properties under the
income capitalization approach to be more credible than the Assessor’s valuation using the income
approach. Mr. Benton arrived at his market rent estimates for the properties from a wealth of
regional and national sources, including information contained in his national database, and derived
his capitalization rate using a multi-factored analysis that balanced several sources of investment-based information. See Finding of Fact #21. The Assessor, however, relied upon a more limited set
of data to estimate the market rent for the properties, and determined a capitalization rate for
investment in the property based upon a simple average taken from a single source.
13. After using his credible market rent data to calculate the net operating incomes of the
two properties, and applying an appropriate capitalization rate, Mr. Benton determined that, under
the income capitalization approach, the value of the Citadel Property was $7,956,850 (rounded to
$7,950,000) and the value of the Northwoods Property was $3,724,930 (rounded to $3,725,000).
Sales Comparison Approach
14. “The sales comparison approach is the process in which a market value estimate is
derived by analyzing the market for similar properties and comparing these properties to the subject
property.” The Appraisal of Real Estate, supra, at 397. This approach is recognized as a valid
method of arriving at the fair market value of a piece of real estate. See Smith v. Newberry County
Assessor, 350 S.C. 572, 580, 567 S.E.2d 501, 505 (Ct. App. 2002); 84 C.J.S. Taxation § 512.
15. In fact, if sufficient information regarding comparable sales is available, the sales
comparison approach “is the most direct and systematic approach to value estimation.” The
Appraisal of Real Estate, supra, at 399. However, the reliability of this approach depends not only
upon having statistical sales data regarding a sufficient number of comparable market transactions
with which to make the required sales comparisons, but also upon having complete information
concerning the motivations and interests of the parties involved in the transactions, particularly where
sales of “large, complex, income-producing properties” are involved. Id. at 399-400.
16. In the instant case, I find Mr. Benton’s valuation of the properties in question using
the sales comparison approach to be more credible than the Assessor’s valuation of those properties
under that method. In making his sales comparisons, Mr. Benton had sufficient information to reach
a reliable valuation for the properties. Drawing from the statistical information on anchor department
store sales in his extensive, nationally-recognized database, and from his own personal knowledge
of comparable transactions, acquired from site visits to the stores and interviews with parties involved
in the transactions, Mr. Benton was in a unique position to evaluate the fair market value of the
subject properties in comparison to sales of other similar properties. The Assessor, however, used
a far narrower range of comparable sales and relied heavily upon written sources in reaching a value
for the properties under the sales comparison approach.
17. Having examined a number of sales of comparable anchor department stores, in an
appropriately national market,
Mr. Benton concluded that the fair market value for the subject
properties under the sales comparison approach was $42.50 per square foot for the Citadel Property
and $37.50 per square foot for the Northwoods Property. Multiplied by the square footage of the
stores, the figures yield a value of $7,919,000 (rounded to $7,925,000) for the Citadel Property and
a value of $3,734,888 (rounded to $3,725,000) for the Northwoods Property. In contrast, the
Assessor valued both properties at well over $60.00 per square foot–a value which would place these
average stores in average malls in the top ten percent of department store sales nationally.
Cost Approach
18. The cost approach to valuation is based upon the principle that “no prudent buyer
would pay more for a property than the cost to acquire a similar site and construct improvements of
equivalent desirability and utility without undue delay.” The Appraisal of Real Estate, supra, at 336;
84 C.J.S. Taxation § 513. In applying this approach, “an appraiser attempts to estimate the difference
in worth to a buyer between the property being appraised and a newly constructed building with
optimal utility.” The Appraisal of Real Estate, supra, at 335.
19. While the cost approach is well-suited for the valuation of new construction or special-purpose properties for which no general market exists, this approach is generally disfavored for
valuing older improved properties, particularly because of the difficulty of estimating accrued
depreciation and entrepreneurial profit in those older properties. See id. at 338-39; see also, e.g.,
Carson Pirie Scott & Co. v. County of Hennepin, 576 N.W.2d 445, 449-50 (Minn. 1998) (upholding
tax court’s decision to not rely upon the cost approach in valuing a retail shopping center and
recognizing that “the cost approach is imprecise, owing to the difficulty of calculating the functional
and economic obsolescence of older buildings”). Similarly, buyers and sellers of anchor department
stores look more to the capacity of a property to produce sales than to its construction costs in
determining the market value of a store. See Finding of Fact #17.
20. Therefore, given the difficulty of valuing older improved, income-producing properties
like the Citadel and Northwoods Properties under the cost approach, I have not relied upon the cost
approach to any significant degree, and have placed greater emphasis on the income capitalization
and sales comparison methods, in determining the value of the properties in question. Further, the
Assessor’s over-reliance upon the cost approach calls into question the reliability of the Assessor’s
overall valuation of these properties.
Conclusion
21. Both the appraisal presented by Taxpayer’s expert, Mr. Benton, and that presented
by the Assessor were properly done in accordance with generally recognized appraisal standards.
However, Mr. Benton’s appraisal report was based upon a broader base of information, used a more
comprehensive analysis, and reached a more reasonable conclusion than the report presented by the
Assessor. Accordingly, I find Mr. Benton’s valuations to be the more accurate valuations of the
properties in question.
22. In his appraisal, Mr. Benton found the value of the Citadel Property to be $7,956,850
(rounded to $7,950,000) under the income capitalization approach and $7,919,000 (rounded to
$7,925,000) under the sales comparison approach. For the Northwoods Property, he determined
values of $3,724,930 (rounded to $3,725,000) under the income approach and $3,734,888 (rounded
to $3,725,000) under the sales comparison approach. The similarity of the values produced by each
method supports the validity of the other approach and buttresses the valuation derived from the
other valuation method.
23. Reconciling these figures and recognizing that Taxpayer has stipulated to the higher
of the values established by its two experts, I find that the appraised value of the Citadel Property
should be $7,950,000 and appraised value of the Northwoods Property should be $3,800,000 for tax
year 2001.
ORDER
Based upon the Findings of Fact and Conclusions of Law stated above,
IT IS HEREBY ORDERED that the Assessor value the Citadel Property, TMS No. 351-09-00-062, at $7,950,000 for tax year 2001, and the Northwoods Property, TMS No. 484-16-00-051,
at $3,800,000 for tax year 2001.
AND IT IS SO ORDERED.
______________________________
JOHN D. GEATHERS
Administrative Law Judge
Post Office Box 11667
Columbia, South Carolina 29211-1667
March 18, 2004
Columbia, South Carolina |
