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BA 05-01-1995h1AY-11-95 THU 13 27 SHERBURNE COUNTY ADMIN. FAX N0. 6124418567 Ps O1 ATE: 11/93 SECITON: 4123 PAGE: 2 7_ The local board of review doesn't have the authority in any year to reopen former assessments on which taxes are due and payable. The board considers only the assessments that are in process in the current year. Occasionally a taxpayer may appear with a tax statement and protest the taxes or assessment of the previous year. The board should explain tactfully that it has not authority to consider such matters. After taxes have been extended, adjustment can be made only by the process of application for abatement or by legal actio{t., ., Y _ „ ~, ,,,,... ,..,..,_, 8. In reviewing the individual assessments, the board may find instances of undervaluation. Before the board raises the market value of property, it must notify the owner, The law doesn't prescribe any particular form of notice except that the person whose property is to be increased in assessment must be notified of the intent of the board to make the increase. The local board of review meetings assure a property owner an opportunity to contest the valuation or classification that has been placed on his property or to contest or to protest any other matter relating to the ta}-ability of his property. The board is required to review the matter and make any + .. ~,~ ~ corrections that it deems just. ~~~" - -,.~1.e.WaM..41h .ltrvuAr./aq'C: I. in iaN Nat.1t~:A.A~. dYL:.i4l.~.lk.'A. -.. •id'T.7i.iA:•Fw f r f •"• at ••.~ .. ...~ ., ••„ , 4. When a local board of review convenes, it is necessary that a majority of the members be in attendance in order that any valid action may be taken. The local assessor is required by law to be present with his assessment books and papers. He is required also to take part in the proceedings but has no vote. In addition to the local assessor, the county assessor or one of his assistants is required to attend. The board should ask the local assessor and county assessor to present any tables that have been prepared, making comparisons of the current assessments in the district. The county assessor is required to have maps and tables relating particularly to Land values for the guidance of boards of review. Comparisons should be presented of assessments of types of property with previous years and with other assessment districts in the same county, 10_ It is the primary duty of each board of review to examine the assessment record to see that all taxable property in the assessment district has been properly placed upon the list and valued by the assessor. In case any property, either real or persona[, has been omitted, the board has the duty of making the assessment. I1. The complaints and objections of taxpayers who feel aggrieved with any assessments for the current year should be considered very carefully by the board. Such assessments must be reviewed in detail and the board has authority to make corrections it deems to be just. The board may adjourn from day to day until all cases have been heard. 12. A nonresident may file written objections to his assessment with the county assessor prior to the meeting of the board of review. Such objections must be presented to the board for consideration while it is in session. MINNESOTA Department of Revenue • • .] Property Tax Division March 29, 1995 To: All County Assessors Mail Station 3340 Fag: (612) 297-2166 St. Paul, MN 55146-3340 TDD: (612) 282-2095 Re: 1995 State Board of Equalization Enclosed is the format that will be used in preparing your 1995 township and county line perimeter agricultural land maps. This is the same format that was used for the 1994 State Board of Equalization. Our desired outcomes from the 1995 State Board of Equalization will be: • Equitable assessments for all types of property within each county. The residential and seasonal-residential-recreational sales will be combined into one study for equalization, unless acceptable documentation is provided to your regional representative that would support maintaining the two sales ratio studies as separate entities. • Equitable assessment of agricultural lands between adjoining counties. • Equitable assessments of similar properties between counties. • A median sales ratio between 90.0 and 105.0 percent based upon the 1995 mini-abstract ratio. -- Please complete the necessary agricultural land maps and forward them to Steve Hurni by April 15, 1995. If you have any questions or need further assistance regarding this matter, please do not hesitate to contact Steve Hurni at (218) 828-2353. Thank you for your cooperation. Sincerely, Gerald D. Garski An egti~nl opporhinity ernptoyer TDD: (612) 297-2196 Application For Exemption From The Property Tax Of Improvements Made To Homes 35 Years Of Age Or Older Name of property owner Parcel Id no. Address Street City L'p Legal description of the property (from tax statement or value notice) !s prcperty homesteaded? Yes No Year house was built Number of years house has existed on present site Is there an existing garage on this property? Yes _ No Type of residence Single Family Duplex -Triplex Other 1 cer~.if~ that /have read, understand and agree to abide ay the instructions for completing this application. Signature: Date: Building permit no. Estimated cost ` .Approx start date (mo. & yr.) Approx finish date (mo. b yr.) ~: ~. + Describe in detail the construction, improvements, or replacements which wiU be made .~. i ~ . S.'~> '~ Signature Date Daytime phone ::: Building permit no. Estimated cost i'` ; .- Approx start date (mo. b yr.) Approx finish date (mo. 8, yr.) :a ~ Describe in detail the construction, improvements, or replacements which will be made p C3 U ~ ~ a i' Signature Date Daytime phone >. Building. permit no. Estimated cost Approx start date (mo. b yr.) Approx finish date (mo. b yr.) G1 ,~ i= `'. Describe in detail the construction, improvements, or replacements which wilt be made v s.., Q . ~ '' F ~ LL Signature ~ Date Daytime phone • May 1, 1995 STATE OF MINNESOTA TAX COURT 25 CONSTITUTION AVENUE JUDICIAL CENTER ST. PAUL 55155 TELEPHONE (612) 296-26D6 Susan Thompson, Court Administrator Ms. Lorayne N. Norgren Court Administrator Sherburne County Courthouse 13880 Highway lO,Box 318 Elk River, MN 55330 Re: Steven C. Johnson v. County of Sherburne File No. C6-94-629 Cyril G. Lenzmeier v. County of Sherburne File No. C4-94-628 Allan E. Nadeau v. County of Sherburne File Nos. C6-94-632 and C8-94-633 Dear Ms. Norgren: Enclosed are the original and Decisions in the above matters. been sent to each of the parties ~ Q2'~ three copies of Judge McClung's Copies of these Decisions have by regular mail. Also returned at this time are your original court files for these matters, including exhibits entered by the parties except for Petitioner's Exhibits Nos. 3 and 7. These exhibits are two large posterboards with photos which are too large to mail. I will contact Petitioners' attorney, who is located in Minneapolis, and request that he pick up these exhibits at the Tax Court, and will then forward a receipt for filing. Please enter Judgment and issue Clerk's Notice and the copies to the parties as appropriate. Thank you for your assistance. Sincerely, MINNESOTA TAX COURT / j /, ~~ /' _-~ >j~~"Cr- ,ICG Brenda A. Anderson Deputy Clerk • Enclosures cc: Gregg M. Fishbein Kathleen A. Heaney Deaf/Hard of Hearing/Speech Impaired Only: TDD users may call this agency through the MN Relay Service: Twin Cities (612) 297-5353, Greater Minnesota 1(800) 627-3529. Ask for (612) 296-2806. • STATE OF MINNESOTA COUNTY OF SHERBURNE ------------------------------ Allan E. Nadeau, Petitioner, vs. County of Sherburne, Respondent. TAX COURT TENTH JUDICIAL DISTRICT REGULAR DIVISION ------------------------------- FINDINGS OF FACT, CONCLIISIONS OF LAA AND ORDER FOR JIIDGMENT File Nos. C6-94-632 C8-94-633 Dated: May 1, 1995 °~ r~ a °~ ~ ~t:' This matter was heard by the Honorable Dorothy A. McClung, L~ Judge of the Minnesota Tax Court, beginning on November 30, 1994 and concluding on December 6, 1994, at the Sherburne County District Court Facilities, in Elk River, Minnesota. Gregg M. Fishbein, Attorney at Law, represented the Petitioner. Kathleen A. Heaney, Assistant Sherburne County Attorney, appeared for the Respondent. The issue in this case is the January 2, 1993 fair market value of two commercial properties owned by Petitioner. The first is located in downtown Elk River, Minnesota, and the second is located in Zimmerman, Minnesota. Post-trial briefs were filed by both parties and the matter was submitted to the Court for decision on January 23, 1995. The Court, having heard and considered the evidence adduced at the hearing, and upon all of the f Iles, records and proceedings herein, now makes the following: FINBINGS OF FACT 1. Petitioner has sufficient interest in the property to maintain this petition; all statutory and jurisdictional require- ments have been complied with, and the Court has jurisdiction over the subject matter of the action and the parties hereto. 2. Petitioner's Elk River property is located at 621 Main Street and consists of a lot improved with an older, two-story building used for both commercial and residential purposes. A dry-cleaning plant and laundromat are located on the first floor. A total of eight apartments are available -- one in the basement, two on the first floor and five on the second floor. The property is immediately adjacent to_ the Mississippi Rivera 3. The Elk River property is identified on the Sherburne County Assessor's books and records as P.I.D. No. 75-405-0470 and the estimated market value for the January 2, 1993 assessment is $174,200. 4. The Petitioner's Zimmerman property is located at 26068 Main Street and consists of a lot with an older building used for a laundromat and commercial storage. 5. The Zimmerman property is identified on the Sherburne County Assessor's books and records as P.I.D. No. 95-403-0110 and the estimated market value for the January 2, 1993 assessment is $65,400. 6. Petitioner testified that in his opinion the January 2, 1993 value of the Elk River property was $95,580 and the value of the Zimmerman property was $23,780. 2 7. James McComb, a real estate consultant and President of the McComb Group, testified for Petitioner and presented his analysis of the Elk River and Zimmerman trade areas. 8. Peter J. Patchin, MAI, CRE, and his associate, Joseph E. Mako, appraised both the Elk River and Zimmerman properties for the Respondent. Mr. Patchin testified that in his opinion, the Elk River property had a value of $200,000 and the Zimmerman property had a value of $75,000 as of January 2, 1993. 9. We find the January 2, 1993 fair market value of tree Elk River property to be $185,000 and the fair market value of the Zimmerman property to be $75,000. CONCLUSIONS OF LAW 1. The assessor's estimated market value for the subject properties as of January 2, 1993 shall be increased on the books and records of Sherburne County as follows: the Elk River property, from $174,200 to $185,00; and the Zimmerman property, from $65,400 to $75,000. 2. Real estate taxes due and payable in 1994 shall be recomputed accordingly and any additional amounts shall be paid by the Petitioner upon receipt of the corrected tax statements. LET JUDGMENT BE ENTERED ACCORDINGLY. THIS IS A FINAL ORDER. A STAY OF 15 DAYS IS HEREBY ORDERED. • 3 ,}~' 'q DATED: May 1, 1995 w~`, a c~ Oifica of the l~.iaesota ±as Cap-' d^es BY THE COURT, ;;~:~:br certify Lt±at the atta~hc-d irs`:.-ttznea` ;:; E talc- ->?-? cc_^_sci copy o: the cri~:nal CD:tit Cie PTO. -1~~Cp2 ~/`~%- /~~ C^un`y (tt ~-iginxl £te is ~,// k¢~t by Dlniri:: cosh aciiag / i ~~, t cc ~;letX f Ta:: st) ~ J DepaQ~ Coa=t Adxiata>zator Deu ~` ~. Dorothy McClung, Judge MINNESO A TAX COURT MEMORANDIIM This matter was tried in conjunction with two other • petitions filed in Sherburne County and the testimony of James Mccomb for the Petitioners was applicable to all four properties. See Steven C. Johnson v. County of Sherburne, File No. C6-94-629 (Minn. Tax Ct. May 1, 1995); and Cvril G. Lenzmeier v. County of Sherburne, File No. C4-94-628 (Minn. Tax Ct. May 1, 1995). In Johnson, we found that Mr. McComb's testimony was not barred by Minn. Stat. § 278.05, subd. 6. His testimony was not appraisal testimony but rather information regarding the growth and accompanying changes in retail trade in the Elk River and Zimmerman areas. As in Johnson and Lenzmeier, Petitioner chose not to present an expert's report or opinion of value of the subject properties. Petitioner based his opinion of the values of the subject properties on an income approach he adapted from the income approach developed by Respondent's expert. Petitioner owns and manages dry-cleaners and laundromats. He is not an appraiser nor a real estate expert. ~~ bF b~j~ ,tpt~ t~ Ar,O y ~~ ~'a ~~ ~~~~~~ 4 ~..~ The Elk River Property Petitioner purchased the Elk River property in 1986. He leases space for a laundromat and dry-cleaning plant to a company he also owns. The rest of the building consists of eight apartments, several overlooking the Mississippi River. Petitioner describes the apartments as barely adequate but admits he has very few vacancies. He spent $15,000 to repair the roof in 1993. The pavement in the parking areas needs repair but he had no estimate of the potential cost. Respondent hired the appraisal f irm of Peter J. Patchin and Associates to perform a review appraisal. At trial Mr. Patchin testified that he considered all three approaches to value but relied most heavily on a sales comparison approach. He gave no weight to a cost approach because of the age and condition of the building. We agree and will not rely on a cost approach. Mr. Patchin found sales in Elk River, Princeton, Shakopee, Excelsior and Anoka and adjusted them to make them comparable to the subject property. Petitioner, on cross-examination, questioned the selection of comparables but offered no direct testimony contradicting Mr. Patchin's choices. Mr. Patchin found an indicated value of $206,000 and deducted $5,000 in deferred maintenance. We rely on Mr. Patchin's experience and analysis and agree with his indicated value. In calculating his income approach, Mr. Patchin determined that the dry-cleaning business pays less than a market rent. Petitioner owns both the property and the dry-cleaning business 5 but asserts that the actual rent paid is market rent. However, Petitioner offered no evidence of market rents and consequently, we rely on Mr. Patchin's analysis. Petitioner argues that Mr. Patchin's addition of reimbursed expenses results in overstating income. We addressed this concern in Lenzmeier and accept Mr. Patchin's methodology. We look at Mr. Patchin's allowance for deferred maintenance of $5,000 and find, based on Petitioner's testimony, that it cost $15,000 to repair the roof and that an additional amount should be deducted to more realistically reflect the needed maintenance. Giving weight to both the sales comparison and income approach but providing a larger allowance for deferred maintenance, we f ind a value of $185,000 as of January 2, 1993. The Zimmerman Property Petitioner purchased the Zimmerman property in 1981. The property consists of a single-story commercial building with a partial basement. Petitioner operates a laundromat in the building and rents other space for storage. Petitioner again based his opinion of value on an adaptation of Mr. Patchin's income approach. We have reviewed Mr. Patchin's appraisal and his testimony. Petitioner questioned Mr. Patchin's selection of comparable sales and portions of the income approach but did not present credible, contradictory evidence. Again, we rely on the training and experience of Mr. Patchin. • 6 Relying on Mr. Patchin's sales comparison and income approaches, we find the January 2, 1993 fair market value of the Zimmerman property to be $75,000. D.A.M. C 7 • • STATE OF MINNESOTA COUNTY OF SHERBURNE ------------------------- Steven C. Johnson, Petitioner, TAX COURT TENTH JUDICIAL DISTRICT REGULAR DIVISION ------------------------------------ FINDINGS OF FACT, CONCLIISIONS OF LAW AND ORDER FOR JIIDGMENT vs. File No. C6-94-629 __ ~ -_ ~~~: County of Sherburne, Respondent. Dated: May 1, 1995 ---------------------------------------------------------------- This matter was heard by the Honorable Dorothy A. McClung, Judge of the Minnesota Tax Court, beginning on November 30, 1994 and concluding on December 6, 1994, at the Sherburne County District Court Facilities, in Elk River, Minnesota. Gregg M. Fishbein, Attorney at Law, represented the Petitioner. Kathleen A. Heaney, Assistant Sherburne County Attorney, appeared for the Respondent. The issue in this case is the January 2, 1993 fair market value of retail property located in downtown Elk River, Minnesota. Post-trial briefs were filed by both parties and the matter was submitted to the Court for decision on January 23, 1995. The Court, having heard and considered the evidence adduced at the hearing, and upon all of the files, records and proceedings herein, now makes the following: • FINDINGS OF FACT 1. Petitioner has sufficient interest in the property to maintain this petition; all statutory and jurisdictional require- ments have been complied with, and the Court has jurisdiction over the subject matter of the action and the parties hereto. 2. The subject property consists of a 50 ft. by 90 ft. lot in downtown Elk River, Minnesota, which is improved with a two- story commercial building with a full basement. Petitioner is the vendee on a contract for deed signed in 1986 and leases the building to the Johnson Corporation which operates a family apparel store on the premises. 3. The building is at least seventy-years-old. The basement level of the store houses the men's department and generates 30% of total sales. The second floor houses the children's department and generates 150 of total sales. The main floor houses the women's department and accounts for 55~ of total sales. The building has a freight elevator but no passenger elevator, limiting the accessibility of the basement and second floor to many customers. 4. The subject property is identified on the Sherburne County Assessor's books and records as P.I.D. No. 75-405-0250 and the estimated market value of the property for the January 2, 1993 assessment is $223,000. 5. Elk River is Sherburne County's most populous city and its county seat. The City is experiencing significant growth in population, generating both residential and commercial real 2 estate growth. Elk River is located 28 miles northwest of the City of Minneapolis. 6. Petitioner testified that in his opinion the January 2, 1993 value of the property was $97,325. 7. James McComb, a real estate consultant and President of McComb Group, testified for Petitioner and presented his analysis of the Elk River trade area. 8. Peter J. Patchin, MAI, CRE, and his associate, Joseph E. Mako, appraised the subject property for Respondent. Mr. Patchin testified that in his opinion, the subject property had a value of $260,000 as of January 2, 1993. 9. We find the January 2, 1993 fair market value of the subject property to be $234,000. CONCLUSIONS OF LAW 1. The assessor's estimated market value for the subject property as of January 2, 1993 shall be increased on the books and records of Sherburne County from $223,000 to $234,000. 2. Real estate taxes due and payable in 1994 shall be recomputed accordingly and any additional amounts shall be paid by Petitioner upon receipt of the corrected tax statement. LET JUDGMENT BE ENTERED ACCORDINGLY. THIS IS A FINAL ORDER. A STAY OF 15 DAYS IS HEREBY ORDERED. • 3 DATED: Y . ~~~ ~ ~r~~ ALE Dtt ~/ $~ ~~ ~~ ~~ ~c~~.~ May 1, 1995 C'~ ' ~~ne Office of the b~ifnesata Tax Court des BY THE COURT, '~---ah~~ e~rtifv ttia± the attached inst2ument ~' c^_ t'~•.~ ?7^ (::+ST2Ct CO~v r,{ .fie O21'_1:.:.fil C.. ii .~.` ~y? .c C~tGr'.?7 t~,6.~ r;~~~ i.;^!:iS.'. file A;,.. /`.~. -er=~ ~~ r / Lw.^s:y ewi r'l~irisCatc7 ~J1Tti n~ Dorothy~/A.) McClung, Judge MINNES T TAX COURT MEMORANDIIM This matter was tried in conjunction with three other • petitions filed in Sherburne County. See Cyril G. Lenzmeier v. County of Sherburne, File No. C6-94-628 (Minn. Tax Ct. May 1, 1995); and Allan E. Nadeau v. County of Sherburne, File Nos. C6- 94-632 and C8-94-633 (Minn. Tax Ct. May 1, 1995). Petitioner is purchasing the subject property from his father on a contract for deed. He leases the property to Johnson Corporation, a related business organization which operates the property as a retail store selling family apparel. The subject property consists of a 50 ft. by 90 ft. lot in Elk River, Minnesota, improved with a two-story commercial building with a full basement. All three floors are used for retailing. The building was constructed prior to 1920 and is at least seventy- years-old. At trial, Petitioner based his opinion of the value of the subject property on an income approach which he adapted from the income approach developed by Respondent's expert. Petitioner did 4 . not present an independent expert opinion of value. Petitioner himself is neither an appraiser nor a real estate expert. Mr. James McComb, a real estate consultant and President of the McComb Group, testified for the Petitioner and presented his analysis of the changing trade area in Elk River. Mr. McComb advised the Court that the tax base in Elk River is growing because of its relationship to the Twin Cities even though Sherburne County is not a part of the official metropolitan Twin Cities trade area. The City of Elk River is approximately 28 miles northwest of Minneapolis and is experiencing significant population growth with an accompanying increase in retail competition. Mr. McComb explained that retail construction is also expanding outward from the Twin Cities, causing direct competition to existing businesses in Elk River. These events have caused Petitioner's market share to decline. Petitioner testified that his sales increased through 1989, peaked, and then began declining. We conclude from Mr. McComb's testimony that the retail pie is growing but Petitioner's share of that pie is decreasing. Mr. McComb also testified that it is inappropriate to compare retail stores in a downtown central business district to retail stores located in shopping centers because the shopping centers' management can manipulate tenant mix, unify promotional activities and maximize locational attributes. Respondent hired the appraisal firm of Peter J. Patchin and Associates to perform an appraisal of the subject property. An appraisal was completed by Mr. Patchin and his associate, Joseph • 5 E. Mako, and presented at trial by Mr. Patchin. Considering all three approaches to value but relying most on the sales comparison approach, Mr. Patchin testified that the January 2, 1993 value of the property was $260,000. At trial, before we heard the valuation testimony, Respondent moved to exclude Mr. McComb's written and oral testimony on the basis that the written reports were not furnished to Respondent before trial as required by Minn. Stat. § 278.05, subd. 6. Respondent argues that subd. 6 requires the owners of income-producing property to provide the County with all information that they intend to use at trial, not just income and expense figures. We disagree. We understand § 278.05, subd. 6 to require property owners to give data to the County so that the County may prepare a review appraisal of the property. Mr. McComb's reports and analysis do not include appraisal data. Mr. McComb is not an appraiser and did not testify to the value of the subject property. Rather, Mr. McComb provided the Court with information regarding the retail climate in Elk River which could be affecting the income-producing capabilities of the property. We conclude that if a County chooses not to utilize formal discovery, the County is not entitled to exclude non- appraisal expert testimony on the basis that the testimony was not disclosed to the County prior to trial. Since Petitioner chose not to present an expert appraisal but chose instead to adapt Mr. Patchin's income methodology, we review Mr. Patchin's appraisal first. Mr. Patchin considered all 6 t three approaches to value but testified that the cost approach in this case was least reliable because of the age and condition of the building. We agree and do not rely on the cost approach. Mr. Patchin relied most heavily on his sales comparison approach and used sales in Elk River, Princeton, White Bear Lake, Stillwater and Anoka which he adjusted for age, condition, location, time of sale and number of floors. He averaged the value per square foot of all seven sales and the value per square foot of the most comparable sale in Elk River and found a value per square foot for the subject property of $22.50. As we look at the comparable sales, we are struck by the size difference. Even though Mr. Patchin adjusted for size, we conclude that greater weight should be given to the Elk River sale. We also . give weight to the very recent sale of the property adjacent to the subject property and conclude that the subject property had a value of $20.00 per square foot. Petitioner questioned Mr. Patchin's choice of comparable sales but we rely on Mr. Patchin's expertise because we found his testimony credible. In calculating his income approach, Mr. Patchin looked at the market to determine what a reasonable rent might be if the subject were offered for rent. He gathered information regarding leases of retail properties in comparable communities and calculated a market rent of $42,962. His pro forma operating statement allowed a 7% vacancy and collection loss rate, a 50 management fee and a reserve for replacement. He capitalized the 7 net income using an overall rate of 15.25 and found a value of $224,000. Petitioner, in adapting Mr. Patchin's income approach, testified that net income should not exceed 2.5% of 1992 gross sales, relying on this Court's decision in Carson Pirie Scott & Co. v. County of Dakota, File Nos. C7-90-7005, C4-92-7192 and C6- 93-7673 (Minn. Tax Ct. July 5, 1994). Petitioner argues that the Carson case supports the use of 2.50 of gross sales for a department store market rent. We f ind that in Carson we concluded only that 2.50 of gross sales was an appropriate market rent for the Burnsville Center's Carson Pirie Scott store for the years at issue. Petitioner's store is not comparable to a major department store operating on a regional level in a major regional mall. Mr. Patchin's market rent figure of $42,962 is comparable to 4.9~ of gross sales and is appropriate for the subject property. Petitioner points out that Mr. Patchin's cap rate includes the lower tax rate which is applied to the first parcel of commercial property per owner in each county and argues that the higher, overall rate for commercial property is more appropriate. However, Petitioner did not present us with authority for this position and Mr. Patchin used the tax rate actually applied to the property. Therefore, we accept Mr. Patchin's cap rate. Ultimately we conclude that Petitioner's conclusion of value is not credible. Although Petitioner relied on Mr. Patchin's • expert methodology, Petitioner is not an appraiser and has no 8 experience in .valuing property. Mr. Patchin is an expert and we rely on his appraisal with the adjustment to his sales comparison outlined above. Using both a sales comparison and income approach, we find the January 2, 1993 fair market value of the subject property to be $234,000. D.A.M. • 9 • STATE OF MINNESOTA TAX COURT TENTH JUDICIAL DISTRICT COUNTY OF SHERBURNE REGULAR DIVISION ---------------------------------------------------------------- Cyril G. Lenzmeier by Giles C. Lenzmeier, Petitioner, FINDINGS OF FACT, CONCLIISIONS OF LAW AND ORDER FOR JIIDGMENT vs. File No. C4-94-628 ~~ ~~~ County of Sherburne, Dated: May 1, 1995 Respondent. ---------------------------------------------------------------- This matter was heard by the Honorable Dorothy A. McClung, Judge of the Minnesota Tax Court, beginning on November 30, 1994 and concluding on December 6, 1994, at the Sherburne County District Court Facilities, in Elk River, Minnesota. • Gregg M. Fishbein, Attorney at Law, represented the Petitioner. Kathleen A. Heaney, Assistant Sherburne County Attorney, appeared for the Respondent. The issue in this case is the January 2, 1993 fair market value of a retail and office property located in downtown Elk River, Minnesota. Post-trial briefs were filed by both parties and the matter was submitted to the Court for decision on January 23, 1995. The Court, having heard and considered the evidence adduced at the hearing, and upon all of the files, records and proceedings herein, now makes the following: • FINDINGS OF FACT 1. Petitioner has sufficient interest in the property to maintain this petition; all statutory and jurisdictional require- ments have been complied with, and the Court has jurisdiction over the subject matter of the action and the parties hereto. 2. The subject property consists of a corner lot in downtown Elk River, Minnesota, which is improved with a two-story commercial building with a full basement. Cyril Lenzmeier originally purchased the property in ,1972 and operated a bank on the ground floor and leased offices on the second floor. Since 1986, the ground floor is leased and operated as a drug store. The second floor is still leased as office space. 3. Prior to 1993, Cyril Lenzmeier died. Pursuant to his Will, the subject property was placed in a trust with his son, Giles Lenzmeier, as co-trustee. Giles Lenzmeier is familiar with the subject property and has been negotiating with the tenants regarding changes in rent structure. He owns and operates a retail store in Monticello, Minnesota, and is familiar with retail properties in Sherburne County. Giles Lenzmeier has sufficient interest in and familiarity with the subject property to enable him to express an opinion of value. 4. The subject property is identified on the books and records of the Sherburne County Assessor as P.I.D. No. 75-405- 0245. The assessor's estimated market value of the property for January 2, 1993 is $240,800. :7 2 • 5. Elk River is Sherburne County's most populous city and its county seat. The City is experiencing significant growth in population, generating both residential and commercial real estate growth. Elk River is located 28 miles northwest of the City of Minneapolis. 6. Giles Lenzmeier testified that in his opinion the January 2, 1993 .value of the property was $155,303. 7. James McComb, a real estate consultant and President of the McComb Group, testified for Petitioner and presented his analysis of the Elk River trade area. 8. Peter.J. Patchin, MAI, CRE, and his associate, Joseph E. Mako, appraised the subject property for Respondent. Mr. Patchin testified that in his opinion, the subject property had a value of $320,000 as of January 2, 1993. 9. We find the January 2, 1993 fair market value of the subject property to be $290,000. CONCLUSIONS OF LAW 1. The assessor's estimated market value for the subject property as of January 2, 1993 shall be increased on the books and records of Sherburne County from $240,800 to $290,000. 2. Real estate taxes due and payable in 1994 shall be recomputed accordingly and any additional amounts shall be paid by the Petitioner upon receipt of the corrected tax statement. LET JUDGMENT BE ENTERED ACCORDINGLY. THIS IS A FINAL ORDER. A STAY OF 15 DAYS IS HEREBY ORDERED. 3 • ~a DATED: May 1, 1995 ~Y; BY THE COURT, ,..~,,, Ot., of the M,tnesata c ez C~~~-~ ' `; _ `i?c *-hat the attachet3 ir~i~- - _ "~'- ~ :correct copy of the e -~_r . "~ ~] :a -ecord t ~ ~ cffic ... i[e ~r~. ~~iainci Cau:i actin ~' ~ ~~ I)opeery Coure Admintsbal~ r,..~ Doro by McClung, Judg MINNESOTA TAX COURT MEMORANDUM This matter was tried in conjunction with three other • petitions filed in Sherburne County and the testimony of James McComb for the Petitioners was applicable to all four properties. See Steven C. Johnson v. County of Sherburne, File No. C6-94-629 (Minn. Tax Ct. May 1, 1995); and Allan E. Nadeau v. County of Sherburne, File Nos. C6-94-632 and C8-94-633 (Minn. Tax Ct. May 1 , 1995). In the Johnson decision, we found that Mr. McComb's testimony was not barred by Minn. Stat. § 278.05, subd. 6. His testimony was not appraisal testimony but rather information regarding the growth and accompanying changes in retail trade in the Elk River area. As in Johnson and Nadeau, Petitioner chose not to present an expert's report or opinion of value of the subject property. Giles Lenzmeier was allowed to testify and present his opinion of value based on his adaptation of Respondent's expert's income approach. Giles Lenzmeier is neither an appraiser nor a real estate expert. C3F ~~~~ °~ ~~~ 4 Giles Lenzmeier is the son of Cyril Lenzmeier and co-trustee of the trust created through Cyril Lenzmeier's Will. Cyril Lenzmeier purchased the subject property in 1972 and operated a bank on the ground floor and rented out office space on the second floor. In 1986, the ground floor and basement storage area were leased for a period of ten years to James A. Mulroy, Jr., who operates a Snyder Drugstore. The second floor is still leased as office space. The subject property is immediately adjacent to and shares a common wall with the Johnson property. Respondent hired the appraisal firm of Peter J. Patchin and Associates to perform an appraisal of the subject property. An appraisal was completed by Mr. Patchin and his associate, Joseph E. Mako, and presented at trial by Mr. Patchin. Considering all three approaches to value, but giving greatest weight to the sales comparison approach, Mr. Patchin testified that the January 2, 1993 value of the property was $320,000. Before giving his opinion of value at trial, Respondent objected to the testimony of Giles Lenzmeier on the basis that he is not the owner of the property nor is he an appraiser. We allowed Mr. Lenzmeier to testify and we affirm that ruling. Giles Lenzmeier is a co-trustee of the Cyril Lenzmeier Trust and personal representative of Cyril Lenzmeier's Estate. He is active in the management of the property. We understand that the primary beneficiary of the Lenzmeier Trust is Giles Lenzmeier's mother but Giles is a secondary beneficiary. Neither party could find any authority directly on point. We find that Giles 5 i Lenzmeier has sufficient interest in the property and has sufficient knowledge to testify in this matter. Since Petitioner elected not to present an expert appraisal but chose instead to have Giles Lenzmeier .adapt Mr. Patchin's income methodology, we review Mr. Patchin's appraisal first. Mr. Patchin considered but did not rely on a cost approach. Because of the age and condition of the subject property, we agree and do not rely on the cost approach. Mr. Patchin relied most heavily on his sales comparison approach using sales in Elk River, Stillwater, White Bear Lake, Chaska and Anoka which he adjusted for age, condition, location, time of sale and number of floors. He concluded that the sales comparison approach indicated a value of $350,000 from which he deducted $30,000 for • deferred maintenance. Petitioner questioned Mr. Patchin's choice of comparable sales but we rely on Mr. Patchin's expertise because we find his testimony credible. In calculating his income approach, Mr. Patchin found that the rents actually being paid by the tenants of the subject property were below market rents. After surveying the market, he found that a market rent for the retail space of $6.00 per sq. ft. and a market rent for the off ice space of $7.50 per sq. ft. The retail tenant in the subject property pays a significant share of the property expenses but the office tenants pay none. Mr. Patchin calculated the reimbursed expenses and added them to • gross income in order to convert the net rentals to gross 6 • rentals. The Court understands that this process recognizes that if the owner of the property had to pay all the property expenses without contribution from the tenants, the owner would need to raise the rental rate to net the same income. Petitioner questioned this methodology and argued that income is overstated. We agree with Mr. Patchin's methodology. We disagree with Mr. Patchin's use of $7.50 per sq. ft. as a market rent for the office areas. At page 11 of his appraisal (Ex. No. 105), Mr. Patchin describes the offices as "dated," appearing to be 1973 bank off ices. We find that $6.00 per sq. ft. is more realistic. We accept the rest of his methodology and calculate. an indicated value of $275,000. Giles Lenzmeier, in adapting Mr. Patchin's methodology, used • the actual 1992 rents, changed the amount of reimbursed expenses added to income and added 6.7~ to his capitalization rate to reflect "a return on capital component for a buyer of a business." Mr. Lenzmeier was quite unclear in his explanation of this additional cap rate. We are reminded that Mr. Lenzmeier is not an appraisal or real estate expert and find Mr. Patchin's cap rate to be most credible. Petitioner argued that Mr. Patchin used the wrong tax rate. The same argument was made in the Johnson case. Again, no authority was presented for this argument. Mr. Patchin used the tax rate actually applied to the subject property and we accept his approach. 7 • We conclude finally. that Mr. Lenzmeier's conclusion of value is not credible. Appraising any property is difficult and here we have an older, income-producing property in an area experiencing significant change. We rely on Mr. Patchin's expertise. Using both an income and sales comparison approach, we find the January 2, 1993 fair market value of the subject property to be $290,000. 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