Board of Equalization Meeting   7/1/2021

Okay, this meeting is being held pursuant to and in compliance with ordinance number 20-A, parentheses six.

Members present, we've got Mr. Ferrell, Ms. Pape, Mr. Arsali, Mr. Van Roijen.

Anyone else here now?

Mr. Cromwell.

Staff members present, Mr. Lynch,

Ms. Taylor, Ms. Stein, Mr. Herndon, oh, we have Mr. Cromwell, I'm sorry, as a member.

I'm looking between sheets and pictures here.

All right, call the meeting to order.

Approval of the minutes of the previous meeting.

I'll second it.

All in favor?

Aye.

Aye.

Minutes approved.

We can.

Well, thank you.

Do you all know why I'm here?

No, we're fine.

We're your friendly Board of Equalization.

We're here to hear what you have to say, what Mr. Lynch has to say, and then we will make a judgment.

I'll send it to you in writing and let you know what we have decided.

Mr. Van Roijen, Ned.

It's fine with me.

Okay.

No, that's fine.

I just wanted to make sure he knew what you had to say.

Okay.

Well,

I will reiterate, maybe bring it up to date.

You probably noticed I did not question the basic house value.

I'm challenging the huge 225%, $215,800 increase in land value, which increases my taxes by 35%, over $1,800 increase.

And now a little backstory leading up to this.

I had to retire early in 2015, and in 2018, we went to the county about building on two sites on the four extra acres as a supplement to our retirement.

We were told that the rules had changed two years earlier, and we couldn't build.

They even sent an engineer out to take a look after everything and said, no, you can't build.

So,

If I couldn't build, they did, or you did, somebody did, they lowered my land value then from the 318 down to 161,900.

Now, three years later, nothing has changed.

And yet, you have increased the value

on unusable land, landlocked, 225,000%, $215,800 even after my challenge.

My wife said that, they said that, no, that we would have to give all our property to our family.

They could wait four years

and then they could see about possibly building and that's it.

Yeah, we'd have to change the whole road, change our property, coming up the side, going past people's property so that technically it really wasn't and realistically it wasn't usable because we were completely surrounded by homes

We were told we were now part of the subdivision.

Not that I know of.

We just spoke with them.

No.

She came with a plan when we came and it was a man and a woman.

They looked up the black.

Yeah, they looked up two lots were there, but the rules were changed.

Mr. Van Rhyn, just

Just to make it clear, our change in value wasn't based on this.

So if you want to take that argument off table, we're not contesting the fact that he could or could not build another house on his property.

And I can explain why the value changed on the land, but it wasn't because we are valuing his ability to build another house.

We based it on the fact that there are already two houses on the property that we were not assessing the land properly for before.

And I'm sorry, Mr. Timberlake, if we didn't explain this to you after the review that we did this year, or at least explain it to you properly.

Mr. Timberlake, do you have anything further that you want to add to your presentation?

Well, one of the properties is a garage that's always been there.

It wasn't built, it was there when we bought the place.

And it's within 23 feet of my house.

Realistically,

They say on paper, well, you can do this.

Realistically, we try and do this.

It would actually destroy the value of the house, trying to put other properties on it, because there would be no privacy for my neighbors, that I would go right by their property, as well as in full view of me, or whoever was going back there.

and realistically to build back there too is where the septic tank field is.

So you can't build on a septic field.

So I guess that's at this particular point.

Well, that's some other question or reiterating something on your part.

All right, well, we are going to now listen to Mr. Lynch, unless anyone else has some questions from the committee.

We'll listen to Mr. Lynch as to how he came up with the valuation and where he puts the value.

Thank you very much.

Mr. Timberlake, my name is Karen Pape, and I just wanted to ask you a little about your garage apartment.

There was an apartment over the garage when we bought the place.

It was just a garage, but it had an apartment above it.

We brought it up to standard because we sponsored some Vietnamese at that time.

This was in 76 I think.

So they would have a place to live while they

Got used to this land.

They were refugees after the war.

So that was the only reason it was even improved, but not moved.

It is still there and it's still, yes, it's a very nice apartment, but it's still right next to it.

It's part of it was just basically a garage with an apartment.

Okay.

Ferrell.

Mr. Timberlake, one quick question.

You said when you bought the land that you assumed that you had two lots and now you don't.

Where did you assume the second lot entered from?

If it was possible, it would have had to be entered from another part of the subdivision.

It wasn't a deeded second entrance, it was a building site

that was not very buildable without a lot of work, but it could be used.

And we were given actually first refusal to any adjoining properties, but the real estate people, anyway, they sold it out to two other individuals that had bought property on either side of that particular lot.

All right.

All right.

I saw that.

Well, I'd like to see an aerial photograph.

Absolutely.

Okay.

So this is the main house that we have in our record.

Yes.

Okay.

That's the second house.

It was a garage.

Already had an apartment above it with no running water.

Like I said, we improved it then for

So could you just confirm for us, I mean, our record shows that this is a house with, I believe it's 1260 square feet.

Okay, so this is a dwelling, you know, for appraisal purposes, this is a dwelling.

So what I was referring to was when we increased the value of the land, and let me explain, and actually, let me show the aerial photograph, because I'm sorry, I didn't jump to that first.

and let me take some of the, well actually I have some layers on here that kind of show.

Okay.

I left the

Floodplain and the steep slope on here.

So you can see there are definitely issues with a part of this property and we're not, we're adjusting for that and we're not saying that that is a home site or anything of that nature.

But there are two addressed dwellings on here and we wanted to make sure that we had adequate land value to show that there are two dwellings on this property and that's the change that happened

this year compared to the previous year in the assessment.

We had inadvertently not given value to the land supporting that second dwelling, not a possible other dwelling, but for that second dwelling.

So that's the way we are assessing it currently.

Just so the board understands it.

Can you explain that a little more clearly in terms of you're giving it land?

Correct.

An acre's worth of concentrated value.

So in our evaluation model, in valuation itself of land, it really has to do with how much you can do with that land.

So if you have a 10-acre parcel, for instance, 10-acre parcel that has the ability to build one house,

We would have a home site value for the first two acres and then we would have residual value for the remaining eight acres.

If you build five houses on that property, it really would be worth the ability, the land value that would allow you to build five two acre home sites.

Since we don't always have that information,

on all the properties in the county, we don't necessarily add it for dwellings that aren't actually built, they don't actually exist.

So for the majority of properties, they have one house on them, we have one home site, and then the rest is residual land.

However, in those instances where there are multiple houses, we will assign an appropriate sized home site

to each of those houses.

The main one will always have the two acres.

And then the second, third, fourth, however many other houses there are will have an appropriate based on where they're sitting.

If they're close together like these two are, or if they're separated, they would use different amounts.

So that size would vary based on

on those differences but we always want to have value and someone would always pay for the ability to have a house and in the cases we're talking about already have the house where there is value not just in that second building in the improvements but in the land that supports that second building and that's

The way our model works, and that's really the way valuation of these properties works.

And unfortunately, since we don't always know how many actual rights a property has,

We find in vacant land sales in the rural areas why there's so much variance in the sales, sale prices compared to our assessments because the buyer almost always knows that they can build four houses, five houses on a parcel.

So just to reiterate, when the houses exist, that's when we add the value to the land.

I'm curious, Mr. Lynch, can this property therefore, based on what you're saying,

Not necessarily.

I mean, it might be able to, and what Mr. Timberlake was talking about did not address the fact that they might be able to break out this into two parcels.

It might have been the same restriction.

We're not giving it the complete value it would have as a second parcel.

So just to make that clear, the model, and we talked the other day about HS1 and HS2, I think it was brought up in the hearing on Tuesday.

And HS1 is that first property's home site value and then incorporates that first two acres.

We use an HS2 because it's a reduced value for the second lot because it is not separated.

In most cases, it can be separated if it already exists, but it's not guaranteed that it could be.

It has a kitchen, it has an address, and community development does not address ancillary structures or farm buildings or outbuildings.

And they specifically require a kitchen for it to be a dwelling.

And Mr. Timberlake indicated it does have a kitchen.

Yeah, Peter, just to make sure I'm looking at this card right, you're giving on the two acres, you're giving a unit price of 170.

That's consistent throughout the neighborhood.

And then the adjustments.

So the adjustments for the house, the one house,

Okay, so on those, the adjustments are, you're correct.

On the first home site is $170,000 base rate.

We adjust this area at 30% increase for location.

And then we reduce it 10% for access, the way this property is accessed.

So we reduce it by 10.

So when I look at this, I mean, so for a five point, for an almost six acre lot, you're giving 258.

Just a quick perusal on the GIS.

of the other three properties on Timberlake.

We have 1.34 acres at 181, so four and a half acres less and it's $70,000 less.

We have a 0.92 acre at 150,000.

We have a 1.23 acre at 180,000.

And actually surrounding this property, I don't know if this is an outlier or not, but 2690 Meriwether Drive,

That has an unknown acreage.

It looks to be around an acre though.

That acre you have 221.

So I see the prices for roughly acre home sites around this property for the board's information ranging between 142 and 182.

And that's for up to 1.3 acres.

And anyway, the main house site here we're talking about is almost six.

and then there's an additional for the garage.

Is your house public sewer and water or septic?

Septic.

And do these properties share a common septic field?

No.

And how far are they apart?

I have a question if these actually, if you could go and separate that,

and the two parcels given the distance between the houses because I've had to replant stuff before and the buildings could not be closer than I think 40 feet to the property line.

I mean is there anything that we know about

You got 23 feet, all right?

So you gotta have something, the structure, that looks like a porch to the property, the back to gray,

I'm guessing, or Roofline.

Gotta have 10 or 15 feet sent back from the rear lot line.

And then if you have it on the other side, that's 30 feet.

So that's my question.

And we are not saying that you absolutely can separate them.

We're saying that the fact that there are two dwellings on it gives it extra value in the land.

The ability to build that second dwelling, even if you can't subdivide it, adds value.

Sorry about that.

I do have a few questions.

It's our own road.

And is it paved?

It was a gravel road.

and then we all got together on the road and surface treated it.

Then recently the county came in and we're replacing water lines and they came up and came back onto our property, brought it up the road, connected everybody on either side and then they asphalted it.

So it went from gravel to,

surface treated and to asphalt.

I asked them to do a surface treat it because we like to look better.

Okay.

And it is a 50 foot right of way.

Is that correct?

All right.

And Peter,

Yes, we can do that.

Louis, did you look up the previous years?

We're on county water.

We were on a well and then we're put on the county water.

We pay all.

It's billed as two bills.

Only electricity.

Also, if I might add, I had just a second there.

Originally, the house and the garage were one property when we bought it.

It was three and a half acres.

Thank you.

Yeah, it was back there actually went over to, yeah, we had a horse at that time because there was a barn back there.

And so there was a stream on that property.

In fact, Walter Cushman, who did all of the subdivision was originally going to just do a lake back there.

At least that's what he had on the plan originally.

And, but that didn't work out for him.

and so we needed some water for the horses because the well was a terrible well.

And Mr. Lynch, could you put on those overlays, the floodplain and the critical slopes overlays?

And then my other question again for Mr. Timberlake,

So when you went to the county to ask them if you could build a third house, you did not ask them if you could renovate the garage, but to actually build a third house on the property.

We asked if we could build

Okay, thank you.

Mr. Farrell?

Yeah, so I'm sorry.

This is new information that the back was a separate parcel.

Mr. Timberlake, when you bought that, didn't it have deeded easement to it?

Well, we've been here 50 years.

All right, to water to it.

Okay.

Yes.

Okay.

Lewis, have you found those rates from last year?

Yes, the home site rate was 135 last year for home site one.

So we changed those rates this year in the reassessment of the entire area.

So that was part of the increase was not due to adding the home site.

The base rate increase from, was it 135 Lewis?

Yes, 135.

Peter, I had a quick question on, so between these two, if there was any kind of physical attachment to these two buildings, would that take away from the land?

Okay.

So if they even, even if it was just, I don't know, whatever it is that had to be attached a certain way, it was just not necessarily the kitchen part.

The detached part of it is the main distinction.

And the fact that if they were detached and it didn't have a kitchen, it was just a studio, we would do it as living area without a home site.

And if it was in the distance, doesn't matter?

It does matter in the amount of land we would use.

So if this was all the way up in this

If it was further over in the trees, if the second house was over there and you could separate a two acre home site for both, we would have used a two acre home site for both.

Okay.

I would like to comment because it was just as Mr. Lynch did mention it was really it's been an oversight on their part for 50 years as far as reassessing and even though they did something here what three years ago when they changed it they still

It doesn't seem quite right that with all the changes that the county has made and that we are dealing with, that for the county's oversight for all this many years to all of a sudden come up with such an increase does not seem actually fair.

and Just.

We don't have 25 feet that you have to have.

We couldn't even have a shed that was less than 25 feet from our back properties.

That's the back of the cottage.

We have 23 feet.

She's just saying that

Uh, we're not allowed to have a building within 25 feet of the back.

And yet this one is 23 feet.

So for us to start getting picky and technical when it is, as you have mentioned a minute ago about the possibility of even moving.

You know, we start getting into, well, is it possible?

Well, the world can be possible sometimes, but when it is entirely impractical and inconceivable from even a cost standpoint to make these moves.

And I regret and I apologize that we had errors in the past.

I have to correct errors as we find them.

and this type of error does not require us to go back in time.

I'm required to go back in time, the current three years, whether it benefits you or me, if it's an error of fact, this is more an error or an issue of appraisal determination.

So we're just going forward on this.

And yes, we did do this for a long time the one way,

But our responsibility is to figure out what would this property sell for if you were to sell it.

And we are not saying that in order for it to have this value you would have to subdivide.

We are not at all saying that.

As it sits with both of these properties, both these buildings on this property and both as dwellings, it has the value that it has.

It's a little bit different than the surrounding neighborhood that was subdivided and created after this house and this property was here, because they're a little different.

However, it does experience the same influences on value.

And that's how we're trying to

Mr. Timberlake, I am sympathetic with you with the large increase.

I do know that in different parts of the country, states have passed rulings that only allow a 10% increase as a maximum per year.

Now, we don't have that here.

And that's, I guess, sad to say.

And perhaps you might even suggest that to your supervisor for the county, but

I guess Mr. Lynch is bound by his job and the rules that exist today.

I did want to point out, and it should be on the screen right now.

We, in 2018, we were at 723,800.

So, you know, the value dropped precipitously, $130,000 from 18 to 19.

It went up slightly in 20, but now we are, we figured out something was wrong there.

and it is back up to that 776 that are above where it was before but this is not an increase of a hundred and

$160,000 compared to all of the previous years, compared to the last two.

And this is kind of a special, you know, it's not a homogeneous property.

Like the remainder of Meriwether Hill around it is pretty much, you know, more homogeneous.

So it's a little more complicated to value correctly.

We just think that we are in the right range now.

Are there any further questions from the committee?

Mr. Timberlake, we thank you.

We're going to deliberate and we will send you in the mail a written determination as to what we have found.

I'm still not sure on this one.

So my concern goes back to the fact that it's 50 feet apart.

Does that really make a difference?

And is this property worth $776,000?

And I think some of you all would probably have a better answer to that than I do.

The comparables, I was looking at comparables, there's nothing really similar.

There's one that's kind of an older home,

but doesn't have the attachment and everything else and it was completely remodeled and sold for a million.

This seems to be in, the condition is, as Peter put it, it was like more fair condition versus it doesn't look like it's been updated or anything.

My concern is let's say the structure was attached in some way.

I don't know if that would have made much for value wise as a buyer would have made how much of a difference that makes if it's still a rentable unit.

that's where my concern is with kind of delta this like you go from 616 to 776 where would this actually sell for and yeah the fact that does it really truly because i doubt based on i doubt this can be subdivided like i really don't think this is going to be subdivided so it's a matter of is there is there added value and i'm not as concerned about what the land value and structure value are but it's just a matter of

Is this property worth $776,000 or is it worth $616,000 as it was last year?

So I don't know if anybody else has any thoughts on that.

Yeah, I'm a little concerned about it as well for a number of different reasons.

If that garage did not exist today and he filed a building application to build that garage with an apartment above it,

Because of the access, I think it's highly unlikely he would be able to get approval to build a second dwelling unit on that property.

And so, because he's got a 50 foot wide, well, let me rephrase that.

He has a 50 foot wide right of way that in order to build a second dwelling, he'd have to upgrade that road.

So that would be a significant expense

And knowing that and knowing that that has not been done, then I am concerned about adding value for a second residence when I don't think he could build one with the road in its current state.

I don't think he'd get approval for it.

So are we giving, are we taxing him for something?

It's almost like a special use permit.

Are we taxing him for something that he actually could not do today?

He was able to do it 50 years ago, but he could not do it today.

So does that translate into land value?

Just one other thing, Mr. Lynch.

And my other concern is that with the excess land, you know, last year you were appraising it at 5,000 acre, this year 14,000 an acre,

It doesn't have any road access.

It's floodplain.

It's or critical slopes.

Yeah, I think it technically, the Assessor's Office discovered that this started correctly.

You know, you do have an extra unit, but I really care, and I really don't think you can separate that legally without going through a lot of trouble, if at all.

I think that the...

Relative value of that unit is, it is worth something extra, but the additional land, pricing it as a fully developable lot doesn't seem correct.

So I think that, you know, you could, the improvements itself probably should be on, you know, on the assessment, but maybe not all this excess land.

Yeah, Bill, as I understand it, it's not assessed as a full two acre unit.

It's assessed as a one acre unit and they give it $119,000.

I personally don't have any problems with this assessment.

I'm not swayed by the applicant continuing to call it a garage.

It's a second house, in my opinion.

I've looked at the surrounding properties.

I think this assessment is in line with surrounding properties.

I don't understand 2690 Meriwether Drive.

That seems to be an outlier.

That one acre parcel is assessed at 221, but it is adjacent to this parcel.

I think if they were to sell the land today, it would sell for more than $400,000 without question.

Seven acres in the middle of Ivy.

It's a place for an estate home.

I don't have any problem with this assessment.

And I also found it extremely interesting.

I didn't look back on prior assessments as Peter, as Mr. Lynch did.

In 2017, this was assessed at 741.

I don't know if Mr. Timberlake came in then.

It went from 614 to 741 between 16 and 17.

So the jump today is slightly higher.

I don't know why it went from 741 to 723 to 593.

There was a problem in there that I think Mr. Lynch is now trying to address.

So this was 741 in 2017.

and here we are four years later at 776, 35,000.

I'm confused a little bit, but I understand what Mr. Lynch is doing with the land.

I do think that the building should have value.

I don't know about adding an acre value

of increased value.

Now, whether you wanna say the remaining four acres in the back are worth more altogether, Mr. Lynch, you still end up coming up, I guess, with the same numbers, 700 and some thousand dollars.

And if you made a mistake in 2018, you've basically given him a break for a couple of years, which you're now recouping.

So I'm caught because I think that the big problem here, and we've seen this before, where you have an old elder gentleman who sees the increase and is confused by the big percentage, but doesn't understand how you've applied it.

And this may have been solved with some

careful discussions earlier, but I don't know how it all went.

Well, I'm not swayed by the pulling of the heartstrings, believe me.

And I said I approach, I think Peter took the right approach to this.

I kind of think, I guess the question is, David Ferrall, did you sell

Well, I think you can sell it as one lot.

And the person that builds the house, if they want an accessory unit, all they have to do is attach it with a walkway or something, and they can build an accessory unit.

They can use it as a rental or whatever else it is.

It's also over the five acre rule for home stays.

So they could have a separate home stay in the backyard there, I believe.

Peter, if we made that one acre site, can you make it a half an acre?

I don't like to use less than an acre on a fixed, on an actual house.

We have a mobile home.

This is kind of, I mean, it's pretty, I mean, it's 1200 square feet, but the structure is not something that's...

and we're not, we don't, well, I don't think it's a separate, I mean, it's not a separate parcel, I understand.

And because that distinction, that's my difficulty still with that distinction and kind of David said the same thing, like you can potentially have a rental, you have some kind of walkway or something else.

So the fact that they can add a walkway and that might dissipate, I understand the address thing might be an issue, the fact that it does have a separate address, but I'm just thinking that might be a, cause the one acre just seems excessive for such a small structure being so close to the building.

And I was wondering if the half acre could be something where

could be a way to solve that.

Well, it's not.

the way that we would normally solve it.

We might solve it in different ways.

And so I wanted to address a few things that you all have raised.

Ms. Pape mentioned special use permit.

We would actually value a property based on the use of that special use permit, even if it wasn't in the underlying zoning, because that special use permit would give the allowance of the zoning.

And the same thing with the grandfather, which kind

addresses your others.

point about not being able to build it right now possibly.

The fact that it is there and it's grandfathered and they're not being forced to remove it, it is there and it has some value for being there.

So I think that's the way we're addressing it.

But I have to tell you this exact same debate happened within my office and happens within my office.

How close is a separate house and requires a separate home site?

And I guarantee you that's why there wasn't a separate home site on this property in the past.

Unfortunately, it just wasn't always done in a standard way across the county.

And we were trying to do that.

But I think my

My preference would be that every actual dwelling would have a home site, but we could adjust it for that closeness to the house.

And we've adjusted it already, you know, based on using a reduced size.

So that reduced it by I think 25%.

We initially, the home site, the second home site itself is already 20% lower than a regular home site.

So we're already reducing it down.

Are we reducing it down enough?

I think that's not the issue.

I think if we are then, we're trying to ease this guy's pain.

and Stanley in a polling assessment.

You know, Mr. Lynch, I think you made a really good point because let's say you have two parcels, you know, that both have an additional house on it.

One of those parcels is, you know, neither of the parcels is divided.

One parcel could in fact be divided.

based on current zoning.

And the other parcel could never be divided based on current zoning.

So in my mind, there needs to be some kind of a value differential based on that future ability for division or not.

Even if he's got the second dwelling unit on there, he couldn't divide it, number one.

And in the future, if that building were not there, he probably could not get a building permit to build it.

Right, and the county's not gonna do that.

Community development's not gonna do that unless the property owner asks for a development rights letter.

And honestly, sometimes we want them to do it and they won't do it unless the property owner requests it.

But Ms. Pape, I think in that scenario where you have the two otherwise identical properties that for some reason one could not be subdivided and one could, I think while they're in that state,

We should have the same value because we can't always know for sure what those determinations might be.

Even if there is a theoretical right for them to subdivide, it's not always physically possible, as you might find in this house.

So for our purposes, I think we're getting as close as we can.

If that one property would then subdivide in the future, we would then increase the value of both to be, increase it in relation to a single house being on a single property.

So my concern is just simply the $119,000.

At this point, does it add $119,000 in value to have this separate structure and to have the ability to have it?

Because you're obviously assessing already for that additional improvement.

So the fact that it's not

attached you're adding $119,000 there's something doesn't seem right so it might be a big picture thing maybe like you said the value you're giving the main structure at 198 just might be too low but that's my so big picture maybe that lot is worth 378,000 like David's saying but my concern is how this is being kind of separated with that 119 being the value of that second home site that's my concern because

I don't think it adds $119,000 in value to have a second home site because it's not a true home site.

Well, I would have to agree with Peter.

I think, Peter, Mr. Lynch, you've convinced me in that if there is a second home site, there is added value.

They could not get that.

I think it is very unlikely they could get a building permit to build that building today, but it's there.

They could likely get a building permit to renovate it, to expand it.

So in fact, there is great value.

There is value there.

The question is how much?

And hearing what Mr. Lynch has had to say, I think that he has

It is a very difficult situation and I think he's tried to address the value of that additional unit.

I completely agree.

It's really difficult.

I just that's the only thing is just is it as it like I said, you all the comps are difficult on this one.

This is this is a unique property in there.

If at the end of the day, if this property is worth seven seventy six and I hear what David said a few years ago, it was just like seven forty.

So that's looking at it that way.

If we're all convinced it's worth 776, I think it might be, they might've been a better argument on the improvement value maybe, because we don't know what the improvement issues are with that.

I don't know if you noticed on his application, he said the improvements were worth more than Mr. Lynch said, by a slight amount, right?

Yeah, and Mr. Lynch's office, they reduced it by 50,000 improvements from last year, too.

In light of the increase in land value, the improvements decreased.

They didn't take that into consideration.

That's the thing.

If everyone's confident this is worth that much, I'm good with it.

I'm not, like, the methodology of it, I understand wanting to do that methodology.

Yeah, that's my... Mr. Arsali, if you want to look at kind of holistically, the improvement value for that second house is $68,300.

So we're basically saying the second house overall is worth just $200,000.

And that $180,000 or so.

And that the main house and the rest of the property is worth $500,000.

I'm sorry.

We have a problem with your process, Mr. Lynch, not your assessment, okay?

Do we have a second?

Aye.

Aye.

I'll go on the record.

Thank you for that.

Because we do have this all over the county.

All right.

Yes.

Yeah.

Yes.

I'll add him also.

Can you hear me?

Can you hear me?

Yes, we have a picture.

Yes.

I'm working on that, let's see.

Very good.

We are your friendly Board of Equalization.

We are here to hear what you have to say with regard to your assessment.

We would like to have you present your case first, then Mr. Lynch will present his case.

Mr. Ferrell.

My name is Daniel Rub.

OK.

Okay, do I need to do any swearing in or I don't know the procedure exactly around here?

Can I just begin?

Yeah.

Okay, this is the Sam's Club at 970 Hilton Heights Road.

It is an owner-occupied Class C warehouse discount store, and it was built in 1992.

Now, if you look at all the definitions of fair market value that are out there, whether in Virginia or outside of Virginia, they all pretty much say the same thing.

What is this property worth?

The way you determine that is by answering the question,

Hypothetically, what would it sell for on the date of value?

In this case, January 1st, 2021.

What would this property sell for?

Now, if you've got a recent sale of the property, then it becomes an easy assignment, but that rarely happens and it hasn't happened in this case.

So what the assessor is left with is three approaches to value.

The income approach, the sales comparison approach, and the cost approach.

The cost approach

is the least useful method for valuing commercial real estate.

That is not my opinion.

That is the opinion of the International Association of Assessing Officers and that the cost approach is what the assessors use.

If you could turn to my packet on page 21 and just let me know when you're at page 21.

OK.

So this is the cover page.

It's the standard of mass appraisal of real property.

On the next page, it lists, in order of usefulness, the approaches to value commercial real estate.

You can see the cost approach comes in at number three.

And why?

And I've underlined the why in the paragraph down there.

It says, the income approach is the most appropriate method in valuing commercial and industrial property

if sufficient income data are available.

So let's stop there.

This is an owner occupied property.

It does not generate real estate income.

So that's not a very good approach to use.

So moving on, direct sales comparison models can be equally effective in large jurisdictions with sufficient sales.

Do we have sufficient sales here?

In this case, the assessors have conceded there are sufficient sales to reach a value using the sales comparison approach.

Then it goes on to say, when a sufficient supply of sales data and income data is not available, the cost approach should be applied.

But in this case, we both agree there is sufficient sales data.

So according to the International Association of Assessing Officers, not my personal opinion, the sales comparison approach should be used here.

There are other reasons why you wouldn't want to use the sales comparison approach in this particular case.

And one of them is that the property is just too old for that.

As you probably know, the cost approach is you estimate what it would cost to build a replica of this property on similar land and then depreciate that cost off.

And as the IAAO has said again, the cost approach usually works best for newer improvements because construction costs are easier to estimate and there is less depreciation.

Again, this is not my opinion.

It's the opinion of the IAAO.

Well, this building is twenty nine years old.

It is an old property.

The improvements are old.

Another reason you shouldn't use the cost approach to this property is because it's owner occupied.

and one of the problems with owner occupied properties is that an owner occupant like Sam's Club will build a building suited to a Sam's Club

Walmart may pay more to build that building for things that aren't worth anything in the market.

In this case, it's probably the 26-foot ceilings.

So if you use the cost approach, you're going to get the wrong number.

And that's not just my opinion.

It's the opinion of the comptroller of the currency.

And why do they care?

Because they're interested in making sure banks value their collateral correctly.

So they say, do not use

the cost approach to value owner occupied property.

But if you're going to use that approach you need to make sure you do it correctly.

So in this case you have a property that's actually 29 years old but it was given an effective age of 25 years.

Now this was not supported by anything that we've seen from users.

I don't know where this 25 years

That's not how it's supposed to be.

This is a use path violation.

We have an example of what my packet is saying.

To do a residence and to change its actual value requires

A calculation.

And we haven't received any calculation.

So this is probably just pure speculation.

If you get the H wrong on a property, the rest of the Marshall and Swift data is worthless.

It's going to be wrong.

And these have been wrong in the past by a wide margin.

So that pretty much leaves you with the sales

We should have used the sales comparison approach, but if you were going to use it, you should have backed up the effective age because there's no way it's going to be right.

And that's why there's a large discrepancy in this income because the sales comparison approach does not support a value of $79 per square foot.

It supports a value of, at best, $52 a square foot.

If you turn to page four, you'll see our comparable sales.

Okay, so you'll notice that the city's gonna produce a comparable sales grid as well.

That's just the beginning of the sales comparison approach.

In other words, you list what you think are comparable sales when you come up with the value.

What you don't do is just take all the sales out there and average them out and come up with the value.

You see that we did that for informational purposes only, but that's not how we value it.

Because if you look at all the sales on this list,

What's the best comparable to the property?

Well we've got a sale of a Sam's Club in 2020 for $52 a square foot or $51 compared to who you believe on that price and that the difference the discrepancy there is a matter of what is the square footage that can vary a little but essentially it was about around $50 to $52 a square foot

and so that's the best comparable so you wouldn't want to give that sale the same weight as the sale of the Macy's in Lynchburg because this is a much more comparable sale Sam's Clubs are essentially identical so you've got two improvements that are essentially identical the difference is this Sam's Club in Richmond was built in 2008 it is much newer and much more valuable than the Sam's Club

in Charlottesville that was built in the early 1990s.

So in that sense, it's much more valuable as improvements.

But as long as we even sort of agree that at least we've got the same sort of property, that's the closest comparable, what we do next is say, okay, what about the difference in location?

So the way we measure that difference in location is we say, what makes one location better than the other location?

And then we adjust for that value.

So if you know, one of the things they look at is the traffic count.

So if you go on page seven,

You'll see the traffic count for the location at 970 Hilton Heights.

So if you can just eyeball that map and you can see that the traffic immediately around that Sam's Club is about 4,400 vehicles a day.

If you turn to the next page, which is the traffic count around White Oak Village, around their Sam's Club, you've got traffic counts in at least 12,000.

So the location in the Richmond area is a better location by traffic now than the Sam's Club that's located on Hilton Heights.

Now moving on, if you go to spending demographics, that's on page nine, it's the next page, on Hilton Heights Road, the total specified consumer spending within five miles of that store is about $800 million.

That's pretty good.

and I highlighted it there, I think you can see it.

If you go to page nine, you get the spending within five miles, I'm sorry, page 11 will be the spending within five miles of that Sam's Club in Richmond, $1.1 billion.

to see how comparable they are, who has the superior comparable, then you look at the location to see who has the superior location.

In this case, the sale of the Sam's Club in Richmond had superior improvements at a superior location

and it only sold for $52 a square foot.

So we think we're being more than generous by valuing this at $52 a square foot when there's a comparable out there showing it's probably worth less than that.

Do we have any questions for Mr. Grubb?

Ms. Ferrall?

You're on mute.

I'm sorry.

Mr. Grubb, looking at the two maps, I don't know Lawburn Avenue in Richmond.

I noticed the Hilton Heights.

It's just a little marker in the middle of gray.

Yet in Richmond, the marker is in sort of a big shaded yellow area.

That's the White Oak Village Mall.

I can help add a little something to that.

I actually picked up that Sam's Club about 13 years ago on the job for Enrico County.

That's the White Oak Mall.

I believe the vacancy right now, it's an open air mall.

The vacancy is about 60%.

It's never had a lot of activity to justify its location.

And once I get into my presentation, I'll give you some more information on that.

Is it correct that that was a vacant property at the time of sale?

Yeah, that's true.

But any owner occupied store is.

So if you've got an owner occupant and they're selling in this hypothetical sale, they're going to be turning over the keys to someone else and they are going to be leaving because they're the owner occupant.

So there are no leases in place in that store.

So when the transaction occurs, they leave.

So we need to value this as if this property sold on January 1st, 2021.

So on that day, Walmart would be turning over the keys to this seller in an arm's length transaction.

My point is that this building was vacated in 2018 and sold in 2020.

I just had a quick question.

Why did they make enough money at that location?

It wasn't performing to their standards at that location.

It was part of a nationwide closure of Sam's Club, 60 Sam's Clubs all over the United States.

Three of them were in Virginia.

Well, then to follow up on that, could you comment on how the Sam's Club in Charlottesville performed?

Do you know where it is?

Is there a sort of a scale in the middle?

I don't know why I never asked clients that because it doesn't have anything to do with the real estate value.

So, and this can be a difficult concept, so let me try to explain it.

Let's say that you have this location, let's say this location at 970 Hilton Heights Road is the very best location in the Albemarle County for commercial real estate.

But the Sam's Club was selling buckets of horse manure.

Their sales would be awful.

That would have nothing to do with the property value.

Now let's say that you had the worst location in Albemarle County and they were selling a cost-effective treatment for the aging process.

Their sales would go through the roof, but that has nothing to do with the property values.

So it's important to remember

that Albemarle County only has the authority to tax the bare bones real estate value, as the Supreme Court says.

It doesn't tax the business enterprise value.

So if you've got if people go to Samsung because they like the product, that has to do with the product, not the real estate.

Now what we have given you is general sales in that area so there is a number you can attach to to evaluate what kind of location is that for consumer spending which is the much valuable number than the actual sale at the Sam's Club because it could be that people don't like to buy the warehouse stuff they'd rather buy stuff that you know

That's more from a department store.

They may not like going into a Samsung, but that wouldn't have anything to do with its real estate.

But they may like it because of that.

They may like it because it's cheap, but they're not doing that because of the real estate.

The extent that sales do make a difference, it would be general consumer spending in the area, which is the number we have already given you.

Sorry, I was muted.

Mr. Grubb, I don't know if you recall, but I believe you made the same argument last year before us.

And it might've been the year before that, but I know at least last year.

The concern is, and it's gonna come up when the appraisal's gonna put forward, there's sales you're bringing in from outside of this area.

In this area of Albemarle County along 29,

kind of a shortage of land.

There's only limited space where you can have this and businesses aren't closing.

And the businesses that are closing, there are two, Gander Mountain and Toys R Us.

And there are two sales we have from 2018 and early 2020.

That's 440 Gander Drive and 590 Branchlands Boulevard in which much smaller buildings sold with much smaller lots in a similar area, one for 8.7 and one for 8.2.

Do you have, I mean, there are no comms, but do you have any explanation for that?

And also, it looks like the assessor actually reduced the assessment of the building by a million dollars, which I'm kind of surprised that they did from last year to this year.

So it's actually even less than it was last year when we considered this.

But that's that's the headwind you're going to be going against is the fact that the sales that actually happen in the Charles Sawyer one, they don't go dark.

And then when they do, they sell immediately and for high premium.

So you have any

I do, and the reason, right, and so, look, the difference in this year, look, we bring the case if we think there's merit to the case, you know, we don't like losing, we don't like continually losing, but if the client has a case, we have to make that case.

Now, what we did different this year is we actually brought in costar data on the locations.

to show that one was clearly better than the other.

So we're improving our appeal every year with more and more data.

What I would like you to look at when we talk about this Gander Mountain sale and the Toys R Us sale is that they are much smaller.

The smaller a piece of real estate gets,

their improvements, even in their land size, the more valuable per square foot they become because of the economy of scale.

So the Gander Mountain, even if that was a non lease sale, which we can go 15 rounds again about that, but we don't need to because we already have done that before.

it's a much smaller building it's hard to compare that versus two buildings that are nearly identical yes they're in different locations and that means you're going to have to pay some time and put some research into those two locations but again your mouth is not even a warehouse discount store it's not even a discount store it's a department store it's more valuable and it's smaller so it's more valuable for square foot now one thing i would like

point out, is that the Gander Mountain sale in Charlottesville was, we believe that property was leased, the assessors say it wasn't.

I want to show you what a Gander Mountain really sells for when it's not leased, and that's on page 13.

We went, I believe we went through that last time.

By now, towards the rest sale, the rest is even smaller than the Gander Mountain in most cases.

You're just getting an economy of scale.

Look, you can use them as comparables if you want to, but you've got to make major adjustments in the differences between the two structures.

One is a warehouse discount store.

The other is a department store.

The furnishings of a department store are more valuable than the furnishings and fixtures and equipment in a warehouse discount store.

So you're saying that this is valued at $7 million.

That one sold for $8.17.

That one had five acres.

This one has 15 acres and has a lot more square footage, which you're saying is not valuable.

But that's the argument you're making.

There is no other

Beyond that, that's one of the big things you're saying right now.

It's just because it's so large that nobody else would come and get this.

Well, first of all, I want to make a clarification.

We're not saying that the Sam's Club at 970 Hilton Heights is worth nothing.

We're saying it's not worth as much as it's being assessed at.

So it's got to find out.

We're not saying that.

The other thing is we're simply saying you cannot, you can't just plop a sale

and not look at it.

In other words, you can't just say, oh, it sold you what we did.

You have to get some data and say, what is the differences between, what's the difference and ain't the difference between the two stores?

In this case, the rich man was much newer for price.

We lost him, looks like, yeah.

Thank you, Anthony, for bringing up what you brought up.

I don't have his sheet in front of me.

Did he break out the real estate versus the building assessment?

He has five million on the land.

He didn't use the cost approach.

Mr.

Staples.

He used the sales comparison approach and he based it primarily on the Richmond, Virginia sale, actually it's in Ryko, Virginia.

Sorry about that.

If it helps, if you leave your video on, if that helps with the audio, Mr. Grubb, that might be an option.

Okay.

Yes.

Okay.

Mr. Grubb, I know you have a very good understanding of use cap and appraisal issues.

And so would you agree that land should be appraised based on its highest and best use as if vacant?

Land should always be appraised vacant and available to its highest and best use.

So I'm curious as to your land evaluation.

It looks to me, I'm not sure how you were able to arrive at that.

Okay, so when you do the sales comparison approach, as a matter of valuing a piece of commercial real estate

You don't break that out between land and improvements.

You don't do it in the income approach either.

You only do that in the cost approach.

Now, the board has requirements about breaking those two values out because in the code of Virginia, you've got on your land books, you want to have a land price and an improvement price.

but when you're doing the sales comparison approach typically you don't need to break that up and it works like this the reason for that is when you're doing the sales comparison approach someone is buying that property because they want to use those improvements on that land to generate income the income gets generated from leasing the building on that land and so that's why

It becomes one that is all baked into the cake of a transaction.

That's true for anybody.

Any commercial real estate purchaser or investor is going to say, okay, what's the net leaseable area of the building on that land?

and whatever it is, that's how you calculate its value per square foot.

All these quotes that you see from the assessor and costar, all those numbers you see are a combination of the sales price divided by the net leaseable area of the building.

So you would agree that if the land was worth more than the land in the building,

No, you would not.

You would not do that doing the sales comparison approach or the income approach.

Well, if the land value is higher,

Then the value of the land in the building, the highest and best use of the property would be for redevelopment purposes.

Would you agree with that?

In the sales comparison approach, you don't break out the land value from the improvement value.

You don't.

Ask the assessors.

Ask them if they do.

They shouldn't.

Well, they did because they're using the cost approach.

And look, we both have to sort of, in order to fill out the forms required by the board, we have to give an estimate.

So you're saying to yourself, how could the whole thing be worth than the assessed value of the land?

Well, our answer to that is the assessed valuable land is obviously wrong because the entire value of the property using the sales comparison approach is below that number.

Now, how could that be?

It could be that way because if you dedicate a certain piece of land to a certain use over a number of years, you diminish the value of that land if the value of the improvements also diminish.

So in the age of e-commerce, the whole big box retail space is under pressure.

That puts the land under pressure too.

It's a concept called external obsolescence and applies to both the land and the improvements.

If you dedicate a piece of land to a certain unit that is gradually becoming obsolete, the land will drop with the improvements.

I think what Ms. Pape is getting to is that, and I'm not a scholar of use path, but I think it's the scope of work rule requires an appraiser to evaluate the highest and best use of a property before going into determining what of the three approaches or all of the, which of the three appropriate approaches are appropriate.

and if you cannot determine that the value of the parcel as vacant is more or less than the value of the parcel as improved, then you have in yourself done a use path violation by skipping that step and going just straight to a sales comparison approach.

Yes, that's absolutely correct.

And I don't know if he heard that.

It's recorded.

All right.

All right.

So we've lost him again.

We need to hear Mr.

Yeah, once we come back, I think if Stuart would, you know, I don't think we need to belabor our methods.

I think it's paramount to talk about that Henrico County, because that is the crux of what he based his opinion of value upon.

I'm not too concerned.

It's a great story.

I went into a lot of background trying to get all this information.

I was going to say, back to Karen's point, if you all that, I mean, it just seems even land values is not assessed.

If 15 acres there on 29, I feel like should be

Especially those five acre parcels in those buildings, like the Toys R Us building was not very, not a great building, it sold for 8.1.

I have a feeling, I feel like if it came on the market at 11 million or 12 million, this would sell very, very quickly.

Stuart, has he heard your, I mean, has he heard your arguments already?

Can we go ahead and start with Stuart or how long are we going to wait for him to come back?

You have a mute button on your phone, Mr. Grubb.

There you go.

Yeah.

So I think if you have a set of improvements on a piece of land, and its highest and best use is as something other than its current use, you're going to have to get rid of those improvements.

That's going to cost money.

For example, when you sell a Sam's Club, one of the things a Sam's Club has is a gas station.

and in the case of the Sam's Club in Richmond, they had to get rid of that because general retail does not want that.

So for Walmart to market that store, they had to get rid of the gas station.

Things like that happen that lessen the value of the land itself because there may be stuff on the land that needs to be removed.

So you can have a highest and best use where the land value goes down.

It's not true that that can't happen.

It can and it does.

I haven't heard the highest and best use that the assessor is talking about that makes the land the primary valuation of this thing.

That makes it some line that you can't cross.

All right, we are going to listen to Mr.

Okay.

Mrs. Pape, you think you had your hand up?

Just like to say, first of all, we did consider all three approaches to values.

The reason that we used the cost approach is because the business enterprise value associated with big box retail.

We have found that sometimes when they do sell, much like the dark Toys R Us store that's now at

It's now another store.

They sell for quite a bit more, especially in Albemarle.

The reason that Mr. Grubb keeps pinpointing the Henrico sale is this.

I'm very familiar with that store.

Like I said, I picked that up 13 years ago on the job for Henrico County.

I was also very familiar with how the store was performing prior to its closure back in 2018.

The store never performed up to standards apparently with Sam's, otherwise would have kept it open.

They have kept open the Albemarle store because it is a great performer or slightly better than average performer.

If not, they would have closed it back in 2018 with all the other Sam's clubs across the nation that they closed.

Just using his own data, I can show you why it closed.

On page 11 of his presentation, it shows what the median income is for that area, $40,000.

That's very low for a lot of areas.

And Sam's Club people usually need to have a little more income for your area to support that, unfortunately.

And when you look at the, on his presentation for Albemarle, it's $120,000 and that's on page nine of his presentation.

123,437 is the median household income.

And sure, they're more flush with money.

I mean, the traffic count may not be as good, but they're spending because the store is still open.

Also, we did take a look at the net lease approach.

If you were to use us on our presentation, just for the median big box listings, it's $7.82.

It's on page five of the assessor presentation.

The median rent per square foot, triple net, is $7.92.

If you're ready to use that with a net lease approach, you come up with a value of about $15,600 using a cap rate of seven, which is kind of high for a lease approach.

But the building is a little bit older, and I do understand that.

I think that Albemarle is

is a much better area than the Richmond area that he's discussing.

The Leesburg sale that he was talking about earlier, before it sold, there was a deal for twice as much, 14 million, to sell that property to the county of Loudon in Leesburg.

That deal fell through.

That deal fell through, yes it is.

It's in the Washington Business Journal.

That deal fell through, and so Sam's Club, or Walmart, Sam's Club, decided to cut that property loose, and it was sold to a local accountant in D.C.

It's now going to be a floor and decor, so going back, a lot of these stores, sure, they go dark, but like the Leesburg store, they find a tenant, floor and decor.

In Henrico, it's gonna be Sprint Mobile,

It's going to be a call center.

I believe they just about finished the outfit for it.

Was it closed?

No.

We're not saying it was a closed sale.

We're just putting it out as some information.

We agree.

All right.

Does anybody have any questions for Mr. Stapels?

I'm sorry.

All right, Mr. Grubb, we've heard your side.

We've heard Mr. Lynch's side.

We will discuss it further and come up with the determination and send you a letter with our decision.

Page, my computer is freezing up.

I believe it's page two.

I'm good.

Yep.

So typically, this is how our appeals usually look because we've got income producing property.

And we produce this pro forma so just as a reference at least to the work that we do.

If you ever want to know what our case is, pretty much the case is summed up on this document right here.

And the supporting documents are what's left of the rest of the packet.

But this is the go-to document to go to.

And what I've got here is a three-year operating history of these apartments

It's a four-star apartment located in the Charlottesville submarket built in 2013.

It was 5% vacant on the date of value.

Now, the big overall picture is this.

The assessments on these apartments have increased 26% since 2019, despite the coronavirus pandemic.

That's how much these have gone up since the 2019 assessment.

I don't think there's any justification for that kind of increase in the market.

Now, that's the overall picture.

Going into the details of why this assessment went off the rails is because what the assessors do in these cases is you can see if you look at the 2019, the 2020, and the 2021 assessment, you can see that there aren't numbers for gross potential income, other income, vacancy loss, concessions.

Essentially what they do is they will take the 2019

effective gross income from the actuals and use that as the starting point for their assessment.

The theory has always been that they don't have the 2020 financials in time to take into consideration the impact of what was going on in 2020.

This is an exception to this case because of the coronavirus.

So what they did was if you look on

Page three, they sent a letter to the property owner dated July 23rd, 2020.

Okay, so what the assessor said is that this is gonna be different this year.

We want you to provide us with the first six months of your financials

to see if we need to determine the effect of COVID-19 on your property to properly reflect it in the 2021 assessed value.

And you can see all that in the second paragraph.

In other words, and I applaud them for this.

What they wanted to do is say, okay, typically we don't get your 2020 income, but we're gonna get that this year and take a look at it to see if we need to make a COVID-19 adjustment to your assessment.

So the taxpayer did that.

You're going to hear from the assessors that they didn't see any substantial difference, that they needed to make an adjustment, but it's there.

And you can find that, the difference on page seven.

If you turn to their financials on page seven, and I've highlighted this so you can see it soon after.

So as you can see, if you look at the year to date, 6-30-2020, the first six months of 2020, their vacancy and collection loss was twice as much as what they budgeted for.

In fact, it was more within six months, their vacancy and collection loss was twice as much as they had budgeted for the entire fiscal year due to COVID-19.

And if you look back,

On to page two, our pro forma, you can see that trend continued throughout the year, and their vacancy and collection loss was twice as bad as it normally is.

That was the impact of COVID, and they simply didn't consider it.

And you can understand why my clients get a little cynical about this process.

The county asks for financial information, then they take it and

essentially if you talk to my clients what they would say is if we've got something that can be used against us it will be used against us if we've got something that would argue for a lower value there's always some excuse not to use it but there you have in black and white the assessors asked for this information what was the impact of COVID it was provided to the assessors and they disregarded it and so that's why

They just stuck with the $4 million for their effective gross income without making any COVID adjustment.

So again, what they also said, which was really strange in their response, they said, well, it wouldn't be fair to use anything from 2020.

When they're the ones who asked for it and said they wanted to consider it, now they're saying, no, that's not fair.

Now I'm assuming this letter went to all the other apartment owners.

if not all the other commercial property owners for the same thing.

So why did my client's property, why did their COVID impact just get completely ignored in this?

The other thing that we want to point out is the error was the disregard for the actual replacement in the replacement reserve.

So if you look under replacement on the far left side, that column,

and I've got the three year operating history.

And this is the three year operating history for what replacement costs were at this property.

And you can see it ranges from $72,000 to about $125,000.

Now just to replace things that need to be replaced every year at this property, the assessor only granted $74,000 as a replacement for reserve.

A replacement for reserve is

We're going to set this money aside to handle not just the year to year replacements, but to save for that rainy day when the roof has to be replaced or the parking lot has to be repaved or the rec center has to be renovated.

You need to start saving that money now in escrow.

And the amount that they granted to this property to do that wouldn't even cover one year of replacement.

And so what we did is we took the budgeted income, the budgeted replacement income to create a replacement for reserve.

They would have to hold at least that much in reserve just to cover the year to year replacement expenses.

And that's not even saving for the rainy day.

So it would have to be at least $126,000 in replacement for reserve.

So the question is, even if you didn't wanna consider the 2020 numbers,

In 2019, that number was $123,000.

They came up with a replacement for reserves number that wouldn't even cover the 2019 replacement expenses.

When the assessors make their case, they're gonna show you, I think what they're confused about an entry in the financials.

And that entry is essentially, and I can just pull up the assessors.

I can bring it to the page and essentially they're misunderstanding something in the financial fund, page 11 of their presentation.

And they're saying that, and they highlighted it for you on page 11 of their presentation, or they're saying that the replacement reserve payments were only $68,000, $69,908.

That's a misunderstanding of how this works.

So the replacement for reserve is what a owner holds in reserve.

In other words, it's part of what's considered part of their cash flow and what they separate out from their cash flow.

So when they say they make a replacement of reserve payment, what they mean is they think that the reserves they're currently holding are too low, so they need to be increased by another $67,908.

So it's an addition to the replacement for reserve.

It is not the replacement for reserve.

And you'll notice the line item underneath that.

It says replacement for reserve withdrawals, $35,000.

So at some point in that year, they decided, well, we don't need to hold this much in reserve.

So we're gonna take 35,000 out.

But that's just the day-to-day movement or the year-to-year movement of money in that replacement for reserve.

It is not the

replacement for reserve.

That number is much higher.

In fact, at this property in 2020, that actual number is more than five hundred thousand dollars.

And we're not asking for anything nearly like that.

We're just asking for the one hundred twenty six thousand dollars that they would have to cover their year to year replacements to run to run that apartment complex.

So in some what we're saying and again, you can take you just need to go back to our case that's

on page two is what we're saying is if you corrected for a proper COVID adjustment for vacancy and collection loss as the assessors promised they were going to do, and then you gave just the bare minimum they would need for replacing for reserve, you would come up with our value of $43 million.

Now, we bumped up the cap rate just a little because there's a risk, there's a little greater risk

and the reason we come up with that number is because that's the assessor's number for 2019.

If the risk to this property warranted a 6% cap in 2019 for the coronavirus, certainly it's gotta be at least that much in 2021.

It's a much more perilous environment than 2019 was.

So we're using the assessor's cap rate from the 2019 assessment to cap the net operating income of this property.

Thank you.

Any questions?

All right, thank you.

Before Stuart gets started,

You know, Mr. Grubb's thrown out a lot of words like completely ignored, disregarded, misunderstood.

So we want to certainly explain how we

How we address these properties.

So before we specifically talk about this property, last July, middle of the pandemic, we absolutely were proactive about sending that letter.

We sent that to all income properties, income producing properties, because we had no idea at the time how

the market was gonna be affected in any one of those types of properties, hotels, retail, apartments, mini-storage, all of those.

And we did ask for that first six months of 2000 on top of the 19 statements.

However, we did change hotels, we did change shopping centers drastically

because they were being drastically affected both in their income, their marketability, all of those things.

So we considered the information that they provided to us in the 2020 statement, partial statements, but we also considered a lot more things.

When it comes to apartments, we looked at the information that was provided to us, but apartments were not in any way

affected like those other properties.

We did adjust them a little bit in the cap rate and that was what we did to indicate what we saw in the market was the difference in the marketability of these properties.

However, we did determine that using the 2019 income as a baseline was appropriate for all apartments across the board

and using a higher cap rate was an indication of what the market would show for those.

And no, we do not have the 2020, or in this case, the 2020 audited statements available, because they're not available until closer to April of 2021.

So we will never have those by the time that we have to come up with these assessments.

So that's what we always do.

However, this year we did look at different data and we were certainly considering what was going on in the market.

So don't let him

You know, convince you that we're not paying attention to what's going on in the market.

We just don't believe that apartments were affected as drastically as the other properties.

And that we think that the way we address his apartment, we address every apartment the same way.

And we did it appropriately.

I'm not sure I need to say hardly anything else.

I mean, you pretty much covered everything for us.

But I would just like to add that

This can be summed up in pretty much one word, equalization.

For the apartments, we used 2019 income and expenses for all of the apartments throughout the county.

We did consider the 2020 year to date at that point.

However, we felt like they weren't significantly out of alignment overall, and we're always having to trail the market when it comes to the

income and expenses.

Just as Pete said, the 2020s were not available to us.

In my presentation, it shows the date that the 2020s were available, and that's on page 12, and it shows that they were available on February 5th of 2021.

By that time, our assessments had long gone out, and it wouldn't be fair to all the other assessment

Apartments that are being assessed using the 2019s at that point.

That's pretty much the county's position.

Also, I'd like to also point out the reserve for replacements.

We looked at what was actually paid.

We didn't look at the budget or any of that because when you look at the replacement reserves, you look at what's actually being paid in each year.

and we have what looks like 13 apartment projects on page 9 of our presentation and it shows that the median is $300 per unit and we use $350 on the subject property.

To adjust for COVID somewhat because we did believe that there was some additional risk much like people were talking about earlier, we did adjust the cap rate from 5.5 from 2019

I'm sorry, 2022, 2021, it was five and three quarters.

We did adjust the cap rate by a quarter for the apartments.

We have not had a lot of significant apartment sales.

However, we did have one, my screen is acting up.

I apologize for that.

On page 13, we have the most recent apartment sales.

I'm having some technical difficulties on my end on that.

I just wanted to add before you go, Mr. Farrell, that reserves for replacements as is included in the income approach is not the actual numbers in any specific year.

It is that

Overall amount, just like Mr. Grubb said, that you would put away to cover expenses.

Some years typically will be lowered, some will be higher.

In this case, it appears that there are three years, three recent years that might be higher, but that doesn't mean that that is normal.

The closest comparable I could find on our presentation, page six, would be the Abamore Apartments.

Like the subject, we have it graded as a one, which is the absolute very best for the county.

That sold for $167,683 per unit, and we have the subject assessed at $222,282 per unit.

And that sold back in 2019.

Yeah, thank you.

I mean, as I see this, it just sort of boils down to numbers.

What are we taking out of the effective gross income?

And then, you know, what cap rate we're using.

And I'd just like to know a little bit just personally about the cap rate.

I mean, in these three years, we've gone from six to five and a half and to five and three quarters.

Mr. Lynch or Mr.

We can go to school for a year studying cap rates.

But generally speaking, how desirable is the property?

What kind of return can you get from it based on alternative investments?

I mean you can use the band of investments which takes in a portion of your your mortgage payment you know if mortgages are two or three percent four percent you know okay so you got to pay your your mortgage and a portion of that's your return on equity and generally speaking what it kind of comes down to what would you put your money your family's money in the commercial property for an acceptable return

Generally, in a perfect world, the market actually will show you what the cap rate is.

I think Karen would go along with that, that generally speaking, if you have the required income data, that you verify it, and you have the sales, actual sales, and you can find out, you know, what the value would be, the income over the rate is a value, an island of article V, you can go back and forth and do all that.

It's pretty subjective.

Bowling alleys would have a lot higher cap rate than an apartment complex down on the corner of University of Virginia.

I mean, we see sales going down at 4%.

I bought the property over on Old Abbey Road, Ivy Gardens, for 4.2%.

And so, actually, that's turned out to be a very good investment for us and one that was actually market, although we thought we were paying too much.

but yeah cap rates are relatively subjective except when you get a lot of data like students gone to some of these services that do these collections through their retail sales operation and brokerage operations so you get a complication

you know that word.

Calculations of all this data and they segregated.

You can go to a website called realestaterates.com.

It gives you some free information.

Buy a class with property industrial office.

That's a long-winded story, but that's sort of about cap rights.

And Mr. Ferrell, on page 8 of our report is the national apartment market.

It's more applicable when you have properties that are kind of higher grade as something that a national or regional buyer might be interested in like this property.

And they're showing the most current rates at around

Well, they're in the low fives for several years.

And we give it a little more, a little higher rate than that on this rate of property.

And Stuart, you want to add that?

I'd just like to add that the cap rates for PricewaterhouseCoopers on page eight that Pete's referring to, those are for what are called institutional type properties.

Your property is, in my opinion, very much so an institutional type property.

And those cap rates range from 3.5 to 8% with an average of 5.22.

We used five and three quarters in the subject.

And going back to the sales, I did not do that.

But I mean, I really cannot put that information out there.

But the

The cap rates that have sold and like Bill was saying in Albemarle have been anywhere from four and a, right around four and a quarter to about five and a half.

So we're trailing, we are trailing the market there.

We're not trying to be overly aggressive on cap rates.

There is some concern.

Yes, thank you.

There is real concern about, I know you used 2019 income, but you know, they really did face some additional vacancy and credit loss in 2020.

And I think some of that was probably mandated, you know, because they couldn't, wasn't there a Virginia mandate against, you know, eviction, eviction?

Did you consider the 2020 income and expenses at all?

Correct, correct.

Mr. Grubb, have you any idea how much money your client is about to get from the state of Virginia for rent credits and rent relief?

I know that the state of Virginia and other local apartment developers and operators are getting staggering amounts of money.

It's all earned, no one's taking advantage of the situation.

But it's not uncommon for a large group of apartments to get in the $250,000 range, depending on how many people apply.

And the landlord has the option to apply on behalf of the tenant.

Has your client done any of that?

If they were to receive any money for the state or the federal government, so far as COVID relief payments,

That would be income that would be reported.

So all the income that they received in 2020 has been reported in those finances.

And if it's not there, then they didn't get it.

The thing that I want to point out, and I think it's just important to note here, is that I am not claiming that the assessors did not consider the market.

They always consider the market and they do a good job of that.

I'm arguing they didn't consider this property's financials, and they haven't said anything that they have.

They haven't.

What they did was they have a market study, and what they were seeing in the financials did not reflect the market study, so they're going to disregard it.

And again, it gets back to this whole thing, the trust with the taxpayer in this jurisdiction.

If they send in information about their performance, if it doesn't match their model, they won't use it.

So the question is, why give it to them in the first place?

Why ask for it?

They went to the extra trouble to show the first six months of the year, it showed a damaging impact from COVID and they decided to ignore it.

Of course, they didn't decide because if it doesn't meet their market study, then they're not gonna use it.

But it's this property that is entitled to its own assessment.

Not an average assessment.

An average assessment is never going to be right for any one property because some properties fall above the average and some properties fall below the average.

And so if you do that, you're going to get it wrong.

Mr.

Staples.

I'd like to say we plan on using the 2020 income and expenses as a baseline for our 2022 assessment.

We are getting ready to send out your income and expense information once again for our 2022 assessment.

We also are going to ask for another first half of 2021 income and expenses from all the income producing properties as well.

That should be going.

Right, and we only get accused of disregarding the current year's income if it is lower than the year before, but we are never accused of disregarding it when it's higher than the year before.

But it constantly moves through, and we always use those

and there could be certain circumstances where those numbers will not be appropriate.

Mr. Lynch.

Yes, sir.

I think I'm clear on the effect of the COVID and your use of the data there.

So the reserve for replacement is, just like he described it, it's to cover those long-lived items, roof, hot water heaters, you know, that kind of thing.

You don't use, as a standard procedure, you do not use those replacement items in the year that they are booked.

because they're always different.

If you do that roof, it's going to be $350,000 in one year that throws completely off the incoming expense analysis.

Gotcha.

And understood that it is known as they say in Game of Thrones.

So instead of using those individual years, you use a replacement reserve estimate over time

And typically, you know, we use a, sometimes you use a percentage of gross income.

Sometimes you use a per unit amount.

We use a per unit amount of $350,000 per unit to determine that replacement reserve amount.

And Stuart

shared with you that we have a range of actual numbers that we use to correlate to figure out where are we across the board because no property, your individual year's amount is not going to be representative even of itself for another year.

So if we look back at your numbers for last year, we should be able to reflect and say they were good or they were close or... Yeah.

Yes.

Oh, I was going to say on page 5.

It's the income workup where it shows the $74,200 in the previous year.

We raised it to $350 for 2021.

Correct.

We used $300 in previous years.

And going back to page 9, the median was $300.

And we have 13 examples.

which includes the subject which is number four that shows 212 units built in 2013, 67,908 which also is supported on their page 14.

I'm sorry.

Mr. Grubb, you're using 6% as a capitalization rate.

You know, the whole capitalization rate argument is a tricky argument because choosing a capitalization rate is more of an art than a science.

And so what we try to do is we try to land our cap rate on firm ground.

If the county believes the proper cap rate in 2019 was 6%, the risk environment in 2021 is much greater than it was in 2019.

So it has to be at least 6% in 2021.

It's the same argument with the reserves for replacement.

If the actual replacement costs were somewhere in the neighborhood of 120 to $130,000,

although that wouldn't cover everything that would go into a reserves for replacement you know it's got to be at least that much or it's not even covering the annual replacement bill so what we do is because we've got a case to make we've got to prove so we want to fall back on the most solid evidence we can whether it's for the cap rate or for the reserves for replacement i believe the reserves for replacement are probably around five hundred thousand dollars i know that's what they're budgeting for but we'll fall back on the

on the firm ground.

I'm sorry if you don't respond to that.

So Mr. Grunz ignoring, you know, he likes to point out that January 1 is the data value.

January 1 of 2020, which is our data value for the 2020 assessment,

Nobody in this call had heard of COVID-19 on January 1st.

It was not a thing for the assessment for 2020.

So that 5.5% cap rate reflected a pre-COVID cap rate.

There's no mistaking about that.

We didn't determine that after the pandemic started.

I did see that.

That is what they are holding aside

That's in a balance sheet.

That's not how much they put aside this year.

That's how much they put aside with that 70, 80,000 or whatever the number is they put aside a year and it adds up.

The property is only eight years old.

That replacement reserve should be adding up.

They should be putting it away for that roof they're going to replace and all that work they're going to do in the future.

So that is not a surprise, but it does not represent an annual amount of replacement.

But that's I see that's what I'm trying to explain.

This is what they hold in reserve, not just for year to year things, but to save for that rainy day when the roof has to be replaced and the pavement has to be replaced.

This is money that's not being used as part of the cash flow because they need to hold it in reserve.

And as I showed you in that one snippet that's in the county's presentation, sometimes they'll withdraw money from that.

They'll say, you know, we don't need to hold that much.

Let's take this much out.

And sometimes they'll say, you know, we better put more in considering what's happening.

So we'll put more in.

So they constantly

play with that number to get what they think is the right amount to hold in reserve.

But that is what they're holding back.

And that's what you deduct from the net operating income.

Because you don't- Well, that's what you'd like us to deduct.

Well, I mean, that's what reserves for replacement are.

Yes, but then it will be an expenditure as well.

And then you're going to have to replace it.

So let's say that next year, I'm just throwing numbers out here.

Let's say next year the roof has to be replaced.

There's a bad storm or something.

It costs $200,000.

They will take that money from the reserve for replacement.

and then they'll realize their reserve is too low.

So they're gonna have to find a way to bring that reserve to replacement back up.

So they're gonna have to take money out and when they can, put money back in.

But it's always gonna be held in reserve.

That amount, whatever you consider to be the reserves for replacement, is always gotta stay maintained at the level you think you need to cover emergencies.

So it's always out of, it's not in play as far as cash flow goes.

And again, I just want to remind the board, we're not asking for anything near $526,000.

And I don't want to be argumentative.

I, at the very least, want there to be understanding of what this number is.

And just in his example, Mr. Grubb's example, if a storm destroyed the roof next year,

That would be covered by insurance.

This money is not to cover a storm next year.

It's to cover that roof after 20 or 30 years, whatever the life of that roof is.

So we're talking different things here.

This is a HUD-required

Replacement Reserve.

It's required for their loan.

HUD's protection is what this account is.

It's not decided by the owners of the property in the lease.

But why is that?

Why do they require that?

Because they need the properties

to make sure they're solvent so they can handle replacements as they come up.

And so whether it's a HUD requirement or whether it's a requirement that they think they need as property owners, it's not available for other things like profit to the owner.