Board of Equalization Meeting   7/20/2021

Good morning, Mr. Wynn.

We don't see you, but that's okay.

You can be in your pajamas.

Can you hear me?

Yes.

All right.

Excellent.

All right.

We're going to call the meeting to order.

This meeting is being held pursuant to and in compliance with ordinance number 20-A, sub paragraph six.

We have a quorum.

Members of the committee, David Van Roijen, Karen Pape, Anthony Arsali, and Waki Wynn.

Members of the staff, Mr. Lynch, Mr.

Staples, Ms. Taylor.

We currently don't have an IT person present, but Mr. Arsali, if he comes in, it's probably gonna be Sagar Pandit.

Very good.

I'll second that.

All in favor?

Aye.

All right.

Our first applicant, I gather, is Coles.

It's the same

Hey there, how are you today?

We are your Board of Equalization along with the staff.

We're here to hear your appeal.

You will present your appeal first.

Mr. Lynch will then explain his side of it, and then subsequently we will discuss and do an evaluation.

Would you like to begin?

Yes, I am.

So thank you so much for taking the time today to hear this case.

So the first property I have is

a Kohl's department store at 396 Town Center Lane.

It's currently assessed for $11,649,888.

And we're requesting a value of $10,144,400.

So this Kohl's was built in 2011.

It's a 10-year-old property, and it's a little over 80,000 square feet.

So we have reviewed both the income approach to value and the cost approach to value.

So we have looked at the lease in place for this Coles and have built a direct cap model based on the income in place.

On page five of the packet submitted, you can see our direct cap model.

So the gross potential is that in place rental income

We've taken a 5% market vacancy.

We've taken 10% for expenses and 2% for reserves.

This 10% for expenses is a little bit above what we took last year in our income approach to value.

And this is due to rising costs, costs associated with trying to run retail during COVID.

And the base eight and a half

Cap rate is slightly higher than the cap rate used last year to value the property as retail has become more risky in the time of COVID where properties can be shut down for months on end.

And that was in line with some of the RERC reports.

And so we use that 8.5% cap rate where second tier is

defined as kind of aging first tier properties and good to average locations.

And those cap rates ranged all the way from six to 11.

But we tried to pick something close to the average.

We ended up going with eight and a half, which we felt was appropriate for a retail property.

And something to note on that RERC table.

Where we're summarizing the 2019 and the 2020 rates is just how much cap rates have moved up in the last 12 months.

A lot of that is driven by COVID.

Something that you will see in our direct cap model is we did not include a tax rate and we did not load the cap rate as we're valuing this as a triple net property.

We also have included sections about the decline of the big box store where they're still around because a lot of these big boxes are on very long term leases.

So it's not easy to get in and out of space.

But Kohl's is trying to move to a more efficient model where they are trying to get right size because the initiative they use or the term they use where they're not really

aiming to have these 80, 90,000 square foot boxes.

Their store of the future is gonna be 50 to 60,000 square feet.

And it will be used as both like a retail center and kind of a distribution like a ship from store type of thing.

On page seven, we have a list of a couple of retailers that have closed in the area.

and some big box spaces and retailers that are also in the area.

So if Kohl's were to ever vacate, it would be difficult to backfill this because a lot of those big box tenants are represented here and are already nearby.

On page eight of our packet, we have included the change in store sales from year to year.

And as you can see,

The general trend is negative.

Of all the years listed, there are only three years that store year-over-year sales grew.

And you can see in 2020 how much store sales did decline due to COVID.

So we've also addressed the cost approach in our packet.

And that begins on page eight, where we are

where we have began that section.

So we have taken a, so our cost approach does follow the department very closely.

The only minor changes are the functional depreciation.

So we've actually matched up all of the numbers and have agreed on the base structure cost.

The only change that we have made to the department's cost approach

is the functional depreciation.

They have taken 10%.

We feel that a 25% functional depreciation is much more in line to reflect the realities of Kohl's and the struggles that they've had and will have in the future.

And this cost approach does support our income value.

Our cost approach comes in at

about $10 million or $116 per square foot.

And this does support our requested value of $10 million or $116 per square foot.

So we have looked at some comparable assessments and we have a table of that on page 11.

and these really run the range from 65 to 133.

And the cost approach and the income approach both support a value of about $116 a foot.

This would put it in line, it'd be a little bit above the Shule's furniture, it'd be a little bit below the Big Lots, it'd be a little bit above the Target, which I do think would be kind of that right range, because right now Kohl's is the highest of the

comps that we have included in the packet.

And I know I have mentioned it a few times, but COVID has hit this property very hard.

I think all the Virginia stores were closed from March 20th to May 18th.

And they have needed to defer rent where they have deferred 50% of their May and June rent as well as 100% of their August rent.

and this will be repaid over 12 installments.

And so that really does go to show that COVID has significantly impacted this, that they did need to go to their landlord and request these renovatements and restructure their lease a little bit for temporarily restructure their lease.

I would like to

address a few points in the department's memo to the board.

I guess so on page 11 of their memo, they do have the Albemarle County pro forma income model versus the tax rep income model.

And so we are very close.

We're both using the actual rent in place, both using 5% vacancy.

We differ slightly on operating expenses.

We're using the same reserves.

The major thing driving the different values are the cap rate, where we have used the RERC reports, which were included in the packet.

I believe they can be found on page, starting on page 27.

And so those do show the expected cap rate, the going in cap rate, the range, the average for retail properties.

Whereas the PWC does show the net lease properties.

And I do think that this property should be valued as a retail property as part of a retail center.

rather than a net lease property because net lease does have a pretty big cast of wide net and includes a lot of other different property types.

So we have used a higher cap rate than the department.

All right.

Thank you, Mr. Burns.

I noticed in your packet you state that the building is 30 years old.

No, my numbers are based on a 10-year-old building.

I know in the packet it states that it was built in 2011.

We've used an effective age in our cost approach of 10 years.

I'm not 100% sure where that 30 years in the

The BOE memo is coming from.

Page four.

Bottom.

The...

Capitalization rate.

Hold on, page...

No, this is your file, your page.

Your packet, Mr. Burns.

Page four.

Oh, so that that was a typo.

Where I, I must have hit three instead of one.

But we are valuing this as a 10 year old property.

On page three, we it does have the correct date of construction and age of property.

So we are valuing this as a 10 year old property.

It was a small typo.

All right, the next question I might have for you is we often look at these properties at the land value and the building value.

Yes.

It's the total value and we would take that out of the building.

Yes.

No, I mean, I assume that Mr. Lynch had asked for figures through June or July.

No, because- Okay, so these are simply your-

Yeah, we don't do this as an income producing property.

All right.

So your sales were down 40%.

Is that correct?

So that's correct for the first half of the year?

Yes.

Yes, absolutely.

So the physical depreciation is a point that we do agree on with the county.

We've both used 11% for that.

It's the functional depreciation that's a little bit harder to define.

The physical is the aging of the property, whereas the functional on page eight of our packet, we have borrowed the IAAO definition for it, and we have included their glossary.

But they define functional obsolescence or depreciation as a loss in value of a property resulting from changes in tastes, preferences,

technical innovations or market standards.

And so we're trying to use that 25% to capture kind of how the retail market has shifted away from these big box retailers and how Kohl's themselves have actually shifted away from these big 80, 90, 100,000 square foot buildings.

And they're trying to right size and go with these 50 to 60,000 square foot buildings.

They're trying to have

much smaller footprints and part of that initiative is actually chopping out part of their store and leasing it to a different tenant.

And we had included an article in the packet and on page nine, you can see a screenshot from one of the figures.

And it's kind of like a handy test to determine if there is economic obsolescence

and it's a lot of it is like is the taxpayers revenue decreasing, is their profitability decreasing, their cash flow decreasing, is their industry kind of in the decline and I do feel like that Kohl's does check a lot of those boxes and so there is a strong case for functional depreciation and the county has considered some of that but we were

It is very hard to put a number on it and so we have used 25% when we've been valuing any coals because we do feel like that it does capture kind of

A lot of these factors of the decline of the big box, the falling store sales, but there is no way to tie it to a hard 25%.

You know, I find it interesting that you say that you think Kohl's is going to a 50 to 60,000 square foot model for the future.

You take the 25% off of your 80,000 square foot building and lo and behold, you've got your 50 to 60 square foot.

So we have taken that 25% across for all of the coals that we represent.

That is kind of a subjective number, but it is the number that we have used.

I do think that there is flexibility in that number.

Thank you.

Yes.

First of all, thank you for a very, very good presentation.

I really appreciate it.

And particularly your comments on the economic obsolescence.

I'm curious about the reconciliation between the Kohl's revenue versus the lease in place that is not a declining lease.

And so I certainly understand this issue of Kohl's and the retail sector changing, but this lease is in place.

So I do think the lease in place will become an issue for Kohl's down the road, as it was recently signed.

It was signed about 10 years ago.

but it does have, I believe it does have escalations and that could pose a problem for them in the future and I do know that property does tend to appreciate over time and the lease will reflect that and the income model will reflect that as the rent bumps hit but I think right now that they can cover their rent for the most part barring another round of COVID and closures but

All right.

Thank you, Mr. Burns.

Mr.

Staples, I assume you are going to give the assessor's view of this property?

Oh, absolutely.

Okay, I do not believe that the capitalization rate that the tax representative has chosen to use for power center or shopping center is appropriate for an exclusive net lease approach such as the subject.

The subject is very independent and is not in a shopping center.

It's within about a half mile from the Hollymead shopping center.

However, it is very independent.

It's a hybrid between, I would call it discount store.

We're valuing it as a discount store, which is much, well, a bit less than a department store.

If we were to call it a department store, we would have it graded at a two.

However, we do not, we opted to be a little conservative and use the discount store.

We've also used, the tax representatives talked about the functional obsolescence.

We've already added 10% functional obsolescence to the property, mostly because

Other properties such as Target, which is almost double the size, which would account for the reason why the price per square foot is a good bit less than the subject.

And also the finishes are not quite as high because it doesn't approach a department store much like the subject.

We've used 10% because they have not really updated the property in quite some time.

It's 10 years and we were hoping that they would have some type of renovation in place.

Also, a lot of the coals, the coals has been very proactive all through the pandemic.

They have been

doing some very creative things.

I'm not sure if you use Amazon, but it's a place where you can return your Amazon items that you want to send back to Amazon.

Also, a lot of these are being used as planet fitness, where they'll

For example, the 80,000 plus square feet will be cordoned off maybe 50,000 square feet, 30,000 square feet for the Planet Fitnesses.

That's been going on across the country as well.

On page two of our assessor handout, we've listed some Kohl's listings.

You will notice that the median net lease per square foot is about 1103.

The subject right now is 1182 per square foot, and that's not counting anything for their expenses, which, using the tax representative's

Information on page 103-107 describes the information from the lease abstract.

You will notice that in 2022, as the Taggart alluded to, the price for rent will be going up from $1,031,429 annually to $1,125,498 for 2022.

On page 106 for his packet, you will notice that

There's CAM expenses that are thrown in.

We did not include that with the net lease approach that we used.

We used a pure net lease approach and used 1182, much like the tax representative did.

However, we did choose on our packet, on page 11, our net lease approach, going back to

Is it a power center?

Is it part of a shopping center?

It's not.

It's really a net lease approach.

It's an independent property.

And we believe that the eight and a half is inappropriate and seven and three quarters would be much more appropriate.

and looking at the net lease market for the fourth quarter, which is on our packet for page 12, you'll notice that the average is 6.22 and the high end is eight.

While we do not believe that 6.22 would be appropriate, we do believe that seven and three quarters is very reasonable.

Mr.

Staples, just I was looking at figures that I may have misread one of them.

But in breaking out the appraisal, I believe it was an outbuilding for $313,400.

Is that correct?

You did not.

That accounts for the loading well and the cost approach.

We have to also appraise the parking lot and other features such as loading well and for the trucks.

Okay, because I didn't know from looking at the photo and the aerial, there was an outbuilding and I was sort of confused.

So I seem to remember that we looked at this building last year.

Is that correct?

Yes, sir.

And one of the factors that was brought up at the time was that this building has a lot better finishes.

It has a finished ceiling.

It's not a warehouse type structure.

Yes, sir.

It's also one of really the last remaining department stores in the Charlottesville area, which should help sales moving forward for 2022.

Thank you.

Do we have any other questions from the committee?

No, I have no questions.

Mr. Arsali?

No questions.

No questions.

Mr. Lynch, do you have anything to add?

I do not.

Mr. Burns, that was very nice.

Thank you.

I also commend you on the succinctness and clarity of your presentation.

Thank you.

I appreciate it.

All right, we will be discussing this further and come up with an evaluation and we'll send it to you in writing within two weeks.

Yes.

So after reviewing the department's board report, we do think that the current assessment is fair and equitable with other properties in the county.

Go ahead, Ms. Fletcher.

Yes, we do think the assessment is fine.

After reviewing their report, we do think that the value is fair.

Okay.

Yeah.

Sorry, we didn't get this until yesterday, because it was out Friday, and so we hadn't had time to review it until yesterday afternoon.

I'm happy with that.

Mr.

We also have it on tape.

But an email for our records would be great.

Yeah.

All second.

All in favor?

Very good, thank you.

I was actually questioning the numbers because I saw how much the evaluation had dropped.

Yeah, I mean, we read through and we thought that it was pretty fairly assessed.

And so we did wanna not

Very good.

Yeah.

Yes.

Thank you very much.

Yeah.

All right.

Well, thank you, Mr. Burns.

All right.

Thank you, Ron.

All right.

All right.

Ladies and gentlemen, what's your pleasure?

Ms.

I think he's made a good argument just in terms of the trends, the retail, the trends in big box retail.

But Stuart, I guess I'd like to ask you a couple of questions.

Your valuation decreased by what, a half a million dollars between 2010

2020-2021.

Can you discuss that a little?

Because I realized that moving forward, a prospective purchaser or investor, even though the property has a very, very long lease, I mean, it is in 2032, however, there are four other five year extensions.

for that lease, and rents will be escalating.

Yeah, I just wanted to add to that answer that, you know, Ms. Pape, I think both the tax rep and us, we kind of mix up functional and economic.

This is really an economic thing.

Right.

So is that lease, are those renewal periods optional?

And I do know that the lease issue came up last year as well.

I think they're well aware that the numbers are, you know, pushing their figures.

And maybe they're questioning whether they're going to renew their lease or not.

I don't know.

But he pushed on that last year.

And is it due for renewal next year?

Yeah, it's further on.

It's on their packet?

Yes, 32, January of 32.

32, okay, great.

I believe Stewart made a really good point.

The tax rep pointed out that there are these other vacant retail properties, but I think there are dual effects of that.

And I feel like we haven't seen that impact on the market yet, on the retail sales in Charlottesville yet.

Until we see it, I think it's going to be tough to bring these values down.

Once there are sales, and the JC Penney went, but the JC Penney was, that building is not really, didn't have much value, so.

But I'm curious, Mr. Lynch, and maybe I'm a little confused.

I asked him about the sales changes for 2020.

And the first half was down 40%.

For the total year, it was down 29%.

We did not directly in this appraisal for this type of property.

We understand that the sales went down in the first half.

Their store was closed for several months.

And overall, obviously, that would have affected their whole year.

But when you're looking at this property, you're really looking at the rent that's being paid on it.

And of course, you have to consider not just the rent, but the

how likely it is that they're going to continue to pay the rent.

So we feel that that the Kohl's, you know, we've got information that Stewart included in here from the CEOs says we're, you know, they're bullish going forward.

They're not closing stores, that they're going to continue to pay that rent.

And that, you know, that's the kind of the most important

factor that you consider when you're talking about the value of this property.

Also, with what happened earlier, especially affected these types of properties earlier in the year, that wasn't the issue January 1st of 2021, which is the data value.

So, yes, those were behind them, but that was

We're hoping a one-time thing.

It was a major thing.

But as we move forward, a prospective buyer wouldn't be considering, oh, that happened.

They know that happened in the past, but is it likely to happen in the future?

Doesn't appear the landlord got hurt here because obviously there were some deferred payments, but they're still making those payments.

I do think that is the difficulty in this property in that I

I agree with the presentation that these big box stores are becoming more and more challenged.

The assessment for this one being $134 a square foot versus 111 for Target, 115 for Target, something like that.

Even though I know Target is larger, the economic obsolescence is very hard to calculate.

Stuart, I know you've made a recognition of it as has he.

I think he made a good presentation about the factors that can affect economic obsolescence and this building seems to have a lot of those or this particular tenant seems to be exhibiting a lot of those factors.

So it's a really tough call, but reconciling that with the lease in place

is somewhat difficult because it is a predictable income.

Coles is committed to paying that money.

So I don't know that he's really made a case for lowering the tax assessment since the income is still predictable to the landlord and Coles is fully committed to making changes in their structure

looks like they're doing a very good job based on what he's said on the articles that they're doing a very good job of trying to be nimble and addressing the problems in retail.

Stuart, may I ask with regard to,

the functional and physical depreciation.

You use both, I understand.

We used 11% for the depreciation, which is exactly the same that the tax rep used in his cost approach.

But the big difference is he believes that there should be a 25% economic obsolescence used because the term of the lease and the way it's structured where there is an escalation moving forward, much more escalations moving forward than in the past five years.

I have a problem.

I understand the situation with functional obsolescence, depreciation, so forth, but I'm not sure I understand where Stuart comes up with 10%, where he comes up with 25%.

It's very difficult to calculate external obsolescence or economic obsolescence.

I'm sorry.

Yes.

Yes.

It's very difficult to calculate to a dollar figure economic obsolescence.

And I think what he may have done is that he's looked at these 15 criteria and he has said,

This property meets 13 of those 15.

Therefore, my estimate for economic obsolescence is going to be towards the higher end.

And Stuart has certainly made a recognition of the economic obsolescence.

It's, you know, it's kind of fungible.

It is a very, you know, based on opinion and observation.

I don't think either one of them is necessarily wrong.

I think that they've just chosen different ends of the spectrum based on their analysis of the market.

Stewart is seeing these big box retailers, they're going out of business, they're immediately released, so the economic obsolescence may not be as great.

Mr. Bell is seeing, was that his name?

Burns.

Burns, yeah.

Mr. Burns was looking at these different objective measurements

and saying, yes, this property meets most of those and therefore I'm going with a higher calculation.

So neither of them is really wrong.

No, I don't have any questions.

I'm taking it all in and I'm learning a lot.

Is there any indication about the, you know, is there any other way we could come up other than the 10 and the 25%?

Is there any other way of looking at that?

You know, I don't know, but the baby, I don't know.

Well, yeah, in fact, there is one way that would be really effective that would not apply to this property, unfortunately.

So if you saw declining rental revenue on this property, you could capitalize that, and that may give you some measure of the economic obsolescence.

But since we have a long-term lease in place, we can't evaluate it in that perspective.

I have a question for you, Stuart.

Yeah.

Because I was looking at PricewaterhouseCoopers for net lease properties.

The very highest range on that for net lease properties was 8%.

I used 7.75%.

And in previous years, you used a lower cap rate.

For 2020, for that review?

Yes, sir.

No, sir.

Do we know that also?

I think that's the fact, like one big thing is, one big question is the capitalization rate.

Is that appropriate?

I think to me, the 10% is good enough because there isn't that least.

The income's a million dollars up to 2032.

Until such time as coal shows that they file bankruptcy or they stop paying, that's a different story.

But until then, I think we just have to take it as it is for the January 1st, 2021.

I have kind of an alternative to Mr. Wynn's question.

Another way you can look at the determination of that economic depreciation

would be, could be looking at the declining store sales, which is kind of shows the health of property as a retail property.

And of course, I don't think we can really consider the COVID related drops as being a normal thing.

But if you look at the history of it, it's coming down slightly over time with a couple of years kind of stagnant.

And that really supports

More our 10% than a 25%.

No, I was, I was just saying acknowledging.

Thanks.

So going forward, Mr. Lynch, if we see for the coming year, the sales are still down.

In other words, they were down 29% last year.

And this year they do not rebound as we would like to see.

Well, that would be a, you know, most likely a further, you know, an increase to that functional or what,

Well, there are several ways you can deal with it.

You can have, well, first of all, in the cost approach, you would have the economic depreciation.

In the income approach, you would use a higher cap rate to show that risk related to, is that tenant going to be able to continue to make their payments based on the income, the rent that they have?

Correct.

The cap rate, you're adding it to the percentage.

Oh, I agree.

I mean, that's my question about the 20, the prior year's cap rate, because, you know, there is more, there has been perceived to be greater risk

in retail for non-essential goods.

Right.

What's the percentage between seven and three quarters and seven and a quarter, seven and a half?

I was just thinking what is the difference there in terms of percentage?

Stuart, if you have the spreadsheet open where you've calculated the value using the seven and three quarters, can you just change that to seven and a half just to show what the value change would be?

I don't know if you have that open or if it's- No.

It'd be 12.150240.

12.150200.

Once again, we are using

Stuart can confirm this, but I'm showing about a 3.2% reduction based on that difference in cap rate.

I mean, this is not a new trend.

I mean, this is a trend that's been going, as you can see by those sales numbers that are not uncommon, it's been going on for a couple of years.

And so this change kind of represents at that point.

We did not use any external obsolescence on the Toys R Us that was recently renovated and sold, which is also a discount store.

We did have some sales for some big box stores.

Now, as Ms. Pape pointed out, you know, there's none

I forgot the word now.

The essential, non-essential retails have suffered from this problem.

Your Walmarts, they're not

seeing the same effect as, you know, the online effect against their sales as something like a Kohl's is, which we believe is what's kind of causing those slight declines every year instead of increases per year that you used to see.

No, I just, I seem to remember this whole dark box theory that Mr.

Well, I do have one other question.

So looking at his operating expenses at 10% and yours at 5%, I think that's the main difference in your gross or your net operating income.

What was the rationale behind your use of 5%?

Well, no, we did not have that.

But because it is a net lease property, typically net lease properties do not have any operating expenses.

And to my knowledge, he has not given any specific reasons for using that 10%.

on his income approach, Kelsey.

I don't think he did.

This was the 10% for the reserves?

No for the operating expenses.

Karen, what do you think about that cap rate?

I think that's the biggest thing.

I think that's what it comes down to, is the cap rate to me.

But I'm not sure which ones, should we go up to eight on that?

You know, we've been going up about 50 basis points, just because in particular sectors like office and retail, we went up, you know, half a percent.

And so I think that that would certainly be logical because of the risk

but I do think that Stuart recognized the economic obsolescence and he used the national markers and the high rate on these national markers in his presentation.

The highest rate was 8% on these triple net leases.

So if you went to 8%, that would be very highest.

So I really don't have an issue with what Stuart's done

It's a very complicated situation.

If Kohl's were the owner-occupant, I would certainly support a higher cap rate and greater functional obsolescence.

I'm always wondering about these triple net leases and the leasing, and I'm not the expert in accounting, but I always found that the lease manipulation was in their favor, but then it makes it difficult for us to value them.

Well, I mean, you know, one of the ways you would see it reflected would be in the greater risk of default.

and so he's increased the cap rate.

He's increased the economic obsolescence, which are both, I mean, I think that he's handled it.

It's really a question of, is it enough based on current market conditions?

I think we're at the point where,

We're supposed to look at the assessor's evaluation, look at the applicant's argument and decide has he made a convincing argument to reduce the assessment.

I'm fine with affirming.

Well, I'd just like to look at one more thing.

Let's see, where is his support for his 8% cap rate?

All right.

He was using the shopping center.

He's not using the power center.

Right.

I mean, their average is 7.8%.

on his, of the secondary investment properties.

If you're looking at page 28, you know, highlighted that range, you know, they're ranging right around 7.7, 7.8, 8.1%.

If you go into page 29, you know, they're averaging about eight and a half percent.

Yeah, the only thing I could think is that the possibility of 8%, I mean, he does have some,

This is kind of in between, I mean, it's one of the worst, probably one of the worst triple net leases you could have because it's the retail, I think.

Yeah.

This has a chance of defaulting, even though that's the only thing.

This is one of the worst ones to get out versus if you have, you have a Walmart or a Target, you're in a much stronger position to the extent there's a triple net lease on that.

But that's the, that's that quarter place, the basis points, that's the question.

Staples, you had something you wanted to add?

You know, I am looking at the cap rates that he selected and they're all, you know, if you stay with the second tier,

You know, they're at 7.7 to 8.1, just slightly higher than Stewart's.

Right.

I'd like to add that I just don't feel that the power center cap rates are appropriate.

Leases are much more appropriate, especially for a property like this that has a much longer lease than typical shopping centers.

I mean, they have four, five-year extensions.

This could potentially go through 2052.

However, the lease term ends in 2032, so it's still got 10 years, which is pretty typical for most shopping centers starting out.

and you don't have the volatility of the small tenants either.

I guess my only other question would be, did you use the same vacancy and credit loss number in 2020 and 2021?

because there is slightly more risk.

Yes, we used the exact same amount because those are operating expenses.

I've always used 0% because in a net lease approach, the expenses are built, if there are any, they're typically built into the capitalization rate.

Also, they are receiving some CAM also on page 106 of his summation.

It shows that the,

They also paid $92,017.92.

Okay.

But he doesn't specify exactly what that's for.

Okay.

I'm just wondering, you know, I just want to ask your opinion.

Do you think that there may be a support for higher vacancy credit loss due to increased risk?

Not for this tenant, because there's still 10 years left on the property.

Well, as long as you've considered it.

All right, all in favor?

Aye.

Aye.

That's unanimous.

I do, or I'm putting it together, but yeah.

Yes, very good.

Some other matters to discuss.

Yes, if we're there.

Okay, so I was not quite prepared for the applicants and kind of the venomous that they had against us.

and I believe, well, one thing I ask is that Mr. Van Roijen, if today was excellent because the representative presented his case very clearly, he let us talk, last Thursday was not the same situation, that we were not able to really answer questions, you know, we were constantly cut off

and I'm just hoping that in the future we can kind of limit that back and forth that happens.

Obviously everybody's going to get a chance to respond but just like I sat there and listened to all the kind of misinformation that was given out in the beginning and I made notes so that I can answer all the items

When I went to answer those items, I was being constantly cut off and so was my staff.

In that case, there was a lot of emotional kind of baggage being added to the arguments and it wasn't really any information, very little information being given.

There was a lot of misinformation being given.

you know there was at least five minutes spent talking about how high our value had been and there was not a single mention of the fact that we we had reduced it and I mean I was getting caught up in the complaints about us not answering questions when I found out since then that we've answered every question that they asked us we didn't give the the one

document, the draw sheet, but we gave, as Mr. Arsali, thank you for finding that during the hearing, we gave them in an email the information from the draw sheet.

So I came to find out and unfortunately I didn't support my staff as much as I should have during that meeting because I really didn't know all the answers to that.

There was a big question in that meeting that we did not communicate properly with the applicant.

and we communicated all of the information to the applicant.

I think they just either didn't understand what we were telling them or refused to accept what we were telling them.

So I didn't want that coming across as we were failing to communicate the information about the assessment to the property owner.

No, I agree, Mr. Lynch.

The applicant is like a number of people I've run across over the years where they have a particular view.

They're going to continue to repeat it and not see anything you have to say and keep repeating why it is what they believe.

And it's very difficult to present something to them.

I got caught up in it, in fact, in terms of telling him that he'd gotten a free ride, and that was wrong of me, but I was observing the numbers, and I thought I understood the situation, but it was the wrong thing to say.

I do have a question, though, about this case, and that was the land valuations and the district that we section that you moved.

Did you then go back and look at the surrounding parcels and read?

We, as we talked about in the meeting, we had the border of two directly related to those properties.

There was a third, two market areas that came together right on the road.

And we had found it was the same thing in Edward Strauss's case.

We have found where we have

The neighborhood boundary on a road so that one side of the road is a different neighborhood than as the other side of the road is problematic.

And we have not identified all of those yet to to fix them.

However,

During our review of his property and the changing of the land value, we really, doing the reassessment of that, we need to move those property lines, but we also need to make adjustments because there is such a radical difference in the land value of one of the market areas compared to the other.

It's not a minor change.

We need to have some type of buffer adjustment for that area.

And for his benefit,

we went ahead and just put them in the lower end while you know in the end we really need to adjust that and that area should be somewhere in between we've got to do a closer analysis to that section to see which neighborhood it's going to be in for next year and what adjustment we're going to make to the land because it's either higher than the

The main area of the one market area or it's lower than the main area of the other market area.

So we're going to have a negative adjustment or a positive adjustment.

We didn't find that there was an error in his assessment.

If we had found that, we would have corrected the error on all the related properties.

We found that there was a problem with the layout of our valuation model and specifically where those property lines or neighborhood lines were.

and we made a fix to his properties for that.

And there was one other neighbor who we fixed because he had asked for a review.

However, for that reason, we did not go through and do a fix because it wasn't a error to those assessments.

It was a readjustment of the model that needed to be made.

Go ahead, Mr. Wynn.

I would not be surprised if the land value goes up a little bit on those properties next year, on his properties next year.

And maybe some of those other surrounding properties that did not get adjusted might go down slightly.

I'm just a little concerned with the concept that there may be a problem and we see it as the board and we're not asking you to go back and adjust that area and I realize it's a lot of work but you seem to be acknowledging that there is a problem

Exactly right.

Also, one thing that came out in that kind of toward the end of that that makes it even more complicated and why we would not want to go in there and change the neighborhood on some of those other improved properties is that

The improvement adjustment is higher in the lower land neighborhood than it is in the higher land neighborhood.

So if we were to go in and move some of those other parcels to the other neighborhood, it would drop their land, but it would increase their improvements.

It would either wash out like they would, the adjustments would, the changes would wash out and they would have no change in value or they'd have an increase in value.

And that is not something I want to do in this situation is increase their values based on that type of, I wouldn't call it a correction.

It's really a realignment of the neighborhoods.

and I guess this is where I come in and I go, I never really did like computer models.

Pete, would it be fair if you'll just do a case?

I mean, those border properties, if they bring the appeal, you can do it case by case.

But otherwise, if they fit within the boundaries, they fit within the boundaries.

I mean, the improvement value thing is going to kind of, for some of those, it's probably going to be a lot.

Some of them, it's going to be more, I mean, it's not necessarily going to decrease the values if they go away.

Right.

Oh, yeah.

No, I was just going to say thank you, Mr. Lynch, for that in reference to last week, because as a new member here, it did come across to me as if you guys had been remiss in some way.

So I can really appreciate you bringing that forward this morning and sharing that with me.

So thanks a lot.

I appreciate that.

I did, apparently.

All right.

Do we have any other issues before the committee?

Do we have a motion to adjourn?

I'll make the motion.

All in favor?

Aye.

The meeting is adjourned.