Board of Equalization Meeting   8/18/2023

All right, I will call to order the Board of Equalization meeting for August 18, 2023.

We have a quorum, all five members are present, four physically and one via Zoom.

I'll hold off on approval of minutes for last meeting until the end of the meeting.

We'll go ahead and call our first case.

First and only case today.

This is application number 54, the property address is 250 Pantops, Mountain Road, PID 32481, the owner is Westminster, Canterbury of the Blue Ridge.

Good morning, Mr. Chairman.

My name is James Downey, attorney.

My office is in Warrenton.

and I represent Westminster Canterbury at the Blue Ridge on this appeal.

And seated to my left is Anna Buchanan.

She is the Chief Financial Officer of Westminster Canterbury and also Mr. Dennis Rooker.

Here he is, the Chairman of the Board of Westminster Canterbury.

Before we start, I will need to swear at everyone.

So let me just make sure I have everything.

I don't think I need to go through the introductions.

I think you all are full aware of what we do and who we are in terms of ordered equalization.

And feel free to sit down or stand up however

I don't believe, what were the, how long did you all agree to in terms of presentation timing?

Because I know this one we did, we approved a longer presentation.

Right.

Now we have nothing after this, so there is some leeway.

Okay.

And Mr. Downey and I

discussed timing also for the presentation.

The way this seems to develop is with that time constraint of an hour and a half, the total, we have tried to

I think for the most part we're generally pretty well prepared as well with the materials that you've provided to us we have reviewed it ahead of time so just but please feel free and then also how we usually do this is you'll have your presentation the assessor will have theirs and then you'll have the property to a rebuttal as well and we may ask questions during the process

So let me go ahead and swear one end who's going to be testifying and then we'll go ahead and start.

So everyone that will be testified, please raise your right hand.

Do you solemnly swear or affirm the testimony with oral abductory which you're about to give will be the truth, the whole truth, nothing but the truth?

I do.

Thank you.

Any questions before we proceed?

I won't go over what I just said about who we are.

And I will need to stand now and then, because I have people from the mounting board.

But basically, as you probably see with submissions here, this is an appeal, an assessment that is presently 160,169,000.

we claim should not be increased above the value for last year which was $131,287,900.

Before I go any further I want to point out to you I have placed at each of your seats there a manila folder that has in it the exhibits that we propose to introduce that are actually

a couple of them.

In addition, there are supplemental figures beyond what was in this building that was our appeal.

I want to keep an eye on that.

We will be working from an outline, which is the first thing in your Manila folder.

I made an outline of the presentation and we intend to follow that outline in our presentation.

Now, let me go to this first flip chart.

As I've said, the assessment in question is this very radical 24% jump from last year with 60 versus 131 and we claim that there's no justification for this increase and it should be reduced to the target by the bottom line.

This Buchanan is going to explain to you in a little more detail the properties so that you'll have everything correctly in your mind but

The basic overview is that there are 60 residential units that are essentially around the perimeter of the property.

We call those cottages or villas.

And there are five commercial units that are mostly in the center.

The increases for each of these are $8,467,600 on the residential portion and $20,416,500 on the commercial portion.

So these are the two increases.

The total are roughly 29 million.

The basic grounds of our appeal.

What happened?

The assessor, the residential portion,

in eliminating 20% functional obsolescence.

I'm not sure that this is actually in the filed materials.

Some of these things evolve as we continue to talk.

I would like to compliment Mr. Lynch, be courteous all the way through.

We were able to fine tune a lot of things, and it wasn't 100% clear as of the time the appeal was actually filed that this particular ground was

as important as I believe it is.

So that number that you saw is the increase in the residential portion was the result of taking out 20% functional obsolescence that had been in these assessments for many years and leaving us with a reduction of roughly 20%.

that he was, he updated his Marshall and Swift valuation from the valuation manual and just added to the reproduction cost new an amount that increased this assessment roughly the same amount as the residential.

We claim here also, there is functional and external obsolescence in the commercial part as well.

He didn't actually take it out.

It wasn't in there in the first place.

Something that has not been,

sufficient attention in the assessment process.

So our claim is going to be that we have functional external obsolescence which we can show that would result in essentially 20% being put back in on the commercial portion as well as the rest of the commercial portion.

Another ground, we have essentially four grounds.

Failure to conduct an income analysis

Now the case law is very clear that the three approaches have to be attempted.

And you're not going to use one of them, say the income approach.

There has to be a good reason for that.

Sometimes the sales approach is not used and there's a reason that can be shown or the cost approach.

In this case, no income analysis was performed.

And if it had been performed, it would have shown that there's no grounds whatsoever to ramp up an assessment when the

income to the property is not increasing it's actually at a level number and if that had been considered it would have been a cross check because these other two increase brands of increase so income balances or even looking at the income information fourth unemployment if you can it has prepared the table

and for other homes for the elderly, the increases have been more in the 4% range while ours is in the 24% range.

Now, just placing this one more time in its historical context.

If you read the Lenhoff appraisal, you may have noticed that historically the assessments for this property have been roughly 130 million.

12600, there were a couple of years where it was up as high as 136 or 138.

We thought those were outliers, but the assessment has perked along for a long time, right around 130.

And so all of a sudden we see this 24% increase, which is absolutely radical.

And so we're here to ask that it be reduced back to the prior year.

Now, if you can, we'll take over that rating stand here and present our evidence

My reference to the points that I've made, that would be the nature of our case.

I'll now turn it to her.

Let me begin in kind of a courtroom style.

I don't want to keep with any more than necessary, but I'll ask her to identify herself.

State your name, please.

Can you tell the board?

Good morning, everyone.

I am Anna Buchanan, the Chief Financial Officer and Treasurer for Westminster Canterbury, the Blue Bridge.

My educational background is an undergraduate degree in engineering.

I have a Master's of Business Administration from the Daugherty School here at the University of Virginia.

I've been CFO and Treasurer of Westminster Canterbury, the Blue Bridge for four and a half years.

Previous roles include 14 years at Martha Jefferson Hospital, Sentara Martha Jefferson Hospital, where I was responsible for the financial planning effort for the replacement hospital as well as the merger with Sentara.

Seven years with Martha Jefferson, seven years with Sentara.

Once again, I want to thank you for your time this morning.

I wanted to also indicate that our President and CEO, Gary Bracel, means he would otherwise be here.

He is with the family and a memorial service for our close family members.

I also would like to thank Mr. Lynch and his staff for their cooperation with our team.

We have very high regard for Mr. Lynch and his role.

We understand he has a duty to perform for the community.

I'd like to describe our community.

We know that our community is not well understood, and so I'm going to take a moment to describe Westminster Canterbury of the Blue Ridge.

We are a nonprofit continuing care retirement community.

We provide long-term care and services to approximately 450 older adults.

While we share similarity with other Westminster Cannabaries in the Commonwealth, we are not related in organization, in funding, in any kind of corporate structure.

We are a single site CCRC here in Charlottesville.

We are licensed by the Virginia Department of Special Services as an assisted living facility.

We are licensed by the Virginia Department of Health as a skilled nursing facility.

We are a registered provider with the State Corporation Commission Bureau of Insurance.

WCBR operates a long-term care insurance program with guaranteed and unlimited access to care, a care continuum, without a change in a basic monthly fee.

So think of us as offering long-term care insurance in a residential setting.

We employ approximately 300 associates who provide care and services across four residential settings on a 56-acre campus.

The residential settings include independent living,

We call Catered Living and VISTA our assisted living and memory care units and our health center which provides skilled nursing care and long-term convalescent care.

WCBR was organized in 1985 and we opened our doors in 1990.

The purpose of our founding was, and I quote from our articles of incorporation,

to establish and operate housing and healthcare facilities in a manner designed to meet the needs of elderly persons for tax-exempt purpose, physical health, and care of the elderly.

In the assessor's records, WCDR is considered a home for the elderly.

If you're not a multifamily property, we offer no rental options.

As WCBR fiduciary, I have a duty to manage the tax liability for WCBR.

We aim to pay our fair share in taxes and no more.

We're challenging the 2023 assessment under the reasons that we are outlining for you today.

Gonna walk through the map and orient you to the commercial properties as well as the residential properties.

And so we're following along in the outline.

This is the map of our campus, the main entrance.

The smaller buildings at the periphery are cottages.

Mr. Lynch and his comments may refer to those as villas and we refer to those as cottages.

The connected larger buildings are apartment buildings, care buildings, and our

common area buildings, and those would be considered the commercial.

So I'm going to begin walking through a description of functional and external obsolescence.

I'm going to start with the cottage properties.

And so just to orient you, we have 60 cottage units.

Some of those are duplexes and some of those are single standalone cottages.

The oldest cottages on our campus are the Jefferson cottages in this neighborhood.

The hillside cottages are the tan and brown.

We have two generations of hillside cottages.

We have a total of 30.

25 of those are older hillside cottages in this central part.

The newest cottages are five freestanding hillside cottages near the entrance.

And then finally we have Albemarle cottages, which are 10 units, five duplex units.

I'd like to do a sound check for Mr. Mayo.

Yes, it was a little unclear towards the beginning of the gentleman sitting next to you, the first part of his speech.

But I think maybe because you're near the microphone, you're very clear.

So if we could maybe drift that down the table towards both of them, I think that might solve all the issues that did exist.

Thank you for the suggestion.

That's your microphone.

Okay, that's the middle there.

I'll move over if I should keep.

So turning to exhibit A, the title says Cottages, Total of 60 Units.

It has a table.

I'm gonna walk through the table.

And again, the Jefferson cottages are the oldest cottages.

These were built in 1990.

They are 33 years old.

We had a total of 20 Jefferson cottages.

The math on the board indicates 20 Jefferson units.

These, again, are our oldest cottages.

They are vinyl siding, have no carriages, have a colonial style that is not in keeping with contemporary design.

We've had to update these with different design techniques and arts and crafts style and larger windows, et cetera.

They have small.

We have departmentalized floor plans.

They are not open.

They have less flexible room arrangements.

They are typically 1,300 square feet, and there's no generator backup to these cottages.

We originally started with 40 Jefferson cottages, and over time, we found we needed to replace these cottages as they were not competitive with market demand.

Our next generation of cottages are the Hillside Cottages.

They're 25.

They offer a single car garage and again have no generator backup.

The Albemarle Cottages were added in 2008.

We replaced 10 Jefferson Cottage units with 10 Albemarle Cottages.

which I will point out that's not in a creative edition when we have simply replaced 10 units with 10 units.

There's no generator backup in the Albemarles.

And in 2016, we built those newer hillside cottages.

And in fact, we eliminated eight Jefferson cottages for two buses and replaced that with five freestanding cottages.

As Mr. Downey outlined, these cottages which are all treated somewhat similarly in the valuation approach by the assessor,

We've seen a 58% increase in cottages in one year.

We've seen an 80% increase in the value of these cottages, the assessed value of these cottages since 2020.

The removal of the 20% functional obsolescence in one fell swoop has resulted in a significant increase.

We've made no changes in the number of cottages, the significant attributes of cottages,

We've made no other changes other than renovations, routine renovations associated with unit turnover.

Important to note, we are a life care community and we provide care across the entire continuum.

Cottages for us are different from apartments.

It's a life care continuum that begins in independent living and proceeds through care areas.

In terms of the cottages and other elements of functional obsolescence, we do have the ability to fill cottages with a waitlist for people who are interested in living in a more freestanding environment.

However,

It's more challenging.

Our wait list is not as long for cottages.

We have more market pressure on filling cottages.

Apartments are definitely the more desirable residential unit.

They're under roof.

They're connected with amenities.

They're accessible to dining.

They're accessible to healthcare areas.

In terms of other factors that would be in the category of external economic obsolescence, the operating cost burden for our cottages are extensive.

including utilities, groundskeeping, repairs, maintenance.

Our emergency 24-7 response to support residents in cottages is more difficult in their various locations.

We provide transportation for residents and more of our transportation expense and need to staff transportation is related to cottages.

We have inclement weather plans and keeping the sidewalks and response to residents safe and supporting their meal needs during inclement weather and other

Demands on our staff when needing to respond to remote cottages.

The cottage systems are not scalable.

Each cottage is individually equipped with its intercom, phone line, HVAC, the list goes on.

We can't scale the cottage systems as we do the apartment buildings and the main buildings.

Renovation costs on cottages are higher.

We have both interior and exterior demands on the renovation budget.

And we have the opportunity for lots of individualized requests around fences and sidewalks and such.

There's a greater likelihood for an internal move within our community from a cottage to an apartment within our long-term care, care continuum model that's not a positive economic factor if someone moves from a cottage to an apartment as opposed to the natural progression is from an independent living unit to a care area.

So we have more internal moves occurring because with cottages that's an economic burden.

The future outlook for cottages, WCBR, is not strong.

We will build more apartments.

So, what I have done is outline for you some pressures we have on functional obsolescence of cottages, economic obsolescence of cottages.

These cottages have been treated very similarly in the valuation method used by the assessor.

and they are very, very different.

They are not all the same.

Yes, I did.

And I would ask you to turn to exhibit B, which is next in the package.

It's a B I will walk through very similarly.

We've grown over a long time.

As I mentioned, we formed in 85.

We opened our chairs in 1990.

So through this table presented in front of you, I will outline the various generations of our main buildings, including the first of which was the Monticello apartment building.

Originally, we had 81 Monticello apartments.

These were small, many one bedroom apartments.

We have 64 today, and we will be going to less than 60 apartments in Monticello.

That's correct.

It's labeled F and G. I can direct your attention to the list of challenges we have with a 33-year-old building.

Again, I won't read every single line on here, but essentially these are dated.

They have eight-foot ceilings.

They have P-TAC units.

They are smaller than desirable in all features in terms of not being modern.

The floors in this building are not concrete.

They have a little bit of sag or sway.

The sound insulation is not as good as we would like for it to be.

Certainly leaves some opportunities there.

and we have limitations on generator support, power backup, and the Monticello units.

They don't come with washer dryers, they don't have dedicated parking spaces, they don't have in-unit laundry unless we've done a combination to provide that.

The assessor's record shows that these are marked as excellent.

And in this year from 22 to 23, we've had a 14% change in cost.

We've had 11% increase in value due to the removal of depreciation or an adjustment to depreciation.

We've had a 40% change in the assessment.

This 33-year-old building has changed in value, assessed value, by more than $6 million from 22 to 23.

Moving to our healthcare and vista building, which on the map in front of you is located in item C and D to the left center of the map.

Yellow, they're yellow.

These are 28 or 33 years of age.

This is part of our care continuum.

We have 52 licensed nursing home beds.

and 12 Vista memory care units in this healthcare area.

It's our original healthcare building and in need of replacement.

Rooms are small, have eight foot ceilings, PTAC heating and cooling units, small windows, there's an inability to combine them and the floor to ceiling clearances also make them very difficult for contemplating an in-place renovation to a health center.

We have constrained space for our clinic and PT areas.

We have inadequate staff space and very little supply and storage space.

These buildings are also considered excellent in the assessor's record.

In 22 to 23, the change in cost was a 24% increase.

The depreciation removed impacted value by 20%.

The overall change in assessment is a 26% increase.

for $1.2 million in the change of value of this building.

Moving to our Catered Living building, which is 23 years old, there are 45 assisted living units at Catered Living.

It is noted in the orange color.

Item E on the map in front of you is our Catered Living building.

Again, we have small rooms here, smaller than what the market offers for assisted living residences.

Some are just efficiencies, not even one bedrooms.

This building has three small dining rooms on three floors.

They are operationally difficult.

They are disconnected from our main kitchen.

This is the narrow connector that you can see between E and D.

is a less than desirable narrow ramped walkway between the two buildings.

It connects on one floor only.

That creates operational challenges to supporting the building.

Meals are served three times a day in catered living, three times a day in healthcare and vista.

This building, likewise, is listed as excellent in the assessor's record.

There's been an 8% cost increase, a 28% depreciation decrease, 15% change in assessed value This 23-year-old building with no additions, no improvements, no updates has increased nearly $1.2 million, $1.188 million from 22 to 23

Our Blue Ridge apartment building is indicated by A on the map.

It's lavender at the top.

It's a larger apartment building with wings on either side.

Blue Ridge apartment building has 121 units, and some of the floor plans here require opening with kitchens that are too small, definitely not open in terms of what would be expected in a modern market.

This building has original roof, gutters, soffits, and needed repair.

It's a 20-year-old building.

We're facing significant maintenance issues coming up with needing to invest in the Blue Ridge Building.

The roof on this building will be over a million dollars, probably closer to one and a half.

Gutters and soffits and repairs that are needed in this building are quoted and planned at half a million dollars.

So it's a very, very high cost burden.

This property is listed as high in the county's record.

It has a 12% cost increase.

This one does have a 40% depreciation decrease, a 24% change in assessed value for a $13 million change in value for Blue Ridge.

I will turn to the next page, which is our Pantops platform.

This is our newest department building.

Item

J. and I. and H. It's on the yellow to the right-hand side, right center, that is Pantops Apartment Building.

is our newest apartment building and so the point to make here is that because we had begun the process in 2012 of apartment combinations in Monticello, again we started with 81 Monticello apartments and we began combining them because 600 square feet one bedroom apartments were unmarketable.

The direct result of needing to combine Monticello apartments and reduce the unit count is what drove us to increase the unit count in Pantops we added.

We essentially returned inventory to our property.

This building is listed as excellent.

It's at an 8% cost increase, a 4% depreciation decrease, a 13% change in assessment, $2.87 million of increase.

Overall,

Not having made any new improvements.

There are no new buildings on our campus.

We renovate units when they turn over.

Do you have capital investments that would be considered maintenance capital?

We spend five to $6 million a year on routine maintenance items.

It's a large building.

a large set of buildings on our campus.

We've made no new improvements from 22 to 23.

We've seen a 12% cost increase, 22% depreciation decrease where for years a depreciation method was utilized for our property that for some reason from 22 to 23 changed.

23% change and 22.2% in the overall assessment, 24% on improvements, a $20 million change in our assessment value.

Turning to the next few pages, I'm not speaking specifically about cottages or apartments, but in terms of offering life care, I will describe for you as I have described for Mr. Lynch and his team,

What costs are associated with providing life care?

We offer a long-term care setting and service to residents who live to Westminster Canterbury of the Blue Ridge to live there for the rest of their lives, we offer.

And I will also note, because we are an insurance product and model service, we use actuarial

Computations, actuarial support.

So just as an insurance company, we manage risk and understand what our future costs.

We must be prepared to cover.

We use an actuary throughout the year for budget purposes, for price setting, and for our audit requires use of the actuary.

We have a $73 million future service obligation

based upon that actuarial computation.

We have over $30 million in refund obligations associated with our refundable contract.

And so it is important that we have a conservative method for managing our finances and that we use this actuarial science for the longterm view of what are the risks and future costs and obligations.

By offering life care, we must have care available, care areas available to our residents for any care continuum movements.

Again, monthly fee does not change as a resident would move from independent living to a care area.

They are basically eliminating risk for needing future care and ensuring that couples can stay together and move into our community.

Our care, life care contract guarantees assisted living, memory care, and nursing care, a clinic, a medical director, and therapy services.

We have very high operating expense associated with life care.

The residential services component of the agreement guarantees dining, special dietary support, transportation.

We provide routine transportation for medical appointments, getting groceries, going to church, memorial services, events that are organized.

Bright Housekeeping and Loan Service, 24-7 Emergency Response.

We provide all utilities for the units, groundskeeping, repairs and maintenance, storage, parking, activities and social events.

Importantly, importantly, we offer financial support and it is in our life care contract.

No resident has ever had to leave WCDR for outliving their financial resources.

We make a contractual commitment and obligation in our life care agreement that should, through no fault of their own,

A resident outlived their life expectancy.

They will never need to leave WCBR.

We provide fellowship support to residents.

In over 30 years, we provided $6 million in fellowship support to residents, and that's not inflation adjusted.

If inflation adjusts that figure, it would probably be near $20 million, $6 million over 30 years in terms of fellowship support.

It's in our contract.

We also provide fitness and aquatics at Onsite Bank, social workers at Chaplain, and many, many other services.

Another factor to consider within external economic obsolescence is that we have a very limited market.

Residents must qualify to engage in the contract.

They must be 62 years old.

There's an age qualification.

Non-smokers, we have a medical evaluation as part of qualification, as well as the financial

disclosure and qualifications so that we know what risk we're taking.

So that essentially concludes the walkthrough of functional obsolescence and external obsolescence, which is one of our key points in appealing this change in value from 22 to 23.

If I could drill a little bit deeper into the income pressure.

Turn to the next page.

I would like to describe specific to 22 and 23.

Pressure on operating income on all margins.

We, for a number of years, have had a 2.5 or 3% fee increase, even in this inflationary environment.

We've had a 3% fee increase to residents, and that is implemented every July 1.

Their monthly fee increases by 3%.

In the six month period ended December 31-22 and I state that because our fiscal year runs July 1 to June 30.

Our operating expense growth is over 10%.

Mr. Lynch was kind enough to have us meet with him.

We proceeded with meetings during the administrative process of this review.

And we met with Mr. Lynch, Ms. Collier, and Ms. Taylor on March 16th.

We showed a 24% deterioration of operating cash flow with the period.

ended 12-31-22.

The table in front of you is directly from the internal P&L statement summarizing independent living resident fees, care area resident fees, and the six-month year-over-year comparison.

While revenue has increased in that six-month year-over-year comparison, note departmental operating expense well exceeded that with the growth we've seen in this stationary environment.

Computing operating cash flow and excluding interest, you can see we had a $242,000 deterioration of that operating cash flow.

Including interest expense, you'll note our cash flow, our P&L cash flow is negative.

We operate on a very thin margin, again, needing to be conservative in planning for the future.

So the entrance fees and monthly fees together help us make this work from an actuarial perspective.

During that March 16th meeting, we attempted to further explore the use of an income approach to further explain our finances, our financial model, and some of the risks that we take on.

Lynch declined that opportunity to continue to go further in understanding our financials.

We've had a very high renovation expense for independent living turnovers in this inflationary environment.

22 costs for renovation.

So with the terms of units and needing to renovate those for new residents, we had a very steep increase in the cost of materials, labor, supplies of 60% over 2021.

Furthermore, in December of 22, occupancy was still well below pre-pandemic levels.

The table in front of you shows the main residential areas of our community.

And it shows historical years, year-to-date December 2019, so that's fiscal year 20 for us, but in December of 19, that's pre-pandemic.

And you can see our occupancy levels across independent living, catered living, VISTA, healthcare, and total.

So that's our pre-pandemic level of occupancy.

in fiscal year 21, we declined in fiscal year 22, 20, we declined in fiscal year 21, 22, 23 for the six months ended December of 20, 21, 22.

You can see the trend in independent living occupancy.

Finally, I'll state we make no money on care areas.

So the independent move-ins, independent living move-ins, and movement through the care continuum is a key driver in our ability to afford expenses and the future risk.

You can see in the information provided to Mr. Lynch and his team for the December of 2022, six months.

Before you move to the exhibit C, which deals with the uniformity question, I would ask you to the same subject of income.

There's an exhibit in your folio that is a spreadsheet of income and property.

It's not numbered, though.

It's allowed.

And this is an exhibit that doesn't have a title, Mr. Canterbury.

Line number of references is shown there right to the right of the name of the facility, if you all have that.

Yes.

This is exhibit D, and I will move through this quickly, but this information is publicly available.

We've shared audited financial information with Mr. Lynch.

The columns represented on this exhibit D are from our audited financial statements for the fiscal years presented 18, 19, 20, 21, and 22.

I've also shown the internal financials for the six months ending December 31, 2022.

And while

I've annualized that.

So the final column to the right is the doubling of six months, 22 for comparability.

We could all probably share an opinion on whether that annualization is something that is comparable, but for the purposes of giving you something to compare, because we showed Mr. Lynch that six months ended December

year over year, we're not increasing in income.

We're not increasing in income.

Straight from our audited financials, this presents revenue, two categories, patient and resident service revenue, other revenue, total operating revenue, our departmental operating expenses, depreciation, amortization, and interest.

So our operating income in a typical year

is $3 to $4 million.

Fiscal year 22 was higher for investment income.

Our operating EBITDA is typically, and I exclude investment income and contributions because that would not be considered into computing net operating income.

Our EBITDA, excluding investments and contributions,

is right at $13 million, and it hasn't changed.

In the 22 period, fiscal year 22 audited, we were at $13.4 million.

In the year to date, 23, which is the year 23, which is the six months ended, December 31st of 2022, which is immediately preceding the assessment, it dropped, it dropped.

We annualized to $12.9 million in annualized operating EBITDA, less investments and contributions.

All right.

Now moving to the question of uniformity, now directly, try to keep moving along here.

Yes, I did.

The group at the top are multifamily properties, apartments, properties that are dissimilar to Westminster Canterbury of the Blue Ridge.

And you can see the, we all know from press release, et cetera, and this demonstrates multifamily properties increased 25 to 30% in Albemarle County.

The middle section of this table is the category called convalescent hospital in the county's database.

And these are essentially nursing homes, nursing homes.

And we're comparable to nursing homes because we have a 52-bed health center, which is licensed as a nursing home in the Commonwealth.

So Charlottesville Health and Rehab, the Laurels and Albemarle Health Rehabilitation Center are direct comparisons for the 52-bed health center on campus.

And you can see on the improvements increase as you scan across the page where it shows the difference in land value, the difference in improvements assessed,

It's less than 5%, 7.4% for Charlottesville Health and Rehab.

These nursing homes and their proven values did not increase anywhere near the level of our overall assessment increase or our health centers assessment increase.

Moving to the third group on this table.

And I will skip the first one, which was there just for reference.

Collinade, Retirement Village, Our Lady of Peace, Conwell Senior Living, Morningside of Charlottesville, Rosewood Village, Lodge at Old Trail, Linden House, and The Blake.

These are very similar to Westminster Canterbury, the Blue Ridge, in that they offer three levels, and in some cases, four levels of care, as we do, independent living, assisted living, and memory care for the majority.

and for Colonnade Retirement Village, Colonnades offers four levels of care as we do.

Where we differ from Colonnades is in our contract model and that we provide life care.

We provide the lifetime commitment to residents where the Colonnades is more of a fee-for-service model and they do not take on the level of risk that we take on in providing long-term care.

Colonnades will not have a large, large future service obligation and refund liability nearly to the extent that Westminster Canterbury of the Blue Ridge has on our balance sheet.

Noting the change in value for these homes for the elderly, as I mentioned in my opening remarks, Westminster Canterbury of the Blue Ridge is the home for the elderly and our property is indicated on blue-shaped lines of this exhibit C.

Within homes for the elderly, the improvements increases across these properties in Albemarle County, many of them are 4.2%, 4.3%, 4.5%, 6.2%, 8.2%.

Comparing to Westminster, Canterbury, and the Blue Ridge, a home for the elderly at 250 Pantops Mountain Road, our improvements increased 24.2%, 22 to 23%.

Again, I will emphasize we've added no new buildings.

Something is different.

Something is different in how our property has been assessed in comparison to Homes for the Elderly.

We are a nonprofit and

I conclude that this is not uniform in how our property has been valued and how other homes are held elderly.

Very well.

Now, Mr. Chairman, that concludes Mr. Buchanan's testimony.

There are a few that have passed these items.

I wouldn't say require testimony, but I want to point to certain things in the exhibits.

First of all, I have included in your folio the

It's a long sheet that shows the assessment of third properties for the sixth residential and third commercial, both for 22 and 23.

You'll see those blue highlights and the green coloration.

Those charts are actually Mr. Lynch's office, at least those to show.

exactly what the numbers are for each property and the 23 year it actually does show the depreciation reduction for that year.

I also have provided you with a chart that's also not a numbered exhibit, Mr. Arsali.

in terms of what depreciation was used in 23 and what was used in 22 and also what the difference is in terms of the increase for each of the commercial properties so that you can have at your fingertips without digging into the actual assessment cards, the actual composite numbers.

And Mr. Lynch and I worked to try to simplify that so that there's no misunderstanding about

what these depreciation calculations are.

Nevertheless, I have produced, just for the sake of thoroughness, for the record, complete printouts of the cards.

And I'm not saying that you should actually go through all the cards, but it seemed to me for a complete record, the actual cards ought to be in the record.

Now these, I did make eight of these.

They're just too bulky.

I had one set of the cards for the two years for the residential only.

Now, in your portfolio, you have the cards actually produced eight times over, you know, five, you know, extras for other people, but you have the cards for the commercial in your actual materials.

And then you have the summary of that in the competition sheet that I've provided to you.

So with your permission, I would like to have these cards in the record just for the sake of creating these records.

And these are the cards for the residential for 22 and 23.

Now lastly, you have in your materials that are provided excerpts from the Marshall and Swift cost manual.

And the Marshall and Swift contains text material that guides the application of functional and external obsolescence.

and I would just invite your attention to these past, the standards by which Ms. Buchanan has tried to align her testimony to show you that the kinds of things that she's pointed out definitely fall within the definitions of functional and external obsolescence.

And importantly, the overview portion of the manual, it provides that the, any, that,

Any abnormal or excessive functional and any or all external obsolescence are considered separate from these and are not included in the tables.

So when the tables are used to compute obsolescence, to compute, not obsolescence, depreciation on an age life basis, the tables are like a mechanical process.

How old is it?

And then of course, the judgment has to be applied.

What is the economic age?

It might be 50 years old, but it's all upgraded.

So it's deemed to be less than 50 years old.

So that happens.

And when you see a 13%,

but used as the depreciation after adjusting for that factor.

What you see in the use of the tables is that kind of thing.

That's what Mr. Lynch has done.

What we're saying is that all these other things have to be considered separately.

They are not

Just something you say, well, it's my judgment that I picked it all up.

No, the manual says there's functional and external.

Something more has to be deducted for that factor.

What we're trying to show you is that

This factor, these elements have not been taken into consideration.

They have not been shown separately in any of the cards.

That's why I've included this excerpt from Marshall and Swift in your materials so that you can actually read what Marshall says about these elements of obsolescence in depreciation.

So,

This concludes, we would like to reserve, and I appreciate you allowing us to go, oh, you can see it's very difficult, quite get this into 45 minutes.

We're not that far over that, but we would like to reserve the opportunity to speak at the end.

If you can, we'd like to sum up, and at the very end, after all the testimony, that's all right with you.

With that then, we've missed our case.

We believe we've shown you that there's been a disregard and no basis in physical improvement or in income or any other way for this assessment to have increased by 24% over the prior year.

And that the income was not considered, which was shown as nothing, ramping up in the operations side.

And so in the uniformity, there's something awry here, something really disturbing about an increase like this from all the other

just going right along as usual.

Not all of them, 4%, but most of them.

Four, six, eight, mostly around four.

So why are we, what justification, what possible justification is there for this case?

We don't see it.

We ask for relief from it.

That concludes our case.

So before I have you, I started, obviously we now, we have these.

Do you have any objection?

They're going to be provided by me to the applicant.

The cards first, the problem.

Okay, so obviously we don't go through the formalities of evidence here as we do report, but we will admit these and review these as well.

It's not necessary.

Mr. Lynch, before you do get started, is anybody on the board or otherwise in a break before we keep going?

It's good?

You all are good?

So as Ms. Buchanan said, make sure I'm speaking up, the mission of Westminster Canterbury as a home for the elderly is to provide housing for those elderly senior citizens

But I would add, with means.

I mean, this is not a charitable, like, bring us all you're poor and needy.

This is a property that only accepts people that have the means to pay for this long term care and the basically rent to live in this property and which

You know, we talk about quality of this property, it is excellent.

So I want to make sure I'll get to kind of the cost approach in a little bit, but the description of this property as excellent as appropriate now.

Parts of this property are older, and they're not necessarily in excellent condition.

So I always want to make sure that there's a difference between quality and condition.

And when we talk about excellent, which we definitely call the commercial parts of this property excellent quality, that is what we're referring to.

So also,

I have a problem with this property being just considered the same as long-term care insurance.

I mean, this is a residence for these people.

There's this component of healthcare that goes along with it, which is included in this

Very complex income model, but it is a place for them to live for the rest of their lives.

So whether you call it rent or not, they are paying an upfront fee and a monthly fee.

And at least some of that, if not most of that, covers rent for them to live there.

So I want to talk about, because there are some, it wasn't necessarily said today, but there's some information that was provided in advance that was concerning.

It was kind of a critique of the assessment.

And there was some information regarding whether the work that we did on the assessment was

Supportable, was it in compliance with USPAP, all of these kind of assertions.

So I first want to say that USPAP applies to appraisers.

USPAP standard five applies to mass appraisal.

But besides standard five and the development of a mass appraisal,

Uspap has a competency rule, has a scope of work rule, has a jurisdictional exception rule.

Now, that jurisdictional exception rule generally tends to apply to a assessor's office more than anybody else because we have very specific laws that we have to follow and requirements that we have to do.

We have 49,000 properties to assess every year, not just this one.

Albeit, this one is the most valuable

It's a taxable property in the county.

So, you know, obviously I think the only one more valuable is non-tax and would be the university.

So, but you know, we have a responsibility to assess this property appropriately along with the other 49,000.

While we have different legal mandates, our work procedures, workloads are different than someone doing a fee appraisal, which these two appraisals that were provided to you are fee appraisals.

What the work we do is not in conflict with USPAP in any way.

Also, and I'm going to talk about this very briefly, but it comes down to something I'll talk about when we talk about why we did not develop the income approach.

But we have gone back.

So I also want to make sure that I notified you when I sent you all the information.

There is a pending lawsuit, Mr. Downey,

has filed for 2017 to 2022 assessments.

This is in circuit court.

And we've been going through this litigation for a couple of years now.

And a reason why this is important is because it's what I learned and my office learned during this process about this property,

that caused the changes in this assessment.

So we are not saying that this property is more valuable by 22% this year than it was last year.

We are saying that our assessment last year was too low and we have corrected that assessment, we have corrected the way we're doing the assessment now so that we have gotten rid of parts of the adjustments we've made

and we're now coming up with an appropriate value based on the fact that we learned from what was going on with this lawsuit, the information that was discussed during that lawsuit.

And that's an important difference to understand.

When we're looking at comparable properties and these are of limited comparison because of the entrance fees of this property,

and the amount of money or the amount of value or assessment change of those properties compared to this one this year, it's not comparable because there's a totally different reason why the assessment went up in the Westerners Canbury this year.

So the issues as I see them is the complexity of this property.

The application of the income approach, and as you see, you've reviewed these appraisals that were provided, the income approach is very complex.

The income streams are very complex.

Ms. Buchanan talked about the liability for long-term care in their balance sheet.

She didn't also point out that there's $75 million, $74, $75 million in cash and investments that they hold.

Talk about Colonnade not being a parable.

Colonnade doesn't have that liability, but they also don't have $75 million in assets to cover that liability.

So there's a total difference in the way those properties are run.

And why that's important is the complexity of this property is so much higher because of that.

And I'm going to get to some details about that when I talk more specifically about the income approach.

So I've provided to you an appraisal that was done by Jim Telleton in IRR was the Integra Realty Advisors.

And he came up with a value, a market value, a be simple market value of 178 million, 35,000 for 2023.

That was effective January 23.

That's after, now he did an income approach, he did a sales comparison approach, he did a cost approach.

So that $158 million was after he deducted through his very complex calculations.

a deduction for FF&E and for intangible assets, which is basically your going concern.

So it's called different things by different appraisers.

And Mr. Lenhoff calls it going concern.

And Mr. Telleton is referring to it in his value report as intangible assets.

It's all really the same thing.

So

Mr. Telekin came up with a cost value of 169,650.

169,650,000.

His sales comparison approach, and talking about it, so we did not develop a sales comparison approach.

And if you look at his comparables, these are comparables that they had some really detailed information on.

We're in California, Colorado.

There's certainly nothing in Virginia.

There's Florida.

I can't remember if there were other states involved there, but they're all over the nation.

The direct cap income approach, the DCF income approach, we do not develop a DCF typically in assessor's offices.

The complexity of that is, you know, it's been, you know,

discussed in court and typically there's too much complexity and not just complexity but so many options, so many variables that it's difficult to rely on that approach.

But that was part of what a typical fee appraiser would do in a cost and income approach.

and of course those values that were determined, $223 million, $238 million, $229 million for the sales and the two different income approaches that Mr. Teleton provided then has the going concern and FFPB deducted from that to get it down to a fee simple market value for the real C&L.

Mr. Lenhoff, on the other hand, did a cost approach and did an income approach.

But I think it's really important to look at what is missing out on Mr. Leihof's income approach.

And also to look at the extreme amount of depreciation.

So the applicant talks about

Depreciation of this property, functional and economic depreciation of this property.

This is a property that is being used for what it was designed for and built for.

It is being constantly updated as the residents

pass away or move out.

I don't know how many actually move out.

I don't know those statistics, but these units will be renovated as a new tenant comes in.

And in the Monticello building, quite a few of those units have been renovated to combine two units together to make them larger, to give them a larger bathroom.

So that kind of work is ongoing.

That happens all the time in this property.

and that kind of thing as time goes by and those renovations get made, get rid of that functional obsolescence.

Economic obsolescence is very complex in the way it's being presented here.

I believe the Lenhoff appraisal says because the costs increased over the last couple of years,

but the income didn't increase the exact same percentage, therefore it's economic depreciation.

Well, I just don't agree with that.

I mean, economic depreciation, we understand if the cost to build a building went up 15, 20% and nobody's building them because of that.

There's no demand for that type of building anymore.

despite the fact, because of the fact that the cost went up, that would be a reason for economic depreciation.

But there is still demand in Albemarle County for commercial buildings.

There's still demand for this type of property.

There's no reduced demand.

There's certainly, now Mr. Buchanan showed you, there's reduced occupancy on this property

since before the pandemic, but this is a senior property.

We would absolutely understand that occupancy in a multi-family type property would be reduced during and immediately after the pandemic.

I'm sure that's not a big surprise to anyone that that situation has happened.

Let me get back to my notes, make sure I'm not missing anything here.

But we believe that certainly Mr. Lenhoff has grossly overblown the depreciation.

Another point that was made was that our costs were calling this property excellent.

Well, as I said, excellent quality.

But even then, our costs that we're using for $40 or $50 million below both the appraisers

that cost new amounts that they included in their appraisals.

Now, I should have pointed this out.

I gave you some handouts up here in the corner here that includes some of the information that I'll be talking about.

And let me make sure I have...

So I have this summary of appraisals, and I should have pointed this out first.

That's what I'm talking about.

So you can see these values here in your room.

I think I have an extra here.

Please.

Oh, you all have one?

Okay.

No, I think actually, is that yours?

That's yours.

Do you have one, Ms. Peyton?

I think they might have been offset.

I have one here.

I think there were definitely four put over, so that one is Mrs. Pape's icon.

Okay, there you go.

So this has all the information that I'm referring to.

I just wanted to summarize, because there's so much information in these appraisals that were provided that I had to, just to organize it for myself, say, well, what is each of these appraisers doing compared to what we're doing?

And so I've provided here the different numbers for each approach.

So as I said,

Mr. Leinhardt did not develop the sales comparison approach.

I did not develop the sales comparison approach and I did not develop the income approach.

However, I want it to be very clear because it's been presented that in this document that was provided in advance that this is a use path violation because I did not consider the income approach.

Well, that is absolutely untrue.

I did consider the income approach.

and even more importantly, we did an income approach in 2016 and before.

That work was so bad that when I looked at it, I said, this is not appropriate, and then started looking at what would be appropriate.

This is not the first.

I first came here in 2000.

I actually came in 2015 and took over in 2016.

So the 2017 assessment was the first one I was really responsible for.

However, there's a Westminster Canterbury very similar of the Chesapeake Bay in Virginia Beach where I came from.

So I assess that property down there.

I'm very familiar with it.

I'm very familiar with the same issues that relate to it.

So my history with Westminster Canterbury doesn't just go back to 2016.

So

The work that I found we had done before was inappropriate.

And because of the complexity of the income, I decided at that time we would not be able to come up with a credible value that was not misleading in any way, which is kind of our mandate as an appraiser, and that the income approach would be inappropriate for our use.

I definitely considered it and I definitely rejected it.

So that is not a USPAP violation.

That is exactly what we're supposed to be doing.

So just to respond to that information that was provided.

All right.

So before I get back to income, though,

I wanted to discuss depreciation.

So we often hear from appraisers, from the appraiser certainly, the only appropriate use of the cost approach is for brand new buildings or for special use buildings.

Typically it is, you know, not a lot of effort is put into it, you know, a lot more into the sales comparison and into the income.

But depending on the type of property,

the cost approach can be very effective.

And we do the cost approach and rely on the cost approach for most of the properties or all of the properties actually have the type of issue that has the going concern situation like this property, like nursing homes, assisted livings.

So there's a big component that a value that's created

by the operations that are going on, by the medical services that are provided, and how to properly isolate or identify how much value that is is very difficult.

And as you can see in both Nelson and Glenhop appraisals, all the motions they go through to try to do that kind of proves my point as to how difficult that is.

So like I said, we developed the cost approach on those types of properties.

We also do sales ratio studies on our commercial properties.

And we use those sales ratio studies, which in itself is a sales comparison approach.

for mass appraisal.

And we make sure that the cost values that we are using, the cost values that we are coming up with for assessment are appropriate compared to the sales.

So we have assessed all of our nursing homes, assisted livings, and this property, and others by the cost approach.

And then we calibrate that or check that through our sales studies to make sure that the ratios are appropriate

Obviously there's no sale of Westminster Canterbury.

We don't expect there's going to be one anytime soon because of the way it's set up with its non-profit ownership.

So I want to overview our cost approach.

So I've provided, as part of this packet, this one depreciation.

And it has this graphic on the front.

So I think it's really important.

And even though this is a life cycle chart of a residential property, which this is, Mr. Canterbury is an essence of residential property, but it's a commercially

You know, it's more like multifamily residential with the components, not like a single family and I'm not trying to say this, but this is a great graphic for explaining how depreciation actually works.

because we talk about Westminster, Canberra and if you look at some of the pages after this cover page, we'll be talking about the home for the elderly has either a 50 or 60 year life depending on its construction type.

And this property is not gonna,

the bulldozed 50 years from now or 60 years from now.

So how does that work?

We're saying it's a 50 or 60 year life, but it's not going to die in 50 or 60 years.

What really happens here?

So this graphic shows that there's work being done at different levels.

through the property's life and the effect on depreciation every time a major item is done.

The roof that Ms. Buchanan was talking about for a million dollars on the Blue Ridge, when that gets done, the depreciation drops.

So over time, it goes up and down, up and down.

However, we don't do an analysis of every single item that's being replaced on a property.

We'd look at the general condition of the property.

Is it being maintained?

Is it falling apart?

Is it pristine because they're doing an excessive amount of

of work on it.

In this case, we're saying it's average, it's average condition for the age of each component of each, and when I say component, I mean the different buildings that were built at different times.

So, when you're thinking of depreciation, you really have to keep this in mind, that that depreciation does not just

in the building in 50 years or 60 years.

It's important to understand that it's a kind of continuum of reduction in value.

So if you were to look through these, you would see that each parcel, I'm sorry, each building within this community, and these are, we're referring to the commercial buildings, so the Blue Ridge ring, the Pantops ring, the Monticello wing,

the nursing home and assisted living.

Each one of those has a page straight out of Marshall and Swift to show what their life would be, their expected life would be.

And then based on their expected life and their actual age, and we're not saying that they're less age than they are actual, what would their depreciation be on a building like this?

So we are using Marshall and Swift costs.

We're using the Marshall and Swift depreciation.

It's an appropriate combination.

Now, like I said, our Marshalls would cost $176 million.

And I think that number was $40 to $50 million less than what the appraisers are coming up with.

We're using more appreciation on top of a higher number.

So I think that's important to understand.

So also as part of that handout, I have provided, that's not it.

Here's West Michigan varied building permit summary.

So this actually has a list of all the building permits that were taken out on the property, but at the top right corner, top left corner of the cover sheet, it has the total amount of money based on the building permit work amounts that was being spent on the property

For this, this is not maintenance.

This is typically where the renovating units are there, you know, they haven't built any new units.

So the last ones that were built were in 2015-16 with the five villas and pottages.

But you can see the work that's being done in the work.

in the notes that are on this.

So you can see the kind of updating that's being done to these units.

Some of these, it should say that they're combining the units together.

They're doing other types of tiling and stuff like that.

This is your normal updating of a property so that it loses that functional or

or any extra physical depreciation that it would have had.

And it brings it in line with exactly what Marshall and Swift is saying a property does and why that Marshall and Swift depreciation is appropriate.

So as I said, we kind of have learned about this property

errors, misunderstandings that we had about this property during the lawsuit.

So we learned quite a lot.

We learn everything.

We learn something every year in this job because we do so many different things.

But we certainly learned a lot as by seeing the Lenhof appraisal initially and then the Teleton appraisal after that and exactly how all of the income

components of this property come into play.

So that's important when it comes to understanding why this value has changed both down and up over the last couple of years.

So in 2022, the lawsuit, we had received the Lenhoff appraisal because of the lawsuit.

because of that, honestly, I was being a little conservative.

I went down on the assessment.

I increased the depreciation.

We went down from 134 million to 131 million.

We didn't change that based on the market going down.

The market wasn't going down from 21 to 22.

The market was going, on average, went up eight or 9% throughout the county.

That was really a reaction to the Lenhoff appraisal.

You know, where should we be?

It's trying to take into account all the information that we had at that point.

However, then we learn more in the next year.

We have the Teleton appraisal and all the information that's provided there and what a wealth of information that was and knowledge of these types of properties.

And we found that, wait a minute, you know,

We're doing this part wrong.

We need to adjust where we are.

Now, all of that previous year stuff, I'm saying that we were too low.

That'll all be determined in the lawsuit, in court.

You're just here to decide, this year, is this $160 million value appropriate or not?

So now I want to talk about income.

So this is what I was thinking.

Some of this is what I was thinking at the time.

I dismissed the income approach.

Some of this I've been thinking of since.

So I've kind of mixed these items together, but it's all information that we need to consider.

So the property received

just based on the occupied units, and this is based on the census that Ms. Buchanan provided to me this year.

They received $137.8 million in entrance fees just on the occupied units.

So they booked those over time, but up front, $137 million on those units.

How do they get booked?

How should they be counted for the income approach?

I think that's two different things.

They book them based on probably accounting rules.

How would an appraiser book them?

Because if they're expected, if the residents are expected on average to live eight or nine or 10 years, depending on the information provided by Mr. Buchanan,

and I don't know what time period they're booking them over.

They book them over 10, 15 years.

The appraiser should use that over the time that would be expected for those to be used.

I don't know.

I don't know the correct answer to that.

And I didn't know that then.

They do hold a $24 million refund liability on these fees according to that same census.

I think that's a little bit higher on their balance sheet than she was talking about.

They also receive approximately $2 million a month in fees from these residents.

You can consider that rent.

You can consider that long-term care insurance payments to cover health care.

I'm not denying there is health care provided in this property.

But how does that get utilized in the income approach?

They run the property like it's run by a non-profit, but what happens to the money that is left over when one of the residents passes?

According to the Teleton appraisal, and I want to get this number right, it was in his reconciliation page.

The turnover entrance fee revenue for 2022 was $10,834,000.

So how do you treat that?

On top of the revenue that's being booked that year for the upfront fees and on top of the amount of money you get monthly.

Also, he points out, there was an estimated imputed entrance on the entrance fees for January 1st of 18, more than $18.5 million.

So they're holding on to $75 million, like I said, in cash and investments.

That is income to the property.

and it's income that needs to be considered when you're figuring out a value of this property by the going concern or by the whatever you want to call that overall value.

That was definitely a number that was not included in the Lenhof principle.

He's completely ignoring it appears the fact that those assets exist and they can be utilized and that

and that that money, the turnover entrance fees also exists.

So he did not include that at all.

He included an income approach that was more similar to an apartment complex than what this property actually does.

The...

The book value of the property is $196 million.

Now book value is not assessed value.

I mean, it's not a market value, but that's certainly a piece of information.

So, you know, why is there a huge difference there?

Now that includes those $74 million, $75 million, whatever the number is of those entrance fees that are being held onto.

When the residents are paying these large upfront fees, how does that affect the risk profile of a property?

When you determine a cap rate on a property, effectively, the cap rate is rock and roll.

It's return of capital, return on investment, but it also includes risk.

the risk profile on top of that.

So you're investing something, you want to get some of your investment back over time, you wanna get a return on that investment and you've got to cover how much risk of you actually getting that money back is.

So the cap rate includes all of those components.

So how does the fact that they're holding on to $75 million in upfront fees

reduced the risk that they have to provide these services to the residents.

And something that Ms. Buchanan said, they provided $8 million.

I think it was around $8 million.

But if you adjusted for inflation, it was $20 million, something like that.

So compared to the amount of entrance fees that they get and the amount of entrance fees that go past, we don't know, we haven't been provided with.

You know, Mr. Telekin talks about in 2022, in one year, there were $10 million in entrance fees from turnover.

Now I'm assuming that's entrance fees that were held

that were a previous tenant's or resident's entrance fees that when they pass and they leave the property, however they leave the property, that entrance fee is then held onto.

You know, it doesn't go back to the owner unless there's a clause in their contract for a refund.

And the refund, you know, we already talked about 24 out of the 137 million is the refund obligation.

So the rest of that goes to the property.

The income that was provided by Ms. Buchanan, it was her, I want to say it was exhibited

Exhibit D includes depreciation, amortization, and interest.

Those are not appraised expenses.

So when she says that the cash flow decreased over time, depreciation is not a cash flow, amortization is not a cash flow, interest

It would be a cash flow, but it's not an appraisal income or expense item that would be in the income approach.

So these items all increased over those times.

So what effect would that have if you actually just looked at appraisal related income and expense items?

We don't believe that the income actually dropped in this property in any of these years.

So like I said, the income approach was not developed in 2017 to 2022.

So development of an income approach for 2023 wouldn't necessarily have come up with a lower value because I'm assuming that if we developed an income approach in 2023,

It would be based on the similar information that was developed in 2020, would have been used in 2022.

So to say that we would have come up with a lower value in 2023 if we'd done an income approach, I think is wrong-headed.

Fortunately, what the truth of the matter would probably be is we would have come up with a much higher value, much higher value in 2022.

And the change in value for 2023 based on an income approach would have been a little higher based on the change in these numbers.

However, that's not really what the assessment was based on.

So if you're comparing an income approach for 23, you'd have to compare it to an income approach for 22, not the cost approach that we developed last year based on what we knew last year.

So we also, and this was in response,

Exhibit C, which changes that Ms. Buchanan went over of the other types of properties.

And we put this together, and the only thing I want to show here, just before the meeting, and we were just trying to show the previous year changes.

So this is the same properties that were included in the applicants packet.

But we just included a column for the 2021 to 2022 changes and we've

You know, show here that Westminster-Karenbury went down 4% that year, as I've already explained and why.

The Blake went up 18, 16.8% last year.

We learned more about that property last year.

So, you know, our assessment changes aren't just because of what the market's doing and also what we're learning about properties over time.

And some of these other properties, they were pretty much flat.

as opposed to the subject going down 4%.

So there's a difference there.

But as I've already said, the reason why this property is not going up the same amount as these other properties for 23 as are indicated on this spreadsheet is because of the change we made.

And we made it on purpose and we made it for a reason.

So, and then I have a few comments just in response to some of the information that was provided.

Ms. Buchanan was talking about the Jefferson cottages and how obsolete they are, how old they are.

However, these residents, these residents with means that they have paid on average $410,000 entrance fees to get into these cottages.

So the Jefferson cottages we have as a B grade home.

So we are definitely not calling these excellent.

So I want to make sure that that was clear.

So, you know, if you were to look at it's the information that Mr. Downey provided, the new files of pages there, they have the individual

Property worksheets for each of the villas and those are either B's or B plus twos because the quality of those homes as we compare to them other homes in Almar County are not very high quality, as high quality as an A or luxury or anything like that.

We're not trying to say they are.

We have them, like I said, these Jefferson cottages as B grade, which is really your average home for the county.

And we also have the, and like I said, people pay upfront $410,000 just to live there, plus their fees.

They're deciding.

So I think it's important also to know, Ms. Buchanan pointed out that,

These cottages don't have as many people on a waiting list for them, but they're another option.

They are an option for people who don't want to leave their single family home and move into basically an apartment building.

You know, a large residential structure.

They obviously have people who want to pay almost a half a million dollars in order to live in a separate cottage, either a duplex or a single family.

It's an option for the property.

And certainly I understand that that's a good option for them to have.

It gives them flexibility on what they have to offer.

She also talked about

here, but it's not Cottage.

It's the Monticello building, which is the original building and the challenges in there.

So people are also willing to pay on average $310,000 to get into one of those units.

So that's not a small amount of money.

And yes, it is the older ones, but it still has demand and they still have plenty of those units filled.

I already talked about how we have the commercial parts because excellent quality.

However, we depreciate them based on their age.

And we talked about that in detail.

Now, they have chosen to only increase their fees a certain amount.

I don't remember the amount, but it was two, 3% or something like that.

That is their choice.

It is not determined necessarily by the market.

They didn't say that, and they can respond to that.

But it is not a restriction to the property.

I don't think it's a contractual restriction that they won't go up more than two or three.

I don't know if it is or not.

but over time they will increase those fees, those monthly fees as they need to to maintain the property would be my understanding.

But an owner of this property, and you have to remember that we appraise a property not based on the current owner.

The current owner isn't really,

Part of the value, the property should be independent of who owns it.

So we're talking about a prospective buyer would pay a certain amount of money for it, is what an appraisal is based on.

And that, as Teleton points out in his report, he would expect a buyer to be a for-profit investor, probably a REIT, I would guess.

And they're gonna change these,

these fees as they need to to get whatever, to cover whatever expenses they have, to cover whatever profit they need to get.

And that will only be determined on if we raise it too high, people will complain and they'll move out or they won't move in.

And that's what the market, how the market decides those.

So the fact that they decided to only increase their fees by two or 3%, yet our assessment is going up 22%, which of course is for a totally different reason.

I don't think those two are connected in any way.

Even if we said the market went up 4% or 5% for this property, then the fact that they raised their rents by two or 3%,

wouldn't be indicative of that change being wrong.

So that is totally under their control.

and something that was not pointed out was that the nursing home assisted living do have some, I understand, private pay that are not residents.

They have some outside people who come in and they pay for services.

So there is some extra income that's related to that type of services.

Those facilities, the

The assisted living and the nursing home are not 100% dedicated to just the residents that are there.

They have rooms or beds that they use for them.

So they can comment about that in their response.

But that is my understanding.

And so we have provided you a lot of information, both of us, both sides.

I believe that our assessment is appropriate.

We have an appraisal that is far lower, and we have an appraisal that's higher.

And we're in between those.

I think that the way we've come up with this value is appropriate, that the depreciation we use in our cost approach is appropriate.

And I don't believe that any

extra depreciation is necessary in this case.

Mr. Lenhoff, when we spoke a year or two ago, talked about functional obsolescence.

And his example was, an example that he gave me was that you would typically see, he visited a property, one of these types of properties, there was a tennis court.

and it looked brand new.

So he asked them when he went in, he was talking about the property and he said, do you guys just build that tennis court?

And they said, no, that's been there for 10 years and I might be off on the edge.

Nobody ever plays it.

So he said that type of thing is a functional obsolescence because it's not used.

They spend this money to build this tennis court, but it's not used.

However, in the same conversation, he said that people will not live here unless there's a tennis court.

So is there functional obsolescence because nobody plays the tennis court on the tennis court?

Or is there no functional obsolescence because you have to have the tennis court in order to get the clientele you want in your property?

So don't fall for

Arguments that overstate the effect of depreciation on this property is ongoing.

It is well-maintained.

It's a beautiful property.

It's sought after.

It has a wait list for residents to move in.

Thank you.

I'll take a five-minute break until 10.50.

Do you want me to stop the recording?

No, please.

Okay, we're back up.

Thank you.

Just proceed when you're ready.

And I do want to say that the tennis court I was talking about was not on this property.

We're going to ask Mr. Cannon to speak to

what she has heard from Mr. Lynch.

So Mr. Lynch covered quite a few topics, quite a few financial topics, and for this board and for Mr. Lynch, I continue to put forward my offer to help explain how our financials work in providing long-term care.

We are a long-term life care community.

Mr. Lynch cited many elements of our balance sheet, entrance fees, fee schedules, all of this information I shared with Mr. Lynch in helping to increase his understanding of who we are and what we do.

Along with any entrance fees, monthly fees, etc.,

come significant expenses, significant lifetime commitments in providing care and services to residents.

We walk through in detail the life care services and residents agreement where we make a contractual commitment to every resident in Philadelphia's CBR.

I haven't heard from Mr. Lynch

and the petition which indicates why an income approach should not be used.

I have not heard anything other than bringing in facts that I can help further illuminate for you.

We have a refund liability.

Yes, we have investments.

It's to help offset that future liability for the lifetime care of residents.

Mr. Lynch failed to mention that we have $58 million in debt.

issued with the cooperation of the Economic Development Authority of Albemarle County.

Mr. Lynch spoke to elements that would be brought into determining business value and did not distill that to the real estate value, which is his duty to determine.

Any kind of enterprise value from any of the reports he cited that is worth $200 million is simply extreme.

Again on exhibit D, I laid out for you net operating income of level amounts at $13 million.

It would suggest an EBITDA multiple of 18 times.

We demonstrated there's no increase in income in the hearing, Mr. Lynch has assessed.

And so I think I'm happy to answer questions for clarification purposes if there is misunderstanding as to our balance sheet, our income statement.

I've been entirely transparent with sharing information, fee schedules, an abundance of information.

Entrance fees support life care.

Entrance fees are for long-term care.

It's not that we just sit on cash, allow them to grow.

Well, if it's acceptable, I would like to give my summation.

Of course, we're open to questions.

First, let me thank you for your attention to this case.

We appreciate it very much.

Now, at the outset, I set out what I believe this case is all about, the four points, the removal of functional obsolescence from the residential, the lack of any in the commercial, and the lack of any external obsolescence in the commercial, and no income analysis, no income,

Analysis that would have shown that there was no income growth.

Nothing to support the idea that the property has gone up in value by 24%.

And to say no income analysis was performed is simply to say that the exhibit that showed that the income was level was not looked at, was not considered.

I'm not talking to

about an elaborate income capitalization approach to value.

And I'll get to what we do about these appraisals in a minute.

I'm just saying that we can see what it means together.

We find one reason after another to conclude that there's no basis for this increase.

And then the last thing is the uniformity.

The exhibit that came in at this very last minute about comparing these other properties,

The fact that this was handed to me right in the middle of this year, I bent over backwards to get everything at least as early as last night.

And I don't understand, I did not even follow what you're saying about this.

The non-secretaries between, look what we did and didn't do between 21 and 22 with all the properties and how this one did not go up as much as they did.

I don't follow it, and in fact I don't see that it says anything relevant to this case, quite frankly.

So just revisiting the uniformity table that Ms. Buchanan developed,

I didn't hear anything that met her testimony, that responded to her testimony about how differently Westminster Canterbury is being treated, how arbitrary it appears that their 24% increase can't be justified in comparison to all the others.

I didn't hear a thing responsive to that.

And that's what's before you in weighing this evidence.

But let me go now to, as best I can, a point by point, the lawsuit.

Now, it's most conscious of the fact that the lawsuit itself somehow might be of interest to you.

And so I did ask whether Mr. Lynch could tell me, does the board know about the lawsuit?

I was told you do know about the lawsuit.

And so with that in mind, I didn't go into the lawsuit at all, just knowing that you were aware of it.

But the point about the lawsuit is this.

It is totally separate.

It is a totally different tribunal.

And it has no bearing on this specific individual case for this specific individual year, which is strictly within your jurisdiction.

It is not part of that lawsuit.

And so

You are, I believe your role here is to take this one year as you are jurisdictionally limited to only the current tax year to look at it within the confines of the issues that are presented in making this assessment for this year.

The lawsuit has nothing to do with it.

Now, that being the case, how then do we get

The lawsuit brought into this, which Mr. Lynch did bring it in in a definite way, by saying in a very conclusory manner, in a very vague manner, that this is not an explanation to meet the contentions that we have made.

We learned a lot from the lawsuit.

We've learned a lot.

What does that tell you?

It doesn't tell you anything.

He didn't tell you what he learned.

He didn't get into it.

All he did was tell you this conclusory statement.

Well, the reason we're now doing it this way is we've learned a lot from the lawsuit.

That doesn't tell you anything.

The lawsuit itself, I'm only going to go into it this far.

Yes, it did get to the point of depositions and appraisers and all that type of thing.

It certainly did intensify the scrutiny on this particular property.

It does not.

The statement we've learned a lot from the lawsuit does not tell you why it was 20% functional.

Why wasn't there any functional or external on the commercial?

How is it that you went about this ignoring the fact that the operational facts of the properties don't justify an increase?

There's been no answer to that.

You don't answer that by saying we've learned a lot from the lawsuit.

And it said nothing about how this arbitrary 24 versus four came about.

So the lawsuits themselves and the fact that somebody is wiser because of the lawsuits

does not, this lawsuit does not give you anything to go by in making your decision in this case.

The same is true of his beginning phase of his presentation when he said that while we do a mass appraisal, we have so many properties and this is beside the point.

It begs the question, what are the specific unique characteristics of this property?

The jurisdictional exception, as Steve alluded to, says you have to do it the way your jurisdiction commands and each specific property has to be treated separately.

and the case law in Virginia is exactly that.

It's not an adequate response to say, well, look, we have to do so many of them.

That's all that means when an assessor says we have to do a mass appraisal.

The question is, what did you not do on this one?

And we're not accusing him of a USPAP violation.

That happens to be, yes, it is in our appeal that our appraiser, an expert that came out of the lawsuit,

made reference to USPAP compliance.

You didn't hear me say thing one about USPAP compliance in the points that I am making about this appeal.

You can lower this assessment without implying in any way that Mr. Lynch has committed a USPAP violation.

What he's done is he's committed a kind of error of exclusion and failure to consider certain things and not justify what he's done.

These don't necessarily grasp the level of USPAP violation.

Another thing to bear in mind, and I'm afraid this has gotten overlooked, as you go, and I don't need to sort of spoon feed this point, there's business value, but then there's real estate value.

There's business enterprise.

The business enterprise value is this high rolling picture of the enterprise itself with all this entry fees and all these services provided and all this type of thing and who would buy this business which typically would be bought for that more than the real estate.

The business enterprise value

is what you get, fees for service and all this type of thing.

It has very little to do with the real estate value itself.

The reducing real estate, the real estate component out of all that is admittedly difficult, but to begin the defense of this case based on concepts that are strictly related to the business value is very misleading and very obfuscating.

and I'm afraid that that is essentially what you heard from Mr. Lynch about, oh these are people of means, they can pay x amount for entrance fees, these entrance fees, these are all concepts that relate to the business value.

They don't get down to the nitty-gritty of what has to be explained when the questions that I've raised are before this board.

And so

the indentures fees, the refunds, all of that, all Mr. Lynch did was raise what I would call a lot of puzzling questions, a lot of interesting questions that almost all of them relate to the business value.

And if I can just take you to the limit, as far as I think we need to, and looking at these appraisals at all, finding out how much is attributable to real estate,

It's basically a problem of looking at the real estate and trying to determine how much rent did we pay.

You have an owner occupied building, which schools are not paying rent.

So you wouldn't say a shopping center.

In order to determine the income stream that's coming that is attributable to that property, you have to impute rent.

So a banker tenant in a shopping mall who owns the property and is not paying any rent, the way that it's valued is to calculate an imputed rent and then capitalize that.

The amount of rent that it would pay is the nature of the problem when you have a property that's not actually paying rent, but you have to arrive at its real estate value.

And that's what these appraisers basically do.

They use a factor, a lease coverage factor, or a HUD map formula to determine, out of all this cash flowing around out of the business value,

How much rent would this property pay?

And try to get to that.

That's what they do when they appraise the property under a full blown MAI appraisal approach, which is what those two appraisers did.

But anything that avoids even talking about that doesn't get you anywhere.

So that's what I'm saying.

All of this talk about entrance fees and the amounts of gross revenue and all,

It's really pretty much beside the point because it doesn't help you to reduce the question down to the amount of rent that the real estate can pay.

That's why this case is not about any of that.

This case is about these very limited questions that have to do strictly with the real estate.

And so I ask you to not be brought into such really speculative questions about, well, what about all this money in the business realm?

And now down to the appraisals themselves.

We do not make our case out based on Mr. Lenhoff's appraisal per se.

We included it in the package as information.

And so

The appraisers are not here.

They're not here to be cross examined.

The appraisals themselves will only

result in certainty because as you can see from the way the two appraisers went about all this there's going to be a difference of opinion on an awful lot of things and to start looking at taking a bit of one of them and a bit out of the other one and trying to make something of it I'm afraid only gets you to a state of uncertainty that is not suitable to what this proceeding is really all about and what this case is really all about.

It's about a technique that was used that cannot be justified and has resulted in an increase that is radical.

And it's basically shocking to see this value go up so high when there's nothing in the operations of the facility to justify.

Again,

How can you give much weight to a defense of this assessment which relies on something like a side conversation with our appraiser about a tennis court one day?

That's a way of explaining to you is thinking about politics.

I submit to you, how can you give any weight to that?

It's not an answer.

and it's just one more obfuscating element in the so-called defense that's been presented.

Here again, when Mr. Lynch went to speak about Monticello, people pay X dollars to get in and the fees can be increased by two to 3% depending on what the owner wants to do and yet we increased the assessment by 22%.

for totally different reasons.

Totally different reasons.

What was the reason?

The reason was actually never explained.

What we're begging to have justified has never been justified in any of these responses that you've heard.

So then, I think you know the case.

I think you hear me.

We differ on what this case is all about.

It's not about anything that's coming off of the lawsuit.

It's not about these two appraisals.

These two appraisals that are going to only lead to more uncertainty.

They are not really

They're competent in a sense.

They're very hearsay.

The appraisers are not here to be cross-examined or explain anything.

I don't think you should give them much weight at all.

What you should really look at is what I've submitted to you all along.

How come you took out all that 20%?

Looks like you had some preordained reasons to try to justify increasing this assessment by that much, because you came up to roughly the same amount.

You didn't have any explanation about what about the income.

It doesn't justify any increase.

And how about this arbitrariness in comparison to the other facilities?

There's been no real explanation of that either.

I'd like to ask just for a little bit of help in understanding your income and expense statement.

So you've got the second page.

I'm looking at this statement.

Yes.

Looking at your line to do that amortization of the deferred revenue.

I just want to make sure I understand a few things.

So is that your

That's a portion of that 73 million that you've committed for that long-term care if there's a shortfall.

I mean, you've got that money set aside for those residents.

It's not precisely set aside.

But what this is reflecting is how we earn revenue over the course of a contract, the lifetime of a contract.

We receive entrance fees that are tied to the number of move-ins in a given year.

Right.

It could be as low as 15.

It could be as high as 30.

So with every unit, there's an entrance fee.

Mr. Lynch described entrance fee and monthly fee.

for that and recognize the revenue over the life of the contract.

So the actual cash receipts of entrance fees can be much lumpier, up, down, up, down.

because I guess the area where I'm confused is that I see, and just bear with me if you would.

If we look at this page in your document.

So where I'm confused, of course you've excluded that on your first table.

You've excluded that line to income.

So basically you're just including your resident fees and your care area fees.

You're doing it on a six-month basis on this, annual basis on this other sheet, so you're not really including that, which is fine.

The cash flow discussion was asking that to just distill from Mr. Lynch and his team on a monthly basis.

What does our cash picture look like?

And it is slim.

We have to have those entrance fees.

In other words, we would have a losing margin, a negative margin, without receiving entrance fees.

The turnover in independent living units that then is caused because of it.

If we don't have entrance fees, we have constraints on the ability to cover our expenses.

The purpose of the March 16th meeting and drilling down to this is actually what our cash picture looks like in the first six months.

This was our attempt to help Mr. Lynch's team understand, you know,

you know what exactly is a rent roll he continued to ask for a rent roll you know support which we provided provided the actuarial support for how much support over time that was really to show you in terms of a cash picture month by month basis we don't have enough cash revenue over expense to break even it is the

entrance fees over time and having an accumulation of reserves that allows us to weather those downturns in entrance fees.

This picture is, as I mentioned, it's our full, full profitability picture.

This presents operating income, and I've made the adjustment.

So now on this page, we convert to EBITDA, so an earning before interest depreciations without regard to depreciation or financing cost.

and excluding contributions and investment income.

That we have investments is not a real estate issue.

That's a business issue.

Were we to be in the theoretical sense for sale, the investments would not be sold.

So this is our complete P&L picture.

The purpose of that little inset within my discussion of economic challenges was

I guess that leads me to the remainder of my question is that you know you do I do see that your expenses are going up you know you said about roughly what 10 or 11 percent oh you're operating expense year-to-year growth is 10 percent um then of course I look down at your

You know, your higher care units, like your memory care unit and the

CL Unit, Catered Living, which is assisted living.

The Catered Living.

And I think the occupancy rates on those actually decrease, which means your expenses are increased.

Is that correct?

Because you said you don't make money off those.

Correct.

You're more expensive.

And Mr. Lynch referred to the fact that when we have available capacity in their health center and serve the broader community with short-term rehabilitative stays after acute care,

Hospital stay, hospice stays.

When we have available beds, we can use those for outside admissions.

We apply for, you know, we submit claims and receive reimbursement for that.

Point being, I factored those revenues into that picture.

I have included any third-party reimbursement for Medicare and patient services and care area revenue.

I've included that in our cash expenses, in our cash receipts for those areas.

In six months, it's underwater.

We don't make money on our care areas.

Care areas are there for care continuum, commitment we've made.

That's what people are essentially

and so on, and so on.

And so, I think, you know, I think one of the things that, you know, I think, you know, I think one of the things that, you know, I think, you know, I think, you know, I think one of the things that, you know, I think, you know, I think, you know, I think, you know,

I apologize for any confusion.

The small subset of that table was directly from information shared with Mr. Lynch and his team in March.

This I have prepared for today's discussion to give you more of a longitudinal look at exactly how flat our income is that it did not increase.

year over year, any period you look at.

There's no growth.

We've had no addition.

In fact, we've had some contraction of the number of available units because we're doing combinations.

So we've continued to have pressure through pandemic, through inflation with what we do.

The fact that we have this daily need to meet expenses and provide care is

is what I've attempted to show here with essentially the longitudinal revenue and expense.

This is EBITDA and we're akin to net operating income that we'd apply multiples or cap rates to and the small subset in the economic external deficiencies was really drilling down to that conversation we had with Mr. Lynch and his team to essentially say, it may look like we are awash in cash.

This is the reality of our operation.

Yes, that was very helpful.

Yeah, I do.

Mr. Lynch, just to be clear, let me make sure I'm not missing it.

Specifically, when it comes to the cost approach, and I have this in my notes and I didn't bring it up because there is so much involved in this, but specifically where the cost approach is concerned, we included a 20%, as Mr.

Downing mentioned, 20% reduction on each of the villi units or cottage units.

Because we do that,

in an estate if you've got four or five houses.

Every house past the first, we've talked about unseverability when it comes to that type of situation, we always included that.

So we included it here.

We found that that was inappropriate in the setting, in the valuation of this property.

So we removed that 20% from those cottages.

We also, when it comes to,

the commercial and explain why that was inappropriate.

It's inappropriate because we found based on the appraisal work that was done that our value was too low and that it wasn't reflective in the market for this type of property.

That's really the connection.

It's not reflective in this type of property for reducing the values.

Also,

In my deposition with Mr. Downey, we discussed the permits for building those five units, and our assessments for those five units were six years later, they were less than the cost to build those five units, the five cottages that were added in 2015-16.

Our assessment was actually lower than the cost to build it six years before.

And that was an indication that that 20%, another indication that 20% was inappropriate in this setting.

So we removed that 20% unconscious.

And then to the commercial buildings, we were adding extra depreciation over Marshall and Swift.

And we determined that that

We didn't need to give it extra depreciation over marshal switch, so we went straight by the marshal switch percentage as we detailed on those handouts.

Well, I think my question about that is that

You know, your discussion about the functional obsolescence is related to the non-severability.

Their discussion about the functional obsolation is related to the design issues due to the age.

And so when I look at your depreciation, you know, if I look at this

Sheath, and I see that your depreciation estimates have, you know, I mean they've decreased significantly.

So then can you address the issues that they brought up about the functional obsolescence, for example, you know, that really narrow walkway between D and E, and then the age of these other

Cottages that were built in the 90s I think, the early 90s.

My staff have been in these, in the cottages and I've been in the main building and we do not believe that there is

negative functional problems to these buildings.

Yes, they're older buildings and designs, but they are also sought after buildings.

And that, you know, we don't believe that any additional functional, I mean, they're still the same as any other building built in that time period.

And the depreciation we use is based on that same information.

So these aren't built totally differently with,

with some alien design to them.

They weren't like you, if you have a house and you build an addition on it, but it's the flow of that house is unusual and non-functioning.

That's where we see functional obsolescence, not in the fact that these are older units.

And then my final question is back to you.

When you talk about your 3% increase, I know you're a nonprofit.

So is that a market-driven increase, 3% increase based on analysis of your competitors?

How do you arrive at that 3% increase?

Because we've made a lifetime commitment to residents and they have pursued a strategy for managing rhythm in their financial profile, we feel it's our duty not to shock them with price fluctuations and the influence of inflation that we've experienced from year to year.

So that's an important pricing strategy.

And in the given years, for each budget year, as I mentioned,

We use our actuary to determine what should the fee increases be and we have not passed on those inflationary, internal inflation amounts to residents having the view that this higher inflationary environment will ebb and we're seeing that coming.

We do consider our competition.

We do consider the market.

We're here to provide care for elders and seniors and fee increases are noteworthy for them when considering where do I go for life care.

And so within our regional competitors, we do consider what our market increases and staying within line for

what others are charging for increases in entrance fees and monthly fees.

It's very important for our 450 residents that they have increases that they can plan for and not be immediately shocked with inflation increases from year to year of, you know, 6, 8, 10%.

And so it is a strategic pricing in terms of having that long-term commitment to them and honoring

Any other questions on the board?

One more question.

I would want to say just theoretically that because you guys have created such business value that there is an offset of the functional obsolescence because we got to wait a little bit.

That certainly has some merit.

I'd say to that, if the income from operations is not going up, business value is not going up, how do you justify such a radical increase in the real estate value?

See?

Yes, that would be taken into consideration.

in deciding whether to assign functional obsolescence or not.

The income stream as it exists, there's no hesitation that the functional obsolescence that was there should be removed because there's nothing indicating an upswing in value.

Thank you.

Any other questions?

I have two quick ones.

Mr. Lynch asked the assessments of the villas.

So just want to make sure to confirm.

So if those villas were taken out of a separate lot or whatever else in terms of structural value, because you're looking at the past approach, if it was in a neighborhood or whatever else in that same area.

The value would be the same, so you're just using B.

So we are making a distinction because if you were to take one of these homes and say that it was on a separate lot in a neighborhood, it would then be adjusted based on that neighborhood.

That neighborhood might have a 110% adjustment for the neighborhood.

It would also have a

But just the structural value because right now if we're looking at all the other appeals we've looked at it let's say one of these townhomes was on other let's disregard the law of value and I understand this every neighborhood we have those adjustments so that's the same value using

Are you using the same value for this time?

Yes, except for the multiplier.

And in this case, we're trying to use that.

and then to the applicant.

So in terms of the, so I'm having difficulty with the income argument.

And obviously the assessor has said, okay, they've applied that well, but they're not, they looked at it, but they said that wouldn't be appropriate.

You all have suggested, well, that was not appropriate.

They should have looked at the income, but the income we're getting, we have, obviously we review many of these appeals and there are commercial properties, but the only times where

Really.

The income approach can be used and it's uniform are in the multifamily family context and the hotel context and the commercial context where you're suggesting there's business value associated with these and these numbers are some combination.

How are we or how is the assessor supposed to separate that and come up with a real estate value based on the 13 million?

We don't have a cap rate.

We don't have anything else.

So is your, are you still suggesting that we should use the income approach to this?

I understand your question because I think it is a very good question.

One that troubles us.

Seriously, because for me to say, you should have done an income approach is me saying to the assessor, you should have done what David Lenhof did, or you should have done what James Talerton did.

You should have worked up the business value based on the revenue streams and all of that.

and you should have performed a lease ratio study and a hud map study to get you to the correct deductions out of business value to determine how much rent the real estate would have paid.

That is what the appraisers did.

And it is a serious, I don't call it,

It's a secret act to say to the assessor, you should have done all that.

And so do you.

You know that there are certain kind of outlier case situations where an assessor would probably say, you know what?

It's outside my wheelhouse.

I'd have to get outside consultants to help me do that.

I'm just not equipped to do it.

So I can't be faulted for not doing it.

any more than I can be faulted for not doing a sales approach when the sales are all in the United States and I can't possibly gather them together.

That kind of answer I sympathize with.

However, it also reminds me that hotels, if you've ever seen a hotel valuation, it's very similar to this.

You have the business enterprise of the hotel operation,

You don't have rent being paid.

You have a revenue stream that gets deducted from with the personal property taken out, the income to the enterprise reduced by set percentages.

And there's a formula that's sometimes called the Rubin formula that is used

It didn't used to be used all that much, but it has become very standard in assessor's offices to assess hotels by a method that's very similar to the kind of income approach that would be done for this property.

So it is not too much to ask to integrate those steps in a standard assessor's office methodology.

And if you look at either Lenhoff or Talaton, you will find that the formula and the approach is actually not that complicated.

What Mr. Lenhoff did is he said, I haven't determined how much rent this would pay.

But what that means is, let's say you've got a business like this that doesn't own the property.

It rents it.

It has to pay rent to someone.

And that rent is going to be the best guide to how much the real estate is actually worth.

The market will show you that a person operating one of these is only going to pay a certain percentage of his revenue for rent because if you have to pay more than that

They're overpaying and it's impinging upon their net operating income to the physics.

So the tables that have been developed will show you that if you have X number of business enterprise value and business enterprise net income, the amount of that is going to go for rent in the hypothetical formula.

is stated as a lease ratio.

In Lenhof's case, it was a 1.5 lease ratio.

It's not that difficult.

The same is true for the MAP formula that you'll see Lenhof and Talton use.

Let's say the enterprise brings in $100,000.

Well, the MAP formula deducts a straight 25% of that.

to remove from the enterprise that amount that has to be taken away when trying to reduce, trying to determine how much of that silver revenue would be paid.

So it is not that difficult.

It may be a case of first impression, but that's not to say that it can't be done.

But we deliberately have pulled back from that.

Ultimately, in that case, because what we are saying is no income analysis.

The income was not really taken into consideration, because if it had been, it would have shown that there's nothing increasing by 24%.

for this property.

So I'm not necessarily holding Mr. Lynch's office at fault for not doing an income approach.

I do say that, I do mean it, but you don't really need to reach that to include in your reasoning the disregard of income analysis as part of the reason that this result he's gotten is not supportive.

You see what I'm saying?

It's not necessarily the failure to perform a full-blown income capitalization approach that removes the real estate value.

It's nice to have the appraisers lend a hand and show you what they would say about it.

It'd be nice if his office would develop that.

Does that answer your question?

Um, it does and it doesn't.

And it's the issue.

I understand your arguments.

I don't necessarily buy everything, but I understand your argument doesn't necessarily mean I'm not judging the appeal or the application, but I'm just talking about the in terms of the income, because you've also mentioned that kind of, and this is also not going into the like going into the weeds of those two appraisals, but you're saying, okay, there are two arguments, we don't have either appraiser here, and when we're going to go into the income approach there.

So I fall back to in this situation,

I feel like the income approach and I'm speaking for myself, not the board, obviously.

We're not looking at what last year was the value, if that was appropriate or not.

We're looking at 160 million.

Is 160 million appropriate this year?

So whether or not it was increased or decreased, I'm not sure if that's necessarily our mandate.

It's more

is $160 million appropriate.

And you all have presented quite a bit to argue that it isn't.

And the assessors presented what they have to what it is.

But anyways, that's kind of that's

with those arguments, we've spent a decent amount of time with that, but it's difficult to go there because we can't, for our purposes to separate the business value from the income and then going into how these are done, it's unlike the other income approaches we're using in other cases.

If I could piggyback on that a little bit.

So is it safe to assume

that you know what I'm looking at is that we're looking at basically you know a three three to four percent increase in that operating income for you know EBITDA year over year okay so if we're looking at that then you know from a growth standpoint you know we have to consider that but then my other question would be is it safe to assume since you have your

Expenses that are not really attributable to the real estate embedded in this expense statement.

You also have income that's not really attributable to the real estate.

So you have those income and expenses that are not attributable to the real estate that are on this income and expense statement.

They should balance one another out, roughly, would you say?

Because in going back and looking at this,

You know, you're saying that you really don't have much of a margin.

Maybe I don't understand the question.

No, I do.

So my question is, is that, you know, we've got the income side, we've got the expense side.

On the income side, we have, you know, tenants that are paying eight to $10,000 a month, not only for the real estate, but for other services.

On the expense side, we have expenses that are also related to that.

Food, dining, and so on.

Yes.

Is it safe to assume that those

If we were to take those, would they be equal to each other on the income and expense side?

There's not profit, but there is earnings that help support and

Counterbalance, the liabilities that we face.

So on the resident service revenue and resident service expense, that is the no to low to negative margin that we experience.

That's the reality of our business.

If you're referring to investment earnings, again, that's dividend and interest income on reserves that essentially helps counterbalance our significant liabilities.

The future service obligation is $70 million.

Our refund obligation on a significant portion of our contracts is $30 million.

We have $58 million of debt.

So all of those significant liabilities quickly swamp $70 million investments.

So the income on our P&L that would be not attributable to real estate is investment earnings.

investment earnings is essentially there to grow and provide the counterweight for all of these obligations and future liabilities should we have a financial crisis or anything else that would be a shock to the organization.

We have to be around for the lifetime of our residents.

So the income elements that are not attributable to real estate

It's essentially investment income.

And that's the difference.

Everything that is a cash revenue item, that is a resident service revenue item, is overcome by resident service expense.

And all of our residential services occur on the campus, on the property.

And so we use real estate to provide care.

We use real estate to provide that setting

or Continuing Care Retirement Community.

It's identified in IRS code.

We are a nonprofit.

We can go down the qualifications for care and services to the elderly, et cetera.

It's the venue we use for providing service and care, which is our contractual obligation to do so.

We met with Mr. Lynch in March, we brought our 20-page contract, walked through all of the things, all of the obligations we have that we are contractually obligated to provide.

and I continue to share financial information.

We're completely transparent.

We want this to be a process that works for both of us.

As the most valuable taxable property in the county, we do think that we earn a little bit more attention to how our property is valued and continue to be willing to share

Mr. Chairman, Mr. Brooker asked me a note about something I think is pretty important.

You testified.

But you swore.

You had sworn in early.

We did not.

Before you get to that, can I respond to your question, Mr. Downey, and his response?

Yeah, that's fine.

So he mentioned

You know, it's very simple.

Use a lease coverage ratio, debt service coverage ratio, whatever you want to call it.

The math of these things can typically be pretty simple.

The determination of that number is far from simple.

Mr. Lenhoff uses one and a half.

Mr. Telton uses one and three quarters.

It's based on the mortgage constant position and the mortgage constant from the assumed assumption of mortgage at 75%, which is far in excess of the $53 million they own.

While Mr. Lenhof is totally different in its base, it's determined in a cap rate

at one and a half.

So I mean it is far from simple even though the math might be.

All right raise your right hand.

Do you solemnly swear or affirm the testimony with oral documentary which you're about to give will be the truth the whole truth nothing but the truth.

We have a five-year strategic plan at WCBR.

We finished the second year of that.

That five-year plan, this is just an example of functional obsolescence.

That five-year plan calls for the replacement of the entire healthcare buildings at a cost of, we think, something probably close to $100 million.

So you could say at this point, in two years, it's gonna have nobody.

So the argument, part of the argument you all are making, I just want to make this clear is, and this is something that you do say that updated is depreciation, you believe that depreciation on all struck, I mean, well, you're adding the 20% functional office lessons on

$246,000.

This tax bill for the 23 assessment as it is $1.3 million.

$67,820.

That's a $246,000 increase.

We pay more in property taxes than all of the other assisted living and memory care facilities.

How will that impact residents?

We do not pass along dollar for dollar expense increases.

As I've noted before, we've had inflationary increases, wage increases for our $20 million payroll, bringing our associates to a $15 minimum.

And so we will lead to

find ways to cover the deficit created by this margin, this unfavorable impact.

We don't pass the, we don't jolt our residents with dollar for dollar increases.

So it's going to be, perhaps through some expansion efforts, and in other words, growth will help solve some of that if we're able to do that.

So we'll pass the increases on dollar for dollar.

We'll have to find other operational savings.

We'll have to control curtail capital plans.

We'll have to cut back in other areas, which in the long run defeat our purpose.

That's the job of the financial operational management that we'll have to find a way to bridge the gap.

The answer to your question is it's nearly a quarter of a million dollar increase in one year.

May I add a couple of comments?

So, first of all, the Board of Supervisors decided years ago that this property should not be taxed.

So, it should not be taxed.

and just in response to the replacement of the, I'm assuming it's the nursing and assisted living wings, the medical sections at $100 million, we assessed those at

14, 15 million dollars currently and the fact that it would cost a hundred million dollars to replace it we're saying a cost new of only less than 20 million might be an indication that our costs a little too low now of course some of that cost is going to be you know moving things around and stuff like that but

First, I need flat facts and correct something you said.

I said fleet 50.

Okay, between, all right.

Second, we would not replace it with exactly what is there now.

That's my problem.

Okay, anything further from the board?

I don't understand that.

I'm sorry.

We're talking about the nursing and assisted living.

The health care facilities, memory care, nursing facilities.

Right, it's not included.

And C, D, and E, right, is our current care continuum.

C, D, and E, as I described earlier, all have functional deficiencies challenged.

Because some of these facilities are 30 years old,

As you can imagine, a 30 year old nursing home requires updating.

Okay, in a portion of the page.

Okay, okay, great, thank you.

Anything further?

Okay, so with that said, let's see what time it is.

It is 11.55.

Does anyone want to take a break?

We have a few housekeeping matters to do.

We can thank you all at this point and just say thank you all for coming out and we're going to deliberate, make a decision and set a decision for the next two weeks.

We're going to deal with a couple housekeeping matters and then

We will deliberate.

I don't know what your, if you all want to stay, if you all, it will be recorded so you can watch it later.

So just the matter of, and I don't know if we're going to take a lunch break or not.

That's going to be my best to make that determination.

So I don't know if you want to have the court reporter still here, or you want to, but like I said, everything is recorded.

So it's, it's up to you all.

We will try.

This is our last, I think our last

deliberate and make that decision.

I think we have

I think we'd have a problem if we otherwise try to close out.

I don't think we have time to, because we have to get these decisions done before then in a month.

Well, I would want the court reporter to record the deliberations and the decisions.

Like I said, we will, does anybody want a break right now?

You want to go on to the house?

Okay.

Like I said, we will deal with some costume matters and I don't know what we're going to do for lunch.

We'll discuss that, but I'm just, and you all are welcome to stay if you'd like, just,

Just know that that's the rest of what we're planning on doing.

Okay, so in terms of housekeeping matters, we have two things.

I think we should go ahead and get those done real quick.

Thank you all for your time and presentation.

Yep, still here.

Mr. Mayo, did you get the minutes?

I'm sorry.

He cut out there.

I didn't realize that was directed to me.

Yes, I did.

I think I look at those in person when I came in to sign the letters and everything was in line.

Thanks Evan.

Do we have a motion to approve the August 1st minutes?

We approved the August 1st minutes.

Do we have a second?

Second.

All right.

And then the other housekeeping matter was the form for next year.

Everyone had a chance to review the proposed form.

Do you want us to actually approve it?

You want us to approve it, right?

If you would.

Part of the clarification is about the due date.

That's the most important update.

So that's the part I molded, correct.

And just so you know, we are coordinating better what's said on this form, on this application.

on the back of the notice when we send it in January and on the response to the review that we send.

So all three are aligned with similar wording.

So there's no, we were saying the same thing before, but we set it in three different ways.

Okay, perfect.

Do we have a second?

Second.

Let's make sure we actually, I was just thinking, let's make sure we document that.

We made the motion.

Who seconded?

And how about for the last one too?

because it's the other matters.

So the more minutes, the minutes.

And then, all right.

Let's take a two minute break.

Okay, so back to our case, that was application number 54.

I'll just make this point.

I've made it during the hearing.

I find the income approach, for our purposes, nearly impossible, based on the information we have.

And it's not, I will go straight in.

I think the cost approach is appropriate and is the one we don't look at.

I think there's a question of, there is a question of

That's how it started.

I don't know if anybody else wants to go through the income approach at all.

But based on the information we have, I just feel like we can't, there's not much we can do.

We don't have a cap rate, we don't have, we just don't have sufficient information.

So I agree with you, Anthony.

I think the anchoring, the use of the anchoring last year's assessment as an anchoring piece of that argument doesn't work because, as you said, like the mandate is to adjust based on the market conditions today.

We've heard a number of Board of Equalization applicants argue that the property didn't become more valuable from December 31 to January 1 over last year's assessment.

And I don't think we're permitted to use that.

the line of thinking.

And it seems to me the income approach argument would be that that's the bedrock for it.

So I agree.

Well, I think that there is some, I think that the income approach that was provided to us

I don't think that we can develop an income approach, and I am certainly, you know, empathetic to the very, very difficult position that Peter is in with, Mr. Lynch is in with regard to developing an income approach.

But I do think that there are a couple things that bear to the weight of the

assessment increasing the assessment by 24% when you only have an increase in the you know net operating income of three to five percent and you have downward pressure you know because of rising expenses due to an aging population and more people in memory care in the CL category then I do think that

It's worth looking at.

My only concern, I think Evan is, this is my concern with that is us looking at that 24.

And this is something we've done.

The same arguments come before us multiple times this year because there was a significant increase.

I don't think we really look at last year's value.

And what we need to look at is this year's value.

I think that's how we've been considering all these cases, and I feel like that's how we should consider this one.

I understand there's a big jump, but there was also a reduction last year where a lot of these things were not reduced last year.

And so it's just a matter of, I think we should disregard that.

That's litigation, that's an argument, whatever else, that's not for us.

For us, we have 2023.

That's the value we need to get.

So that's my

My thought process with this, I don't know if you wanna go further with the incomes.

And like I said, that is a question of just, has everything been applied appropriately?

And then we can go through the buildings or however else, but anybody else?

Well, I thought it was interesting that the nursing facilities are gonna be replaced sometime in the next five years.

And I think that's, I think we can go through maybe with the applicant's arguments, the arguments applicant made with respect to functional obsolescence as to the usage structures.

If we want to go just one by one and look at the depreciation percentages, we may want to just do that.

If that's, everyone good with that?

That's where I am.

Just thank you so we can land on here.

What we think would be the appropriate depreciation.

Okay.

Should we start with the residences?

Or do you want to start with the commercial?

Anybody have a...

Okay.

I would suggest both skiffed main, assisted living, and nursing.

Let's start with the other ones that are...

Anthony, I'm working from electronic files and shuffling around here as you guys are shuffling papers.

So one thing I, Karen has it from the heart I have in front of me and I don't know if I would think this one of them is the commercial comparison is the Westminster Canterbury of the Blue Ridge commercial comparison, which provides the depreciation numbers for each of the buildings.

Okay, we may want to look at the actual property cards, but it's

Okay, thanks.

If you don't mind bringing up the property cards, the property information that you have.

So it shows the cost of each building and the depreciation of each building.

Is that what you're asking?

We may, I may ask if you don't mind on your system, just

this might be enough for now it'll be easier to look at this than it would be to go through themselves if that's what you mean that's what i'm thinking about but let's i guess let's go through these so the blue so evan i don't see you but the other thing other document we're looking at is this is from the assessor it's a

Okay.

Which building?

Let's start with Blue Ridge main main.

Yes.

You have here breakdown is five, one, two, three, five, but this one is one, two, three, four, five, six, seven.