Board of Equalization Meeting   7/11/2024

Meeting to order.

There we go.

Okay.

Okay.

I will call to order the July 11th, 2024 meeting of the Board of Equalization.

Evan Mayo, the board chair.

My name is Bob Beard from Samuel Miller District.

Dave Norford from Bragman, the district.

I'll confirm that all of the members of the Board are present.

We have a forum and can proceed.

Thank you.

Can I do a mass swearing in here of the representatives from the Assessor's Office and also the applicant?

Do you swear to tell the truth, the whole truth and nothing but the truth in your testimony and presentation here today?

I do.

Okay, thank you.

Any old business before we take up the first application?

Okay, just the minutes.

Okay, let's put off the minutes.

Right then.

So we'll call the first applicant today or the appellants.

It's Board of Equalization application number 50.

Property ID is 19019 presented by

Mrs. Yalamou, 1295 West Lee Drive.

Are you all prepared to proceed?

Just very briefly, you'll have 10 minutes to present.

There will be a seven-minute period for the Assessor's Office to present their arguments in favor of the appraisal or the assessment.

And then there will be a three-minute rebuttal period followed by deliberation at 1295 West

Usually we're able to make a decision quickly, but sometimes we may need to delay deliberation until later today.

I'm Pavna.

This is my husband, Lalit.

We moved to Charlottesville about two years ago from Shenandoah, Massachusetts, and I was hired by UVA, which is why we came here.

Hope for a nicer pace of life.

When we came here, though, and we were looking for homes for our growing family, we were a little surprised by how expensive

So the state here was it was a little bit of a sticker shop though we were from Massachusetts and you looked around we had multiple lost bids in the process of looking for a home and so we finally decided to build and multiple builders, the builder we chose

was the most trustworthy builder that we could find.

He was very transparent with us.

And we had a good experience with them building, but when we saw our assessment, it was a little bit of a shock because that was not what we thought was in line with what our properties around us were.

We looked at multiple other houses.

One of, and I've listed about four properties here directly as well.

Our neighbor's property is the first one, 1301 Mesley Drive.

This is a house that was built just a year before we moved in.

Quality of the construction is really good.

It's a modern house.

So our neighbor's house was built just before our house started getting built.

Modern house, thousand square foot less than our house on the main level.

Their basement is similar to ours.

They are assessed about 400k lower.

I mean, I'm talking just

Construction, the improvements, not the land cost, but the improvements cost was 400 kilowatt.

Similarly, there's the R Builder built in the neighborhood as well on Old Ballot Farm Lane.

I have given the address that it's like 817.

I mean it's 1,200 square foot less than ours that's also about a 400k difference now ours is a new construction the house is new but if you look around it's still a lot of landscaping needs to be done we haven't done anything we just like held on the caustic let's wait for

for years.

The other one interesting property is 1276 Ovensville Road.

One new house built around the same time as ours.

Again, 1,000 square foot less.

They have a finished basement, which we don't.

And their house is also 400K value less.

So because of these differences, and we know how much it cost us,

We felt our house assessment itself is higher.

And also I noticed in GIS basement is considered finished.

Maybe that's a mistake.

I don't know.

Yeah, and I have pictures.

I mean, we have drywall in the basement, but it's not finished.

I want to figure that out.

Sure.

No, the only, you can see in the pictures, I cocked the cracks because insects were coming from there.

Other than what?

When was that?

Thanks.

This was this morning.

Are HVAC in the basement?

The basement is conditioned, but I understand that heating is ductwork.

The ductwork is done.

We didn't, you know, and they, I think there's some quote the builder said, you either get it conditioned.

We want a drywall because it's nails and all that.

So they said to get it conditioned, whatever the condition means.

Anyone else have questions for the audience?

Who is the builder?

I know, I mean, if you know the builder, they build good houses.

We didn't go for any fancy things that typically like, you know, surround sound in the house.

A basement, they were offering doing a golf simulation center, entertainment center.

We didn't do any of those things.

Even, it's just a five bedroom, four bath.

The rooms are bigger.

That's why the square foot is a lot more.

I feel like we are being put in the higher square foot houses, which have a lot of these fancy things, swimming pools and all that, which we don't.

And that's leading to higher cost.

In fact, when I look up for a 5,500 square foot house, it has everything, which we don't have.

And I can see why the assessment is so high.

It's just we don't have those things.

No, I think we just decided to forego a lot of the bells and whistles that normally come with some of the cabinetry and things like that.

We opted for much cheaper things.

We could cut down on the cost.

We chose them for good structure.

So I just found out that we probably did not communicate this very well to the Gallimers.

And we have it in our write-up so you're aware.

The basement we know is not completely finished.

And if it had been completely finished, we would

have basically a grade of good and a value high to represent that complete finish.

It appears to be valued as finished in our record because we do call it finished, but we have a fair grade on it to represent the difference in what actually got done with the HVAC, the drywall, and any other finishes that are in collective repair, every detail of it.

and more.

I'm sorry we didn't share that nuance as to how we're treating it as to instead of what appears that we're treating it as a fully finished basement.

So that's one difference.

So we're not saying that it's completely finished either.

We're treating it as it's got the

We believe that this property, you know, it kind of speaks for itself a little bit, in which, you know, the

The owners paid $475,000 for the land.

Our land assessment is a little bit lower than that at $399,400.

They had a contract, or at least they had a permit, that indicated the improvements that they actually built were $1.7 million.

And I'm assuming that was what they paid in the contract for it.

So they actually paid for this property

right around our assessment, 2.1 million.

And I believe we've appropriately described it with the grade that has A plus one.

It is a two story.

So I think all of those details are correct.

I think we've appropriately accounted for the finish, the actual finish that is in the basement.

And

that the comparables and there is a large range comparable so there were 17 sales within the Foxfield area which Foxfield has a large range of values large range of properties that

Holmes in grade and in every aspect.

So it is one of our kind of more

difficult market areas.

And as you can see by those 17 sales and the range of the ratios, they range from 67 to 112%.

And it's actually why, if you remember the other sales ratios that we show you, we're always around 100%, 99 point something.

In this one, we're 96.44%.

because of that huge range and that huge variability.

So we actually didn't push this up to 100% because of the wide variance of those sales.

So between the amount that the owners paid for it, the market data that we have in the area, the fact that the comparable properties

support the value.

I think that the assessment is appropriate for this.

You left three minutes.

So yes, we did sign the contract for 1.7 and that was primarily, as you notice, signed in 2022.

Bank rates were going up.

A builder and bank both said, hey, go your best approach here because, you know,

if you are tied with finances, you know, have a bigger one and then construction loan, you only pay for how much you, whatever you ask for, right?

So we didn't take the whole loan payment, which was 1.7, we didn't take that.

That's why I mentioned bells and whistles.

If you compare our house with even our neighbors, we didn't get a lot of things that

That we initially signed up for, and the net cost was a lot lower.

Like my wife mentioned, we put in the main contract we had for custom-built wooden cabinets.

which was close to 200k.

We only spent close to 90k, got fabricated prefab cabinets and that's how we cut as much cost as we can to keep it within our budget.

If I had known that I would have worked with a builder to have a more accurate

But yes, it was 1.7, but we spent close to 1.5 years.

And my main argument is there are other houses equal, like pretty much same quality as ours.

They are valued 400 kilowatt hours.

And I think even if there's an extra square put into the basement, part of it has drywall.

There's still a part of it that doesn't have drywall.

Okay.

Do you have an exact number of the 1.7 million draw, like what exactly was spent?

1.489.

So we had excavation problems and we are still dealing with that.

That was, I think we spent about 50 over.

So that's over, that came from our pocket, yes.

excavation, like grading around the house.

Okay.

535 plus the land.

And then the land.

And the land, I paid 475 primarily because it had split rights.

And at that time, my mind was, let's split the property, 475 divided by two.

The land will be a lot less for me, and I can just make some money out of the other land and let someone else build it.

and I had a meeting in 2023 with county, figured out how much possibility that is.

But the way it was split, we have a pond and some other problems.

The division lines were such that you can't have your own

Septic, like you can't have two septics.

There were all those complications.

I kind of felt like, shit, I should have negotiated with the seller if I had known.

And that's something I presented to the assessor as well.

And that's probably the reason why they have reduced.

Which I think is in line.

Even a fairly big plot assessment for the land, I think is fine.

Yes.

So Pete, what are you per square foot, the above grade value per square foot?

Then what is the per square foot value?

Do you separate above grade?

Right.

Yeah.

So if it was 1A in the basement,

Right?

What would that square footage cost be?

Oh, that is an easier answer to give.

So I can give you that part of it.

61,900 difference between what we would call it finished and what we would call it 61,900 correct?

How many square, 3,000 square feet?

That is the difference.

If it would have actually been completely finished, that's the additional value we would have had on it.

Correct.

Do either you or the census office, do you have a breakdown on dollars per square foot for the comps?

Because their home is bigger than some of these other comps.

One of the things you said was our home that's $400,000 more than the neighbors, but the neighbors' homes match together.

So it's thousands of feet more.

So that was, I think, the other part of Mr. Mitchell's question, kind of the per square foot of the above grade.

And that's going to take a second to, unfortunately, the report we get doesn't.

Oh, sorry.

$94,600 is the value we have on the base.

And then you've got roughly 20 bucks additional.

So it'd be 50.

It was completely finished, correct?

It'd be 50, correct?

And then

I mean, $50 a foot, but being a contractor, I think the split is $50, $30 to get it to the warm white box it is now, which is three-fifths of the cost.

Everybody's got the sealants, lights, all that.

Basically this thing is ready for finishes.

I feel like it's more like the 30% of the cost is to get it there and 60% is to finish.

I think it's our, our problem is the 5800 square foot house, the above grade is nothing on the, the basement itself is probably not done since found clarify.

They're taking that into account.

Others who have 4800, I've mentioned in my item, 15% smaller houses, but their assessments are 25%.

That's in general the ops that I've provided.

I couldn't get a house with just 5800 square feet obviously.

There's one in the, not in my neighborhood, but it looks like a palace.

It's a 6,000 square feet house.

That actually sold for 1.7 years.

What's your cost per square foot on 5800?

It's $229 per square foot.

What could the casement have been?

Fair, average, good, excellent, fair is the lowest.

Fair is the lowest, yeah.

Yeah, then unfinished, we would just have an amount for the basement itself, because you'll have a value just having a basement for unfinished, then you'll add a value to that for the finish of it.

I feel like it's farther off than the description of the assessor's report says, only lacks flooring and finishing touches.

Those are all of the most time consuming and costly parts.

I agree on the mechanical.

Is this room a mechanical room, the picture that it goes?

Is there any other part of the basement that matches the mechanical room?

Yeah.

There's none of the pictures.

Drywall, they said you need to get cans in.

Are you using the basement for anything?

The basement itself is valued at $77,371.

The finish that we are adding for the basement at fair is $61,897, which is why you felt the number I gave you was too low.

So that actually adds up to $130,000.

Just for being there.

Exactly.

And then what, if they were to finish it, how much more would that be?

That number I gave you was correct.

The 61.

That was easier to calculate.

Another 61 is your 50%.

Yes, they've done 50%.

So that again is, let me run those numbers smoothly if you can give me...

I don't know if you can hear me, just the tone.

It's all 58.

It's 1301, Leslie.

Similar to yours.

Modern House, ours is like...

So it's hard to...

But I mean, the point of my question is, they're saying that

$400,000 more than the comparable, but it's bigger than the comparable.

Exactly.

So a more simple number is just their total improvement value is $299 per square foot.

And if you compare that to, I'm assuming these are the comparables he's referring to.

Is it 1970 Old Ballard Farm?

Is that one of them?

So that's 1300 square feet smaller.

because it's 4,517 square foot of upgrade.

And it is also, it's actually a higher grade home than their home.

It's the same, it's the same builder.

but with more of those.

Which is why our grade of A plus two on that property is appropriate as opposed to A plus one on this property.

But using the same square foot rate, we come up with an improvement value of 1,350,000 on that property and it's 1,386,000.

So it's very similar.

$1,000, 1,000 square foot more.

What else?

$500,000 square foot more.

$400,000 seems to be very high.

I understand you have grades A, A plus one, A plus two.

If you know Evergreen, Peak, their houses are rated at A.

Our house looks pretty much the same as theirs.

I don't know, I don't understand why it can be A and why Macmillan Bay's house has to be A plus one or A plus two.

So I live in Wesley and I walk and bike the neighborhood often.

There's some high tension power lines, I believe north of your property.

Are any of those power lines on your property?

Can you hear them?

You can see them.

If you want to hear, yes, they'll like their buzz.

So 1301 is right on that.

We are next to them.

If you can see it on the picture, you kind of see the lines going across the, his property is this one and that's the neighboring property.

Oh yes, it's this one.

So this is the pond here.

And you share a driveway with us.

And I share a driveway.

This is shared path.

This is 1301.

This is the shared path.

And we go here.

Power lines are right here.

And comparables are provided.

This is a new three-year-old house.

This is about a six-year-old house.

This was built by Peak.

This is a custom builder.

These are the two main pumps I provided.

Pete, am I thinking about this right?

The improvements are assessed at $1,747,200.

And you've told us that the basement, as is, is being assessed at $139,000.

So we back that out.

It's $1,608,000 and divide that by the finished square footage of the upstairs only.

You get about $275,000 a square foot.

That sounds right.

So if that analysis holds, I think comparable number one is actually assessed at 286.51 if we don't consider the basement at all.

It would be well, which I don't think is helpful.

I think the analysis is going to be similar to.

Okay, so if this 5,800 square foot home were in a neighborhood, give me a neighborhood response.

I'm drawing a blank.

In Canterbury Hills, you got a brand new 5800 square foot house in Canterbury Hills where most houses are around 2000 square feet or so.

We would have a functional obsolescence on it because it would be a white elf.

In Foxfield, it is not unusual to have a large home.

And so there's no functional obsolescence in this market for this type of home.

It is typical.

Not every house is the same.

There are smaller homes, but it is not unusual.

And we would apply functional if it was unusual.

So no, we would not apply it in this situation.

Why was there not a power line production slide?

But because the power line is not adjacent to or through the property.

And I don't think that, you know, the distance away really merited.

We certainly, that'd be applied to the land.

It could be applied to both depending.

I mean, certainly if it was right on the property and near the house, we would most likely apply it to both.

But in this case, we would only apply it to land if it was closer.

And we already are $75,000 below what they paid for it.

And we are adjusting for the topography and location.

No, that actually doesn't come into the calculation.

I just pointed that out as supports, but it's not something we use.

So one thing we like to rely on is the appraiser, Lewis in this case,

the appraiser's experience when looking at thousands of houses and knowing what an A, an A plus one, an A plus two is and the differences between those as compared to all the rest of them that we have graded like that.

And in his, you know, actually certainly he can speak for himself, but in his experience, this is an A plus one house.

And that's where, you know,

That's where we get the information from to determine the value.

The fact that it appeared that they paid the same amount as our assessment was just kind of extra support.

The amount they paid could be above or below in lots of cases.

And it's not necessarily the defining thing.

And in our model, what's really important is

Yeah, based on the size, generally a high A is

For a house like that's going to fall, it was initially a higher grade when I first picked up the house.

Before it was done, they were about 70% done or so, and I'd gone out just to follow up on the permit.

The house was open, contractors were there, so I did a full walkthrough.

That was before it was totally finished.

When I first picked it up, I picked it up.

and then just because you know usually a house like that's gonna have really over-the-top finishes and that kind of thing just giving the size and the money that went into it and that kind of thing when the owner said appeal this year I got a I did not initially I did not walk through the house when it was totally finished when they appealed this year I did do a full walk through the house and it's like they said they did you know cut some things back to

to save on some money, so I did lower the grade down from where we initially had.

Well, I do want to clarify, our land was, you know, the new assessment is $399,000 and the old assessment was $539,000.

That was the biggest drop.

There are another 100K.

I mean, again, for 1,000 square feet more house, should we be paying 4,000 as an assessment?

400,000.

I mean, as you know, as you build bigger houses, the per square footage cost also comes down.

the labor is already there, they just need to expand it.

So that's where my heartache is that 4,800 square foot house is, that's been assessed around 1.3.

Ours is 58,000.

Is it 400,000?

And so that's just to clarify, the number that I said about the 200 and approximately $260,000 reduction was just for the house reduction.

We also reduced the land from 532 to 300.

And the size,

The size adjustment is built into our model.

So what you're saying is you have an A plus one that's 6,000 square feet, that base cost per square foot.

If it was an A plus one that was 4,000 square feet, those square foot costs would be different.

They would be.

What is the percentage difference roughly?

I can tell you what the difference in the adjustment is because it's an adjustment to it.

So between an A plus one and an A, is that what you mean?

So the adjustment for an A plus one is 1.97 or a 97% increase.

And an A is 88% increase.

I mean, we do have a great guide, which we tend to stick to.

I mean, just the 50, 143 square feet, the size of the big component of that.

It's got the modern farmhouse kind of thing going on.

It's open, the rooms are large, they have high ceilings.

There's a lot of work that goes into them.

Again, it lacks finishing details, like a whole lot of extensive trim and that kind of thing.

The, I mean, 1276 Fovinsville Road, it's a brand new house.

Same, you know, the things you mentioned are pretty much the same in that.

It's a 4800 square foot house, 4900.

I guess where I land on this is that there's enough things that are a perfect fit with the model that I end up feeling like I'd like to make some type of adjustment.

I don't know where the best spot is.

I don't like that the basement is categorized as finished, even though it's the lowest version.

Given that there's parts of it that aren't finished and the Assessor's Office report about what's lacking I think gives some short shrift to like what would actually be required to get that up to the next tier.

But I also feel like the per square foot price on the basement is sort of artificial anyway because it's so low.

I don't think the comparable provided by the applicant are compelling.

They're actually assessed at a higher rate when you back out the basement from this one.

So I don't think I could support making an adjustment on that basis.

I think that would be fair as well.

I'm also concerned it's going to go up from here.

We just started.

Mr. Mayo, I put up the great guide.

Let me make a picture.

This is actually larger than an A plus one size wise.

So it typically wouldn't be an A plus one based on its size.

It would be higher.

So that's kind of a difference, but it's also, you know, there are other criteria that we use and this is basically how it works.

Nine, 10 foot ceilings, the amount of,

the amount of the corners of the house, which talks about complexity, the exteriors, the construction,

two by six versus two by four.

And not all of these are required in order for it to be great, but kind of the predominance of items that would fall in this category is where we would place it.

Yeah, I was gonna ask to bring this up.

Could we compare it to the A?

The A, okay.

I can't do it side by side very easily, certainly.

Oh, that's how you might spot, sorry, I skipped out.

Who's your builder again?

Okay.

They're done building now.

They've dissolved their partnership.

I'm also bothered by the fact that the actual cost to construct was so far beneath the improvement valuation.

It really was, including the activation, which is really more of a cleanup, 1.535, 1.535 versus, I mean, that's 200K difference and that's close in time from November, 2023 to January, 2024.

I don't know the answer.

I don't know what the.

This is the angle, yeah.

I don't remember the square footage, it was 35 to 5000.

A plus one.

A plus one is three to five now.

Three to five.

I have to say these look very similar to me and if size is the only one that would disqualify it I could see flexing the other way on it to correct something that we don't think is quite right if others feel that way.

I think I remember from last year that we don't actually, they don't actually have to do that either.

They can leave it at A plus one if we could do some other kind of adjustment, right?

We do prefer that it's based on changing our criteria.

Because that would flow through the retina.

That would take care of future years.

It could.

Yeah, absolutely.

What it would be?

So I don't think we're going to be able to deliberate, or at least I wouldn't be able to complete this one at sign 58.

I've got to step out.

You don't have to, but you can if you'd like to listen to the deliberation.

Yeah, I would.

OK.

Can we get a cell phone?

If something changes, we can call him.

All right, I'm not going to... Well, good, compelling case.

So I'm not going to be able to participate in board equalization application number 85, sort of a conflict, but Bob is going to take over as the vice chair and call the next case.

I move that we table hearing number three.

Is there a second?

I'll second.

All in favor?

Aye.

So that one will be readdressed at 2.15 or as soon thereafter as possible.

Thank you.

Thank you for coming.

Mr. Mayo, whoever's doing it, if you could just say, like Mr. Mayhew's seconded, that would also help in the next one.

Okay, great.

Because sometimes it's hard to figure out who said.

Perfect.

Thanks, everybody.

Mr. Mayo stepped out.

My name is Bob Beard.

I'm the vice chairman and I will take over.

Is everybody good?

Nobody needs a break.

So we're looking at application number 85, Red Lobster, Home Depot, USA, Inc.

The address is 1648 Rio Road East, the old Red Lobster restaurant.

And everybody here has already been sworn in, so I will swear you in.

You have not been sworn in?

I will swear you all in.

Do you solemnly swear or affirm that the testimony, both oral and documentary, which you are about to give, will be the truth, the whole truth, and nothing but the truth?

Thank you.

and we'll go ahead and begin with the applicant.

I believe you have about 17 minutes.

Then the assessor will have time to talk as well.

I'll be very quick today on most of these cases.

Yes, sir.

So the Home Depot, of course, is a closed chain restaurant.

It was built in 2010, 7,257 square feet.

The proposed assessed value here is $3,916,100, or about $540 a square foot.

The subject closed down in January of 2023.

Unfortunately, the Red Lops are still on the hook for the ground lease there, to my knowledge.

We valued the property looking at an income approach using both the ground lease in place.

We used a standard Microsoft operating expenses essentially to represent it.

and Deeper Semper Reserves, we used a 6.25% cap rate, which gave us in Young's Triple Nick cap rate for Red Lobster's specific cap rate study.

And that indicated value comes to about $2,789,500.

Of course, we think that's a bit low, but we also looked at comparable sales.

We saw that two similar chain restaurant sales occurred in 2022.

One for an Applebee's and the other for Chili's.

They sold for 465 dollars and 431 dollars square foot respectively.

They're still operating restaurants.

We think, you know, at least they should be down there.

On page three of the packet, it's just the standard cushions.

I'm not familiar with it.

And then our math starts on page six.

So on page six is the base rent.

It's the ground lease rent that's owed.

It's $121,000 per year.

It said we included vacancy and operating expenses, pretty minimal.

Also a small reserve allocation.

Well, they know I have about 106,904, but even if we capitalized $100,000 into value, but that's 6,225, we're still not going to get to where the assessment is.

So the land value that we calculate is about 1.7 million based on that ground lease.

We utilize the improvements per the assessor's improvement value.

So that's 1,079,000 added together 2,789,500 dollars, which is $384 per foot.

on page eight is that

Chain Study, the average cap rate, it's on page nine, 6.24, that's for operating properties, typically the lease term is 20 to 25 years, increases two percent annually, of course this one's probably more in danger of the lease being broken than in, I'm sure it's like red lobsters still on the hook for taxes here.

On page 12 is our first sale,

This is the Applebee's.

We made adjustments based on effective age, very minimal adjustments, 5% upwards.

Senator's office, please.

Okay.

Stand by.

I'm sorry, we just lost the room video feed.

So we got it.

We got to hook it back up.

Thank you.

Sorry about that.

Social office, please.

Thanks.

So we, we assess the fee simple interest in the property by this cost approach.

And we've used Marshall valuation service for that approach.

as of October 2023, which were the most current costs available for the preparation of the 2024 assessment.

We have a calculator cost based on a class D building of good quality construction.

We have the effective age of the improvements is 14 years, which is also the actual age.

But I did want to comment that we were not able to inspect the interior of the property because there's no longer access to it.

Physical depreciation is 24% and the external obsolescence that we've applied is 10% for total depreciation of 34%.

The depreciated value of the building is $952,000 plus the site improvements of $127,000 combined come to $107,900.

The land was based on the Route 29 corridor assessing district with a median adjusted base rate for the sales of $39.75 per square foot.

And those are summarized on the last page of our report.

After adjustments to the land, which is equalized at $40 a square foot, we come to a value of $2,837,100.

Total cost, total assessment for the land and the improvements is $3,916,100.

We don't believe that there's any

reason for change to the assessment, and with regard to the sales, both of them actually were vacant at time of sale, sales that were used by the applicant.

I don't believe that Applebee's was open at the time of sale, it was a surplus property, and the Chili's was also vacant at the time of sale.

To the best of my knowledge, it's a property in the city, so I'm not as familiar with that property as with the other ones.

Only that those properties are not, their locations are inferior to the subjects, which is right on Brian Road, right near 29.

The Applebee's is actually below grade to 29, so visibility is difficult.

The other one is the Chili's, former Chili's that was on Zand Road.

Yes.

I'll just be quick.

I did realize that one of my colleagues put this package together, but I'm glad that he found sales of, you know, bacon restaurants, because I think that the tests have been more

Of course, you know, location, location, location, but these properties were similar sort of chains.

They sold 465 and have been adjusted and were reunited and adjusted per square foot.

Thank you.

We do not at all.

I don't think the cap rate is a cap rate for ground lease or cap rate for land and building for Red Lobster.

Oh, and I think there, yeah, that was, so wasn't the way this was presented partly based on

Cap rate for the land, current ground lease rent, which has caps, so a cap rate on the land would be much lower than the cap rate on an improved property because it doesn't include, basically cap rates include rock and roid, the return on capital, return on investment.

Return of Capital Park is the depreciation of the building.

So it's a depreciatable item.

Land is not depreciated.

So the cap rate would be lower if it doesn't include that component.

So using a cap rate that would be for

That's based on two different ways of calculating it?

As far as the cost approach goes, it would be nice to be able to verify if the improvements are the correct actual age, still the effective age or something else has happened in there since because the building's vacant.

You know, was it damaged before the tenant left or is it older or is it in better condition?

So we're fairly safe, and it could be typical that unless renovations had happened, that the effective age equal the actual age.

And then adjust for location.

And that's consistent across all these types of property.

Adjustments for location.

That is correct.

For anything on Route 29 starting at the mall, or I'm sorry, starting at Stonefield up to the,

That section is assessed at $40 a square foot and then adjusted for location.

I don't think that's actual rent, though.

Oh, from their?

From the ground police.

Not sure.

Who was the purchaser?

They did acquire it, right?

Oh yeah, Home Depot homes.

So Home Depot purchased the mall Sears and the rear belts and this problem, the red lobster.

There's also the JC Penney and the front belts, which are owned separately.

Everything else is owned by Home Depot now.

There was a land lease under all of that, which Home Depot has now purchased.

All right.

On the faculty, 465 per unit.

Per unit and the best for each other.

really last year, built in 2010, right?

But we have no adjustment to the location.

We have an adjustment for the size of the site, which is 1.6 acres.

And then for access, the way you get into it, not directly off of.

Yes.

Access, yes.

Because you also didn't access the property.

So this is the former Applebee's, you know, come in around.

Yeah, shared entrance.

No.

Yeah.

Oh, sorry.

So you come in at the light.

Correct.

The other one was FAFSA.

That's a city property.

Seems to be like Applebee's and the same distance off US 29.

Do you lower Red Lobster's factor or do you raise Applebee's?

And there's a light, there's a light at Applebee's, right?

I don't think there's anything in between, right?

Are there any buildings in between Applebee's and 29?

I don't think so.

No, there's also an adjacent to the Applebee's.

Yeah, there's some vacant.

15% adjustment would make the 10% more correct.

Approximately $300,000.

As for the land.

This is the last one.

Doesn't mess with the base $40.

Well, that would have been the location.

That would have been a location adjustment.

I mean, I think location and or visibility kind of the same thing, right?

Correct.

Applebee's has a better visibility, clearly.

And I think.

Which we reflect in that.

Which you reflected.

I just think the accesses are similar.

Do you have any more questions?

Give me the number on the land.

Sure.

OK.

I make a motion on application 85-1648,

that we increase the access deduction 5%, 15%, resulting in land valuation $2,538,400.

That is correct.

I'll second that.

All in favor, say aye.

Aye.

The motion was made by David Mitchell and seconded by David Barnes.

Same person?

He's here for the next.

You saved us five minutes.

Could we take, could the vice chairman please ask for a five minute break?

Sure.

Is that okay?

No, absolutely.

Do you mind?

Two minutes, five minutes, five minutes.

Break until 10.30, is that okay?

Go back to 10.30.

Thank you.

Thank you.

This is the Board of Equalization coming back from a break.

Everybody's been sworn in, so we don't need to do that again.

We're considering BOE application number 81.

The address is 445 Westfield Road.

the VCA Albemarle Veterinary Healthcare Center.

And we'll continue on.

Thank you very much.

This is a pretty easy case.

As you said, it is a veterinary center.

Subject property was built back in 1982, that's about 3,210 square feet.

As you said, it's 445 Westfield Road.

If you turn to page two, I'll walk you through the main notes.

This is a very simple piece.

The assessment here is $923,100.

I believe it's our cost of production.

And then we also did an income approach.

This is how we think that a potential investor would purchase this property.

We reconciled these values to a total value of $707,000 at 238,000 square foot.

But our stock approach came in at 803,600, about 250 a square foot.

Our income approach came in at 748,000 square foot, or $738,000, or $233 a square foot.

The property was 100% occupied as the valuation date and its assessment reached 2% over the prior year, typical with most agencies.

We utilized a 9.1% capitalization rate from RRC's fourth quarter 2018 report.

We took into consideration the age, the 1980 vintage year, and the condition of the subject property, as well as the uniqueness of the tenancy plan.

It's a veterinary office.

It's not a typical box of retail.

We have the build-outs for smaller rooms for the treatment.

They have surgical centers.

We also did a cost approach to follow what the assessor would be doing here.

Using our own core logic, Marshall and Smith cost estimator, and after assuming the county's assumed land value, we calculated an improvement for our total value of $804,000, or 250 square foot.

Page 3 is the math.

You'll see in the top right-hand corner are the increases.

This year's are paying $76,095, which is closing to $23.71 a square foot, typical retail amount.

We used 5% vacancy loss, which is justified by, typically we go with 3% for external penalties to properties, but there is a bit more risk here because of the build-out, so we used 5%.

We used 5% for operating expenses, pretty minimal, just insurance, pre-management, et cetera.

Small 20 cent per square foot reserve or replacement to take care of any capex, of course that's, 642 is not going to be able to pay for anything, so it's minimal at this.

come up with an NOI of $68,033.

As we said, we use that 9.1% cap rate.

Now, look at that study.

But that's the second tier retail community neighborhood average.

Usually, typical community and neighborhood centers have cap rates which are justified by anchor there.

We use this as more of a general retail rate of the value of 748,000, which is $233.

We also have the map for the cost approach to the right-hand side underneath the lease that's highlighted.

The land value we assumed from the assessor's markup, $663,700.

Our improvement value is equity of $29,904, a rounded value of $88,365.

Page 4 is the lease agreement, so you can check that out on the lease adjustments and the amounts.

We've included that to our district clarity.

On page 17 is our cost per go.

It's the effective age of two years.

This is the 1982 vintage.

This is Class D, P, Quality 2, which is average.

I'll come up with the base cost is $193.69 a square foot, a sturdy walling and added to that base structure cost $190 a square foot, $0.89.

And we also got appreciation about $38.86 a square foot.

So that's our total cost after including the daily pass quality at $289 a square foot, $0.96 and $0.39.

So possibly it would be about 631.61, total differentiated profit, that's 1.39.

Moving on back to page 19 is the start of that cap rate survey, which we utilized.

The first year neighborhood community center average is about, I think we said we used the second tier, but just for comparison sake, I wanted to point this out.

Yeah, 8% for neighborhood community centers for the first year, which is considered newer properties.

Second tier investment average there is 9.1.

Relatively, we've been down at the bottom quartile of the page over two provides.

We're looking at the east.

I also included the definitions the RERC uses for their tiers.

This is kind of like our development information on what each tier is for.

Tier 1 properties are new or newer quality of construction and prime to their occasions.

Tier 2 properties are aging, slumber, search tier properties, and it's now.

Obviously the age here is up there to your property, but the location is great.

That was a good amount of information.

That's pretty much the gist of the case.

We looked at it both on cost and income.

You're such songs, please.

These type of property we typically do by the cost approach.

And the reason why we do it is we don't have sufficient rental data in the market for veterinary hospitals.

Most of them are owner occupied, and if they aren't owner occupied, they're leased for very long time, periods of time.

So it makes market rent difficult to actually estimate.

But in any event, we use the cost approach for this property.

And again, Marshall valuation service as of October 2023 for veterinary hospitals.

It's a class D building of good quality construction.

And although the improvements were constructed in 1982, they had a small addition in 88 and they've been well maintained and updated over the years.

So I believe that the applicant was here last year for BOE as well.

And we had it at 25 years as a effective age on the improvements last year.

So this year it's now 26 years.

and that's our comparison with other properties performing like functions.

In other words, it's been updated over the years.

They did the roof in 2023.

The property manager reported to me that the flooring had all been upgraded to LVBT approximately two years ago.

They repainted the building.

It's in very good condition for its age.

So I wouldn't expect the effective age to be the actual age in this case.

The depreciated value of the building is $247,700 and the site improvements we have basically paving at $10,700.

So $258,400 for the improvements.

The remainder of the value is in the land and the land is at $663,700.

And that again is based on 29 corridor assessing districts, similar to the last case that we had.

and we've equalized that rate at $40 a square foot.

We've made an adjustment for location size and C1 zoning.

And that brings it down to an adjusted base rate of 2970 per square foot.

Then page five is a copy of the location map showing the location multiplier as well as the commercial land size adjustment table.

So totaling it's land and improvements is 922-100.

and then we also did consider the income approach.

And Pete, did you want to talk about that?

So we've looked at the lease.

It was established in March of 2009.

It's triple net.

The tenant's responsible for all the operating expenses, either directly or by reimbursement.

The landlord is responsible for the structural.

The current base rate based on the 2022 income, not the 2024,

is 22.98 cents per square foot for calendar year 2022.

And I've put a copy of the lease schedule on page eight to see the calculation.

We were able to find one fairly recent comp for rents in the market.

It's about the same size.

It was the lease commenced in 2018.

So as of 2022, the base rental rate was $29.31 a square foot.

Reimbursements were $4.52 per square foot.

So it's also very similar in size.

And it was $6.33 per square foot above the subjects 2022 lease rate.

We believe based on the tenant that this would be similar if the income approach were used, it would be similar to a single tenant net lease investment.

And a more appropriate cap rate would be based on national net lease market, which averaged 7.38% as of the fourth quarter of 2023.

If you applied a 7.38 cap to the tax representative's net operating income, that would come to 921, 900 using their other assumptions.

And that's about within $200 of the assessed value.

And if you applied a lower cap rate to that, it would be a higher value.

So we believe that if the cap rate were correctly applied, it would not support a reduction.

So I just wanted to add, and we include it on page two, the life cycle chart.

So when we're talking about depreciation, some appraisers like to use straight line.

It just ages as it goes and people amount of reduction every year but what this chart shows and it's kind of a it's a study by Marshall Swift which is does all it does is costs and the effect on value is to show that over time you know it's it's

Time is not going by in a void.

Things are being done to properties generally.

And as Steph indicated, this is a very well maintained property.

So things are being updated on the building consistently, and that keeps the depreciation down so that when you're using an effective age, you're using it to represent that condition of the property.

And then, so I just wanted to add that about

about the cost.

And this is a schedule for residential properties.

They just don't have a graphic for commercial properties.

That was a helpful graphic, I think, to show that.

And then when it comes to the lease on a property, using a cap rate on the existing lease, which was

put in place in 2009 and it's getting pretty far into the lease itself.

It's really creating a leased fee value for the property and not a fee simple value.

It's just representing a value of that lease and not a value of the property and fee simple.

So that is one aspect of why we don't think the income approach on this that was developed was appropriate.

But we also kind of included

What a more appropriate cap rate range would be.

And using the high end of that means it's the lowest value that you would find using the same remainder implement, you know, the rent, everything else, just changing the cap rate in that equation.

So I just wanted to point out that, you know, kind of that the way that cap rate is determined and applied is, is very important, obviously, in an income approach, not just the fact that you can't just use the

We're saying in general, yes.

Unless it's a store.

And when you look at those

You generally talk in ages of 40 to 50 years total life.

So obviously buildings last longer than that.

And it's kind of that constant renewal that allows them to last longer than that.

And how much did you say you had a comparable rent?

Yeah.

Oh, okay.

That's on page eight.

Oh, no, I'm sorry.

Yeah, page eight.

22.98.

We're just looking for a comp.

How much is the rent in your scenario?

You know, I really don't have a rebuttal for this one.

I think I've laid out, you know, it's a very simple case.

It's more, you know, the uniqueness of this particular tenant.

We represent VCA.

all around Commonwealth or around the country.

And usually they have about one office in every single county.

But you know, she's right, Deb is right.

There's very few lease comps.

There's very few sales comps.

If you can find three in a five-year period, you're lucky.

Right.

So we just looked at, you know, what was the property?

What is the property?

Right.

Hey, when you said, uh, I'll let this reply.

You got a 20-year lease and there's five years left on it.

15 years you can.

I'm saying that you shouldn't use that rent as market rent.

Oh, well, yes.

It was rent that was negotiated.

Even with escalations.

Yeah.

Yeah.

You could.

Well, to keep it with market, it's why we provided a comparable.

And unfortunately, we would like to have provided at least three comparables, but it's just a lack of them.

But that comparable was more to show or infer

would be more appropriate instead of 22 or 23.

I don't think the cap rate that you used either, but also the cap rate.

So, okay.

Obviously using a higher rent and a lower cap rate would come up with an even higher value.

So not having enough data, we're not saying it's worth 1.2 million because the rent should be higher and the cap rate should be lower.

We're just saying that kind of the difficulty of that process or that method is why we didn't do it in the first place.

This property was peeled last year?

No, voted to affirm.

Seems to me that the current sentiment is right on, I think, as of right at 922.

Do we have a motion?

I'll make the motion that we affirm application number 81 to no change.

The motion was made by Mr. Mayu to keep the assessment.

We have a second to keep the assessment at 922-100.

All in favor say aye.

Aye.

All opposed?

Okay, the assessment remains unchanged at 922-100.

Okay, we're gonna move on to the next, everybody's ready?

Move on to the next application is VOE application number 80, is that correct?

Yes.

1200 Stoney Ridge Road, a 34,040 square foot showroom warehouse.

and we will recognize again, Mr. Michael Owen of Ryan LLC, the tax representative.

Thank you, Mr. Owen.

Sorry.

So this is Provilt's local location.

It is 1200 Stony Ridge Road.

As you said, it is considered as a part warehouse, part lumber yard, et cetera.

It's for building materials, of course.

as 33,140 square feet and also some lean-to's and such.

The subject assessment went down a little bit last year based on depreciation.

This is done utilizing the cost approach, which is understandable.

We looked at it both from a critical thinking approach as well as a Marshall and Swift cost approach as well.

Our cost approach comes in to $3,536,107 a square foot.

That's based on the sister's land and our own calculation for the improvements.

Value based on the income approach is only about $2.5 million.

We reconciled those values to roughly $3 million or $91 a square foot for the most part of the property.

The subject of property, as I said, was built in 1993.

We valued this property using a 7.9% base cap rate, which is from our ERC's fourth quarter of 2023 second tier industrial report.

So that's the best comp for most applicable cap rate for this sort of property, which is a mix of retail, but it's part of an industrial configuration.

On the left hand side is our approach.

We utilize the actual rents this year, which are $6.85 in line with industrial rents.

We use the 5% vacancy allowance, 5% for operating expenses, 20 cents for start points for the surgery.

190,021.

We used a 7.9% cap rate from our ERC cap rate study.

It comes to $2.5 million.

We also did our own cost approach.

We calculated an improvement value of $1,350,851.

Assumed the assessor's land value of $2,104,000.

We raised the total value of $3.5 million.

We think that's probably more relevant

So if these properties are unique, there's not a lot of tenants that are going to come in and lease this afterwards.

This is, you know, life's going to be under-occupied because of just the configuration.

On page four is our calculation from SWIFT.

We utilize the same variables for the assessor's worksheet as we could.

Storage for the rest of the house is a Class C, type 22.

quality 2, which is an average.

There's also about 40,000 square feet of paving.

There we also included the warehouse showroom store, Class C, 18 feet height, also average, HVAC and sprinklers on that part, and then lumber storage, lean-to's or overhangs, 4,800 square feet, 14 square feet.

Class S for those, height 15 feet,

We calculated a cost new of about $2,861,000 applying our depreciation factor.

It's just a cost value of $1,250,000.

We took no depreciation for the paving and asphalt, which is probably not a good idea.

Obviously, this gets a lot of wear and tear, but we think that our cost valuation calculation is very fair.

On page six is the actual leasing place.

It was signed in 2020, so I still feel that it's in line with market.

Moving back, we included the location, and we produced our report starting at page eight.

Then our RERC survey, which is similar to the last packet that we talked through, starting on page 10.

We used the second tier warehouse.

We highlighted it for you on page 12.

This is the criteria going in cap rates from page 6.5 to 9.8.

That's pretty good, very simple.

Thank you, sir.

Sessions office, please.

Before Deb gets started, ironically, this one, we believe an income approach was appropriate as opposed to the last one.

So we developed actually both the income and the cost, but used the value from the income approach.

And I'm sure Deb would point this out, but the property

that the current owners purchased this property for $3.4 million in 2021, $3 million for 62.5.

Deb, go ahead and go through.

OK, great.

We'll start with the income approach, which beginning on page two.

and what we did was we looked for rental data for larger industrial spaces and we had to go outside the immediate market area because as you know in this area there's very little industrial.

What is available is often owner-occupied and what is available for rent can rent for anything depending on the

Who needs it when they need it?

We just don't have enough industrial.

So we went and we looked at RANTS, which I put three of them on page three, and felt that two, rental one and rental two were fairly similar but outside our market.

Rental three was superior to us but is located in the same industrial park as the subject.

On that basis, we concluded that a rental rate in the range of $9 to $10 square foot would be reasonable for the subject.

And we went at the lower end at $9 per square foot due to the additional

20,480 square feet of lover storage yards.

I put a nominal rental rate of $1.50 per square foot to those storage sheds because the yard and outside storage is very desirable in the county and there's not a lot of it.

So somebody would be willing to pay something more for having that ability, having that on their property.

It's the,

The property is currently occupied by a single tenant national credit.

We did not apply a vacancy of collection loss because the risk of the tenant exiting prior to the end of the lease term is unlikely due to the existing lease, which is far below market.

Operating expenses are based on a triple net structure.

So we applied a 4% management fee and a 20 cent per square foot replacement reserve.

The estimated net operating income was concluded at $316,789 and page five is the worksheet that shows those calculations.

So the capitalized income value based on the income approach was $3,959,900.

The overall cap rates were developed based on our warehouse model for 2024.

This would be a grade one property and cap rates for the national warehouse market per PWC was between three and six and a half percent.

As of the third quarter of 2023, which was the most current data available at the time of the assessment, the average was 4.97% overall cap rate.

We did not have any cap rate sales reported in 2023 in the local market, no surprise, because we have no inventory.

CoStar reported sales of industrial properties throughout Virginia, ranging from 4.8 to 15%, with a median of 6.55%.

And that chart's located on page seven.

The overall rate that we established for Grade 1 properties was 8%, which is 150 basis points above the upper limits reported by PWC and 145 basis points above the median cap rate reported by the sales.

So we feel this was reasonable support for an 8% cap rate.

When you apply the 8% to the net operating income, this results in a value of $3,959,600 by the income approach.

The cost approach starts on page eight.

That was also considered based on a class S showroom warehouse building.

The quality of the construction is as average good and the effective age is 30 years, which is also the actual age.

Total depreciation for the building was 60.5%.

The depreciated value of the building is $970,600.

And the building sections are presented on page nine.

The remaining buildings are all lumber storage sheds, and there are four of them, and they total 20,480 square feet.

They're all Class S average good, average story height of 16 feet, and we've depreciated these structures by 80%.

On page 11, the site improvements are shown.

It's basically the asphalt parking area of $193, $900.

When combined, the site improvements and the building improvements total $1,311,900.

The land value has been equalized based on recent sales of parcels located in the Mill Creek Industrial Park, which are summarized on page 13.

The median adjusted base rate for the sales is $10.22 per square foot and we've equalized the rate at $10 per square foot.

There's 5.63 acres that has been adjusted for size only.

The remaining 2.0 acres have been adjusted for size and for topography issues like they tend to slope at the edges.

2024 land size adjustment table is inserted on page 14 for reference.

The land value after the calculations, the calculations is $2,290,900.

So the cost approach is concluded at $3,600,800.

So we've considered both approaches.

Thank you, the applicant, please.

The only thing I'd like to say is this property, I wouldn't consider it to be a, let's say, industrial site.

You think more of a large warehouse, 100,000 to 300, 400,000 square feet, either along I-85 or, you know, being along I-64 is fine, but down near Richmond, you know, we have tons of big distribution warehouses.

Those would be appropriate to use, you know, a four or five or six gap rate on.

Now it's like inching up towards six.

I think that the uniqueness of the site

is important to consider.

Thank you.

Is the cost approach or the income approach, does either one prefer if either can be done?

How does that work?

The reason I ask is because the next one, in the same complex, you did the other one.

That is correct.

So I'm not saying that's wrong.

This is a storage warehouse.

It really matters if the income is more appropriate in a situation as to if the income approach is going to be chosen.

So we have chosen income approach on this property to be more appropriate based on

Anybody else have questions, observations?

I have another question.

Do you switch back and forth?

From one year to the next?

No.

No, we don't.

You don't.

Well, if we decide that

Generally, we should be relying on one in a new year.

Last year, this property was appraised by cost.

Yes, so we changed

Correct.

Anything?

that was on BOE application number 80, which is 3,959,900.

That was a motion to affirm by Mr. Norford, seconded by Mr. Mailloux, and all in favor say aye.

Aye.

Aye.

This is Evan Mayo.

I've rejoined the meeting.

Evan Mayo has abstained from the vote.

Thank you.

All right, Mr. Mayo, would you like to

Get the chairman's rollback, please.

Nothing to observe in my absence.

Any complaints?

I was confused.

Very confident.

Okay.

So the property is a distribution warehouse.

It's occupied by FedEx.

It was purchased from a large FedEx corporation.

R.M.R.

group, subject property, turn to page two, subject property is industrial warehouse, 48,000, 60 meters per unit.

It was built in 1998.

It sits on 6.53 acres of property.

The property is 100% occupied by FedEx, so the value of it increases by 1% every five years.

The subject is currently assessed on cost, but it should be as big of a producing property, probably valued on a new approach.

We would like to approach the value of the specific property.

We derived our 6.8% capitalization rate from our agency's fourth quarter 2023 real estate report.

It's taken into consideration age, size, condition,

This is, you know, one of those first tier class A sort of industrial warehouse distribution warehouses, which are over 60,000 to 100,000 square feet, and then it's talked about with a T-shirt to a mega warehouse that's just over 300,000 square feet.

The value of this is something based on the average, period of 1.2 and 3.3 units, respectively, at a cap rate.

On page 3, if you want to think of that, you can see the T-12, the T-21 is only a part of the year.

Good thing to know about this stuff.

Then moving forward is the actual performance of its ownership, 2023 and 2022.

We utilize David's critical and income appreciation to send using $6.85 for the rest.

Using 5% of the property expense.

We do not use a vacancy loss because FedEx isn't going anywhere.

This is a great location.

We use a 20% per square foot reserve allocation to accept that.

I know I have 315,164, we've got 6.8% cap rate from RERC, it's valued at $458,000, which is within the range of a similar class piece where this is the sort of thing else.

Things went kind of crazy for a while for industrials, especially for the big larger industrials that they're selling, and at least $100 a square foot up to $140 a square foot, that's tapered back this past year, so I was like,

and even brand new stuff along the pages.

On page four is the income statement.

Starting on page five is the income statement since ownership.

On page 11 is the official rental of the site.

on page 13 is the profile and properties, page 15 is the start of the cap rate survey.

We have 6.8% cap rates were spent on page 16 at the bottom floor tile to the third tile on the left.

Also included in the third tier, but as I said, we think this is first tier.

page 19 and 20, page 20.

Tier 1 properties are new and will follow the construction of the prime to get the pictures.

Just one thing that Mr. Owen said, the original value increased, I don't know, approximately 1% over 2023.

However, on review, we reduced the value.

It actually went down since last year.

The number that he shows in his packet of $5,612,000 is the correct assessment, but it's a reduction from the $6,000,000 of 2023.

Okay.

So again, we considered both the income approach and the service approach.

We looked for industrial rental rates throughout the region since there's not sufficient data within the local market.

We have on page two, a summary of the rentals that we considered

They range from $8.50 to $16.25 a square foot and average $11.37 a square foot.

One, two, and three are Waynesboro, Troy, and Ferncliff, where rents are generally less expensive.

Four and five are from Charlottesville, and six and seven are actually FedEx facilities that are located in Chantilly and Emporia.

Based on the data that we had available to us, we concluded a rate near the average at $1,150 a square foot as a reasonable estimate for the subject property, an estimated gross income at $552,449.

The vacancy and collection loss, again, it's a single national credit tenant, we didn't apply that to the credit profile.

So the operating expenses were also considered and

There was a management fee and replacement reserve applicable to this property resulting in a net operating income of $520,743.

The overall cap is again based on a Grade 1 property with the same 8% rate that we had established based on the discussion we had before of the national survey and the industrial sale data throughout Virginia.

And the

Income approach was concluded using an overall cap rate of 8% for a value indication of $6,509,300.

We also developed a cost approach, which starts on page seven.

This is a Class S fully sprinkled distribution warehouse.

Quality of construction is good.

We've set the actual age and the effective age to 26 years.

and there's two sections to the building.

One is the distribution facility and the other is a customer service center with a substantial amount of office behind it for their employees.

Site improvements consisted of asphalt paving area and the travelways and a loading well, the perimeter security fencing and the electronic gates were not included in the site improvements so they have not been assessed.

When combined, the depreciated cost of the building and site improvements is $3,910,200.

The same land value was established using the Mill Creek industrial park rates that we discussed in the last appeal.

They were $10.22 per square foot, median adjusted, and are located on page 10.

Again, base rate was $10 a square foot.

The subject has an acreage of 8.94 acres, so we made a

54% size adjustment based on our land size adjustment schedule.

Topography has also been adjusted 5% to represent the varying elevations that surround the building pad.

After the adjustment, the subject land assessment is $1,708,100.

The total value concluded by the cost approach is $5,612,000.

The cost approach was concluded lower.

The income approach was concluded higher.

Although this is an income producing property, estimated market rent for a distribution facility like this is very difficult because we just don't have a lot of them in our market.

And I just wanted to point out in

Even more pronounced than the last property, the rent is far below market on this.

It's an older lease, I believe.

And using that rent would not be appropriate to determine the market value.

This, again, would be

a leased fee value, which would be offset by a lease hold value that would be held by the lessee, which made up the difference between the two values.

So, you know, our value represents be simple and the applicant's value essentially represents lease fee, the difference is the value that the lessee holds.

But for the assessment purposes, we're supposed to be assessing

as fee simple and representing what the market value would be.

The only thing I would add is that $6.85 is actually really close to market for these sort of properties.

Down in Richmond and down in the Tidewater, the big new properties are being built.

They're signing leases about $7 a square foot, $7.50 a square foot.

If you're getting into the $10 range, it's going to be more specific.

I think that the value here that

Brimes using the lease fees is going to be the most appropriate for this because that's, you know, somebody would sell or buy it for it if it wasn't part of this huge portfolio.

The allocated value from the 2022 acquisition, it was, it was a huge portfolio.

And if I can rebut the rebut, that sale was $19.99.

If that's what Mr. Ellington's referring to.

I don't know, are you talking about another?

So yeah, there's a transfer that occurred in 2022.

So the entity sold as part of the huge portfolio.

So back in 1999, 25 years ago, it sold for $3,900,000.

The $6 to the income approach, $6 to say $6.25.

But I understand that the assessor use costs because they explain why I understand that.

It is unfortunate, we are,

Not the largest market in the world.

Especially when it comes to warehousing here.

Everybody knows there's not enough.

It tries to occur.

Okay.

Does anyone else have any further questions for the applicant of the Assessor's Office?

Any further comments on the methodology concerns?

Seconded by Mr.

Beard.

All those in favor?

Aye.

All opposed?

Now here, appeal of equalization application number 86, address is 1500 State Farm Boulevard, where JDM2SF National LLC, care of State Farm Mutual Fund Mutual.

Presented by Mr., not Brian,

This one is

a bit of the Chicken Little Skies falling office market case.

And it's been interesting, you know, watching what's happened to, especially insurance offices around Virginia.

So we represent both Allstate, State Farm.

It's been interesting to see what they've done since the pandemic.

This work culture has changed immensely going into the office.

So, you know, this is a Class B office voting.

It's in good condition.

The filter is 78.

It's 316,155 square feet.

There is a subtenant in here.

They're only paying $14 a square foot full service.

But if you'll turn to page two, I'll walk you through this.

As I said, you know, it's considered based on age, it'd be class C, but it's class B.

It's well taken care of, set up for an institutional user, you know,

Lots of meeting space, just well taken care of.

But since the pandemic, St. John's is outside.

It's just as Allstate has left both their voting on road.

But those are on a much different scale.

Both their properties are over $8,000.

This being 362,000 square feet is just a whole different story.

And, you know, finding an office user that will fill this or finally split this up for it's going to be extremely costly as well.

Due to the pandemic,

The owner and State Farm with business partners acquired this site.

They acquired a few more around the country, I think six separate sites that were part of this portfolio.

State Farm has been, you know, out there in the market, brokers trying to find subleases for this asset.

State Farm is still on the hook for $14 a square foot, triple draft.

And there's likely going to be a red discount for the triple net rents paid by State Farm.

Or even if a large enough tenant can be found, they might be able to serve a super property.

So far, there's only one sublease.

It's 48,000 square feet.

And as I said, they're paid $14.

We performed three pro forma income approaches.

We used one approach using the in-place triple net rents that State Farm is still on the hook for.

We used a bifurcated analysis using $14 a square foot.

That's from the unoccupied space.

State Farm was still on the hook, as I said, and then $14 a square foot for full service for the sublease for $80,000.

And then finally, a third analysis states that pretty much all the space to market, considered as a full service, deducts the full will be sub cost below the line.

To simplify our analysis, we assume the Cessna is 9.25% cap rate.

This would be extremely arguable just based on the size of this property and it's really going to be depending on the Cessna algorithm.

Our sales comparison approach, we also looked at three sales from all around the region, finding a 300,000 square foot office.

It's not just a sale disappeared in the last few years.

It hasn't been stressed.

The adjustments to those sales and adjusted value of $83 a square foot, which would indicate a total value here of $30 million.

Walking through our income approaches on the next page,

On the very left-hand side is the triple net analysis.

It's in blue.

Laser net this year is going to be 4,504,983.

It's 10% of the vacancy collection losses, obviously.

Nobody's in there.

It's going to be, you know, there's a huge amount of risk involved with that profile.

Operating expense is 10%, just pretty much.

Reserve allocation, 2%.

Take care of any cap-backs.

Operating income of $3.5 million and then $9.2.3 indicates total value real estate of $38.5 million.

From that, we've deducted $11.5 million, which would be lease-up costs based on that triple net analysis to get the 362,000 square feet down to a 5% stabilized vacancy.

That's probably overcounting.

We should probably just bring it down to a 10% stabilized vacancy, but still, the lease-up costs would be considerable, bringing the value to right around three.

The flag brigade analysis is in orange, left hand side is that same triple net analysis based on the rents in place, and then the 14 dollar square foot full service analysis next to it indicates a total value of about 29 million.

or about $83 a square foot.

And then full service is bringing its market.

That's in the green, $2.25 a square foot, which we based on lease comps from around the service area as best we could.

Of course, finding lease comps from these properties is difficult.

We try to also expand our search out to the general Virginia market.

We brought the vacancy down to 5% like this.

Then use a 35% expense ratio.

Full service would be hopefully between 30 and 35% of our taxes.

and Michael Smoothey.

Sizakoff, 2% for reserves, bringing the NOI to $4,822,682, lose that same 9.25% cap rate, which is in line with surveys and sales, same as with the assessors used.

Indicated value of the income approach for a stabilized property, 52.1.

Of course, there's going to be a substantial cost to get it released.

We calculated that to be $22.8 million, bringing the value down to roughly $30 million.

That's still the $80 a square foot range.

On page four is our calculation of lease-of-costs.

On the left-hand side is our triple net assumption.

So you've pretty much minimal, it's an improvement in loss of $10, loss of rent of 42% per square foot, admission of 6%, 10-year lease if you get it, annual discount rate of 10.5% for PWC.

If you lease it up to 24 months, that would be a present cost of about $11.5 million

on the right-hand side is the market or full service analysis, $0.22 to $0.25 substantially higher market tenant improvement allowance, but it really depends on how they have to cut this thing out.

I mean, it's spaces for smaller users or, you know, they get lucky and get somebody in there.

There's going to be some requirements to change up the

Same assumption for lease, same assumption for commission, same assumption for discount rate.

Indicates total lease of cost about $20.8 million plus 2% for entrepreneur profit.

Present value of lease costs about $22.8.

On page 5 is our sales analysis grid.

We looked at two properties from Northern Virginia, one in Reston, that property was about 225,000 square feet, about 24 years old, renovated most recently in 2013, sold for an unadjusted value of $2 with different classes of office.

We also looked at a property in Arlington.

built in 1926, 239,678.

And then we looked at two former Capital One underoccupied properties of solid enrichment in the Westbrook area, 10-700 and 10-750 week first drive.

That was brought by her first-drive pathway, I think, for underoccupied use.

That's the one that's currently circulating at just $180 per square foot.

Total square footage, there are actually two buildings that are, the total square footage was 192,027 for built in 1997.

All these properties are a bit younger than the subject.

They're all well taken care of.

They're all class A sort of properties versus subjects class B, mostly based on age.

I made adjustments for conditions of sale.

The Campus Commons sale, which is the Reston sale, was assemblage.

Made a deduction there, dropped the price about 5%.

Then owner user increased the price about 5%.

Everything else, all the other adjustments would be an adjustment for physical characteristics.

I thought that all the classizations were above average.

Number of units would be adjustments for the differences in square footage, also the differences in plant size.

Obviously, this subject property sits on a large piece of land, much better here than the other properties that we compared it to.

So the adjustment was considerable.

Location, major adjustments, because Northern Virginia is a much different market than Charlottesville, Richmond, it's an adjustment there.

Occupancy, we made adjustments there based on the subject property being only about 13% occupancy, 65, 60%.

After adjusting those values, we come up with the reconcile unit of the comparison or square foot of $83, applied to the subject square footage, about $30,140,000.

On page six is the marketing brochure for the property.

Yes, we did.

You can see, you know, it's well taken care of.

Obviously State Farm needs to hand the keys back in good condition.

But, you know, just finding a region, that's the hardest part.

On page 16, I included an email from the asset manager saying, you know, I asked if there's any changes that have been made to the site, you know, since no material changes, but the subtenant actually occupies 48,000 square feet.

There's amendments, at least in the average space, which everything else is the same, you know, they're out, no prospects on the horizon this time, and brokers should advertise asking for aid for the site.

I do not offer any tenant improvement allowance on the original sub-lease for amendment to add space.

The road improvement issue is 4% for the government to deal with budget incentives.

As far as term, obviously, we prefer sub-leases with expirations in alignment with the expiration of the master lease.

31 page 17, this is where the package is, follow this, narrow down to the list of things.

I did want to include all the sales of office properties over 100,000 square feet from around Virginia the past three years.

You can see, you know, the range is between $2 a square foot, of course, up to an average of $83 a square foot.

The median is $99 a square foot, but the high was $143 a square foot.

The average cap rate was 95%, which is right in line,

Moving back, I'll point out the sales profiles.

On page 25 is the campus common sale.

That's the one in Reston, 245 755 square foot.

This is renovated in 2013.

Good looking property.

We actually used to represent this for, it's all in a different

Moving back on page 38 is the next sale that we've been planning on our sales comparison search.

This one is in Ballston.

It was a Class A building once in 1986, $250,678.

The seller was UBS.

Bought by Enzance, you can see.

So if we're not adjusted back, we're just about to spread the pleasure.

Then the final sale that we're likely to fund in our grid is page 93.

That is the, there's two buildings in the sale, this is the first building, it's 10-7, it's one of the Capital One buildings, Class A.

As I said, it was a portfolio sale for two properties, $20,750,000 per foot, and that occurred in November 2020.

Moving on back, I did include some lease comps just to give the lease rate that I used of $22.

It's a change square foot, something that I'll support it.

On page 95 is the lease comp summary.

The lease comps were signed over $20,000.

The range was low.

But for gross starting rent per square foot, lowest $5.76 for 50 pounds, the dollar domestic high was $22.36, which aligns with the rate.

Yeah, this is a tough one.

I don't know what's going to happen.

They're going to be able to find somebody to fill it.

It's going to be offloaded at the end of the lease expiration.

What really complicates things is that State Farm is going to be able to get to this.

I did include also a few articles that we've also seen in the state office.

Super flux, there's a lot of downsizing.

based this on the income approach, but we do not consider the additional income from the subtenant in our evaluation.

And the property is still fully leased by an investment grade tenant through November 30th, 2028.

It's being marketed as a core asset with an investment grade tenant with over five years remaining on the term.

So,

For the vacancy rate, we wanted to recognize the physical loss of the tenant, and we applied an extraordinary vacancy of 15%.