Opinion
C.A. No. 04A-09-010-JRS.
Submitted: February 4, 2005.
Decided: June 3, 2005.
On Appeal From the Board of Assessment Review of New Castle County. AFFIRMED.
ORDER
This 3rd day of June, 2005, upon consideration of the appeal of Brandywine InnKeepers, LLC ("Brandywine") from the decision of the Board of Assessment Review of New Castle County (the "Board") denying Brandywine's appeal of a real estate tax assessment, it appears to the Court that:
1. Brandywine is the owner of property located at 4000 Concord Pike, Wilmington, Delaware (the "Property"). Located on the Property is a 138-room Holiday Inn Motel (the "Motel"), which was built in 1961. Brandywine purchased the property in 1997 for $3,070,000.00. New Castle County (the "County") assessed the value of the property as of July 1, 1983 at $3,689,000.00. Brandywine has made no significant structural changes or additions to the Motel since its acquisition.
In order to ensure uniform taxation, New Castle County determines the values of all properties by using the base year of 1983. Tatten Partners, L.P. v. New Castle County Bd. of Assessment Review, 642 A.2d 1251, 1254 n. 1 (Del.Super.Ct. 1993).
D.I. 4, at 8-9.
2. Brandywine appealed the assessment, and a hearing was held before the Board on August 25, 2004. Brandywine presented the testimony of Dean Laskaris ("Laskaris"), a Certified Public Accountant who provides accounting and consulting services and specializes in the hotel industry. Laskaris used two separate income approaches and a market approach to determine the fair value of the property.
D.I. 4.
Id. at 16.
"The Income Approach is a method of arriving at the estimated value of the property by analyzing the potential income and expenses from income producing real estate. The net income is then capitalized to indicate the value of the property as an investment. It assumes a return based on that which competitive properties are receiving." General Motors Corp. v. New Castle County, 2000 WL 33113802, at *4 (Del.Super.).
"In the Market Approach, recent sales of similar properties are examined and compared to the subject property. Market oriented adjustments are made for any differences between the comparable sales and the subject [property]." Id. at *4.
D.I. 4, at 20-21.
3. Under the first income approach employed by Laskaris, he took income and expense data from the 1982 Census of Service Industries that had been submitted to the United States Department of Commerce. He then applied a capitalization rate of 15% to the net operating income. The 15% rate reflected his evaluation of the risk involved in investing in this particular property and the 10.5% prime rate in effect in 1983. This methodology yielded a value of $2,285,500.00. The second income approach was based on the property's actual 2003 income and expenses. Laskaris capitalized the net operating income at the present rate of 12.5%, which yielded a current market value of $3,704.292.00. He then discounted that value by the Consumer Price Index to determine a 1983 market value of $1,664,295.00. Under the market approach, Laskaris reviewed the current assessment of the Property and compared it to the assessments of other hotel and motel properties. In this part of his analysis, he concluded that the Property's assessment appeared to be two times more than the average, even on a per-acre basis. Additionally, he applied the Consumer Price Index to discount the 1997 purchase price to a 1983 value. This approach yielded a value of $1,865,332.00. Leslie Morgan ("Morgan"), a representative of Brandywine, also testified regarding the terms by which Brandywine acquired the property, the condition of the property, comparable properties and income/expenses associated with the Property.
Id. at 26.
Id. at 27.
Id.
Id. at 28.
Id.
Id.
Id.
Id. at 21-22.
Id. at 29.
Id.
Id. at 8-15.
4. The County presented the testimony of Andrew J. Marinelli ("Marinelli"), the Assessor Supervisor in the Assessment Division of the Department of Land Use. He is a state certified residential appraiser in Delaware and Maryland and is internationally certified as an expert witness in the area of "mass appraisal." He testified that the market/sales approach was most appropriate for this type of property because it best reflects what is happening in the market and also because it is the favored approach in Delaware.
Id. at 38.
Id. Mass appraisal is the process of valuing a group of properties as of a given date, using standard methods, and allowing for statistical testing. http://www.kentonpva.com/htm/glossary2.htm.
D.I. 4, at 38-39.
5. The County also presented testimony from Tamara Piectrazak ("Piectrazak"), also an appraiser for the County. She testified that she reviewed the comparable sales and comparable assessments set forth in Laskaris' report. She concluded that a five-year span in either direction of the County's base year of July 1, 1983 would be most reliable and she subsequently developed a market analysis of several sales. The market analysis compared the sales of the following motels/hotels: the Double Tree/Radisson on Concord Pike, the Holiday Inn Select, the Tally-Ho, the Howard Johnsons in Newark, and the Days Inn on West Street in Wilmington. She found that the Howard Johnsons was most comparable to the Motel. She disregarded the sale of the Tally-Ho because it was in a state of disrepair at the time of the sale, and also disregarded the Double Tree/Radisson because it was superior to the Motel. The remaining sales provided a range of $23,309.00 to $30,000.00 per room. Piectrazak concluded that because the Motel was assessed at a value of $26,163.00 per room, the County's assessment fit squarely within the range established by the sales data. She also applied the income approach. She used the 1982 income and expense data provided by Brandywine and capitalized it at a 12% capitalization rate, which is used in New Castle County's commercial pricing system. This analysis resulted in a value of $2,860,625.00. She further explained that the rate used was developed in 1985 and is used for motels, hotels and other commercial properties. She testified that the income approach was not a valid indication of the market and that the sales comparison yielded a more accurate reflection of fair market value. Finally, Piectrazak presented evidence that the Motel had the lowest assessment on a per room basis and the second lowest on a per-square foot basis when compared to the comparable properties identified by the County.
Id. at 40.
Id. at 41.
Id.
Id. at 42-43.
Id. at 43.
Id. at 47.
Id.
Id.
Id. at 51.
Id.
Id. at 65-66.
Id. at 51.
Id. at 76.
6. Laskaris disagreed with the 12% capitalization rate used by the County under the income approach because he thought it was too low for 1983 given that interest on financing at that time ranged from 13-14%. He also stated that in his opinion the sales approach was not the best approach for hotels because of the difficulties in finding comparables. For her part, Morgan also disagreed with the County's application of the sales approach. Specifically, she took issue with the use of the Howard Johnsons as a comparable property because the motels are not sufficiently similar — the Howard Johnsons' primary market was the University of Delaware whereas the Motel's primary market was corporate travelers. Finally, she stated that the County's evidence was misleading because the properties listed in their comparables were hotels not motels, and were newer construction with higher rental rates.
Id. at 60.
Id. at 60-61.
Id. at 63.
Id. at 61-62.
7. At the conclusion of the testimony, the Board affirmed the County's assessment by a vote of three to one. The Board found that the Property had been fairly assessed at $3,689,000.00. In arriving at this conclusion, two of the three members of the Board who affirmed the assessment found that Laskaris' testimony was not credible. Specifically, they found that because Laskaris was not a commercial appraiser, he did not "fully examine or have understanding of all the various approaches" that might be utilized properly to value the Property. Brandywine now appeals the Board's decision.
Id. at 71-72.
See id. at 71.
Id.
8. Brandywine first contends that they presented competent evidence to negate the presumption in favor of the County's tax assessment. Brandywine further argues that the Board's decision to affirm the current real estate tax assessment of $3,689,000.00, rather than adopting its proffered assessment of $1,900,000.00, was both arbitrary and capricious and contrary to law. Brandywine contends that the following alleged errors support its contention: (1) the purchase price of the Property was nearly $1,000,000.00 less than what the County assumed when determining its 2003 assessment and that the purchase was the product of an arms length transaction; (2) the comparable sales relied upon by Brandywine are more accurate than those relied upon by the County because they include properties of similar age, geography, configuration, and clientele; (3) because there were very few truly comparable properties, the use of the income approach was justified; (4) the County could not justify its use of a 12% capitalization rate in the income approach; and (5) the assessments that the County offered as similar to the Property were hotels not motels and were much newer than the Property. The County contends that this case simply boiled down to a battle of the experts in which the Board found the County's experts more credible.
9. "A taxpayer aggrieved by the assessment of his property has the right to bring an appeal before the Board of Assessment Review and then to appeal the Board's decision to [the Superior Court]." The taxpayer faces a "substantial evidential burden" at both levels of appeal. "When appealing the assessment to the Board, a prima facie case for the accuracy of the assessment is made by the assessment record." "The burden of presenting evidence to overcome the prima facie case and to rebut the presumption rests upon the property owner. To meet its burden, the property owner's evidence must not only be competent, it must be sufficient to show a substantial overvaluation." "If rebutted by such evidence, the presumption in favor of the accuracy of the assessment ceases to exist . . . [and] the Board may then hear evidence to support the assessment."
General Motors Corp., 2000 WL 33113802, at *3(citations omitted).
Id.
Id.
Id.
Fitzsimmons v. McCorkle, 214 A.2d 334, 337 (Del. 1965).
10. On appeal to this Court, the standard of review becomes even more limited. Specifically, this Court will deem a decision of the Board to be presumptively correct and will disturb the decision only if the appellant can show that the Board acted "contrary to law, fraudulently, arbitrarily or capriciously." "The reviewing court is not to reverse if it finds that the Board relied in part on incompetent evidence but only if `the Board's findings are clearly wrong and its conclusions not the product of an orderly and logical deductive process.'" "When reviewing an agency decision, [the Superior Court] does not weigh the evidence, determine questions of credibility, or make its own factual findings."
See DEL. CODE ANN. tit. 9, § 8312(c) (Supp. 2004.) ("The decision of each board of assessment . . . shall be prima facie correct and the burden of proof shall be on the appellant to show that such body acted contrary to law, fraudulently, arbitrarily or capriciously.") See also Ferrara v. Board of Assessment Review for New Castle County, 1995 WL 945549, at *2 (Del.Super.) (citations omitted).
General Motors Corp., 2000 WL 33113802, at *3 (citations omitted).
E.I. DuPont De Nemours Co. v. Faupel, 859 A.2d 1042, 1046 (Del.Super.Ct. 2004).
11. Although the Board did not state in its decision whether Brandywine had met its burden of proof with competent evidence demonstrating a substantial over-assessment, it appears from the decision that the Board did find that Brandywine had rebutted the presumption and decided the case based upon the competing evidence presented at the hearing. Accordingly, the only issue before the Court is whether the Board in making its decision acted arbitrarily or capriciously or contrary to law.
See Ferrara, 1995 WL 945549, at *2 (finding that, by implication from the fact that the Board considered competing evidence, "the Board found the presumption rebutted and decided the case on the evidence presented" at the hearing).
12. An arbitrary or capricious decision is one that is "willful and unreasonable and without consideration or in disregard of the facts." Additionally, a decision is contrary to law if it violates a statute, legal regulation, or settled common law principle. Here, the Court cannot conclude that the Board's decision was either arbitrary or capricious or contrary to law. The five bases offered by Brandywine to support a finding that the Board's decision was arbitrary and capricious mirror the testimony of their expert, Laskaris. In essence, then, Brandywine is asking the Court to consider Laskaris' testimony anew because, in Brandywine's opinion, the Board failed to give adequate weight to this probative evidence. The Court declines to expand its standard of review by taking a "fresh" look at the weight to be given to the competing experts' opinions. The Board adopted the conclusions of the County's experts because it was "concerned about Laskaris' qualifications to perform the analyses to which he testified." Simply because the Board did not adopt Laskaris' conclusions does not mean that it did not consider them. The Board weighed each experts' testimony and accepted Piectrazak's conclusions over Laskaris'. Such weighing of an expert's qualifications and conclusions are "matter[s] [exclusively] within the province of the trier of fact." Having engaged in this analysis, it cannot be said that the Board's decision was arbitrary and capricious.
BLACK'S LAW DICTIONARY 96 (5TH ed. 1979). See also Liborio, L.P. v. Sussex County Planning and Zoning Commission, 2004 WL 2191052, at *2 (Del.Super.) ("Arbitrary and capricious has been interpreted as referring to an action which is unreasonable or irrational, or to that which is unconsidered or is willful and not the result of a winnowing or sifting process. It means action taken without consideration of and in disregard of the facts and circumstances of the case. Action is also said to be arbitrary and capricious if it is whimsical or fickle, or not done according to reason; that is, it depends upon the will alone.").
BLACK'S LAW DICTIONARY 297.
D.I. 4, at 71.
See Ferrara, 1995 WL 945549, at *5 (finding that simply because the Board did not adopt an expert's conclusion, does not mean that the Board did not consider it).
Id. at *4.
13. While Brandywine challenges Piectrazak's selection of comparables, it has not meaningfully argued that her opinions on value lacked factual support or were based upon flawed methodologies. "Comparables need not be identical, but only similar in nature." The methods Piectrazak applied were recognized methods of valuation. She weighed the different methods of valuation and, in her opinion, determined that the market/sales approach was the best method of valuation in this instance. Accordingly, the Court cannot find that the Board's acceptance of her conclusions was contrary to law.
D.I. 4, at 40-59.
Rodney Square Investors, L.P. v. Board of Assessment Review of New Castle County, 1983 WL 482333, at *2 (Del.Super.).
See General Motors Corp., 2000 WL 33113802, at *4 ("Delaware courts have specifically recognized three particular methods for determining the value of real property: 1) the capitalization of income method, 2) the comparable sales or market method, and 3) the reproduction cost new method [sic]."). In this case, Piectrazak used both the income method and the comparable sales or market method to make her assessment. See D.I. 4, at 41-47, 51.
14. "[The Court's] task upon appeal is not to choose which of the various appraisal techniques is more suitable but simply to determine whether the resulting assessment is supported by the record and not contrary to law, fraudulent, arbitrary or capricious." Here, the Court finds that the Board's assessment was supported by the record and was not contrary to the law, fraudulent, or arbitrary and capricious.
Rodney Square Investors, 1983 WL 482333, at *2.
15. Based on the foregoing, the decision of the Board is AFFIRMED.