Opinion
Nos. 1531CD07, 1532CD07.
July 31, 2008.
BEFORE: McGINLEY, Judge; PELLEGRINI, Judge; LEAVITT, Judge.
OPINION NOT REPORTED
In these consolidated appeals, Guilford Mills, Inc. (Taxpayer) appeals two orders of the Court of Common Pleas of Schuylkill County (trial court) setting the assessment values for two properties that it owns in Schuylkill County. It asks that the orders be set aside because the trial court did not adequately explain why the County of Schuylkill's expert was "more compelling" than its experts making its decision incapable of appellate review.
Guilford Mills is the successor to Gold Mills, Inc. and Penn Dye Finishing Company.
Taxpayer owns two properties in the Borough of Pine Grove, Schuylkill County. One property, known as "Gold Mills," is a 25.2-acre site occupying a multi-building, one-story manufacturing complex with a gross floor area of 310,563 square feet. The complex was constructed between 1960 and 1975, is well-maintained and in fair to good condition, and is occupied by a fabric manufacturer. The other property, a 16.31-acre site, known as "Penn Dye," is also being used as an industrial plant where fabrics are dyed and finished for use in several industries, including the apparel, window dressing, reverse osmosis and auto headliner industries. The facility itself is a two-story manufacturing plant containing a gross floor area of 350,445 square feet. The majority of the Penn Dye facility was constructed between 1960 and 1980. It is well-maintained and highly functional, although its metal roof has begun to deteriorate.
Gold Mills is identified by tax parcel numbers, 58-4-5, 58-4-4(1), 58-5-38(1), 58-5-38 and 58-4-5(1).
Penn Dye is identified by tax parcel numbers, 58-5-203(3), 58-5-84, 58-5-83, 58-5-18, 58-5-85, 58-5-85(1), 58-5-82 and 58-5-57.
In 2006, the Board of Assessment Appeals (Board) established the fair market value of the Gold Mills property at $4,572,040, with an assessed value of $2,286,020. The Board set the fair market value of the Penn Dye property at $5,111,890, with an assessed value of $2,555,945. Taxpayer appealed both valuations to the trial court, which were consolidated for trial.
Before the trial court, Taxpayer and the County each presented expert testimony. Taxpayer presented the testimony of Allen W. Kaplan (Kaplan), MAI, and Frederick M. Lesavoy (Lesavoy), MAI, SRA, both of whom had extensive backgrounds in commercial real estate appraisals. Kaplan opined on the value of the Gold Mills and Penn Dye properties using a "comparable sales" approach. Kaplan explained that both properties were near residential areas that had to be traversed to gain access to the properties. Space around the buildings was limited, thereby inhibiting access to the loading docks. Kaplan further testified that the Gold Mills property was covered by six different zoning designations and was regulated by both Pine Grove Township and the County. The Penn Dye property was also split between an industrial and conservation district designation. Kaplan opined that the multiple zoning designations of the properties were problematic because they affected expansion or rebuilding. In addition, Kaplan noted that the buildings had been constructed in piecemeal fashion through a series of additions. As a result, it was difficult to navigate forklifts through the buildings and stack goods for storage. Based upon these considerations and the values of comparable properties, Kaplan estimated the value of the Gold Mills property at $10.40 per square foot, with a fair market value of $3,345,000. Using the same methodology, he calculated a value of $10.90 per square foot for the Penn Dye property, with a fair market value of $3,605,000.
The "comparable sales" or "sales comparison" approach compared the subject property to similar properties with consideration given to size, age, physical condition, location and other relevant factors. In re Appeal of Property of Cynwyd Investments, 679 A.2d 304, 308, n. 3 (Pa.Cmwlth. 1996).
The different zoning designations included manufacturing, local commercial, general commercial, conservation residential, single family residential and multi-family residential. (Reproduced Record at 57a.)
Taxpayer's second expert, Lesavoy, generally agreed with Kaplan's observations. Lesavoy added that the properties were in a flood plain and that a prudent industrial buyer would have to factor into any offer the cost of flood insurance, the potential loss of access and the cost of financing. Lesavoy further opined that the age of the buildings and their low ceiling heights would be a detriment because the trend in industrial buildings was toward "big box" distribution centers, with ceiling heights of 30 to 40 feet for storage and palletizing. Lesavoy estimated the value of the Gold Mills property at $10 per square foot, with a fair market value of $3,106,000. He valued the Penn Dye property at $10 per square foot, with a fair market value of $3,505,000.
Taxpayer also presented the testimony of Frank J. Zukas (Zukas), who had served as President of Schuylkill Economic Development Corporation for 28 years. Zukas testified that he was familiar with the valuation of industrial complexes in Schuylkill County based upon his experience in recruiting developers to locate there. Zukas opined that given the condition and nature of Taxpayer's properties and the current use and locations of the facilities, a prospective buyer would pay between $10 or $11 and $15 per square foot.
Zukas was offered as an expert in the field of economic development and industrial development and recruitment in Schuylkill County. (Reproduced Record at 115a.)
The County's sole expert witness was Michael J. McCloskey, Jr. (McCloskey), MAI, CRE, whose expertise was in commercial real estate appraisals. McCloskey agreed with Taxpayer's experts that the comparable sales approach was the best method for valuing the properties. However, he also employed a "cost approach" and tested that valuation by comparing it to similar properties that had sold in Schuylkill County. Using the cost approach, McCloskey estimated the value of both properties at $15 per square foot. He explained that he then tested the reasonableness of that value using comparable sales in Schuylkill County. He found there was a significant difference between the cost to replace the building and the price for which the building would sell, because it was much more expensive to replace than to sell. McCloskey concluded that the fair market value of the Gold Mills property was $15.57 per square foot for a fair market value of $4,835,000. McCloskey concluded that the fair market value of the Penn Dye property was $16.06 per square foot for a fair market value of $5,360,000. McCloskey did not believe that tractor-trailers would have difficulty accessing the properties or that the different zoning designations covering the properties detracted from their value. McCloskey did not consider the location of the properties in a flood plain.
The cost approach valued the property by considering the reproduction or replacement cost of the property, less depreciation and obsolescence. In re Appeal of Property of Cynwyd Investments, 679 A.2d at 308, n. 2.
After reviewing the foregoing evidence, the trial court issued an opinion that, inter alia, compared and contrasted each experts' opinions and methodologies. The trial court found convincing the testimony by Taxpayer's experts regarding "location factors." For example, the court agreed with Kaplan's finding that the location of the properties adjacent to local commercial uses, parks, recreation and residential uses had "a negative impact on the value of the properties." (Trial court opinion at 5.) The trial court also credited Kaplan's report insofar as it found the layout of the properties and the lack of access to major roadways impeded truck traffic.
The trial court expanded upon Kaplan's findings regarding the location of the properties. The court added that the neighborhood in which the properties were located was an old downtown area of a small town, and the neighborhood was never going to change. Given that location, Taxpayer's properties had less value than facilities in an industrial park with access to interstate highways. In this regard, the trial court found the report of Taxpayer's other expert, Lesavoy, of particular help in determining the fair market value of the properties. In Lesavoy's opinion, three of the four comparable properties he used were located closer to or had better access to major roads or interstate highways which Lesavoy opined required that the values of Taxpayer's properties be adjusted downward by five percent.
Even though the trial court credited Taxpayer's expert testimony about local conditions, it, nonetheless, concluded that McCloskey's overall opinion of market value was more compelling. It explained:
Simply stated, this Court found the testimony of the County's expert to be more compelling than those of the Taxpayer's expert and, therefore, we give it greater weight, with the exception that the County's expert failed to take into account the neighborhood or location analysis.
(Trial court opinion at 5.) While it accepted McCloskey's opinions of fair market value, it adjusted them downward by five percent to reflect Taxpayer's experts' testimony which better discussed the location and differences of the properties. Taxpayer appealed both of the trial court's orders which have been consolidated for this Court's review.
In tax assessment matters, our review is limited to determining whether the trial court abused its discretion, committed an error of law, or reached a decision not supported by substantial evidence. While the weight of the evidence is before the appellate court for review, the trial court's findings of fact are entitled to great weight and will be reversed only for clear error. Beattie v. Allegheny County, 589 Pa. 113, 907 A.2d 519 (2006).
On appeal, Taxpayer asserts that the trial court erred by failing to explain why it found McCloskey's valuation analysis, which the court specifically found to be flawed, more compelling than that offered by Taxpayer's experts. Taxpayer believes the trial court compounded its error by assigning fair market values to the properties based on McCloskey's figures and then adjusting them downward in accordance with the testimony of Lesavoy who was "less" compelling.
In addition, Taxpayer asserts that the trial court was incorrect in stating that Zukas was not an expert witness and was also incorrect in failing to opine as to the testimony of Zukas. The trial court stated that it did consider Zukas' testimony and that it supported the testimony of Taxpayer's experts. We also do not find fault with the trial court's finding that Zukas, not a licensed real estate broker or appraiser, was not qualified to offer a subjective expert opinion of the current fair market values of the subject properties. See B.P. Oil Company, Inc. v. Delaware County Board of Assessment Appeals, 539 A.2d 473, 475 (Pa.Cmwlth. 1988) (qualifications of an expert witness is a matter within the trial court's discretion.)
In Green v. Schuylkill County Board of Assessment Appeals, 565 Pa. 185, 196, 772 A.2d 419, 426 (2001), our Supreme Court explained that the role of the trial court in a tax assessment appeal is to "independently determine the fair market value of the parcel on the basis of the competent, credible and relevant evidence presented by the parties. . . ." (Citations omitted.) The Court identified parameters governing a trial court's determination of the fair market value of a parcel:
First, and most fundamental, is the requirement that the trial court base its findings on the evidence of record. "In tax cases, [as in] all others, courts must be guided by the evidence in determining what are proper valuations."
Id. at 206, 772 A.2d at 423. (Citation omitted.) Second, "[i]n making a determination in a tax assessment appeal, the trial court must state the basis and reasons for its decision." This requirement is as significant to a single-expert case as to a case with competing experts, such as Westinghouse; indeed, it may be more so.
Id. at 208, 772 A.2d at 432, quoting Westinghouse Electric Corporation v. Board of Property Assessment, Appeals and Review of Allegheny County, 539 Pa. 453, 464, 652 A.2d 1306, 1312 (1995). (Emphasis added.)
In the Westinghouse case, which is quoted in Green, our Supreme Court stated:
In making a determination in a tax assessment appeal, the trial court must state the basis and the reasons for its decision. The trial judge, although sitting as the trier of fact, does not have the right to render a decision without stating its reasons therefore as does a jury in a jury trial.
Westinghouse Electric Corp., 539 Pa. at 464, 652 A.2d at 1312.
Under that standard, the trial court was required to state the basis and reasons for finding the County's expert more credible than Taxpayer's. Here, the trial court did just that. The trial court laid out in detail the testimony of the experts which "compared and contrasted each expert's opinion" and then explained its reason for concluding that McCloskey's expert testimony was more compelling in its penultimate paragraph. It stated:
All three experts agreed that the sales comparison approach was the best indication of the fair market value of the properties. However, in addition, Mr. McCloskey also used the cost approach, which he found to support his sales comparison valuations. All of the experts agreed that the income approach was not useful in valuing these properties. Simply stated, this Court found the testimony of the County's expert to be more compelling than those of the Taxpayer's expert and, therefore, we give it greater weight, with the exception that the County's expert failed to take into account the neighborhood or location analysis. The Court found that Mr. Kaplan's report correctly analyzed the location, stating that the subject properties are "large industrial buildings mixed in with local commercial uses, parks, recreation and residential use" and that this location has negative impact on the value of the properties. Mr. Kaplan's report also stated that the truck traffic to and from the subject properties does not have easy access to major roadways, but must traverse over two miles on two-lane roads and that, furthermore, the trucks have difficulty in maneuvering around the street corners and the buildings on the properties. The neighborhood in which these properties are located is an old, downtown area of a small town with large manufacturing operations in the area. The neighborhood is never going to change and the location must have a negative impact on the value of the properties as compared to a site in an industrial park with nearby access to interstate highways. Moreover, the report of Taxpayer's expert, Mr. Lesavoy, was of particular help to the Court in determining the fair market value of the subject properties. In his "Summary of Analysis and Valuation," three of the four comparables were located closer to or had better access to major roads or interstate highways, which Mr. Lesavoy opined required that the values of the subject properties should be adjusted downward by 5%.
Section 402 of the General County Assessment Law, Act of May 22, 1933, P.L. 853, as amended, 72 P.S. § 5020-402, provides, in relevant part:
In arriving at actual value the county may utilize either the current market value or it may adopt a base year market value. In arriving at such value the price at which any property may actually have been sold either in the base year or in the current taxable year, shall be considered but shall not be controlling. Instead such selling price, estimated or actual, shall be subject to revision by increase or decrease to accomplish equalization with other similar property within the taxing district. In arriving at the actual value, all three methods, namely, cost (reproduction or replacement, as applicable, less depreciation and all forms of obsolescence), comparable sales and income approaches, must be considered in conjunction with one another. (Emphasis added.)
(Trial court opinion at 4-5.) (Emphasis added.)
From this, it is obvious that the trial court found McCloskey's testimony compelling — gave it more weight — based on its observation of his testimony and that he used, unlike Taxpayer's experts, the statutorily provided "cost method" of assessment to check values and arrived at the sales comparison approach. He then adjusted McCloskey's opinion of the value downward because he credited Taxpayer's experts' testimony that certain of the comparables were located closer to major roads and interstates. This explanation is more than adequate.
Moreover, by saying it was more compelling is the same as saying it gave the County's expert's testimony more weight. When a factfinder gives more weight to the testimony of one witness over the other, it can express that conclusion by saying that it gives it "more weight" or it is "more credible" or, as here, is "more compelling." In making that determination, there is no need for a long explanation or, for that matter, any explanation because "certain testimony has the `ring of truth,' while other testimony does not, may be difficult or impossible to articulate — but that does not make such judgments invalid or unworthy of deference." Daniels v. Workers' Compensation Appeal Board (Tristate Transport), 574 Pa. 61, 828 A.2d 1043, 1053 (2003).
Credibility and weight of such evidence is for the trial court to determine. Green.
Because the trial court explained why it found McCloskey's analysis of the value of the properties to be more compelling than the analysis employed by Taxpayer's experts, the trial court did not abuse its discretion and its orders are affirmed.
ORDER
AND NOW, this 31st day of July, 2008 the order of the Court of Common Pleas of Schuylkill County, dated July 18, 2007, is affirmed.
OPINION NOT REPORTED
At the heart of this appeal is whether the trial court properly discharged its responsibility to "state the basis and reasons for its decision." Westinghouse Electric Corporation v. Board of Property Assessment, Appeals and Review of Allegheny County, 539 Pa. 453, 464, 652 A.2d 1306, 1312 (1995). Because I agree with Taxpayer that the trial court did not explain its decision, I respectfully dissent.
The Supreme Court more fully stated:
In making a determination in a tax assessment appeal, the trial court must state the basis and the reasons for its decision. The trial judge, although sitting as the trier of fact, does not have the right to render a decision without stating its reasons therefor as does a jury in a jury trial.
Westinghouse Electric Corp., 539 Pa. at 464, 652 A.2d at 1312.
Taxpayer's two experts estimated the fair market value of the Gold Mills property at $3,106,900 and $3,345,000 respectively, or $10.00 or $10.40 per square foot. These experts estimated the Penn Dye property to have a fair market value of $3,505,000 and $3,605,000, respectively, or $10.00 to $10.90 per square foot. Their valuations were consistent with the testimony of Frank J. Zukas, the 25-year president of Schuylkill Economic Development Corporation, which seeks to draw business to Schuylkill County. Zukas opined that because of their age, location in a dense part of town and lack of proximity to an interstate, the Gold Mills and Penn Dye properties would sell for $10.00 or $11.00 per square foot. Explaining why $15.00 per square foot was "on the high side," Zukas testified that "nobody's going to pay $15.00 a square foot for that and then have the expense on top of that of having to retrofit the building." Notes of Testimony at 15; Reproduced Record at 124a.
Using a cost approach, the County's expert opined that each property had a square foot value of $15.00. Based on comparable sales, he raised that number to $15.57 per square foot for the Gold Mills property and $16.06 per square foot for the Penn Dye property. This resulted in a total fair market value of $4,835,000 for the Gold Mills property and $5,360,000 for the Penn Dye property.
Faced with competing expert testimony, the trial court was required to weigh the evidence, make findings based on evidence of record and state the basis and reason for its decision. Green v. Schuylkill County Board, of Assessment Appeals, 565 Pa. 185, 208, 772 A.2d 419, 433 (2001). In general, the trial court did review the evidence and did base its findings on the record. Further, the trial court found both Taxpayer's experts and the County's expert to be credible. It resolved the conflict between the experts by using the valuations of the County's expert and then reducing them by five percent to account for the locations of the properties, as recommended by Taxpayer's experts.
The problem lies in the trial court's statement that the County's expert was "more compelling" than Taxpayer's experts but without any explanation. It cannot be discerned whether the trial court reached this conclusion because the County's expert had superior academic credentials or because he was wearing a red shirt. The omission is all the more perplexing because the trial court specifically found the County's expert opinion to be flawed because he had failed to consider the location factors identified by Taxpayer's experts. By contrast, the trial court did not identify any flaw in Taxpayers' expert testimony. In these circumstances the trial court's decision to find the County's expert "more compelling" cries out for an explanation.
Further, the trial court's reason is not "obvious from the record." The majority states that it was because the County's expert used the "cost approach," but this is a stretch. The trial court did not state that the expert's use of the cost approach made his testimony more compelling; the trial court simply recited the fact that the County's expert used the cost approach. Assuming, arguendo, that this expert's use of the cost approach did form the basis of the trial court's determination, the court was required to explain why the cost approach was superior. Westinghouse, 539 Pa. 453, 652 A.2d 1306; Green, 565 Pa. 185, 772 A.2d 419. The cost approach does not provide the missing explanation because it yielded a lower fair market value, i.e., $15.00 per square foot, than the final number chosen by the County's experts.
Moreover, I disagree with the majority that the trial court's determination is simply a credibility determination beyond our scope of review. As the Supreme Court explained in Green, "it is important to distinguish between credibility as a matter of personal veracity and as a matter of the substantive reasonableness of a witness's testimony. While the trial court's determinations concerning [personal veracity] are unreviewable by an appellate court, the same is not true of the latter [substantive reasonableness]." Green, 565 Pa. at 209, n. 11, 772 A.2d at 434, n. 11. See also, e.g., McKnight Shopping Center, Inc. v. Board of Property Assessment, Appeals and Review of Allegheny County, 417 Pa. 234, 240, 209 A.2d 389, 392 (1965) (rejecting trial court's conclusion that expert testimony was not credible, where such conclusion rested on an incorrect factual assumption). Here, the trial court did not question the personal veracity of any of the experts, but found, without explanation, the County's expert to be more compelling. The trial court must identify why the County's expert was more substantively reasonable. Without that explanation, appellate review of the validity of the trial court's decision is not possible.
Accordingly, I would remand this matter to the trial court so that it may provide further explanation of its analysis.