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Real estate attorneys are raising questions about the integrity of a recent white paper report by an association of property assessors that pokes holes in the so-called “dark store” theory of valuing big-box retail stores.
Stephen Paul, president of American Property Tax Counsel (APTC), said his organization is “extremely concerned” about the International Association of Assessing Officers’ (IAAO) position paper entitled “Commercial Big-Box Retail: A Guide to Market-Based Valuation.” Paul said the paper ignores long-established standards in real estate law and adopts a “legally deficient” rationale as it provides guidance to local assessors charged with developing market value estimates for big-box retail properties in their jurisdictions.
“We feel it is intellectually not appropriate,” Paul, a partner in the Indianapolis office of Faegre Baker Daniels LLP, told Bloomberg Tax Oct. 30. “Around the country assessors are taking this paper, which is deficient legally, and trying to get it introduced in court proceedings as if it is some authority, which really it is not.”
Paul’s criticisms build on formal comments submitted by APTC over the summer as the IAAO report was being developed. APTC criticized the Kansas City-based assessors’ organization for developing a “misleading” and “activist” document that would likely fuel additional litigation over the valuation of big-box retail properties.
Retailers adhering to the dark store valuation theory argue that their big-box stores should be valued as if vacant, or dark, and available for sale or rent to a future hypothetical property buyer. Major national chains including Lowe’s Cos. Inc., Home Depot Inc., Walgreen Co., and Wal-Mart Stores Inc. have found success cutting their local assessments by filing hundreds of property tax challenges, particularly in Midwestern states.
In contrast, the IAAO paper guides assessors to base their appraisals on a property’s current use as a functioning, occupied store. Moreover, the IAAO paper contends sales of dark properties can’t be used for comparison purposes to assign a value to an operating big-box property.
“An appraiser’s conclusion of the market value of a big-box property should reflect the actual condition of the property on the date of valuation, including whether the property is occupied or vacant,” the report states. “If the property is occupied, whether by an owner or a tenant, the property should be valued as occupied. If the property is vacant as of the date of valuation, then the market value conclusion should arrive at a value as vacant.”
Dorothy Jacks, president-elect of IAAO and property appraiser for Palm Beach County Florida, said the association hasn’t received any formal response to the position paper since its release on Oct. 5. While criticisms were anticipated, Jacks said IAAO sought only to summarize current legal doctrines to assist government assessment professionals in hundreds of taxing jurisdictions across the country.
“Really, these are just reinforcing standard appraisal practice,” Jacks told Bloomberg Tax. “I think that’s really what the paper does. Using well-defined appraisal techniques to value these properties, as with all properties, is the best approach.”
Despite the APTC’s criticisms, it wasn’t immediately clear how major real estate appraisal organizations are viewing the IAAO report.
Paula Douglas Seidel, a spokesperson for the Washington D.C.-based Appraisal Foundation, said the foundation has “taken no official position on the IAAO report.” She added the foundation has no current plans to express views on the report.
The Appraisal Foundation is the nation’s leading organization for valuation professionals and seeks to ensure independent and objective real estate appraisals by supporting educational programs and professional standards.
Similarly, Ken Chitester, a spokesman for the Chicago-based Appraisal Institute, said his organization hasn’t issued any official views on the IAAO white paper. The institute, however, is working on its own guidance document examining big-box valuation methodology.
The Appraisal Institute represents nearly 19,000 real estate professionals in 60 countries. The institute seeks to advance professionalism and ethics among real estate professionals through advocacy and professional development programs.
Paul expressed concern the IAAO report would be used as a political document not only in court rooms, but in state capitols. He said assessors and municipal leaders might use the report to lobby for statutes that modify state property tax codes to squeeze additional tax dollars from retailers.
Such reforms are being discussed in Michigan and Wisconsin.
The badger state is currently debating legislation that would limit a retailer’s ability to apply the dark store theory by requiring strict adherence to generally accepted appraisal methods. The proposal is receiving strong support from mayors, city managers, and municipal groups, which argue big-box retailers are using legal loopholes to minimize their property tax obligations.
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