RRHC WILMINGTON, LLC, MIM V, LP, CHIPPEY STREET ASSOCIATES, AND COMMERCE ASSOCIATES LP, Appellants,
NEW CASTLE COUNTY OFFICE OF FINANCE AND NEW CASTLE COUNTY BOARD OF ASSESSMENT REVIEW, Appellees.
Submitted: February 19, 2014
Upon Appellants' Appeal from the Board of Assessment Review,
Melvyn I. Monzack, Esquire, and Michael C. Hochman, Esquire, Monzack Mersky McLaughlin and Browder, P.A., Wilmington, DE, Attorneys for Appellants.
Wilson B. Davis, Esquire, for the New Castle County Board of Assessment Review, and Brian J. Merritt, Esquire, for the New Castle County Office of Finance, New Castle, DE, Attorneys for Appellees.
M. Jane Brady Superior Court Judge.
RRHC Wilmington, MIM V, LP, Chippey Street Associates, and Commerce Associates LP (collectively, "Appellants"), which are various owners of condominium units located in One Commerce Center, filed the instant appeal from a decision of the New Castle County Board of Assessment Review on November 22, 2013. On appeal, the Court must determine whether the Board's decision to uphold the tax assessments for the Appellants' respective properties, all units of One Commerce Center, was proper. Appellee, New Castle County Office of Finance ("County"), set the assessments at issue. Appellee, New Castle County Board of Assessment Review ("Board"),  heard the appeals from the Appellants regarding the alleged improper assessment, but ultimately decided to uphold the County's assessment.
Appellants appeal the Board's decision to this Court, contending the Board's decision should be reversed, because: (1) the Board did not satisfy the constitutional requirements of uniformity; (2) Delaware law requires a reduction of the Appellants' tax assessments; and (3) the County improperly transferred the power to conduct tax assessments from the Department of Land Use to the Department of Finance, in a way inconsistent with the authority granted by the General Assembly. Appellants submitted their Opening Brief, asserting the above arguments, on November 22, 2013.
Appellees filed their Answering Brief on January 10, 2014, through which the County contends that the evidence offered by Appellants was considered by the Board, but was insufficient to overturn the County's assessment, because: (1) a "comparable assessments" approach, which Appellants relied on, is not an accepted method of valuation; (2) Appellants did not present a cognizable sales comparison approach; and (3) Appellants' income approach was not paired with another accepted method of valuation. Finally, Appellees assert that the Appellants' transfer-of-power argument cannot be raised for the first time on appeal and, even if the issue were properly before the Court, Appellants' contention has no merit, because 9 Del. C. § 1122 provides the County Executive with extensive power to restructure the County government.
Appellants Reply Brief was filed on January 31, 2014, and reiterates the arguments made in the Opening Brief, contending reversal of the Board's decision is warranted. The matter was assigned to this Court on February 19, 2014, and there was no supplemental hearing or argument. Upon consideration of the parties' briefing and the record below, the Court finds that the Appellants have failed to satisfy their burden to overturn the Board's decision, because they failed to establish that the Board acted contrary to law, fraudulently, arbitrarily, or capriciously in upholding the County's tax assessment. Accordingly, the Board's decision is AFFIRMED.
New Castle County assessed property taxes for eight commercial units in One Commerce Center, an eleven-story office building located in downtown Wilmington. One Commerce Center was constructed in 1983, and the subject properties were conveyed the same year, which is the same year the County utilizes as a comparative base year for tax assessment purposes. Under the County's base year system, the fair market value for all property located in New Castle County is determined and "then that value is factored back to 1983 values, the year of the last general reassessment. A fixed rate of taxation is then applied to the base year assessment to reach a uniform result." Formulae and techniques are utilized to factor back values to 1983. Applying the base year formula, the County assessed the properties at issue at $432, 900.
B. Procedural History
On March 15, 2012, the five property owners submitted separate appeals for their respective units to contest the County's tax assessment utilizing the base year formula.Ultimately, however, common interests resulted in a joint submission. By appealing to the Board, the Appellants sought to have their properties reassessed to $200, 200, rather than the current assessment of $432, 900.
On March 20, 2013, the Board held a hearing regarding Appellants' appeal of the County's assessment. However, because of time constraints, and also to allow Appellants to present additional evidence and testimony, the hearing reconvened on May 15, 2013 (both hearings collectively referred to as the "Hearing"). At the Hearing, the Appellants offered testimony of Richard Stat ("Stat"), who was admitted by the Board as a real estate expert. Stat provided the Board with two separate analyses in support of amending the tax assessment of the units in One Commerce Center.
The first analysis focused on the assessments of properties that Stat contended were comparable to the subject units in One Commerce Center. Stat compared the assessments of these properties to One Commerce Center. Stat used other high-rise office buildings in Wilmington and smaller office buildings in Wilmington in his analysis. The County assessed these properties at around $45 per square foot, leading Stat to argue that the units in One Commerce Center should be assessed at the same rate. Stat also provided evidence indicating the County previously assessed Unit 100B in One Commerce Center at $42.31 per square foot in 1993. Testimony was presented, however, that Unit 100B is unlike other units in One Commerce Center, because it is only 52 square feet and houses vending machines and a security access panel. Stat argued that the assessment of Unit 100B represents a fair and accurate assessment for the rest of the units in the same building, and the other units—including those units at issue in the case sub judice—should therefore be reassessed at the same rate.
The second analysis Stat provided focused on the "income approach, " which is one of the three generally accepted methods of valuing property in New Castle County. Only two units in One Commerce Center are income-producing. Stat used the income data of these units to argue that $41.48 per square foot is the proper tax assessment rate for units in One Commerce Center. This tax assessment rate, as well as the rate from the comparable properties approach, is about half the amount assessed by the County.
After Stat's presentation, the County presented testimony of Veronica Bonk ("Bonk"), an Assessor II with the County Office of Property Assessment. Bonk took issue with Appellants' use of the assessed value of a vending area in their building—specifically, Unit 100B—as an example for the assessment value of other units in the building. Bonk asserted that the actual 1983 sales of the units in One Commerce Center is highly probative evidence of the 1983 value. Bonk also presented the County's income approach to valuation, to compare it with Stat's testimony. Bonk testified at the Hearing that she "had an office market survey done by Stoltz Realty" that consisted of seven office buildings located in downtown Wilmington, including One Commerce Center, to determine the market rent as of 1983. The rental rates per square foot ranged from $14.00 to $18.50, with One Commerce Center at $18.50. Bonk explained that the median rate of $16.50 was used to calculate gross income for a unit in One Commerce Center.After accounting for a 10% vacancy, and subtracting operating expenses of 25%, which Bonk submitted was an average percentage for downtown Wilmington, the data yielded a net operating income of $52, 702 as of 1983. The County then utilized a capitalization rate of 12.1%, which Bonk explained is the rate established for this geographic area in 1983. The County's calculation yielded a value of $435, 550.
In response to Bonk's presentation, Stat asserted that the operating expenses used by the County were too low and should be higher than 25%. Additionally, Appellants asserted that a capitalization rate of 12.1%, used by the County, is inaccurate as a result of subsequent market change that invalidated the 1983 estimates of income for One Commerce Center.
C. Statements Regarding Actual 1983 Figures
Because the subject properties located at One Commerce Center were built and sold in the same year utilized by the County as the base year, 1983, there was considerable discussion during the Hearing—by the advocates of each respective side, the Board's independent counsel, as well as between Board members—regarding the extent to which the Appellants' valuation arguments should be considered. Appellants claim Board members Felicia, Bandy, Larrimore, and Mannion erroneously believed they could only consider the actual 1983 sales figures since they were available, and not use other formulae to determine the 1983 value. Appellants quote the following statements made by Board members at the Hearing in support of their claim:
[Felicia:] I would disagree with you [that the Board's rules provide that an actual 1983 sale must be used]. I think if you've read those rules you will see that.. . .
I do think you can look at a lot of data and it doesn't seem to matter because it still always goes back to the way things were set in 1983. So while everybody can say that's the way it is, it's still also presenting hardships on people.
[Bandy:] The entire basis for the appeal is the 1983 market value. That's all we can consider. And unfortunately you don't have a dispute with 1983 market value. There are many, many, many properties in New Castle County that are in a similar position at this point in time. And each time we deny the appeal based ...