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Lee Trace, LLC v. Berkeley County Council As Board of Review and Equalization

Supreme Court of West Virginia

April 28, 2017

Lee Trace, LLC, Petitioner Below, Petitioner
v.
Berkeley County Council as Board of Review and Equalization, Berkeley County Council and Larry Hess, as assessor for Berkeley County, West Virginia, Respondents Below, Respondents

         Berkeley County 15-AA-5

          MEMORANDUM DECISION

         Petitioner Lee Trace, LLC ("Lee Trace"), by counsel Thomas Moore Lawson and Kristopher R. McClellan, appeals the order of the Circuit Court of Berkeley County, entered on February 9, 2016, denying its petition for writ of certiorari regarding the Berkeley County Council Board of Review and Equalization's denial of an adjustment to the 2015 real property taxes on petitioner's apartment complex. Respondents Assessor Larry Hess, Berkeley County Council, and Berkeley County Council as the Board of Review and Equalization ("the Board") appear by counsel Norwood Bentley, III.[1]

         This Court has considered the parties' briefs and the record on appeal. The facts and legal arguments are adequately presented, and the decisional process would not be significantly aided by oral argument. Upon consideration of the standard of review, the briefs, and the record presented, the Court finds no substantial question of law and no prejudicial error. For these reasons, a memorandum decision affirming the order of the circuit court is appropriate under Rule 21 of the Rules of Appellate Procedure.

         Petitioner owns a 156-unit apartment complex (built in 2009) on a 17.02 acre site in Martinsburg, West Virginia ("the property"). Our familiarity with the property originates with the appeal yielding our per curiam opinion Lee Trace LLC v. Raynes, 232 W.Va. 183, 751 S.E.2d 703 (2013) ("Lee Trace I"). In that case, we considered the 2010 and 2011 assessments of the property. We ultimately reversed and remanded the assessments to the circuit court for consideration of both assessments, because petitioner had not received adequate notice of the right to appeal (the 2010 assessment), and because the Board had abused its discretion in applying methodology that was inconsistent with the directives set forth in the Code of State Rules (the 2011 assessment). Subsequent to the remand, we were asked to revisit the 2010 assessment, and we did so in Lee Trace, LLC v. Hess, No. 14-0962, 2015 WL 7628718 (W.Va. Nov. 20, 2015)(memorandum decision)("Lee Trace II"), wherein we upheld the circuit court's affirmation of the Board's ruling.

         Thereafter, for the 2015 tax year, the assessor valued the property at $11, 091, 600, resulting in an assessed value of $6, 654, 960. [2] Petitioner appealed the assessment to the Board, which conducted a hearing in February of 2015. At the hearing, petitioner's expert, L. Steven Noble, testified that he reached a value of $7, 000, 000 through the cost approach, and he believed the assessed value was $4, 200, 000. He further testified that he verified his appraisal using the income approach, and he also testified that the assessor had failed to equalize petitioner's property with comparable properties within the county. Mr. Noble testified that there had been market changes since he first testified in a separate hearing conducted by the Board, several years prior, regarding the 2010 assessment of the property. The changes include the construction of two large apartment complexes-Stony Pointe (built about two years after petitioner's property) and The Reserves-now potentially available for comparison purposes. Mr. Noble stated that he did not emphasize land values, but instead focused on construction cost and value of improvements. By way of example, Mr. Noble explained that petitioner had a higher assessment cost per unit than Stony Pointe. He expressed his opinion that the assessor's assessment yields an "illogical" result because Stony Pointe collects higher rent and income, but has a 7% lower assessment than petitioner's property. He testified that, in addition, petitioner was effectively assessed at 11.7% of gross value, while The Reserves was effectively assessed at 8.3% of its value. According to Mr. Noble, the assessor considered only physical depreciation and not economic obsolescence.

         In contrast, Tamara Edgar, a commercial appraiser employed by the assessor's office, testified that she had appraised the property on behalf of the assessor's office, and that she considered the income, sales, and cost approaches in doing so. However, she testified that she was unable to develop a capitalization, or "cap, " rate for the income approach because, though the assessor sent requests for information from properties deemed to have been sold in arm's length transactions, the assessor did not receive adequate information in response.[3] Ms. Edgar testified that she considered differences between petitioner's property and Stony Pointe, such as Stony Pointe's lack of a pool and the difference in square footage of the units. She testified that functional obsolescence was considered, but that it was considered in traditional terms, such as whether a forty-year-old building functions at the same level as a modern building. She explained:

The physical depreciation is based upon the age of the building and upon the condition of the building.
I mean we did consider economic obsolescence.
But based upon the sales that we had of other apartment buildings-and we did have other apartment buildings that did sell, but they were nowhere near the size of the Lee Trace complex.
But all of the other sales that we had sold for more than we had them appraised for. So it was determined that we really did not need to account for economic obsolescence at this time. . . . We did not allow for any this year based upon the information that we received.

         Ms. Edgar further testified that the assessor's office uses a computerized system ("the IAS system") for equalization purposes.

         Respondent Assessor Hess also testified. He explained that the cost approach was used "[a]nd the way it's designed, it absolutely equalizes assessments." He agreed with Ms. Edgar that the assessor's office was not able to obtain sufficient information to use the income approach.[4]Respondent Assessor also testified about another property, The Cottages, which he said is now approximately twenty years old.[5] Respondent Assessor testified:

. . . [W]e have analyzed all three approaches [income, sales, and cost]. And we do it with all of the information that we can get.
And so, you know, we absolutely have treated all of the income producing properties equal with the cost approach and looked at The Cottages of Martinsburg based on our cost approach.
And using the same system, the grading system, the depreciation system, the physical and functional, all of that stuff prices out The Cottages right under- you know, what it sold for.
So the system actually works. Those same variables was (sic) applied to Lee Trace. That ...

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