1999 Synopsis --Commercial Chapter

Section 16-190 of the Property Tax Code

(35 ILCS 200/16-190, Illinois Compiled Statutes)

Official Rules - Section 1910.76

Printed by Authority of the State of Illinois

The subject property consists of a one story pre-engineered, steel framed with brick veneer office building containing 12,904 square feet of area.  The structure was constructed during 1997 and was initially completed in July 1997.  The appellant claims overvaluation of the real estate improvements as the basis of the appeal.

The appellant’s attorney appeared before the Property Tax Appeal Board and presented probative evidence provided by the appellant in support of the claim of overvaluation of the subject property’s real estate improvements.  According to the appellant’s evidence, the land was purchased in May 1996 for $110,000 and the real estate improvements were constructed during the first six months of 1997 for a cost of $564,012.  This results in a total cost of both land and improvements of $674,012.  The appellant’s attorney contends that since the cost of the real estate improvements has been documented, the improvement assessment should reflect one-third of the total cost of $564,012 or $187,095.  However, because the building was only initially completed and occupied for the last five months of 1997, the assessment should be pro-rated to reflect occupancy for that period.  This calculation results in a final improvement assessment of $78,327 and a total assessment including land of $112,060 for 1997.

As an offer of proof in support of the real estate improvement value claimed by the appellant, a copy of the General Contractor’s signed certification itemizing the costs incurred in  the construction of the subject’s improvements was submitted for review.  In addition, evidence of the building’s insurance coverage in the amount of $500,000 dated October 1997 was also submitted.  On the basis of the foregoing evidence, the appellant’s attorney contends the subject property’s current valuation and assessment is excessive and a reduction is warranted to reflect the actual documented cost of construction.

The board of review submitted its notes on appeals wherein the subject property’s final 1997 assessment of $160,333 was disclosed.  The board of review explained that the valuation and final assessment of the subject property’s improvements of $126,600 does reflect a pro-rated assessment based on occupancy during the last five months of 1997.  However, the board of review stated that it was willing to reduce the valuation and assessment of the real estate improvements to reflect a pro-rated assessment of $110,945 based on evidence presented by the township assessor.  The assessor’s evidence consisted of cost, income and market information utilized in estimating a market value of $900,000 for the subject property.

The construction cost data submitted by the assessor was a copy of an office building “cost sheet” taken from the Marshall Valuation Service that the assessor consulted in estimating the construction cost new of the building improvements.  The subject property’s income value estimate concluded by the assessor was based on undocumented rent data, expense data and an estimated capitalization rate.  The assessor’s estimate of value by the sale comparison approach was based on three sales of office buildings located in Champaign County.  However, there was no documentation of the valuation adjustments for differences between the subject property and the suggested comparable sales included in the analysis performed by the assessor.

On the basis of this data, the board of review concluded the valuation of the subject property should be set at $900,000 with a pro-rated assessment for 1997 of $144,678 including land.

After hearing the testimony and reviewing the evidence contained in the record, the Property Tax Appeal Board finds it has jurisdiction over the parties and the subject matter of this appeal.  On the basis of an analysis of the evidence submitted by the parties, the Property Tax Appeal Board finds the appellant has supported the claim of overvaluation and a reduction in the improvement valuation and assessment of the subject property is warranted.

The Board further finds the signed General Contractor’s Affidavit documenting the construction cost of the subject’s improvements of $564,012 is the best supported evidence of value of the real estate improvements contained in the record.  The contractor’s certificate included a detailed cost breakdown for material, labor and services performed in the construction of the subject property’s improvements.  This evidence was not contested by the board of review.

The board of review presented evidence prepared by the township assessor that estimated the subject property’s market value to be $900,000.  This estimate was based on an analysis of the three approaches to value.  However, the Board finds the assessor’s valuation approaches and conclusions of value were not supported with substantive documentation.  Thus the Board finds the final conclusion of value for the subject property as determined by the township assessor is not supported by probative evidence.

Based on the foregoing analysis, the Property Tax Appeal Board finds a reduction in the assessment of the subject property’s improvements is warranted based on the appellant’s documented cost of construction of $564,012.  The Board further finds the improvement assessment should be pro-rated to reflect the property’s completion and initial use for the last five months of the assessment year in question.

The subject property consists of a four bay and office, car wash facility.  The subject site contains 113,256 square feet and is located in Manhattan, Illinois.  The subject facility consists of a concrete block constructed building containing 2,080 square feet, constructed in 1996.  The subject property is known as “Super Wash.”

The appellant appeared before the Property Tax Appeal Board claiming unequal treatment in the assessment process as the basis of the appeal.  In support of this contention, assessment data and descriptions were submitted on three suggested comparable properties.  These properties are all “Super Wash” facilities ranging in size from 2,028 to 2,580 square feet of building area or from four to five bays and offices.  They are five to eleven years of age and are located in Wilmington, Joliet and Lockport, Illinois, in Will County.  The appellant was of the opinion the property located in Wilmington, Illinois, was most similar to the subject in most respects and that the property’s location was superior to the subject’s location in that the City of Wilmington is twice as large as the City of Manhattan.  The comparable properties had improvement assessments ranging from $40,812 to $59,484 or from $18.55 to $23.06 per square foot.  The subject property had an improvement assessment of $100,600 or $48.37 per square foot.  The appellant claimed the subject property resembles a five car garage and that an assessment for the improvement of $100,600 was excessive.  He argued that the machinery and equipment used in the operation of the car wash business should not be assessed as realty.  Based on this data, the appellant requested the same improvement assessment as assigned to the Wilmington property of $18.55 per square foot.

The appellant also claimed the subject’s land assessment was excessive.  The three comparable properties described above had land sizes ranging from 17,600 to 65,340 square feet.  Their land assessments ranged from $8,641 to $26,378 or from $.20 to $1.36 per square foot.  The subject’s land assessment was $37,750 or $.33 per square foot.  The appellant noted the subject’s land assessment indicates a market value substantially higher than the 1994 sale price of $60,000.  Cross-examination of the witness revealed the subject property had not been listed for sale on the open market.  Rather, the appellant contacted the owners and offered to purchase the property.  The subject’s closing statement was submitted at the hearing and was marked Appellant’s Exhibit One.  Based on this data, the appellant requested a land assessment of $20,000 or $.18 per square foot.

The board of review submitted "Board of Review Notes on Appeal" wherein the subject’s assessment totaling $138,350 was disclosed.  The subject’s assessment reflects a market value of $417,094 using the county’s three year median level of assessments for 1998 of 33.17%.  The deputy supervisor of assessments was present and presented the analysis and testimony of the township assessor.  In response to the appellant’s land assessment claim, the assessor submitted a commercial vacant lot sale and assessment equity report consisting of seven, larger commercial sites located along US Highway 52, the same as the subject property.  These properties ranged in size from .64 to 3.36 acres or from 105 to 397 front feet and had land assessments ranging from $28,000 to $85,000 or from $106.30 to $318.57 per front foot.  The subject property contained 2.6 acres or 383 front feet and had a lot assessment of $98.56 per front foot.  Three of these properties had sales prices ranging from $82,000 to $260,000 or from $105 to $392 per front foot and $34,553 to $164,557 per acre.  The subject’s land assessment reflects a market value of $113,810 or $297.15 per front foot and $43,773 per acre.  Additional data on comparable land assessments was found on the equity grid sheet prepared by the township assessor.  The equity grid sheet contained assessment data and descriptions on seven “Super Wash” facilities.  The land for these properties ranged in size from 15,130 to 84,942 square feet.  Their land assessments ranged from $.40 to $1.36 per square foot.  The assessor was of the opinion the subject site was equitably assessed at $.33 per square foot.

The seven comparable properties had car wash facilities ranging in size from 2,028 to 3,616 square feet or from four to seven bays and an office.  These properties were located in various cities across the county.  Two of the comparables were also used by the appellant in his analysis.  These properties had improvement assessments ranging from $21.34 to $29.71 per square foot.  Based on an analysis of these properties, the assessor suggested that an improvement assessment of $28.06 per square foot or $56,900 would be more appropriate for the subject property than $49.61 per square foot or $100,600.  The deputy supervisor of assessments was of the opinion the comparable properties located in Lockport, Illinois, were more similar with the subject property’s location based on traffic count than the property located in Wilmington, Illinois.  Property record cards were submitted on the subject property and the seven suggested comparable properties.  The property record cards indicated that some of the properties were assessed for machinery and equipment and other properties were not.  The assessor noted that the subject’s building permit had been submitted indicating a value of $300,000 for the subject property, including the machinery and equipment.  He stated that the above offer to reduce the subject’s assessment to $28.06 per square foot excludes the assessment attributed to the machinery and equipment.  The deputy supervisor of assessments testified that she did not know if car wash facilities existed in the county prior to January 1, 1979, and the facilities are assessed according to the Illinois Real Property Assessment Manual.  Based on this data, the board of review requested the Property Tax Appeal Board lower the subject’s improvement assessment to $28.06 per square foot and to sustain the assessment assigned to the subject land.

After hearing the testimony and reviewing the record, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  The Board further finds that a reduction in the assessment of the subject property is warranted based on the evidence contained in the record.  The Illinois Supreme Court has held that taxpayers who object to an assessment on the basis of lack of uniformity bear the burden of proving the disparity of assessment valuations by clear and convincing evidence.  Kankakee County Board of Review v. Property Tax Appeal Board, 131 Ill.2d l (1989).  The evidence must demonstrate a consistent pattern of assessment inequities within the assessment jurisdiction.

In all, assessment data and descriptions were provided on eight “Super Wash” facilities located across the county.  These properties ranged in size from four to seven bays and an office and their assessments ranged from $18.55 to $29.71 per square foot.  The subject’s four bay facility was assessed substantially above this range at $49.61 per square foot.  The township assessor indicated the higher assessment was a result of the assessment attributed to the machinery and equipment at the facility and offered to reduce the assessment to $28.06 per square foot.  The Property Tax Appeal Board has reviewed the data contained in the record and finds that only two of the comparables submitted were of the same size as the subject.  These properties were assessed at $18.55 and $22.10 per square foot.  Therefore, based on a review of the assessment comparables contained in the record, the Property Tax Appeal Board finds that the appellant has supported the contention of unequal treatment in the assessment process and a reduction in the subject property’s improvement assessment is warranted.

With respect to the subject lot, the Property Tax Appeal Board finds that a reduction is not warranted.  The subject’s land assessment of $.33 per square foot was supported by the comparable data contained in the record.  The eight comparable car wash facilities had land assessments ranging from $.20 to $1.36 per square foot.  The subject’s land assessment was at the low end of the range established by these properties.  Therefore, the Property Tax Appeal Board finds the subject’s land assessment was equitably assessed.  The Board also finds the subject site was not overvalued by the board of review.  The appellant submitted data evidencing the subject property was purchased in 1994 for $60,000.  Testimony disclosed this property had not been advertised or exposed for sale on the open market.  The Illinois Supreme Court has defined fair cash as "what the property would bring at a voluntary sale where the owner is ready, willing, and able to sell but not compelled to do so, and the buyer is ready, willing, and able to buy but not forced so to do."  Springfield Marine Bank v. Property Tax Appeal Board, 44 Ill. 2d 428, 256 N.E. 2d 344,336 (1970); Property ex rel. McGaughey v. Wilson, 367 Ill. 494, 12 N.E. 2d5 (1937).  In addition, the transaction must be arm's-length.  Market value defined in part is commonly known as the most probable price expressed in terms of money if exposed for sale in the open market for a reasonable amount of time in an arm's length transaction with both parties being knowledgeable under no duress.  Since the property was not exposed for sale in the open market for a reasonable amount of time, the Property Tax Appeal Board finds this transaction does not meet the definition of market value.  Moreover, the transaction transpired approximately four years prior to the assessment date in question, thus rendering the evidence inconsequential in establishing the value of the subject property as of January 1, 1998.  The market data submitted in the record, although dated, indicated the subject property was not overvalued.  Thus, the Property Tax Appeal Board finds that a reduction in the subject’s land assessment is not warranted.  However, as stated above, an assessment reduction for the subject improvement is warranted.

The appellant also argued the machinery and equipment housed in the subject building is not subject to ad valorem taxation.

When all ad valorem personal property taxes were abolished in 1979, the Illinois Legislature passed the Replacement Tax Act (35 ILCS 200/24-5 (1994)).  Section 24-5 “froze” the classification of real and personal property as of January 1, 1979.  In 1982, the statute was amended by Public Act 82-935 to add a prohibition of property of like kind acquired or placed in use after January 1, 1979, from being reclassified.  The Act provides that:

No property lawfully assessed and taxed as personal property prior to January 1, 1979, or property of like kind acquired or placed in use after January 1, 1979, shall be classified as real property subject to assessment and taxation.  No property lawfully assessed and taxed as real property prior to January 1, 1979, or property of like kind acquired or placed in use after January 1, 1979, shall be classified as personal property.

Thus, the 1979 classifications of property in each county control current classifications.  [See Central Illinois Light Co. v. Johnson, 84 Ill.2d 275 (1981); People ex rel. Bosworth v. Lowen, 115 Ill.App.3d 855 (1983); Cherry Bowl, Inc. v. Illinois Property Tax Appeal Board, 100 Ill.App.3d 326 (1981).]

It must be emphasized that the appellant, as the taxpayer, has the burden of establishing that the contested property is personalty.  The determination of whether property is real or personal depends not upon the taxpayer’s characterization of its nature (In re Tax Objections of Hutchens, 34 Ill.App.3d 1039 (1976)), but upon the facts presented.  (Cherry Bowl, Inc. v. Property Tax Appeal Board, 100 Ill.App.3d 326, 426 N.E.2d 618, 55 Ill.Dec. 472 (1981)).

The Property Tax Appeal Board finds that the appellant did not present any evidence or testimony that established that those items identified as machinery and equipment were assessed as personalty prior to January 1, 1979.  As previously stated, the taxpayer has the burden of proving that property is exempt from assessment and taxation under the provisions of section 24-5 of the Property Tax Code (35 ILCS 200/24-5)  Trahraeg Holding v. Property Tax Appeal Board, 204 Ill/App.3d 41 (2nd Dist.1990).  Once this burden is met the property must be classified as personal property.  Central Illinois Light Co. v. Johnson, 84 Ill.2d 275, 282(1981).  In this appeal the appellant did not produce any records in the form of tax returns or other documentation or testimony that the machinery and equipment was ever assessed as personal property prior to January 1, 1979.  Evidence of this nature was also not provided by the board of review.  Without evidence of prior assessment treatment in Will County, the Property Tax Appeal Board must focus on Illinois precedent in the area of classification.  This exercise was employed in other car wash appeals heard by the Property Tax Appeal Board when there was an absence of prior assessment treatment in the record.  In the cases of Docket Nos. 90-101-C-2, 91-146-C-1 and 96-289-C-1 through 96-295-C-1, the Property Tax Appeal Board consistently found that machinery and equipment housed in car wash facilities are not real property under the intention test or the integrated industrial plant doctrine.

In the instant case, the testimony and evidence disclosed the subject’s building permit was in the amount of $300,000 and included the value of the machinery and equipment.  As stated above, the Property Tax Appeal Board found that the subject property’s improvement assessment should be reduced based on an equity analysis.  The assessment found by the Board for the subject improvement was $45,760 and reflects a market value of $137,956 using the county’s three year median level of assessments for 1998 of 33.17%.  The Board finds that this assessment reduction reflects a value well below the amount indicated on the building permit for both the building and the machinery and equipment.  Thus, the Board finds this assessment reduction appropriately takes into consideration the non-assessable value of the machinery and equipment.

The subject property consists of a garden apartment complex with 11, two story and english basement, walk-up apartment buildings, a club house and an inground swimming pool situated on 30.79 acres of land.  The unit mix consists of 6 efficiency units, 322, one-bedroom apartments and 132, two-bedroom apartments for a total of 460 rental units.  The apartment buildings contain a total of 285,822 square feet of net rentable area and 334,750 square feet of gross building area.  The average rental unit size was 621 square feet.  The buildings were constructed in stages between 1978 and 1986.  The subject property is located in Moline, Rock Island County, Illinois.  The parties agreed to stipulate that the subject property will have the same market value in 1998 as determined by the Property Tax Appeal Board for the 1997 appeal.

The appellant appeared before the Property Tax Appeal Board by its attorney and claimed the subject’s market value was not accurately reflected in its assessed valuation.  In support of this claim, the appellant presented two witnesses involved in the management of the subject property, a narrative appraisal report along with the supporting testimony of the preparer of the report, and a review appraiser.

The first witness presented was a property manager employed by a management company for the past five and one half years.  He explained the management company is controlled by the same owners as Edward Rose and Sons.  He stated that Edward Rose Building Company has been in business for approximately 70 years and the company manages in excess of 40,000 apartment units throughout the Midwest and other regions of the United States.

He stated that he is personally involved with managing four apartment complexes, one of which is the subject property.  He explained the staffing procedures at the complex and his management duties with respect to the subject property.  His duties include, but are not limited to, the management of expenses, maintenance, rental rates, tenant profiling, and in-house staff training.

The witness was directed to page 51 of the appellant’s appraisal entitled “Historic Operating Performance” for the years 1990 through 1996.  The witness agreed the statement accurately reflects the income and expenses experienced by the subject property during that time period and that replacement reserves is a funding for capital improvements.  The witness also reviewed the 1996 rent roll found in the back of the appellant’s appraisal report.  The subject’s 1997 income and expense statement was marked Appellant’s Exhibit No. 1.  The witness noted there was little change in the rents at the subject property between January 1, 1996, and January 1, 1997.  The witness explained the maintenance and management expenses at the subject complex are closely monitored and are reviewed by upper management at the Edward Rose Company.  Maintenance costs are let out for competitive bidding before the expenditures are authorized.  The witness stated the average unit size at the subject complex was 621 square feet and is considered to be very small in comparison with other apartment complexes.  He stated the subject’s floor plan is smaller than the other complexes that are operated out of the company’s entire portfolio.

The witness was next directed to page 57 of the board of review’s 1996 appraisal report regarding information that was gleaned from the 1996 publication of the Institute of Real Estate Management (hereinafter IREM).  In the report, the IREM expenses for five garden type apartment buildings from the Quad Cities and 495 apartment buildings from the midwest regions were analyzed.  The witness estimated there are actually from 50 to 75 garden type apartment complexes located in the Quad City area.  The five complexes located in the Quad City area analyzed by IREM contained 1,103 apartment units and 855,012 square feet of net rentable area.

The witness calculated the average unit size of the five properties in the study to be 775 square feet.  The IREM expenses for the midwest region was derived from 495 complexes containing 116,232 apartments and 97,063,450 square feet of net rentable area.  The witness calculated the average unit size of these properties to be 835 square feet.  He stated that if the subject’s rental units were 775 square feet in average size, there would be about 369 units in the complex.  If each unit was 835 square feet in average size, there would be about 342 units in the subject complex or 34% less than the actual 460 units.  The witness was of the opinion the subject’s unit size was atypical of the average unit size analyzed in the IREM for the Quad Cities area and the midwest region; and because of the small unit size the subject property suffers from functional obsolescence.

The witness was of the opinion the subject’s small unit size affects the expenses on a per square foot basis because there are more heating units and plumbing units per square foot, more repairs and maintenance costs, larger tenant turnover, higher utilities and the like.  He stated the turnover rate between 1994 and 1996 averaged about 60 percent.  In 1997 the turnover rate dropped to 54 percent.

A document entitled IREM Expenses Per Apartment Unit Data For Garden Type Apartment Buildings, By Year of Publication (With Page Citation) was submitted and marked Appellant’s Exhibit 2.  The document consisted of a table showing expenses for 1996 through 1999 for garden type apartment buildings located in the Quad City area, Region 5 and the entire United States, with and without taxes.  The witness stated the appellant’s appraiser stabilized expenses at the subject property at $2,200 per unit, excluding real estate taxes.

Exhibit 2 disclosed that expenses for garden type apartment buildings ranged from $2,331 to $3,065 per unit with tax and from $1,765 to $2,368 per unit without tax in the Quad City area for the years 1996 through 1999.  For Region 5 and in that same time frame, the expenses per unit ranged from $2,829 to $3,065 per unit with tax and $2,210 to $2,460 per unit without tax.  For the total United States and in the same time frame, the expenses per unit ranged from $2,773 to $3,004 per unit with tax and from $2,313 to $2,550 per unit without tax.

The witness next described the subject complex.  He stated the complex is of a lower grade apartment quality.  The first floor units throughout buildings one through eight are half underground with only a small window located at the top of the wall.  The front units on the lower floor of buildings nine through eleven are half underground and the back units are somewhat of a walk-out style of construction.  The exterior building material is mainly masonite paneling.  Some of the interior corridors are exposed to the weather and are of a construction material that damages easily and experiences a tremendous amount of rot.  The balcony decks were also made of inferior building materials.  There is no insulating quality to the windows.  The land area is large and requires added expenses for maintenance.  As a result, he explained the kind of tenants attracted by the subject complex are low income, transient people causing a high turnover rate at the complex.  The witness stated the subject’s rent is low compared to the competition in the area.

The witness was questioned under cross-examination regarding the historic operating performance document found in the appellant’s appraisal report on page 51.  He testified that he supplied the appraiser with these figures.  The figures came from the accounting department, and were reviewed by him.  The testimony under redirect examination disclosed the tenants pay for heating and the expense report includes heating costs for vacant units only.

The next witness called was the director of property management with the same management company as the first witness.  This position had been held by him for the last three and one half years.  The witness’ employment background and education were presented.  He stated that he has inspected the subject property and 25 other garden complexes managed by his firm.  He stated the construction of the subject property was inexpensive with lower quality materials used.  The insulation in the building is at the absolute minimum requirement, and the balconies, due to the poor construction features, are difficult to maintain.  He explained that as a result of the subject’s poor construction features, the buildings require additional maintenance.  He stated that similarly constructed apartment complexes as the subject located in various regions, managed by his firm, have similarly high expenses as the subject at about $2,200 per unit or $3.54 per square foot, excluding real estate taxes.  The witness was of the opinion the subject property has higher expenses per square foot than typical IREM properties because the IREM properties have fewer units per square foot than the subject property due to the subject’s small average unit size.

The next witness called was an appraiser with the MAI appraisal designation.  After presentation of the appraiser’s appraisal qualifications, education and work experience, the parties stipulated to his qualifications as an expert in the field of real estate appraisal.  A written statement of the appraiser’s professional qualifications was entered into the record and marked Appellant’s Exhibit 3.  A copy of the narrative appraisal report prepared by the appraiser was marked Appellant’s Exhibit 4.  He stated that he had personally inspected the subject property and that he had conducted all of the research and analysis in development and writing of the report.  The subject property’s market value estimate contained in the appraisal report was $6,650,000 as of January 1, 1996.  The subject buildings, the site and the surrounding area were described by the appraiser.  He testified the subject’s highest and best use as it existed on the effective date of appraisal was its continued use as a rental complex.  The three traditional approaches to value were utilized in the report.

Under the cost approach, the appraiser first estimated the value of the subject site using five land sales located in the Moline and East Moline area.  These properties ranged in size from 7.77 to 68 acres, they sold for prices ranging from $10,593 to $23,529 per acre and the transactions occurred from June 1991 to October 1995.  From an analysis of this data, the appraiser estimated a site value, as vacant, of $25,000 per acre of net useable land area or 23.06 acres for a site value of $575,000.  The data disclosed that 8.1 acres of the subject site consists of ravines and are not considered useable acreage.

To estimate the replacement cost new of the subject improvements of $15,173,460, the appraiser used the Marshall Valuation Service Cost Manual.  From this amount, accrued depreciation was deducted for physical deterioration at 32%, functional obsolescence at 15% and external obsolescence at 15%.  The appraiser explained the features that result in functional obsolescence at the subject property.  He stated the english basements, which are 50% below grade, contain one-third of the available rental units at the complex, and have a history of flooding during periods of increased rain activity.  The basement units do not have balconies or patios, security and privacy concerns exist in these units; and as a result the rents are at a discounted rate.  He was of the opinion the unit mix at the subject property also represents an item of functional obsolescence due to the high percentage of one bedroom units as compared with other apartment complexes.

Other items of functional obsolescence were the subject’s small average unit size, the open air design of some of the units and the balconies, which due to their method of construction are not useable due to safety concerns for 300 of the units.  The depreciated value of the building improvements, the appliances and the site improvements were estimated to be $6,165,915.  Adding in the estimated site value results in an estimated value by the cost approach of $6,750,000.

Under the sales comparison approach, the appraiser utilized five sales of suggested comparable properties.  These properties were apartment complexes located in Davenport, Iowa, East Moline, Rock Island, Peoria, and Springfield, Illinois.  These properties ranged in size from 51 to 320 units, from 54,027 to 375,888 square feet of building area and from 45,925 to 319,250 square feet of net rentable area.  The average unit size for these complexes ranged from 706 to 1,064 square feet.  These properties sold for prices ranging from $871,000 to $7,575,000 and the transactions occurred from December 1992 to September 1994.  Units of comparison were developed on three bases.  The sales price per square foot of gross building area ranged from $16.12 to $21.11, the sale price per unit ranged from $15,761 to $25,250 and the sale price per square foot of net rentable area ranged from $18.97 to $24.84.  An analysis of this data resulted in an estimated market value of $15,000 per unit, $20 per square foot of gross building area and $23 per square foot of net rentable area.  The appraiser was of the opinion the sale price per square foot of net rentable area provided the best indication of value and resulted in an estimated value by the sales comparison approach of $6,600,000.

Under the income approach to value the appraiser first considered the historic operating performance of the subject property.  This data was summarized on page 51 of the report.  The appraiser stated that historical income and expense reports are generally relied on by potential investors.  The subject’s historic contract rent was summarized on page 52 and indicated an average rent per unit per month of $363 in 1996.  A market rental survey of four properties was also conducted.  These properties were located in Moline or East Moline, Illinois, and consisted of apartment complexes ranging in size from 114 to 321 units.  One of the comparables had efficiency units that rented at $320 per month.  The comparables had one bedroom units that rented from $325 to $440 per month.  The two bedroom units had rental rates ranging from $390 to $540 per month.

An analysis of this data led the appraiser to conclude a potential gross income for the subject property of $2,037,600 or an average rental rate of $369 per month.  The breakdown of the rental rates applied to the subject was $300 per month for the efficiency units, $345 per month for the one-bedroom units and $405 per month for the two-bedroom units.  Based on an analysis of the competitive market as well as on the subject’s historical data, the vacancy and collection loss allowance was estimated at 6%.  After deduction of the vacancy and collection loss, the subject’s effective gross apartment income was estimated to be $1,915,344.  Miscellaneous income at 1.5% was added for a total effective gross income of $1,944,074.

With respect to expenses, the appraiser first conducted an analysis of the operating history of the property on a before real estate tax and before capital reserve basis.  The subject’s historical operating expenses were compared with the expenses of similar garden type apartment complexes on a per unit basis.  The appraiser was of the opinion this was the most appropriate unit of comparison.  The subject’s historical operating expenses ranged from $2,105 to $2,259 per unit per year for the years between 1990 and 1996.  The average operating expenses per unit per year was $2,205.

Comparable operating data, excluding real estate taxes and capital reserves, was also considered for five apartment communities located in Springfield, Naperville, Peoria, Schaumburg and Champaign, Illinois.  These properties indicated operating expenses per unit ranging from $1,881 to $3,460 with a mean and median of $2,545 and $2,563 per unit, respectively.  The appraiser also considered the median per unit IREM data for garden apartments located in various geographic areas.  Overall, the IREM data indicated expenses ranging from $2,210 to $2,313 per unit.  Based on this data, the appraiser estimated operating expenses at $2,200 per unit or $3.54 per square foot of net rentable area before real estate taxes and capital reserves for the subject property.  Once again, the subject’s historical expenses were analyzed in estimating an expense for capital reserves.

In addition, the appraiser consulted a real estate investor survey.  The survey indicated that the reserves used by investors generally ranged from $50 to $500 per unit and averaged $224 per unit.  From this analysis, the appraiser estimated a total reserve allowance of $106,155 or $231 per unit.  He noted this compares favorably with the real estate investor survey.  After deducting expenses, the subject’s net operating income before real estate taxes was $825,919.

Finally, the appraiser developed an overall capitalization rate from a real estate investor survey and the band of investment theory.  From this data, the appraiser concluded a capitalization rate of 9.5%.  After loading for real estate taxes, the overall capitalization rate was estimated to be 12.4270%.  Capitalizing the subject’s net operating income by this rate resulted in an indicated market value by the income approach of $6,650,000.

Reconciling the three approaches to value, with most weight on the income capitalization approach, the appraiser concluded a market value of $6,650,000 for the subject property as of January 1, 1996.  The appraiser was of the opinion the subject’s market value would be substantially the same as of January 1, 1997.  The appellant’s attorney noted that the parties agreed to stipulate that the subject property will have the same market value in 1998 as determined by the Property Tax Appeal Board for the 1997 appeal.

The board of review submitted "Board of Review Notes on Appeal" wherein the subject’s assessments were presented.  The total assessments assigned to the subject property in 1996, 1997 and 1998 were $2,999,521, $3,194,491 and $3,306,299, respectively.  The market values reflected in the assessments for the years 1996 through 1998 were $9,040,148, $9,595,948 and $9,907,988, respectively, using the three year median level of assessments of 33.18% for 1996, 33.29% for 1997 and 33.37% for 1998.  Appearing on behalf of the board of review were two assistant state’s attorneys.

The first witness called on behalf of the board of review was a real estate appraiser having the MAI designation with the Appraisal Institute.  The appraiser prepared a review appraisal of the report prepared by the appellant’s appraiser on April 10, 1998.  He stated that he agreed with the description of the subject property, including its physical attributes, and the market area as presented in the appellant’s appraisal report.  However, he disagreed as to the methodology and conclusions contained in the three approaches to value.  The witness testified that he made a formal inspection of the subject property on March 20, 1995, and an exterior inspection in 1998.

With respect to the cost approach, he found the appellant’s appraiser’s measure of physical depreciation and functional obsolescence to be reasonable.  However, he felt there was an error in the methodology employed in that functional obsolescence must be estimated after physical depreciation is deducted from the replacement cost new rather than lumping the percent of depreciation from all causes together.  He also noted in the report the external obsolescence factor of 15% was unsupported.  Under cross-examination, the witness stated that minimal weight should be given the cost approach.

With respect to the sales comparison approach, the review appraiser felt that other comparable sales should have been considered, some of which were within the Quad City area, that were not included in the report.  He included in the report, four suggested comparable sales, two of which were also used by the appellant’s appraiser.  His first comparable was located in Davenport, Iowa, it contained 352 rental units, was constructed from 1973 to 1975, sold for $8,565,000 or $24,332 per unit and the transaction occurred on September 10, 1996.  His second comparable was also located in Davenport, Iowa, it contained 300 rental units, was constructed in 1974, sold for $7,925,000 or $26,417 per unit and the transaction occurred in September 1994.  The third comparable was located in Rock Island, Illinois, contained 51 rental units, was constructed in 1965, sold for $871,000 or $17,078 per unit and the transaction occurred in March 1994.  The fourth and last comparable was located in East Moline, Illinois, contained 114 rental units, sold for $2,000,000 or $17,544 per unit and the transaction occurred in December 1992.

Under cross-examination, the witness stated the sizes listed for each of the comparable sales were gross building area.  He was of the opinion that his comparable one was most similar to the subject property in size and construction quality, with a relatively high proportion of one bedroom units.  From this data, he felt that the appellant’s appraiser’s value estimate of $15,000 per unit was too low.  He was of the opinion that a sale price per apartment unit is a better unit of comparison to use in valuing apartment complexes than a per square foot of net and gross rentable area as used by the appellant’s appraiser.  He also felt that the appellant’s appraiser’s sales comparison approach was diminished because of the absence of the use of a gross income multiplier (GIM).

The four sales comparables used by the review appraiser had GIMs ranging from 4.46 to 5.30.  He noted that if the lowest indicator was used, it would indicate a market value of $8,670,570 or $18,849 per unit.  Under cross-examination, the witness explained the GIM works directly off the gross income and has nothing to do with the expenses.  He stated that part of the equation in using a GIM is that expenses and amenities should be typical or comparable with the property that is being appraised.  The gross income per unit estimated for comparables one through four were $5,188, $4,982, $3,831 and $3,637, respectively.  It was noted that comparables three and four had expense ratios of 52.8% and 48.6% respectively.

With respect to the income approach to value, the review appraiser agreed with the methodology employed by the appellant’s appraiser with the exception of the expense deduction.  He stated that rather than looking at the expenses on the basis of a per unit cost, he considered the actual expenses relative to income of seven local apartment complexes that contained from 198 to 392 rental units.  The comparable properties had expense ratios ranging from 36.50% to 52.23% from 1992 to 1996.  He explained that his firm had appraised all but two of these properties and the income and expense data were obtained from the data in the files.  The income and expense data for the other two properties were obtained from other appraisers.

Under cross-examination, he explained the expenses used for the seven properties were actual and included reserves.  However, he was generally unsure of the average apartment size for each of these properties.  The testimony revealed that some of these apartments were used by the board of review’s appraiser in his report and the average size units were reportedly significantly larger than at the subject property.  Based on this data, he was of the opinion the subject’s actual expense ratios, including reserves, of 53.40% to 56.70% for years 1994 through 1996 were excessive.  He noted that the appellant’s appraiser’s income approach indicated an expense ratio of 57.52%.  He selected an expense ratio of 42% as being more reasonable for the subject and added 5% for reserves.  He then applied the ratio of 47% to the effective gross income contained in the appellant’s appraiser’s appraisal report for a net income of $1,030,359.  Capitalizing the net income by the 12.472% rate used by the appellant’s appraiser resulted in a value by the income approach of $8,261,377.  Under cross-examination, the witness stated that he would probably place equal weight on the income and sales comparison approaches to value.

The next witness called on behalf of the board of review was an appraiser with the MAI and SRPA appraisal designations.  The appraiser was presented to and accepted by the Board as an expert in the field of real estate appraisal and offered testimony in support of the appraisal reports prepared by him for the 1996 and 1997 appeals.  The appraisal reports indicated estimated market values of $8,400,000 or $18,260 per unit as of January 1, 1996, and $8,100,000 or $17,609 per unit as of January 1, 1997.  The appraiser first described the subject site and building improvements as well as the subject neighborhood.  The subject’s highest and best use was estimated to be its continued use as an apartment complex.  He estimated the subject buildings have a total economic life of 50 years and an effective age of 16 years.  The three traditional approaches to value were utilized in the appraisal report.

Under the cost approach, based on two vacant land sales and one offering, the appraiser estimated a land value of $415,000 for the subject site.  To estimate the replacement cost new of $20,910,000 for the subject improvements the appraiser relied on two appraisal cost manuals, reported construction costs for similar complexes and nationally recognized building cost publications.  Two methods of depreciation were used.  Under the sales extraction method the sales contained in the market approach were used and indicated a total depreciation of 64 percent.  The second method of depreciation first estimated the physical depreciation of the subject improvements by the age-life method.  Functional and external obsolescence were next estimated by comparing the income for the subject property by the physically depreciated value of the buildings to determine if there was a sufficient amount of income to justify a typical rate of return.  This analysis indicated a total depreciation of 60%. Considering both methods, the appraiser chose an amount of 62% as the appropriate measure of depreciation for the subject improvements.  Adding in the estimated land value and deducting $400,000 for the cost to repair physical curable items of deferred maintenance resulted in a value by the cost approach of $7,960,000 for 1996.  For 1997, the appraiser estimated a value by the cost approach of $7,480,000.

Under the income approach to value, the appraiser considered the subject’s historical income and also a rental survey of four competing properties located in the area.  He concluded the subject’s actual rents are representative of the market rent and as a result projected a potential gross income of $1,985,294 for the subject property or about $6.63 per square foot.  The subject’s vacancy and collection loss was stabilized at 6% for an effective gross income of $1,866,176.

To forecast expense items, the appraiser relied on four sources; historical expenses at the subject property, IREM publication, comparable apartment complexes and his judgment.  The appraisal report indicated the historical per square foot costs for management, other administrative costs, supplies, utilities, other operating expenses, repairs and maintenance, security, insurance, and recreational amenities for the subject property.  These expenses were compared with IREM expenses for garden type apartment buildings from the Quad Cities and midwest regions.  The record indicated the IREM expenses shown for the Quad Cities area are from a sample size of 5 complexes containing 1,103 apartments and 855,012 square feet of net rentable area.  The IREM expenses for the midwest region comprises a sample size of 495 complexes containing 116,232 apartments and 97,063,450 square feet of net rentable area.

Under management expenses, the subject’s historical expenses ranged from $.31 to $.32 per square foot from 1993 to 1995.  The IREM study indicated industry averages for the Quad Cities area of $.30 per square foot and $.36 per square foot for the midwest area.  The midwest area ranged from $.29 to $.42 per square foot.  The appraiser stabilized this expense at $.32 per square foot.

Under other administrative costs, the subject’s actual expenses ranged from $.89 to $.95 per square foot from 1993 to 1995.  The IREM study indicated industry averages for the Quad Cities area and the midwest area to be $.49 and $.52 per square foot.  The midwest area ranged from $.36 to $.68 per square foot.  The appraiser stabilized this expense at $.50 per square foot.

Under the supplies expenses, there was no amount indicated for the subject property.  Based on the industry averages, the appraiser stabilized this expense at $.04 per square foot.  Under utilities expenses the subject’s actual expenses ranged from $.45 to $.49 per square foot.  Based on the industry averages, the appraiser stabilized this expense at $.50 per square foot.  Under the category of other operating expenses, the subject’s actual expense was $.04 per square foot.  Based on the industry averages, the appraiser stabilized this expense at $.05 per square foot.

Under repairs and maintenance expense, the subject’s expenses ranged from $1.48 to $1.58 per square foot.  The industry average for the Quad Cities area was $.83 per square foot and included a breakdown of the repairs into four categories; building services, ground maintenance, maintenance and repairs, and painting and decorating.  The midwest area was categorized in this same manner and indicated a total of $.64 per square foot.  The midwest area ranged from $.41 to $.98 per square foot.  Based on the industry averages, the appraiser stabilized this expense at $1.00 per square foot.

Under security expenses, there was no amount indicated for the subject property.  Based on the industry averages, the appraiser stabilized this expense at $.02 per square foot.  Under insurance expenses, the subject’s actual expenses ranged from $.28 to $.29 per square foot.  Based on industry averages, the appraiser stabilized this expense at $.15 per square foot.  Under recreational amenities, the subject’s actual expenses ranged from $.05 to $.06 per square foot.  Based on the industry averages, the appraiser stabilized this expense at $.04 per square foot.

The subject’s expenses before they were stabilized were $4.67 per square foot.  After they were stabilized, they indicated a cost of $3.48 per square foot after real estate taxes.  These were compared with three other properties and the IREM study.  The expenses for these observations ranged from $2.15 to $3.41 per square foot after real estate taxes.  The subject’s expenses were also compared as a percentage of effective gross income, including taxes.  The subject’s reported expenses were at 72.6% and its stabilized expenses were at 52.6%.  The IREM study and one of the comparables contained in the sales comparison approach had ratios of 44.5%, 46.6% and 56.8%.  The appraiser noted the subject’s stabilized expenses are within the range of IREM guidelines.  Based on this analysis, the appraiser was of the opinion the subject’s stabilized expense of $3.48 per square foot was reasonable and within market guidelines.  He noted that replacement reserves were not projected in the report.  He stated the reserves were considered but not projected because the capitalization rate was abstracted from the sales comparables prior to inclusion of operating reserve.

Cross-examination of the witness disclosed that for the 1997 appraisal, the subject’s expenses were stabilized at $3.61 per square foot of net rentable area.  The IREM study indicated expenses at $4.29 per square foot for the Quad City area and $3.46 per square foot for the midwest region.  The appellant’s attorney noted that the appellant’s appraiser estimated expenses at $3.54 per square foot without taxes.  The expenses were stabilized at $4.24 per square foot, including taxes.

Deducting total expenses of $748,120, excluding taxes, resulted in a net operating income of $1,146,056.  To estimate the appropriate capitalization rate, the appraiser extracted overall rates from the seven sales comparables contained in the sales comparison approach.  The overall rates for these properties ranged from 9.9% to 13.5%.  The appraiser chose a rate of 10% as appropriate.  The effective tax rate of 2.9243% was added for a capitalization rate of 12.9243%.  Capitalizing the subject’s net operating income by this rate resulted in a value of $8,867,451.  From this amount the cost to repair physical curable items of deferred maintenance of $400,000 was deducted for an indicated value by the income approach of $8,470,000.  For 1997, the appraiser estimated a value by the income approach of $8,110,000.

Under the sales comparison approach, the appraiser utilized seven sales of suggested comparable properties.  The units of comparison used in estimating the value of the subject property were price per unit, price per square foot of net rentable living area, including land, and a gross income multiplier.  The gross income per unit and the net income per unit were also analyzed.  The appraiser indicated in the report that for investment properties such as large multi-family apartment complexes, the sale price per square foot primarily becomes a function of the net income.  He also indicated the primary function of the sales data is to provide a market basis for abstracting an overall rate for use in the income capitalization approach.

The seven sales comparables utilized were located in Bettendorf and Davenport, Iowa, and in Rock Island, East Moline and Silvis, Illinois.  These properties ranged in size from 32 to 352 units and in net rentable area from 45,923 to 319,250 square feet.  They ranged in age from 12 to 29 years and in average size per unit from 683 to 1,064 square feet.  They had gross income per unit ranging from $3,788 to $5,188 and net income per unit ranging from $1,809 to $2,921.

Cross-examination of the witness disclosed these were actual income estimates.  The net income per unit used for the subject property in the analysis was its stabilized income of $1,952 per unit.  These properties sold for prices ranging from $17,078 to $27,000 per unit or from $18.97 to $32.53 per square foot of net rentable area, and had gross income multipliers ranging from 4.46 to 5.9.  The expense ratios were calculated for these properties and ranged from 38% to 52.8%.  The transactions occurred from December 1992 to September 1996.  An analysis of this data led the appraiser to conclude a value of $30.00 per square foot of net rentable area, a unit value of $19,000 and a gross income multiplier of 4.60. After an analysis of the three value indicators, the appraiser estimated a market value of $8,600,000.  From this amount the cost to repair deferred items in an amount of $400,000 was deducted for a value by the sales comparison approach of $8,200,000 in the 1996 appraisal report.

In the 1997 appraisal report, the appraiser estimated a market value of $8,100,000 for the subject property.  Under cross-examination, the appraiser calculated the expenses per square foot for five of the seven sales comparables.  Their expenses ranged from $2.00 to $2.25 per square foot and were under the IREM standard.  The seven properties had expenses per unit from $1,441 to $2,654.  The appellant’s attorney noted that the appellant’s appraiser had calculated the subject’s expenses at $2,200 per unit and at $2,628 when real estate taxes are added as an expense.  The appraiser agreed that if the rental units are smaller, the expenses per square foot might be higher.

The appellant’s attorney noted that sales three through six contain between 32 units and 72 units.  Cross-examination also disclosed that some of the comparable properties have superior features as compared with the subject.  One of the complexes had units built as townhomes with basements, fireplaces and garages.  Another comparable had fireplaces, garages and enclosed entryways.  The subject property has a mix of open and enclosed entryways, and it has no garages or fireplaces.

In reconciliation of the three approaches and final estimate of value, with most weight on the income approach to value, the appraiser estimated a market value of $8,400,000 for the subject property in the 1996 appraisal.  In the 1997 appraisal report, the appraiser estimated a market value of $8,100,000.  The appraiser explained the difference in the values was due to a higher expense allowance in 1997.  In closing, the board of review’s counsel argued that the appeal for the 1996 through 1998 years was no different from the 1993 and 1994 appeal in which the board’s appraisal prevailed.

Under cross-examination, the witness was questioned with respect to the industry medians and ranges obtained from the IREM study as stated in the appraisal report.  The 1996 IREM book was presented and marked Appellant’s Exhibit 5.  The witness stated this was the study used in his appraisal report.  The witness was directed to page 147 of the IREM book showing expenses for garden type apartment buildings located in region 5.  Under management fee, the book shows a high and low cost of $.42 and $.29 per square foot.  The witness interpreted this data to mean the expenses for management ranged from $.29 to $.42 per square foot.  The witness was next directed to page 11 of the IREM book which explains the interpretation of the data.  The witness was asked to read the section explaining “the range” and states in part as follows:

“In addition to the median, for samples of 11 or more buildings the “interquartile range” is reported in terms of a low and a high value.  After the set of measurements has been arranged in order of magnitude, the low and high values are chosen so that the bottom 25 percent of the sample falls below the low and the top 25 percent of the sample lies above the high. . . .

In interpreting the data as it appears in this publication for a particular line-item, such as insurance, the value that best describes the sample is the median (Med) with the central 50 percent of the values falling between the low and the high.”

Based on this interpretation, the witness agreed that his expense ranges as reported in the appraisal report should have been interpreted with 50 percent of the values falling between the low and the high rather than 100 percent of the observations falling between the low and the high.

The witness was next directed to page 8 of the IREM book and was asked to read the third paragraph under “Cautions in Interpretation”, which reads as follows:

“It is important to establish clearly what these statistical summaries cannot do and what they do not pretend to do.  They do not establish standards for the operation of real property.  They do not determine the proper or “ideal” operating experiences for a particular property type.  They are summaries of the operating experience of contributed properties and they provide a valuable basis for analysis and comparison.”

The appraiser stated that although the IREM book indicates the statistical summaries do not establish standards, the study is used by many appraisers as it is the only published data available.

The appraiser was then asked to read the next paragraph which states as follows:

“It must be kept in mind that these summaries are compiled from a voluntary sample.  The buildings included in the sample were not statistically selected and do not necessarily reflect the total range of operating experience for a particular city or region.”

Another paragraph was read by the witness which states:

“It is also significant to note that there are variations in the sample base from year to year due to the voluntary nature of the contributions.  In consequence, reported fluctuations in income and expenses must be interpreted with this in mind.”

The witness noted there were differences in the IREM study between the 1996 and 1997 reports.

In the appellant’s rebuttal, the testimony of a MAI appraiser and president and owner of an appraisal Company was presented.

The statement of qualifications of the appraiser was presented and marked Appellant’s Exhibit 6.  He explained that his assignment with respect to the subject property was to review the board of review’s appraisal reports.  He stated that he inspected the exterior of the subject property, the common areas and 10 different apartment units.  Based on his experience in appraising and owning apartment buildings, he stated that the type of units at the subject property, particularly the small unit sizes, generally tend to experience an abnormal amount of physical deterioration.  He noted areas of physical deterioration including the balconies.  He also noted the low grade quality of construction features such as the windows, the sliding doors, the kitchen cabinets and floor coverings.  He also noted that some of the units have outside entryways.  Based on these factors, he was of the opinion that the board of review’s appraiser failed to adequately address the condition of the subject property in his appraisal report.

With respect to the board of review’s appraiser’s cost approach, he noted the replacement cost estimate of the basement level area was at the same price per square foot as the upper level area of $56.00 per square foot.  He testified that a Class D masonry veneer-type classification would indicate a base cost of $44.14 per square foot, including area and local multipliers, according to the Marshall and Swift Valuation Cost Manual; and results in over a $4,000,000 difference in cost new and a difference in value after depreciation of approximately $1,500,000.  The witness was of the opinion the board of review’s appraiser’s depreciation estimate was slightly overstated.  However, he was of the opinion there was a substantial amount of judgment involved in estimating depreciation for buildings that were constructed in multiple phases.

With respect to the sales comparison approach, he noted it was difficult to determine how and if the transactions were verified.  He stated this was important because the board of review’s appraiser used the gross and net income figures from these properties in developing the gross income multipliers and overall capitalization rates.  He noted the comparable properties were smaller complexes, some significantly smaller, than the subject property.  He also noted the average unit sizes for the comparable complexes were from 10 to 70 percent larger than the subject’s average unit size with most having more amenities than the subject property.  The appraiser stated that because of the lack of comparability of similar sales properties, he agreed with the board of review’s appraiser that the income approach to value in this instance should receive the most weight in estimating the subject property’s market value.

With respect to the income approach, he was of the opinion that the board of review’s appraiser should have placed more weight on the subject’s historical expenses considering the physical deficiencies as well as the functional and external obsolescence factors at the subject property.  He reiterated that 30 percent of the rental space are basement units that have a tendency to flood, are colder, have less security and command less rent than the other units.  He noted other problems tied to the basement units as well as incurable functional features of the subject property which he stated results in a higher tenant turnover and higher related expenses.

Because of these problems and because the property is operated by a professional management company, he felt that the subject’s historical operating expenses should take precedence over the IREM data.  He noted the IREM data for the Quad City area was limited and should only be considered a benchmark or a starting point.  He stated that it is appropriate for an appraiser to consider historical income and expense data in an appraisal assignment.  He agreed with the board of review’s appraiser’s statement that the smaller the average size of apartment units, the higher the expense amount per square foot.  As a result he felt the subject’s expenses would more accurately be reflected on a price per unit rather than a price per square foot.

He also noted that the board of review’s appraiser went to the bottom of the range in choosing a capitalization rate derived from his seven sales comparables, although the comparables were identified to be superior over the subject property.  The properties had rates ranging from 9.9% to 13.5% with an average rate of 11.2%.  The board of review’s appraiser chose a rate of 10%.  He was of the opinion that because of the subject’s features, a higher rate, at least the median of 11.2%, could have been more appropriate and would have lowered the value estimated by the income approach to around $7,700,000.  In conclusion, he was of the opinion the historical operating information, the physical condition and utility of the subject property were not accurately reflected in the board of review’s appraisal report.

After hearing the testimony and reviewing the record, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  The Board further finds that a reduction in the assessment of the subject property is supported by the evidence contained in the record.  The subject property had a total assessment reflecting market values of $9,040,148, $9,595,948 and $9,907,988 for the years 1996 through 1998.  The appellant’s appraiser estimated a market value of $6,650,000  as of January 1, 1996.  The board of review’s appraiser estimated a market value of $8,400,000 as of January 1, 1996, and $8,100,000 as of January 1, 1997 for the subject property.

To determine the market value of the real estate which is the subject of this appeal, the Property Tax Appeal Board examined the appraisals in the record.  Each appraiser in valuing the subject property used the three approaches to value and placed primary weight on the income approach to value.  The review appraisers both agreed that primary weight should be placed on the income approach to value.  The board’s review appraiser was of the opinion that equal weight should be placed on the income and sales comparison approaches to value.

Under the cost approach, the appraisers’ square foot estimate of cost new varied substantially as well as the amount of depreciation attributed to the subject property.  The methods used for projecting depreciation also varied.  The review appraisers criticized the amount of depreciation and the method used for each appraisal.  The depreciation estimates were considered to be subjective.  Because of the age of the subject property, the fact that it was constructed in stages and the subjective nature of estimating depreciation, the Board placed little weight on the cost approach contained in the appraisal reports.

The Board also placed little weight on the sales comparison approach contained in the appraisers’ reports.  The comparables utilized by the appraisers consisted of smaller complexes ranging in size from 32 to 352 rental units.  Their average unit size ranged from 683 to 1,064 square feet.  The subject property consists of 460 rental units with an average unit size of 621 square feet.  The comparables were not all garden style apartment complexes with a high percentage of one bedroom units like the subject property.  Some had many more amenities than the subject property.  Both of the appraisers placed little weight on this approach in establishing the subject property’s value.  Moreover, the board of review’s appraiser indicated the primary function of the sales data is to provide a market basis for abstracting an overall rate for use in the income capitalization approach.

Both the board of review’s appraiser and the board of review’s review appraiser developed GIMs under the sales comparison approach.  The Board placed little weight on the appraiser’s GIM analyses.  The evidence and testimony in the record disclosed the comparable properties were in many ways dissimilar with the subject property.  In order for a GIM to be relevant, the expenses and amenities should be typical or comparable with the property that is being appraised.

Under the income approach, the approach accorded significant weight by the appraisers, the analyses were similar with the exception of the amount of expenses attributed to the subject property.  Based on an analysis of the subject’s operating history and on an analysis of comparable data, including IREM data, the appellant’s appraiser estimated expenses at $2,200 per unit or $3.54 per square foot before real estate taxes and reserves.  The amount for reserves was estimated by analysis of the subject’s historical expenses and in consulting a real estate investor survey.  Total expenses before real estate taxes were $1,118,155 or $3.91 per square foot of net rentable area, $3.34 per square foot of gross building area and $2,430 per rental unit.  The appellant argues that expenses should be analyzed on a unit basis rather than on a square foot basis due to the small average unit size at the subject property.  The appellant also argued the subject’s expenses are higher than the comparable data due to the subject’s small average unit size, the low quality grade of construction and the functional obsolescence features of the subject property.

The board of review’s appraiser estimated expenses for the subject at $748,120 or $2.62 per square foot of net rentable area, $2.23 per square foot of gross building area and $1,626 per unit before real estate taxes. He placed substantial reliance on the IREM study in estimating expenses and placed little weight on the subject’s historical expenses.  The seven comparable properties used in the sales comparison approach had expenses ranging from $2.00 to $2.25 per square foot or $1,441 to $2,654 per unit.

The appellant argues the smaller the unit size, with all things being equal, the higher the expenses.  The appellant presented substantial evidence to support this claim.  The Board finds the appellant’s argument is persuasive that due to the unusually small average unit size at the subject complex, the expenses would be higher.  The appellant presented two property managers to explain the logistics involved in the operation of the subject complex.  The subject property was operated by a professional management company.  The operational procedures and the process of expense management were detailed.

The Board finds that from the testimony and evidence presented with respect to the subject’s expenses, that most reliance should be placed on the subject’s historical operating expenses.  These expenses were not out-of-line in comparison with some of the comparable data contained in the record as well as with the IREM data, albeit a small sampling, contained in the record on a per unit basis.  Therefore, the Property Tax Appeal Board finds that the income analysis performed by the appellant’s appraiser is most relevant in establishing a market value for the subject property.

The Board finds this appeal differs from the 1993 and 1994 appeal in which the Property Tax Appeal Board found that the board of review’s appraiser’s method of calculating the subject’s expenses was superior over the method employed by the appellant’s appraiser.  In that appeal, the appellant’s evidence was different and consisted of an appraisal prepared by an appraiser with fewer credentials than for the instant appeal.  The property managers for the subject property were not presented to offer testimony regarding the subject’s expenses and functional obsolescent features as in the instant appeal.  In addition, there was no testimony presented showing that the board of review’s appraiser’s analysis regarding the ranges cited in the IREM manual was flawed as in the instant appeal.  Thus, the Property Tax Appeal Board finds the subject property had a market value of $6,650,000 for the three years under appeal.  Since market value has been established, the county’s three year median level of assessments of 33.18% for 1996, 33.29% for 1997 and 33.37% for 1998 shall be applied.

The subject property consists of eleven parcels of land containing a main site and a secondary site.  The main site consists of two apartment buildings containing 24 units and 50 rental units and a two story garage constructed in the early 1900’s.  A two story attached office/house was added in 1952.  A converted single family residence was constructed in 1860.  The secondary site is improved with three attached three story apartment buildings, consisting of 27 rental units built in 1929 and a brick garage which includes a non-functional, boiler plant.  The subject property contains a total of 101 rental units.  The main parcel of the subject site contains 67,206 square feet and the secondary parcel contains 19,760 square feet.

The appellant’s attorney appeared before the Property Tax Appeal Board and claimed that the subject’s market value was not accurately reflected in its assessed valuation.  To support this contention, the appraisal report and the supporting testimony of the appraiser were presented.  His appraisal qualifications were presented and stipulated to by the parties.  The appraiser estimated a market value of $400,000 for the subject property as of March 31, 1997.  He stated the appraisal was performed for estate purposes.  He was of the opinion the highest and best use of the subject property would be to demolish the present buildings and to value the land as vacant.  He estimated the land, if cleared, would be worth $1,050,000 and the demolition costs would be $650,000.  He stated the buildings are old and are no longer profitable.  The revenue generated from these buildings is insufficient for repairs and maintenance of the property.  The testimony disclosed that as the apartments are damaged or unable to be used, they are oftentimes not repaired, but are just closed off and used for storage and the like.  Moreover, the type of property and the method of its construction prevents it from being renovated into new apartments or office space.

The appraiser stated the subject’s neighborhood is transitional, but very strong.  It is proximate to the Y.M.C.A. building and to the Capital Complex.  The location of the subject property led the appraiser to believe the property could be converted to office use.

The appraiser detailed the construction features of the subject improvements.  He stated that the 50 unit building was solidly constructed and is a beautiful historical building, although not functional.  He stated that he spent two weeks talking to architects and engineers on how to convert the present improvements.  He stated the kitchens are very small and the bathtubs are substandard in size in the rental units.  He stated that it is not economically feasible to turn two units into one good sized unit because of the ceiling heights and because of the unusually strong construction features.  The 50 unit building has an attached, newer, two story house.  The exterior of this building is in good condition and the interior is of poor quality construction.  The other house on the main site is a 100 plus year old historic home that was once a mansion.  He stated the house is totally antiquated and if it were not connected with the other buildings it could be sold off separately.  The old two story garage situated on the main site has been vacated for safety reasons.  He claimed that none of the buildings are in good condition and most have substantial deferred maintenance.  He stated the garage located on the secondary site needs to be torn down because it is a safety hazard and the garage is actually too small to house a regularly sized car.

The appraiser stated that a significant amount of time was spent on the research of the subject property’s highest and best use.  He stated that in 1978 the subject property sold to a group of local investors for $1,200,000 on a contract for deed.  However, because of a shortage in cash flow, the property was diverted back to the original owners.  He concluded that this property, due to its lack of updating and current condition, would not be economically feasible to continue to operate under its current use, nor would it be economically feasible to renovate the property.  He indicated in the report that the total remodeling cost would be $70 per square foot, possibly closer to $80 per square foot if no significant problems were encountered.  Cross-examination of the witness disclosed that these amounts were undocumented in the report.  He claimed that it is not unusual for a property that is being rented to be demolished to insure a more economically viable property.  He stated that the subject property is currently operable only because the owners live at the complex and do all of the maintenance, the management and the like.  He stated that between the two owners, they receive about $3,000 per year in compensation for this work.  He claimed that if something major went awry such as the heating or plumbing systems it would not be economically feasible to make the repairs.  As a result, the appraiser concluded that the subject’s improvements should be removed and the land claimed for use as office sites.  The appraisal report included an office-to-site building ratio study which ties the square footage of the office building to the number of parking spaces necessary to insure an economically feasible operation.

The appraiser explained in the appraisal report that the cost approach to value was not used because it is not considered to be an applicable approach in the valuation of vacant land or for valuation of parcels on which the improvements need to be removed in order for said land to reach its highest potential.

The income approach was also not used by the appraiser because he explained in the report that while this approach can and is sometimes used to value properties such as the subject it is not applicable to the subject due to the lack of adequate long term land leases in the area.  Under cross-examination the appraiser explained that the income approach was considered in determining the subject’s highest and best use and he was of the opinion that if a typical management fee was expensed, the operation of the subject would not be a viable project.

The appraiser employed the sales comparison approach to value and utilized six sales in the analysis.  These properties were all located in Springfield, Illinois.  Five of the properties were vacant at the time of sale and were used for parking.  Comparable two was improved with several 30 to 100 year old buildings at the time of the sale that reportedly will be razed at some time in the future.  These properties had land sizes ranging from 11,156 to 34,462 square feet, they sold for prices ranging from $182,000 to $875,000 or from $12.67 to $25.39 per square foot of land area and the transactions occurred from February 1990 to June 1995.  The sales prices of these properties were adjusted for size, shape, general location, interior and corner locations and the like.  The adjusted sales prices ranged from $11.40 to $16.64 per square foot.  From this data the appraiser concluded that the subject’s market value as if vacant is $12.00 per square foot or $1,050,000, rounded.  From this amount the appraiser deducted the estimated demolition costs of the subject improvements.  The appraiser indicated in the report that he hired a professional to determine the demolition costs.  The demolition costs were reported as follows in the report:

The appraiser testified that these costs were double checked with an expert in the demolition of properties.  Based on this information, the appraiser allocated a probable demolition cost for the project at $650,000.  This amount was deducted from the indicated value of the land as if vacant for a market value of $400,000 for the subject property.  Cross-examination of the witness disclosed that the demolition cost figures were faxed to him and documentation of the costs were not included in the report.

The addendum of the report contained the income and expense history chart for the subject property from 1994 through 1996.  The subject’s rent roll was also included in the addendum of the report.  Under cross-examination it was noted that the subject’s actual real estate taxes were approximately $16,000 and the income and expense history chart used an average expense for real estate taxes of $28,086.

One of the owners of the subject property testified that sometime in 1996 or 1997 the subject had a listing contract with a local Realtor for $1,800,000.  However, she stated the Realtor was of the opinion that unless the price was lowered to under one million dollars, the property probably would not sell.  She stated there were many interested parties but no offers were made.

The testimony of one of the owners of the subject property was presented.  He explained that he manages the operation of the subject property.  He also described the construction features of the subject property and some of the functional deficiencies.

The board of review submitted "Board of Review Notes on Appeal" wherein the subject’s assessment totaling $206,038 for all eleven parcels was disclosed.  The subject’s assessment relates to a market value of $637,099 using the county’s three year median level of assessments for 1997 of 32.34%.  The supervisor of assessments was present and presented the testimony of the deputy assessor for Capital Township.  The educational and work experiences of the assessor were first presented.  He was of the opinion that there is value in the market for older apartment buildings in a somewhat diminished condition and also for older converted residences.  To support this contention, the deputy assessor submitted sales data on 12 old apartment buildings, on nine old converted residences in fair to poor condition and on six sales of mixed use converted residences in fair to average condition.  He stated that although these comparables were older properties, none were demolished subsequent to the sale.  The evidence disclosed that nine of the 12 apartment building sales were located within five blocks of the subject property.  In all, the sale prices of the apartment buildings ranged from $11.69 to $31.04 per square foot or from $4,821 to $25,143 per unit and the transactions occurred from 1994 to 1997.  The subject apartments were valued at $4.81 per square foot or $3,882 per unit.  Nine of the 15 sales of converted residences were within three to four blocks of the subject property.  These properties sold for prices ranging from $19.58 to $59.91 per square foot and the transactions occurred from 1993 to 1997.  The subject’s two converted residences were valued at $25.48 and $27.64 per square foot.  Thus, based on this evidence, the board of review was of the opinion the subject property was accurately assessed at the lower end of the range established by the comparable properties.  Therefore, the board of review requested confirmation of the subject property’s assessment.  Property record cards and photographs were submitted on the subject property and the comparable properties showing the physical characteristics of each property.

After hearing the testimony and reviewing the record, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  The Board further finds that the record does not support a reduction in the subject property’s assessment.  The Board has reviewed the appraisal submitted by the appellant wherein the subject’s highest and best use was estimated to be vacant land reclaimed for use as potential office sites.  The appraiser testified that renovation of the subject property would not result in profitability to the owners.  The testimony regarding the condition of the subject property was uncontroverted by the parties.  In The Appraisal of Real Estate published by the American Institute of Real Estate Appraisers (1973) it was stated:

Following the concept of appraising the land as though vacant for immediate use, the improvements may have no value.  In fact, they may represent a burden to land value to the extent of the cost of their removal.  Where the transition to highest and best use is deferred, the element of interim use should be considered.  The improvements would be judged on the basis of only temporary enhancement of site value, measured by comparable market data and by consideration of the net income produced for the interim period.

Whether the subject property has a present highest and best use as that stated by the appellant’s appraiser or whether the highest and best use is deferred and an interim use considered, the Board finds that the record is not sufficient to change the assessment assigned to the subject property.  The Property Tax Appeal Board finds that the estimate of value of $400,000 for the subject property as determined by the appellant’s appraiser was not well documented with respect to the demolition costs of the present improvements.

The appellant’s appraiser estimated a market value of the land if vacant to be $1,050,000 based on six suggested comparable properties.  The estimated demolition costs of $650,000 were deducted from the $1,050,000 land value estimate to reach the conclusion of $400,000.  The demolition costs estimate was weak in that none of this data was documented with signed contractor’s statements and the like.  The Board notes that the demolition costs represent a major portion of the resulting appraised value of the subject property, but that little to no documentation was provided in the appraisal to support the estimated costs.  In addition, the demolition costs actually totaled $577,965 rather than $677,965 as reported in the appraisal report.  The subject’s assessment including the value of the present improvements reflected a market value of $637,099 and is below the value estimated for the land by the appellant’s appraiser.

The market data submitted by the board of review demonstrated the subject property is valued below the sales prices indicated by comparable properties.  This suggests that the board of review gave some consideration to the condition of the subject property in establishing its assessment.  Moreover, testimony disclosed that the subject property was listed for sale with a Realtor at $1,800,000 in 1996 and 1997.  Although there have been no offers at this price, the market value reflected in the subject property’s assessment was considerably below the asking price.

In appraisal practice it is recognized that in cases where a site has existing improvements on it, the existing use will continue to be the highest and best use unless and until the land value exceeds the total value of the property in its existing use.  In other words, as long as the buildings contribute something to the total value in excess of the value of the vacant site, it would be feasible for the owner to continue it in that use.  As stated above, the appellant’s appraiser estimated a value for the subject as if vacant at $1,050,000.  The subject property had a listing price of $1,800,000.  Therefore, it appears that the subject’s improvements contribute some value in excess of the value of the vacant site.  Therefore, the Property Tax Appeal Board finds that the subject’s assessment as established by the board of review is correct and no reduction is warranted.

The subject property consists of a one and part two story commercial building that contains 40,970 square feet of building area.  The improvements were constructed in stages from 1968 to 1983.  The subject property is used as a family entertainment center with such features as a roller skating rink, arcade games, bumper cars, batting cages, a large pool area for use with bumper boats, a go-cart track and a restaurant.  The improvements are located on a 5.22 acre site in Batavia, Kane County, Illinois.

Appearing before the Property Tax Appeal Board on behalf of the appellant was its attorney who argued the market value of the subject property is not accurately reflected in its assessed valuation.  The appellant’s attorney argued the subject property suffers from environmental contamination which negatively affects its value.  In support of this argument she presented a narrative appraisal of the subject property and the supporting testimony of the appraiser.  The parties stipulated to the appellant’s appraiser’s qualifications to give opinion testimony.  The appraiser developed the three traditional approaches to value in estimating the market value of the subject property.

The first approach to value developed by the appellant’s appraiser was the cost approach.  His initial step under the cost approach was to estimate the value of the subject land through the use of four comparable land sales.  The comparables were located in Batavia and ranged in size from 56,250 to 240,015 square feet.  These properties sold from November 1995 to May 1996 for prices ranging from $123,750 to $432,063 or from $1.80 to $2.20 per square foot.  After making adjustments to account for the differences between the subject and the comparables the appraiser estimated the subject had a unit value of $1.80 per square foot for a total indicated land value of $410,000, rounded.

The appellant’s appraiser used the Marshal & Swift Cost Manual to estimate the replacement cost new of the improvements to be $2,950,000.  In estimating the physical depreciation the appraiser estimated the subject had a physical life of 75 years and an effective age of 20 years resulting in incurable physical depreciation of 27% or $796,500.  Due to the multi-level design and add-on configuration of the building the appraiser estimated the subject suffered from 30% or $855,000 functional obsolescence.  The appraiser also deducted 35% or $997,500 for economic obsolescence caused by its location next to a concrete batching plant, a chemical storage plant and the stigma associated with the environmental contamination.  In summary total depreciation was estimated to be 90% or $2,649,000.  The appellant’s appraiser estimated the subject building improvements had a depreciated value of $301,000 to which he added $410,000 for the land value and $160,000 for the site improvements to arrive at an indicated value under the cost approach of $870,000.  The appraiser testified that discussions with engineers indicated that it would cost $300,000 to remediate the contamination.  He therefore deducted the $300,000 to remediate the contamination to arrive at an indicated value under the cost approach of $570,000.

The next approach discussed by the appellant’s appraiser was the sales comparison approach to value.  In analyzing the comparable sales the appellant’s witness indicated he reviewed the properties in three different ways, namely, price per square foot of building area; price per square foot of land area; and a building residual technique where the value of the land was subtracted from the sales price leaving the contributory value of the building.  In developing this approach to value the appraiser used four comparable sales and two offerings.  The comparables ranged in size from 10,039 to 73,096 square feet of building area and were constructed from 1973 to 1980.  The comparables sold from February 1993 to January 1996 for prices ranging from $263,625 to $2,250,000.  The price per square foot of building area ranged from $26.26 to $46.88 per square foot.  On a per square foot of land basis the comparable sales had unit prices ranging from $3.44 to $11.64 per square foot.  Using the building residual method the unit sales prices ranged from $6.75 to $20.20 per square foot.  Comparable sale number one had been used as a bowling alley while comparable sales two through four were used as health and racquet clubs.  Comparable sale number two was converted into a church after the sale while the building on comparable sale number four was razed after the sale.  The two offerings, both of which were lumber yards, had listing prices of $1,400,000 and $1,500,000 or $45.16 and $51.73 per square foot of building area.  On a per square foot of land area basis the comparables had listing prices of $3.73 and $5.74 per square foot.  Using the building residual technique the listings had unit prices of $14.89 and $15.67 per square foot.  Based on these sales the appraiser estimated the subject property would have a unit value of $22.00 per square foot of building area resulting in a total estimated value of $900,000; on a site value basis the subject would have a unit value of $4.00 per square foot resulting in a total estimated value of $910,000; and on a building residual basis the building would have a contributory unit value of $13.00 per square foot for a total contributory value for the building of $532,610 and a total indicated value of $943,000 after adding the land value of $410,000.  Reconciling these methods the appraiser estimated the subject property had an estimated market value prior to considering the contamination of $925,000.  Deducting $300,000 for the estimated cost to remediate the contamination resulted in an “as is” value of $625,000.

The final approach to value developed by the appellant’s appraiser was the income approach to value.  In estimating the market rent of the subject property the appraiser used seven comparable rentals that ranged in size from 6,000 to 240,000 square feet.  The rentals ranged from $2.75 to $6.00 per square foot.  The appraiser estimated the subject had a market rent of $3.00 per square foot for a potential gross income of $122,910.  A 7% deduction for a vacancy and collection allowance was made to arrive at an effective gross income of $114,307.  The appraiser next deducted $16,336 for management, real estate taxes, insurance and maintenance expenses to arrive at a net income of $97,971.  A capitalization rate of 10.12% was estimated using the band of investment technique.  Capitalizing the net income resulted in an estimated market value of $970,000.  Deducting $300,000 for the estimated cost to remediate the contamination resulted in an “as is” value of $670,000.

In reconciling the three approaches to value the appraiser estimated the subject would have a market value as remediated of $925,000 and an “as is” value of $625,000 after deducting $300,000 for the estimated cost to remediate the contamination.

The contamination remediation cost used in the appellant’s appraisal was derived through the use of a report from SECOR International Incorporated (hereinafter SECOR).  The reports indicated SECOR performed a subsurface assessment of the western 2.86 acres of the subject site.  SECOR found that ground water on the subject parcel was impacted with various chlorinated and petroleum volatile organic compounds.  It further found that the source of the contamination was not on site but lies to the east and/or northeast of the site.  SECOR recommended three options to remediate the contamination which ranged in costs from $147,000 to $307,000.  The report stated that each of the options was just a control mechanism.  The report indicated that the elimination of the off-site source of the contaminated groundwater would be the best alternative.  No person from SECOR was present at the hearing to discuss the study performed on the site nor the reports submitted by the appellant.

Under cross-examination, the appellant’s appraiser was not sure who was responsible to clean-up the contamination.  The witness was shown a document entitled “Assignment of Installment Real Estate Sales Contract” dated September 1, 1992, identified as Board of Review’s Exhibit No. 4.  Upon reading section 7.06(b) of the contract he stated that it appeared that the seller was responsible for cleanup of the environmental contamination on the property.  The appraiser also reviewed sections 26.10 and 27.01 of the contract and again stated the contract terms indicated the seller was responsible for the costs associated with cleaning up any environmental hazards.  These provisions state that the seller would be responsible for the costs of remediation provided the condition arose prior to the effective date of the contract.  The appellant’s witness did not know when the owner became aware of the environmental concerns on the subject property.  The appellant’s appraiser did not know the source of the contamination nor did he know who the primary responsible party would be to correct the contamination.  The appraiser did not know how much of the subject’s area was affected by the contamination.  He further testified that the contamination had not impaired the present use of the subject property.  He did not know whether the well located on the site had been contaminated.  He agreed that the subject property has city water on site and the well water is used only for one of the water rides.  The appraiser did not know whether the business on the subject property had suffered any income loss as the result of the contamination.  He did not know whether the subject was on any state or federal list to clean-up the contamination.  The witness did not know whether the level of contamination on the subject exceeded any local, county, state, or federal regulatory levels.

The appellant’s appraiser testified that this has been the only recreational facility he has appraised.  The witness was also questioned about his estimate that the subject has a remaining economic life of 15 to 20 years and an effective age of 25 to 30 years.  With respect to the comparable sales contained in his appraisal the appraiser testified only sales one and three continued as a recreational use after the sale.  With respect to the comparable rentals the appraiser indicated they were used as retail, light industrial and warehouse facilities, none were used as a recreational facility.

The board of review submitted its “Board of Review Notes on Appeal” wherein its final assessment of the subject property totaling $399,960 was disclosed.  The subject’s assessment reflects a market value of $1,201,080 using the 1997 three year median level of assessments for Kane County of 33.30%.  The board of review’s representative argued that the subject’s assessment reflects a fair value for the subject as remediated.  He also argued there is some question about the cost of the remediation and who is liable for that cost.

In support of the assessment of the subject property the board of review submitted a narrative appraisal of the subject prepared by an independent real estate appraiser.  The board’s appraiser  was called by the board of review as its expert witness.  The parties stipulated to the appraiser’s qualifications as an expert to give opinion testimony.  The board’s witness testified he has appraised seven recreational facilities during the past two years.

The board’s appraiser indicated within the appraisal report that he had been provided a copy of an “Assignment of Installment Real Estate Sales Contract” dated September 1, 1992.  The purchase price was indicated to be $2,060,000 and the report indicated the purchaser confirmed this was the correct price but included the real estate as well as non-realty items.  The board’s appraiser did not consider this sales price in estimating the market value of the subject property.

In estimating the market value of the subject property the appraiser developed the three traditional approaches to value.  The appraiser first estimated the value of the subject land through the use of five land sales that occurred from November 1995 to December 1996.  The parcels ranged in size from 1.29 to 5.51 acres and sold for prices ranging from $123,750 to $432,063 or from $1.80 to $2.67 per square foot.  The witness estimated the subject land had a value of $1.85 per square foot for a total value of $420,000.

The appraiser used a nationally recognized cost authority, Marshall and Swift, Marshall Valuation Service, in estimating the replacement cost new of the improvements to be $2,730,000.  Depreciation was developed through market extraction using the comparable sales contained in the sales comparison approach to value and estimated to be 75% of the cost new or $2,045,000.  The depreciated value of the building improvements was estimated to be $685,000.  Within the report he estimated the subject had an effective age of 25 years and an economic life of 45 years.  The depreciated value of the site improvements was estimated to be $150,0000 which when added to the building value resulted in a total depreciated value of the improvements of $835,000.  To this amount the appraiser added $420,000 for the land value to arrive at an estimate of value of $1,260,000 under the cost approach.  The board’s appraiser then deducted $375,000 for environmental remediation and incentive to arrive at an indicated value of $885,000 under the cost approach.

The next approach to value developed by the appraiser was the sales comparison approach.  The board’s appraiser selected seven comparable sales and one listing to estimate the subject’s market value.  The comparables were one story buildings that ranged in size from 14,490 to 73,096 square feet.  Five of the comparables were recreational facilities used as either roller skating rinks, health clubs or bowling centers.  The appraiser testified these properties were purchased for continued use as recreational facilities.  The appraiser considered these sales most similar to the subject property.  The three remaining comparables were used as lumber yards.  The sales occurred from May 1994 to November 1997 for prices ranging from $550,000 to $2,250,000 or from $29.35 to $45.98 per square foot.  The listing was on the market for a price of $1,400,000 or $45.16 per square foot of building area.  The appraiser estimated the subject would have a market value of $30.00 per square foot for a total indicated value of $1,230,000.  The board’s appraiser again deducted $375,000 to correct the environmental contamination to arrive at an indicated value of $855,000 under the sales comparison approach.

The final approach to value developed by the board of review’s appraisal witness was the income approach to value.  To estimate the subject’s market rent the appraiser selected five comparable rentals that had rents ranging from $3.18 to $4.07 per square foot.  These comparables were used as recreational facilities such as bowling alleys or roller rinks.  The appraiser estimated the subject would have a market rent of $3.60 per square foot for a potential gross income of $147,492.  The witness deducted 7% or $10,324 as an allowance for vacancy and collection loss to arrive at an effective gross income of $137,168.  The appraiser then deducted $16,058 for expenses associated with management, legal, and reserves for replacements to arrive at a net income of $121,110.  A capitalization rate of 10.25% was developed using the band of investment technique and through the use of a comparable sale that was leased at the time it sold.  Capitalizing the net income resulted in an estimated value under the income approach of $1,180,000.  The appraiser again deducted $375,000 for the cost to remediate the environmental contamination to arrive at an indicated value of $805,000.

In reconciling the three approaches to value the appraiser estimated the subject had a market value as remediated of $1,230,000 and “as is” of $855,000.

Under cross-examination the board of review’s appraiser testified the $375,000 deduction for contamination remediation was based on his conversation with the owner of the property who indicated the cost to correct the problem was $300,000.  The board’s appraiser also allowed $75,000 as an incentive to any buyer to correct the problem.  The appraiser did not have access nor did he review the SECOR reports concerning the contamination and remediation options for the subject property.  The board’s appraiser did not speak to anyone about the contamination other than the owner.  The board’s witness did not know whether the contamination was generated on site or off site.  The witness did not know who the primary responsible party was that would be required to correct the contamination.  The appraiser did not know whether the contamination exceeded any regulations established by either the federal or state EPA or any local or county governmental entity.  He did testify that the contamination did not affect the use of the property.

After hearing the testimony and considering the evidence the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of the appeal.  The appellant contends the assessment of the subject property is excessive and not reflective of the market value which is in part caused by the impact of environmental contamination.  The Board will initially determine the subject’s market value without considering the effects, if any, on the value of the subject caused by the environmental contamination.

The Board finds the best evidence of value in the record is the narrative appraisal prepared by the board of review’s appraisal witness.  In reviewing the three approaches to value developed by each of the appraisers, the Board finds the board of review’s appraisal is superior to the appellant’s appraisal.

In reviewing the cost approach developed by the appraisers the Board finds that both were in near agreement as to the estimated value of the land.  The appellant’s appraiser estimated the land had a market value of $410,000 and the board or review’s appraiser estimated the subject property had a land value of $420,000.  The Board finds the replacement cost new estimate of the improvements developed by the board’s appraiser was better documented and more credible than that developed by the appellant’s witness.  Furthermore, the board of review’s appraiser’s estimate of depreciation was better supported with market data than the depreciation estimate developed by appellant’s appraiser.  The board’s appraiser used the sales contained in the sales comparison approach to value to extract depreciation from all causes from the market.  The sales utilized to extract depreciation were of properties having a similar recreational use as the subject.  The appellant’s appraiser, by contrast, estimated the individual components of depreciation based on his subjective observations.  In conclusion the Board finds the board of review’s appraiser’s cost approach analysis is superior to that developed by the appellant’s witness.

The Board also finds that board of review’s appraiser’s sales comparison approach to value to be superior to that developed by the appellant’s appraiser.  Five of the comparable sales used by the board’s witness were of properties that had similar characteristics and uses as the subject.  These sales were purchased for the continued use as recreational facilities.  By contrast only two of the appellant’s appraiser’s four comparable sales were recreational facilities that were purchased for continued recreational use.  Of the other two sales of recreational facilities contained in the appellant’s appraisal one was razed and another was converted to a church.  Additionally, the board’s appraiser’s sales occurred more proximate in time to the assessment date than those used by the appellant’s appraiser.

With respect to the income approach to value the Board again finds that the board of review’s appraiser’s methodology to be superior to that developed by the appellant’s appraiser.  First, in developing the market rent the board’s appraiser used rental comparables that were used as recreational facilities.  By contrast the appellant’s comparable rentals were a mix of office, warehouse, and light industrial uses.  With respect to the expenses the Board finds that the appellant’s appraiser improperly used real estate taxes as an expense item when the more proper method when estimating the value of property for ad valorem real estate taxation purposes would be to develop an effective tax rate.  The board also finds that the board of review’s appraiser’s estimated capitalization rate was superior to the appellant’s expert witness because he not only developed the rate through the use of the band of investment technique but used a rate developed using the comparable sales as a check.

For these reasons the Board finds that the board of review’s appraisal is the best indication of value in the record.  Therefore, the Property Tax Appeal Board finds the subject property had a market value prior to considering the effect of contamination of $1,230,000.

The next issue to be addressed by the Board is the influence on market value caused by the contamination.  Neither party produced any experts to give testimony about the source of the contamination, the nature of the contamination, the cleanup procedures or identified who the primary responsible party was to remediate the contamination.  Neither appraiser knew with any certainty whether the contamination was generated on site or off site; they did not know who the primary responsible party was that would be required to correct the contamination; and they did not know whether the contamination exceeded any regulations established by either the federal or state EPA or any local or county governmental authority.  Both appraisal witnesses testified that the contamination did not affect the present use of the property as a family entertainment center.

The only evidence concerning the contamination were the SECOR reports submitted by the appellant.  The reports indicated SECOR performed a subsurface assessment of the western 2.86 acres of the subject site.  SECOR found that ground water on the subject parcel was impacted with various chlorinated and petroleum volatile organic compounds.  It further found that the source of the contamination was not on site but off-site, somewhere to the east and/or northeast of the subject property.  SECOR recommended three options to remediate the contamination which ranged in costs from $147,000 to $307,000.  The report stated that each of the options was just a control mechanism.  The report indicated that the elimination of the off-site source of the contaminated groundwater would be the best alternative.  The SECOR reports did not indicate that the levels of contamination found on the site exceeded any governmental regulatory standards.  No person from SECOR was present at the hearing to discuss the study performed on the site nor the reports submitted by the appellant.

The Board finds that the existence of contamination, by itself, is insufficient to support a cleanup deduction for the purposes of estimating the value of property.  There was a lack of evidence concerning the source of contamination; whether the contamination exceeded any regulatory levels; when the contamination began; or who was the primary responsible party to cleanup the contamination.  Additionally, there was no testimony or evidence to indicate that any local, county, state or federal agencies will require any remedial measures to address the soil contamination on the subject property.  Furthermore, the appellant offered no evidence that the property is being cleaned up or that it will ever need to be cleaned up.  Based on this record, the Board finds that the subject’s unencumbered market value estimate should not be reduced to account for any cleanup costs associated with the contamination.  In conclusion, the Board finds the appraisal prepared on behalf of the board of review supports the assessment of the subject property and no change in the assessed value is warranted.

The subject property consists of two vacant land parcels located along the Illinois River and have access to U.S. Route 150 and Illinois Route 116 in East Peoria, Tazewell County, Illinois.  Subject parcel 01-01-27-300-001 contains 5.14 acres while parcel 01-01-28-400-005 contains .42 acres.  The appellant contends unequal treatment in the assessment process as the basis of the appeal.

The appellant appeared before the Property Tax Appeal Board and was represented by counsel.  The appellant argued the assessments of the subject properties were raised after appraisals of nine parcels were prepared for the City of East Peoria and forwarded to the Tazewell County Board of Review.  Only the assessments of the subject properties were raised as a consequence of the appraisals.

The appellant called her appraiser as a witness.  The board of review and the intervenor stipulated to the appraiser’s qualifications to give testimony in these appeals.  The appraiser testified he was retained to review the uniformity of land assessments in the area of the subject property.  He obtained assessment data at the supervisor of assessments’ office in Pekin.  The witness stated he reviewed land assessments along Route 116 in the general vicinity of the subject property and then ran coefficients of dispersion of those properties.  He testified he did not find uniformity in these assessments.

The appraiser then testified he reviewed the intervenor’s assessment information and found it did not agree with his assessment data.  He again reviewed the land assessments at the courthouse and found they were not the figures he had originally found there.  He found the intervenor’s assessment information to be accurate and thereafter revised all his assessment data to the correct figures.  The witness stated the revised figures still indicated a large dispersion between nearby property values as reflected in the assessments.

The appraiser prepared a summary report and list of seventy assessments he stated were for properties located south of Interstate 74 down Route 116 along the river in the subject’s area.  However, the list of assessments did not include locations, addresses or parcel identification numbers.  The list contained only a full value per acre, a median value per acre and an absolute deviation.  The results of this list produced only a median of $29,976 full value per acre, a mean of $50,354 full value per acre and a coefficient of dispersion of 111.654.  The witness testified this result meant the board of review’s estimated full values deviate, on the average, by 111.65% from the median value.  He testified since there exists such a wide range of values according to the assessments, it would not be appropriate for him to even estimate a value based on these values.  He testified since this disparity exists, no change in the subject’s assessment from the previous year should be made and that instead, there should be a complete re-appraisal of the area.

The hearing officer requested the appellant’s appraiser to supply the Property Tax Appeal Board with parcel identification numbers of the properties he listed in his letter report and to include their locations on a township map.  The appellant timely filed the appraiser’s report.

The new report indicated the suggested comparable properties were located along Routes 116 and 74 as the appraiser had testified.  He testified these properties were chosen because their location along the river and would attract similar buyers.  These seventy properties had assessments reflecting full values of $1,600 to $196,338 per acre.  However, land sizes for the majority of properties were not given.  The properties the appraiser indicated were most similar to the subject ranged in size from 2.76 acres to 47.41 acres and had assessments reflecting full values from $1,600 per acre for the largest parcel to $36,663 per acre for the smallest parcel.  The parcel valued at $1,600 per acre was indicated as being 33.41% out of the flood plain.

It was noted that one property located next to one subject parcel had an assessment of $8,403 per acre while the assessment of an adjoining parcel to the west was $43,401 per acre.  The witness testified the $8,403 per acre parcel had drainage problems affecting part of the property.

The Chairman of the Tazewell County Board of Review was called as a witness by the appellant.  She testified she has been on the board of review for 17 years.  She also testified that Fondulac Township, in which the subject is located, is not assessed very well.

The appellant also submitted assessment information from a tax consultant, however, this information was not discussed at the hearing.  The information was also based on the same assessment information used in the appellant’s appraiser’s original report.  Since the appellant agreed these assessment figures were incorrect, this information will not be considered by the Board.

The board of review submitted "Board of Review Notes on Appeal" wherein the subject's assessments were presented.  The .42 acre subject parcel had a land assessment of $58,670 reflecting an estimated value of $176,610 or $420,504 per acre.  The 5.14 acre subject parcel had a land assessment of $124,670 reflecting an estimated value of $73,013 per acre.

In addition, the board of review submitted an appraisal prepared by an MAI appraiser.  The appraisal was prepared for the City of East Peoria.  The appraisal used the sales comparison approach to value in estimating a value for the two subject parcels of $550,000.  The appraiser used six suggested comparable properties with sale dates ranging from November 1991 to July 1995.  The sale prices ranged from $1.03 to $4.81 per square foot.  Based on these sales, the appraiser estimated the subject parcels had a combined value as of January 1, 1996 of $2.25 per square foot or $550,000.

The board of review chairman testified the properties along the river on Route 116 appraised by its appraiser had their assessments derived from those appraisals.  She testified the county did an equity study in the area which included properties that were considered visibly the same and had the same access.  However, she stated the subject is located on a gravel road with only access onto a paved road.

The City of East Peoria intervened in these appeals and was represented by counsel.  The intervenor called its MAI appraiser as a witness.  The appraiser testified he was hired by the City of East Peoria to appraise properties along Route 116 and the river near the casino properties.  Starting west and moving east along the river, the following properties were appraised: the Par-A-Dice parking lot, the adjacent Hampton Inn Motel, the Par-A-Dice Casino properties, a property adjacent to the casino used for parking, the property adjacent to one subject property and the two subject properties.

The appraiser indicated that with the exception of the property adjacent to the subject to the west, all the appraised properties were improved.  The improvements include the motel, loading dock facilities, restaurants, lounges, banquet facilities and paved parking and paved roads.  The western most Par-A-Dice property is mainly under water and considered to be riparian rights.  The remainder of that parcel has been filled and supports buildings used to service the riverboat.  The property west of the subject is cut by a waterway coming in from the river.  Only partial fill has been added and therefore the property has limited utility.

The appraiser testified the traffic count study from the Illinois Department of Transportation indicated traffic is heaviest from Interstate 74 up to Blackjack Boulevard on the east side of the casino.  The traffic then tapers off to the northeast.  The intersection of Blackjack Boulevard and Route 116, which are both paved, has a traffic signal light.  The subject property is located on a gravel road which is accessible to Blackjack Boulevard.

The witness also discussed the appraisal he prepared on the subject parcels which was prepared for the City of East Peoria and previously introduced into evidence by the board of review.  He testified he used six sales in his sales comparison approach to estimate values for the two vacant subject parcels.  The suggested comparables were previously discussed in the board of review’s evidence.  The appraiser testified the property he found to be most similar to the subject property was the three acre parcel which now contains the Hampton Inn Motel and is part of the Par-A-Dice Landing property.  This property sold in November 1991 for $420,000 or for $3.21 per square foot.  In giving this property the most weight due to its proximity to the subject and its size and visibility, the appraiser estimated a value for the subject property as of January 1, 1996 of $550,000.  He was not asked to find separate values for each subject parcel, but indicated each parcel was estimated to have a value of $2.25 per square foot.

The appraiser also prepared an assessment analysis report.  He testified he viewed property within the subject’s area from Interstate 74 and along both sides of Route 116.  He reviewed zoning maps because properties in this area have a number of different uses.  He testified he narrowed his search by finding properties most similar to the subject in size, location and zoning.  He stated a simple statistical analysis of all the properties in the area would be meaningless because of the mixed uses.  The witness testified there is a difference if a property is not located on the river side of Route 116 and if there is sufficient elevation to have river visibility.

The appraiser found eleven suggested comparable properties and reported their parcel numbers, names of the businesses on the parcels and their 1996 land assessments.  Five of the properties were the Hampton Inn Motel and the adjacent Par-A-Dice Casino properties.  The eleven properties had land assessments ranging from $6,242 to $56,618 per acre.  However, the assessment report then stated the Par-A-Dice parcel comprised mainly of riparian rights is not comparable.  The remaining ten properties had land assessments ranging from $8,403 to $56,618.

The assessment report indicated the Par-A-Dice owners offered to purchase the subject parcels in June of 1993 for $500,000.  This offer was rejected.  After a review of the assessments, it was the appraiser’s opinion that the Par-A-Dice properties were the most similar to the subject property due to their locations.  Based on this analysis, the appraiser determined the 5.14 acre subject parcel should have an assessment of $169,600 or $32,996 per acre.  It was his opinion the .42 acre subject parcel should have an assessment of $14,000 or $33,333 per acre for a total assessment of $183,600 or $33,021 per acre.  This total assessment reflects an estimated full value of $552,679.

He testified the assessments placed on the subject parcels are correct taken together but incorrect standing alone.  He stated the .42 acre parcel is over assessed while the 5.14 acre parcel is under assessed.

During cross-examination, the appraiser testified he did not utilize all seventy properties in the report prepared by the appellant’s appraiser because although the statistical analysis is mathematically correct, it is meaningless for equity purposes.  The witness stated earlier that he found properties zoned residential in this area and that they should not be included in an analysis of the subject property.

Two properties, one adjacent to the east of the 5.14 acre subject property and the next easterly property were discussed.  The appraiser stated the property adjacent to the subject is a boat ramp launch club.  Both properties have had less fill and are considerably lower in elevation than the subject parcels.  They also have a different usage and have less access than the subject.

In rebuttal, the appellant recalled her appraiser to critique the intervenor’s appraiser’s assessment report.  The appellant’s appraiser found many of the properties on the intervenor’s appraisal report to be comparable to the subject and that were used in his own analysis.  He also found the assessments of these properties were correctly reported, however, the breakdown per acre was found in a few instances to be incorrect.  This claim was verified by the maps previously submitted into the record.  He also stated his own report contained no residential properties.

The appellant’s appraiser testified none of the eleven properties are vacant land parcels. He also stated the properties in his own analysis are not substantially different than the eleven used by by the intervenor’s appraiser.  Even using these eleven properties as comparables, the coefficient of dispersion is 47.86 and is still well outside acceptable limits for comparable properties.  He stated this indicates that where assessments are correct, properties in the analysis would not be like properties and that the median point would not be representative of the overall area.  However, since the properties are all from the same area, it indicates a lack of uniformity rather than a lack of similar properties.

The witness also testified the Par-A-Dice properties are superior to the subject in that they are serviced by Blackjack Boulevard and Winners Way which are hard-surfaced roads.  The subject’s road is gravel.  The Par-A-Dice properties also generate a significant increase in traffic which drops to the east where the subject is located.

After hearing the testimony and reviewing the record, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  The Board finds that a reduction in the assessment of the .42 acre subject property, parcel number 01-01-28-400-005 is warranted.  The Board further finds an increase in the assessment of the 5.14 acre property, parcel number 01-01-27-300-001 is warranted.

The Illinois Supreme Court has held that taxpayers who object to an assessment on the basis of lack of uniformity bear the burden of proving the disparity of assessment valuations by clear and convincing evidence.  Kankakee County Board of Review v. Property Tax Appeal Board, 131 Ill.2d l (1989).  The evidence must demonstrate a consistent pattern of assessment inequities within the assessment jurisdiction.  In this appeal, the appellant submitted a list of seventy properties along Route 116 and the river.  However, no size, location or descriptive information was provided for many of these properties.

The Board reviewed the list of twelve properties the appellant’s appraiser determined were the most comparable to the subject properties.  The Board also reviewed the list of eleven properties the intervenor’s appraiser determined were the most comparable.  After placing the property index numbers and business names of the comparables on the maps that were submitted into the record and then piecing the maps together, the Property Tax Appeal Board finds the appellant’s appraiser compared the subject parcels to many properties located north of the subject.  These properties appear to be in a less developed area than the subject and, although not far from the subject, are not located in the same market area as the subject.  They are partially to mostly located in a flood plain and one has a minimal amount of fill.  These properties had land assessments ranging from $533 per acre to $12,221 per acre.  Of those properties, the property with low fill and the property located mostly in a flood plain had the lowest assessments and the properties with no indications of low fill or flood plain problems had the higher assessments.

The Board finds many of the properties used for comparison by the intervenor’s appraiser were located south of the subject property.  These properties are developed and located at the interchange of Interstate 74, Route 116 and Business Route 150.  The assessments of these properties ranged from $26,827 to $56,618 per acre.  The Board finds that although the properties in this area are more similar to the subject area than the properties used by the appellant’s appraiser, this area has been more developed than the subject area and would also be in a somewhat different market.

The intervenor’s appraiser also found the Par-A-Dice landing property and the Par-A-Dice parking lot adjacent to the subject to be comparable.  The Board finds although these properties are located very near the subject and in the subject’s market area testimony from both appraisers indicated one property is composed of several acres of riparian rights and the other needs significant fill to alleviate water problems.  The subject property has been filled and no water problems were presented.

Both the appellant’s appraiser and the intervenor’s appraiser also used several of the same comparables located near the subject.  Both appraisers found three of the Par-A-Dice properties to be similar to the subject.  The intervenor’s appraiser found another Par-A-Dice property to be similar and both found the Jonah’s property to be similar.  He also used the Hampton Inn next to the Par-A-Dice as a comparable and the appellant’s appraiser compared it to the subject although he listed this parcel as being a Par-A-Dice property.

With the exception of the Jonah’s property, the properties both appraisers found to be comparable to the subject parcels are located immediately to the west of the subject property.  These properties have no fill problems and no flood plain problems.  The Board therefore finds these properties are located near the subject and in the same developing market area.  These properties had land assessments ranging from $43,401 to $50,840 per acre.  The Jonah’s property is located to the north in what the Board has determined to be a different market area.  The $12,221 per acre assessment of this property further indicates it is equitably assessed within its own market area and that it is not comparable to the properties further south and west.

The Board also finds the different market areas support the array of assessments found in the appellant’s appraiser’s coefficient of dispersion analysis.  He stated the results of his analysis typically would mean that the properties are not similar.  However, he stated in this instance the results must indicate the assessments are not equitable.  The Board finds the separate market areas, percentage of flood plain area and varying degrees of land improvements found in his seventy property analysis would indicate a lack of similar properties and better account for the dispersion in assessments.

The Board finds the most comparable property to be the Par-A-Dice parking lot located one parcel over from the subject parcels.  This property had a land assessment of $43,401.  The assessment of the .42 acre subject parcel was $139,692 per acre and is grossly higher than any of the comparable properties offered.  The Board therefore finds the evidence is clear and convincing that the 01-01-28-400-005 subject property is inequitably assessed.  The land assessment of the 01-01-27-300-001 subject property was $24,255 per acre and is significantly less than the comparable properties.  The Board therefore finds this the record does not support a reduction in the assessment of this subject property by clear and convincing evidence.

The Board further finds the subject properties are located on a gravel road within a short distance of a paved road.  All of the most comparable properties are located on paved roads.  The subject properties are not improved while each of the comparables have site improvements of varying degrees.  The Board therefore finds the subject properties should have land assessments somewhat less than these properties.

The appellant’s appraiser could not estimate a proper assessment for the subject because it was his contention the assessments were not uniform.  He indicated the entire area would have to be re-appraised to obtain equitable assessments.  The board of review and the intervenor maintained the subject properties assessments were within the range of the comparable properties.  The Board finds, with the exception of the subject properties, the assessments in the subject’s market area are equitable.  The Board also finds the evidence in the record shows the properties north of the subject are less developed and have flood plain problems while the properties south and west of the subject are more fully developed than the subject area.

The appellant also argued the board of review was prohibited from re-assessing the subject properties and those in the immediate area and cited an Illinois Supreme Court case as support.  Richard T. Walsh and Barbara J. Welsch v. Property Tax Appeal Board and Tazewell County Board of Review, 181 Ill.2d 228 (1998).  In that case, the board of review re-assessed 39 properties based on recent sales in the area.  Area wide, the assessments were based on factors applied each year based on sales and no visual analysis of the properties had taken place since 1957.

The Board finds the Walsh court cited Kankakee County Board of Review v. Property Tax Appeal Board, 131 Ill.2d 1 (1989) in finding that reassessment of a limited group of properties is not per se inequitable and indicative of an unequal tax burden.  The legislature has given assessing officials and boards of review the authority through statutes to revise assessments where it appears just.  (35 ILCS 200/9-85).  In the instant appeal, the subject’s area is growing and the county ordered appraisals of all the properties in this market.  None of the properties were re-assessed based on their individual sale prices.  All similar properties in the same market area were appraised and the assessments reviewed against the appraisals.  The board of review also indicated it reviewed the equity in the area and found the assessments to be equitable.  The Property Tax Appeal Board finds that re-appraising every property in a market area of new growth using the same appraisal method of assessment does not thwart the uniformity requirement and was used in the effort to equalize the tax burden.  Therefore, the Board finds the appellant’s argument to have the subject properties’ assessments revert back to their 1995 values to be unpersuasive.

The intervenor also submitted an appraisal of the subject property indicating an estimated value of $2.25 per square foot or $550,000 for both parcels.  This value equates to an assessment of $32,862 per acre.  The Board finds this per acre assessment is somewhat less than the assessments of the most similar properties, however, it accounts for the lack of paved road and site improvements on subject parcels.  Based on this analysis of the record, the Property Tax Appeal Board finds the .42 acre subject parcel to be inequitably over assessed and a reduction is warranted.  The Board also finds the 5.14 acre subject parcel to be under assessed and an increase is warranted.

The subject property consists of six parcels of land containing a total of 161.11 acres. One of the six parcels is improved with two storage sheds containing a total of 696 square feet of building area, while the remaining five parcels are unimproved land.

The appellant appeared before the Property Tax Appeal Board through its attorney and claimed the subject parcels were wrongfully denied open space classifications and assessments under Section 10-155 of the Property Tax Code (35 ILCS 200/10-155). In support of its contention, the appellant submitted a legal memorandum detailing its argument, a copy of a 1997 Property Tax Appeal Board decision regarding the subject parcels, the transcript of the 1997 Property Tax Appeal Board hearing, and selected Illinois statutes concerning open space classification.

During the hearing the appellant’s attorney explained that the appellant had timely filed for an open space assessment with the Kane County Supervisor of Assessments on January 23, 1997, for the 1997 assessment year. The open space application was subsequently denied by the supervisor of assessments and the board of review. This denial was then appealed to the Property Tax Appeal Board. On December 4, 1998, the Property Tax Appeal Board issued its decision which established open space classifications for the subject parcels for the first time. Since the board of review’s filing period for appeals for the 1998 assessment year had expired, the appellant properly filed directly with the Property Tax Appeal Board within 30 days of the Board’s decision concerning the previous year’s assessments.

The appellant, however, noted that it did not file an open space application with the Kane County Supervisor of Assessments for the 1998 assessment year. The appellant argued that it should not have been required to file an application for the 1998 assessment year because of its direct appeal to the Property Tax Appeal Board following the Board’s December 4, 1998, decision for the 1997 assessment year. Furthermore, the appellant claimed that Section 10-147 of the Property Tax Code provides for an automatic open space determination. (35 ILCS 200/10-147). Section 10-147 provides that:

Beginning with the 1992 assessment year, the equalized assessed value of any tract of real property that has not been used as a farm for 20 or more consecutive years shall not be determined under Sections 10-110 through 10-140. If no other use is established, the tract shall be considered to be used for open space purposes and its valuation shall be determined under Sections 10-155 through 10-165. (35 ILCS 200/10-147).

Since the subject parcels were once used as farmland, but not in the past 20 years, and because no other use can be established for the subject parcels, the appellant claimed the parcels fall under the dominion of Section 10-147 of the Property Tax Code. Notwithstanding the filing requirements of Section 10-160 of the Property Tax Code, the appellant claimed the language of Section 10-147 of the Property Tax Code provides for an automatic classification of open space.

Lastly, the appellant offered the testimony of a tax representative. The tax representative testified that he was familiar with the subject parcels and stated the uses of the parcels had not changed from the previous assessment year. Based on the evidence contained in the record, the appellant requested the Board carry forward its decision from the 1997 assessment year and grant open space classifications for all six subject parcels.

The board of review submitted its “Board of Review - Notes on Appeals,” wherein the subject properties total assessments were disclosed. The board of review did not offer any evidence in support of its assessment, but argued the appellant’s open space request should be denied because there were no open space applications filed with the Kane County Supervisor of Assessment’s Office for the 1998 assessment year. Thus, the board of review requested confirmation of the subject parcels’ assessments.

After hearing the testimony and considering the evidence, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal. The Property Tax Appeal Board finds the subject parcels do not qualify for open space classifications due to the appellant’s failure to file open space applications with the Kane County Supervisor of Assessment’s Office as required by Section 10-160 of the Property Tax Code (35 ILCS 200/10-160).

Section 10-160 of the Property Tax Code provides in part:

The person liable for taxes on land used for open space purposes must file a verified application requesting the additional open space valuation with the chief county assessment officer by January 31 of each year for which that valuation is desired. If the application is not filed by January 31, the taxpayer waives (emphasis added) the right to claim that additional valuation for that year.

Here, the record is clear the appellant did not file open space applications for the 1998 assessment year as required by the above statute. In fact, the appellant never claimed that open space applications were filed with Kane County. Instead, the appellant argued in its legal memorandum offered during the hearing, that Section 10-147 of the Property Tax Code automatically qualifies the subject parcel for an open space valuation. (35 ILCS 200/10-147).

The Property Tax Appeal Board finds the appellant’s contention regarding Section 10-147 of the Property Tax Code is without merit. Section 10-147 of the Property Tax Code specifically states in part that:

If no other use is established, the tract shall be considered to be used for open space purposes and its valuation shall be determined under Section 10-155 through 10-165.

Clearly, Section 10-147 of the Property Tax Code requires the consideration of Section 10-160 of the Property Tax Code and its filing requirement. Thus, the Board finds that Section 10-160 of the Property Tax Code is controlling and it mandates that an open space application be filed with the chief county assessment officer by January 31, of each year for which the assessment is desired. (35 ILCS 200/10-160). Clearly, the appellant failed to file open space applications for the subject parcels for the 1998 assessment year and therefore, has failed to meet the statutory requirements.

The Board also notes the issue of applications for open space assessments and valuations was recently discussed in an Illinois Appellate Court decision. One of the parties involved in the appellate court case argued the petition or application for an open space assessment must be filed and actually ruled on by the county before a landowner can appeal the valuation aspect of the process. The court, however, ruled that the county or chief assessing officer does not have to actually act on the application before the Property Tax Appeal Board has jurisdiction to hear the issue. Illini Country Club v. Property Tax Appeal Bd., 263 Ill.App.3d 410, 416 (4th Dist. 1994). More specifically, the court held that “although filing a verified application is a prerequisite (emphasis added), express approval by the assessor is not a prerequisite.” Id. at 416. Thus, the court recognized that a timely filed application for open space is initially required in order for the Board to determine the merits of the open space request.  Again, since the appellant failed to timely file an application for open space with the county’s chief assessing officer for the 1998 assessment year, the Board finds the subject parcels cannot be subsequently granted an open space assessment by the Property Tax Appeal Board.

Therefore, the Property Tax Appeal Board finds the subject properties’ assessments as established by the board of review are correct and no reductions are warranted.

The subject property consists of a 20.57 acre site improved with a seven year old 69,000 square foot combination health club, fitness center and restaurant located in Libertyville, Illinois.  The improvement has a gift shop, indoor running track, administrative offices, locker rooms, sauna, pool, nursery and rehabilitative areas.

The appellant appeared before the Property Tax Appeal Board by its attorney arguing that the fair market value of the subject was not accurately reflected in its assessed value.  In support of that argument, an appraisal prepared by an Illinois Certified General appraiser was presented.  The appraiser holds the SRA designation from the Appraisal Institute.  His summary appraisal estimates a value for the subject, commonly known as the Centre Club, of $6,600,000 as of January 1, 1997.

The witness testified the subject is a combination health club and restaurant with rehabilitative and recreational facilities for use in conjunction with the adjacent hospital complex.  The appraiser inspected the subject and reviewed blueprints in determining the subject’s building size.  A copy of the blueprints were included in the appraisal.  The running track is on the upper level and, with the exception of the stairwell, has open area all around.  Below the track on the lower level is also open area.

The appraiser testified the subject facility enables the hospital to offer additional services.  He indicated it is very difficult to find anything in the market similar in nature to the subject.  He contends the income is difficult to document because it is based heavily on the entrepreneurial and management abilities of the owners.  He indicated the hospital does not have accurate income and expense statements for the subject.

The appraiser prepared the cost and sales comparison approaches to value in his report.  He explained he did not prepare an income approach because the majority of hospital-institutional facilities are owned and operated by non-profit organizations.  In many instances the better facilities are found to be a result of good will.  Because factors contained in leases vary widely and because there are so many variables in hospital and institutional leases, the appraiser decided not to prepare an income approach.

In the cost approach, the appraiser first estimated the value of the subject land using four sales.  These properties were located in Libertyville, Mundelein and Linconshire and had commercial and industrial zoning.  The properties contained from 9.3 acres to 15.67 acres and sold from September 1991 to November 1996 for prices ranging from $109,615 to $217,547 or from $2.56 to $4.99 per acre.  Indicating two properties were superior to the subject and two properties had off-setting adjustments, the appraiser estimated the subject land had an estimated value of $3.00 per square foot or $2,700,000.

The Marshall Valuation Services Manual and builder cost data were used in the report to estimate a replacement cost new for the subject building of $100 per square foot or $6,900,000.  The report indicated the subject was built in 1988 and 1989 at a cost of $6,102,018, excluding land.  Finding an estimated economic life of 35 to 40 years and an effective age of 8 years resulted in 22% physical deterioration using the age life method.  Functional obsolescence of 10% was taken for the subject having superadequate institutional and hospital quality construction.  Economic obsolescence of 5% was deducted for the subject’s location behind a commercial district.  Deducting these items and adding $350,000 for depreciated site improvements resulted in a depreciated improvement value of $4,697,000.  Adding the land value of $2,700,000 resulted in an estimated value under the cost approach of $7,400,000.

In his sales comparison approach, the appraiser indicated the subject consists of three use types; diagnostic and office area designated as office and commercial areas; restaurant, gift shop and nursery areas designated as restaurant and shop area; and the sports facility which includes the indoor track, pool, racquetball courts, gymnasium and exercise and training rooms.  The appraiser therefore used comparables from each of these three use sectors of the market in determining a total value for the subject.  He indicated the subject was 25% office and commercial space, 15% restaurant and shops, and 60% sports facility.

The appraiser utilized two sales to compare to the subject office and commercial space.  These properties contain 8,156 and 54,126 square feet of banking office or medical office areas.  These properties sold in October 1990 and March 1993 for $862,500 and $3,000,000 or for $55.42 and $105.75 per square foot.  After adjusting the comparables, the appraiser estimated the subject’s office and commercial areas would have a value of between $65 and $70 per square foot or $1,200,000.

Two properties including a country club and a combination gym, classroom, office and kitchen were used to compare to the subject’s restaurant and shop areas.  These properties were older than the subject and contained 10,200 and 53,149 square feet.  They sold in January 1993 and July 1995 for $500,000 and $4,442,331 or $49.02 and $83.58 per square foot.  After adjustments, the appraiser estimated the subject restaurant and shop area had a value of between $55 and $65 per square foot or $650,000.

Four properties consisting of health and racquetball clubs were used to compare to the subject’s sports and recreational facilities areas.  The comparables contain from 12,870 to 73,096 square feet of building area and sold from June 1991 to November 1995 for $467,486 to $2,250,000 or from $30.78 to $48.40 per square foot.  After adjusting the comparables to the subject, the appraiser estimated the subject sports areas would have a value between $50 and $55 per square foot or $2,200,000.

The combined estimated value for the office and commercial, restaurant and shop, and sports area was $4,050,000.  Since most facilities similar to the subject are located on one or two acre sites and the subject has 20.57 acres, the appraiser estimated the subject had excess land of 19 acres at $3.00 per square foot or $2,500,000.  Adding the value of the excess land to the combined estimate for the improvements resulted in an estimated value under the sales comparison approach of $6,600,000.

In reconciling the cost and sales comparison approaches, the appraiser indicated most weight was given the sales comparison approach.  The cost approach was used as support for the sales comparison approach.  The witness estimated a final value for the subject as of January 1, 1997 of $6,600,000.

During cross-examination, the appellant’s appraiser agreed there were numerous places in his report where he indicated the date of valuation was January 1, 1996 and not 1997 as he testified.  He also agreed the age of the subject was listed as seven when it would actually be eight as of January 1, 1997.  He also agreed he referred to the appraisal on one page as being a self-contained report when it is actually a summary report.  The witness stated he found functional obsolescence in using replacement costs.  He agreed the Appraisal Institute states this type of depreciation should not be used with a replacement cost analysis.  The appraiser testified he took economic obsolescence even though the subject was located next to a hospital.  He stated the subject is not on a major thoroughfare.

The witness also testified the cost breakdowns were not included in his report.  He further agreed there were no photographs of the comparables for the reader to review against the subject property.  He agreed one of his sales comparables sold in 1990, however, since it was located in the subject’s market area it was a legitimate indicator of value.  When asked about one of the sales, the witness stated he verified the sale through a data service.  He also agreed he should have included some type of income approach in his report.

The Board of review presented "Board of Review Notes on Appeal" wherein the subject's final assessment of the two parcels of $3,168,779 was disclosed.  The assessment reflects an estimated value for the subject property of $9,533,029 using the three year median level of assessments for 1997 for Lake County of 33.24%.  The board of review also submitted an appraisal prepared by an MAI appraiser.  The appraiser was called as the board’s appraisal witness.

The appraiser’s report indicated the subject building contained 77,923 square feet. The appellant’s report stated the subject contained 69,000 square feet.  The witness testified his square footage came from the subject’s property record card.

The witness prepared all three approaches to value in estimating a value for the subject as of January 1, 1997 of $8,200,000.  In estimating a value for the subject land for his cost approach, the appraiser utilized five land sales located in Libertyville, Grayslake and Vernon Hills.  These properties contained from 12.76 acres to 30.75 acres and sold from May 1995 to June 1997 for prices ranging from $1,200,000 to $2,278,666 or from $1.15 to $3.62 per square foot.  After adjusting these properties for location, size, date of sale and physical characteristics, the appraiser indicated the subject land would have an estimated value of $2.50 per square foot or $2,240,000.

Most health clubs have a land to building ratio of 4.0 to 1 while the subject has a 11.50 to 1 ratio.  The subject building is 77,923 square feet and sits on a 20.57 acre site.  Therefore, the appraiser found the subject had excess land of approximately 13 acres.  He then estimated a value for the building site of $779,000 while the excess land value was estimated to be $1,461,000.

In estimating reproduction costs new for the subject of $6,685,793, the appraiser used the Marshall Valuation Service, the assessor’s cost information for the subject and cost information for another new sports club that was constructed adjacent to a hospital.  The appraiser estimated the 10 year old subject had an effective age of 5 years and a life expectancy of 50 years which resulted in 10% physical depreciation.  He considered the subject to be functioning at its intended use and that its location was proper for its use and therefore no depreciation for functional or external obsolescence was taken.  Mr. Siegel testified it is improper to utilize functional obsolescence when using replacement costs.  Adding the estimated subject site value and the value of the excess land to the depreciated costs new for the improvement resulted in an estimated value under the cost approach of $8,424,000.

For his income approach, the appraiser used five health club rentals, four of which are Bally clubs.  All are located either in downtown Chicago or within close proximity to the downtown area.  These properties have rental areas ranging from 25,250 to 58,000 square feet and have long term leases, one of which expired in 1998.  The lease rates ranged from $10.23 to $17.19 per square foot.  Considering age and location, the appraiser estimated the subject would have a net rental rate of $12 per square foot for a gross potential income of $935,076.  Vacancy and collection loss was estimated at 5% resulting in an effective gross income of $888,322.

Management fees of 4% were considered typical.  Miscellaneous expenses of 1% of the gross income and reserves for replacements of $.10 per square foot were also taken to arrive at total expenses of $52,208.  Deducting the expenses from the effective gross income resulted in a net operating income of $836,114.  The overall capitalization rate was estimated by using the band of investment method.  The mortgage-equity technique resulted in a rate of 10.25%.  Rents imputed to the sales in the sales comparison approach ranged from 10.16% to 11.04% which supports the band of investment rate of 10.25%.  Capitalizing the net income resulted in an estimated value under the income approach of $8,157,000.

For his sales comparison approach, the appraiser used five properties consisting of racquet clubs, a tennis club, gymnasiums and a health club.  These properties are located around the Chicago area, are from 13 to 48 years old, and contain from 11,484 to 72,483 square feet.  These properties sold from July 1989 to October 1997 for prices ranging from $725,000 to $2,460,000 or from $29.66 to $66.25 per square foot.  One property was operating well but was purchased for office use.  One property was foreclosed and shut down for a two week period before its purchase.  The appraiser indicated the subject would be at the high end of the range of sales based on its location and features.  He estimated the subject would have a value under the sales comparison approach of $65 per square foot or $5,065,000 which included only 7 acres for the building site.  The remaining 13 acres of excess land were added to arrive at a total estimated value under the sales comparison approach of $6,526,000.

The witness testified his $6,526,000 value under the sales comparison approach was considerably less than the $8,424,000 and the $8,157,000 estimates of value under the cost and income approaches.  He stated when facilities such as these sell, they tend to be distressed sales.  If they were operating well, particularly those affiliated with a hospital, they would not be on the market.  He indicated one of his sales comparables was tied to an office complex that was not operated well by the developer and consequently this health club was foreclosed and sold.  He indicated he prepared the sales comparison approach just to go through the research to see what the market would supply.  He did not place much weight on the sales comparison approach and felt the subject would sell higher than the comparables.

The appraiser placed most weight on the cost approach and placed considerable supporting weight on the income approach.  He estimated a final value for the subject property as of January 1, 1997 of $8,200,000.

During cross-examination, the witness agreed one of his sales comparables sold eight years prior to the assessment date in this appeal.  He indicated he could not get reliable information regarding the subject’s building size and used the property record cards for the measurements.  However, he testified the only places he requested the information from were the Lake County and Libertyville Township offices.  He did not attempt to speak to anyone at the subject property.  He testified the blueprints of the subject in the appellant’s appraiser’s appraisal show the running track to be on the second floor.  His report lists the track on the first floor.  The witness testified he was in the subject building and agreed there is open space in and around the track.  He agreed that if his square footage for the subject were incorrect, it would have a bearing on the estimate of value in his cost approach.  He also stated a running track is an integral part of a health club and the square footage of the track area should be included in the total square footage.  He later stated his calculations also did not include the open space around the track area.

He indicated the same principles apply to the subject as those for a health club facility and therefore the subject was not a unique property for him to appraise.  The witness also testified the rental rates for his income comparables included common area maintenance, real estate taxes and insurance.  He indicated he did not see any of the leases and did not verify that the rates included maintenance, taxes and insurance with a party to the lease.  He talked to other appraisers involved with those properties to gather his information.  He also indicated his income approach states the subject is owner occupied and that a 4% management fee would be a typical expense for this property.  He agreed this was incorrect as the subject is not owner occupied and is used for profit.

After hearing the testimony and reviewing the record, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  The appellant argued the subject property’s assessment does not accurately reflect its market value.  The Board finds the record supports a reduction in the assessment.

The appellant presented a summary appraisal indicating an estimated value for the subject as of January 1, 1997 of $6,600,000.  The appraiser was present at the hearing and testified to the preparation and analyses in his limited report.  The board of review presented an appraisal prepared by an MAI appraiser which estimated a value for the subject as of January 1, 1997 of $8,200,000.

The first issue the Board must address is that of the proper square footage for the subject improvement.  The appellant’s appraiser testified he reviewed the subject’s blueprints and inspected the property to determine the correct size of 69,000 square feet.  He also indicated in the report the running track was located on the upper level.  The blueprints were included in his report and showed the running track to be on the upper level.  He testified he did not value the open space in and around the track.

The board of review’s appraiser testified he only requested size information from the county and the assessor.  He did not attempt to contact the appellant.  His report indicated the running track is on the lower level which is incorrect.  He also testified he did not include the open areas around the running track in estimating the subject’s square footage at 77,923 square feet.  The Board finds the appellant’s appraiser’s estimate of 69,000 square feet to be the better researched and documented size for the subject improvement.

The Board also finds both appraisers prepared cost approaches in valuing the subject.  The Board finds the land sales analysis prepared by the board of review’s appraiser is more thoroughly explained and reported.  It also accounts for the 11.5 to 1 land to building ratio of the subject by considering 13 acres to be excess land.  The appellant’s appraisal report, although very similar to the board’s appraisal in value, did not explain his adjustments.  It also contained a six year old sale.  Therefore, the Board finds the board of review’s appraisal value for the subject land of $2.50 per acre or $2,240,000 is the better supported in the record.

Both appraisers utilized the Marshall Valuation Cost Manuals in estimating costs new for the subject improvement.  The board of review’s appraiser used reproduction costs new and took only 10% for physical depreciation.  No functional or economic obsolescence was found because the subject was functioning well for its intended use and was in an excellent location.  His cost analysis was included in his report.

The appellant’s appraiser used replacement costs but also depreciated the subject 10% for functional obsolescence which he agreed the Appraisal Institute indicates is incorrect.  He also took 5% depreciation for economic obsolescence for the subject being located behind a commercial district and not on a thoroughfare.  The Board finds the appraisers and the reports continually indicate the subject is located in a very good to excellent location.  The appellant’s appraiser also indicated the subject was seven years old when it was actually eight years old.  Furthermore, his cost breakdowns were not included in his summary report.

The Board finds the board of review’s appraiser’s cost approach to be better prepared and better documented.  However, the report was based on the subject improvement containing 77,923 square feet instead of 69,000 square feet.  Reducing these cost estimates to reflect the proper square footage results in a corrected estimate of value under this approach of $7,588,180.

The appellant’s appraiser did not prepare an income approach even though the subject is an income producing property.  He testified he probably should have prepared this approach for support of the sales comparison approach.  The board of review’s appraiser prepared an income approach using four comparables.  The Board finds the board of review’s appraiser’s income approach is supported by documentation.  However, his report estimates a value for the subject of $12.00 per square foot or $8,157,000 using a size estimate of 77,923.  Using the correct square footage for the subject of 69,000 and applying the board’s appraiser’s rent, expenses and capitalization calculations results in a corrected estimate of value under this approach of $7,223,122.

The board’s appraiser compared the subject to five gymnasium, racquetball and tennis clubs and a health club.  The health club was foreclosed two weeks prior to the sale.  Although one property was converted to office use and given lesser weight, it was reportedly operating well at the time of sale.  Two other properties were purchased by a city and a park district for public use by residents.  However, the use remained the same and there was no indication the sales were not arm’s length or driven by other than market forces.  The board of review’s appraiser’s adjustment analysis was included in his report.  His estimated value for the subject under the sales comparison approach was $65.00 per square foot or $5,065,000 for the improvement and the 7.15 acre building site.  Adding the value established for the excess land results in a total estimated value of $6,526,000.  However, this value again reflects a total square footage for the improvement of 77,923.  Using the correct square footage of 69,000 results in an estimate under this approach of $4,485,000 for the improvements.  Using typical health club land to building ratio of four to one for the corrected building size results in a building site of 6.33 acres and excess land of 14.24 acres.  Applying the board’s appraiser’s land value of $2.50 per square foot results in a value for the excess land of $1,550,700.  Adding the value of the excess land results in a corrected value under this approach of $6,036,000.

The appellant’s appraiser divided the subject into an office and commercial section, a restaurant and shops section, and a sports facility section for his sales comparison approach.  The appellant’s appraiser then compared each section of the subject to comparables similar to that particular section.  He compared the office and commercial section and the restaurant and shops sections to only two comparables each.  The sports facility section was compared to four sales comparables.  Scant information was supplied for all the sales and no photographs were included in the limited report.  At least five of the eight sales were dated and very little analysis was included to lend credence to the result.  Also, the values arrived at for the three sections were then simply added together to find a combined estimate of value of $6,600,000.

The Board finds the board of review’s appraiser’s sales comparison approach to be the best supported and analyzed.  However, the square footage of the subject is incorrect in his analysis.  Using the correct 69,000 square feet for the subject results in a corrected estimated value under the sales comparison approach of $6,036,000.  After analyzing both reports, the Board finds the board of review’s appraiser’s cost, income and sales comparison approaches, as corrected, to be the best evidence of the subject’s value as of January 1, 1997.

The board’s appraiser stated the sales in his sales comparison approach were distressed or sold for another use.  He indicated properties such as the subject tend to sell only in distressed situations.  However, only one sales comparable in his appraisal was a distressed sale.  Also, he indicated a problem with an associated complex was primarily the cause of that foreclosure.  Although two other properties sold to a city and park district for the same use although not for profit, there was no indication these properties were not market sales or that the sellers were motivated in any way.  One property sold in 1989 and was reported to have been converted to office use.  It was operating well at the time of sale.  Due to the date of sale, the Board finds this sale is not a good indicator of value for the subject as of January 1, 1997.  With only one property found to have a dated sale date, the Board finds the appraiser’s lack of reliance on the sales comparison approach to be in error.

The board of review’s appraiser relied most heavily on the cost approach with the income approach also receiving substantial consideration. The Board finds this reliance on the cost approach to be in error.  In Willow Hill Grain, Inc. v. Property Tax Appeal Board, 187 Ill.App.3d 9, 139 Ill.Dec. 865, 549 N.E.2d 591 (1989) and Chrysler Corp. v. Illinois Property Tax Appeal Board, 69 Ill.App.3d 207, 25 Ill.Dec. 695, 387 N.E.2d 351 (1979), the courts found the cost approach should only be used when evidence of reasonable comparable sales is not available.  The Illinois Supreme Court in People ex rel. the Director of Finance v. Young Women’s Christian Ass’n., 74 Ill.2d 561, 25 Ill.Dec. 649, 387 N.E.2d 305 (1979), stated use of sales of somewhat similar property is admissible if the evidence would aid the trier of fact and the opposing party has an opportunity to show the difference between the subject property and the sale property.

The Board finds the sales in the board of review’s appraiser’s sales comparison approach are reasonably similar to the subject and aid in the determination of value for the property.  The Board also finds the appellant was given an opportunity to cross-examine the board’s appraiser and only argued that one comparable was a dated sale.  No argument was made that the properties were not similar to the subject.

Based on the aforementioned analysis, the Property Tax Appeal Board finds a reduction in the assessment of the subject property is warranted.  The Board further finds that based on the corrected values established in all three approaches to value with emphasis on the sales comparison approach, the subject property had a fair market value of $6,500,000 as of January 1, 1997.  Since fair market value had been established, the three year weighted average median level of assessments for Lake County of 33.24% shall apply.

The subject property consists of 15.02 acres improved with a 160,680 square foot tilt-up concrete commercial building.  The building consists of 104,370 square feet of retail space, 42,900 square feet of warehouse space and a 13,410 square foot receiving area.

The appellant appeared before the Property Tax Appeal Board through its attorney and argued the appellant’s recent land purchase and the costs to construct the subject were not accurately reflected in its assessed value.  In support of that argument, a tax consultant was called as a witness.  The tax consultant testified the roof of the 42,900 square foot warehouse area is the same roof as the rest of the building and there is a floor.  However, there is no heat, air-conditioning or insulation in the warehouse.  The cost to construct the subject building was $3,800,000.

The witness stated the subject’s land cost was $1,500,000.  He also stated the site work totaled $1,700,000.  He argued this site preparation then brought the improved land cost to $3,200,000 or $4.90 per square foot.  Assessments of other land in the area range from $1.66 to $2.90 per square foot.  The consultant argued Menard’s typical site work costs $300,000 which should have made the subject’s land value $2.74 per square foot.  However, the appellant incurred significantly higher site expenses on the subject property and the land and site expenses totaled $4.90 per square foot.  The appellant did not submit assessments of other property in the area.  A land assessment comparison was submitted by the board of review which supported this argument.

The appellant submitted an itemized list and summary sheets of the total costs.  Site work was listed as costing $1,513,163.  To this, the appellant added $171,055 for the traffic signals, water main, sewer and retention pond for total site work of $1,700,000 rounded.  The appellant then deducted the site costs from the contract costs of $3,468,973.  Costs outside the general contract of $1,759,995 were then added along with $90,174 for asphalt paving and concrete for a total of $3,800,000 rounded.  The appellant argued only the $3,800,000 figure should be used in arriving at the subject’s total construction costs.

The appellant argued the $1,700,000 in site work was excessive compared to Menard’s typical site improvment costs.  However, the appellant agreed these costs on this particular property were necessary to make the land ready for building.  Other land in the area was assessed in the $2.00 per square foot range and the subject’s costs without the site costs was $2.74 per square foot.  Therefore, the appellant argued the site costs should not be considered.

The appellant’s tax consultant testified the board of review correctly assessed the subject land at $2.04 per square foot but incorrectly added the site costs to the subject’s improvement assessment.  Both the appellant’s attorney and the tax consultant repeatedly argued the subject’s value is not what was paid for the land and the total costs of construction but what a willing buyer would pay for the property.  They claimed the issue is what the property is worth.  They argued no willing buyer would pay for the added site preparation costs of $1,700,000.

During cross-examination, the appellant’s witness agreed the subject’s land purchase price in 1997 of $1,500,000 and the value of the site improvements of $1,700,000 add up to $3,200,000 in costs.  Improvements to the land for the parking lot and yard lights totaling $90,173 were considered to be assessable costs and were included as part of the appellant’s $3,800,000 claim of value for the subject improvements.  Adding the building costs to the land value reflected in the assessment, the appellant claimed the subject’s total value was $5,195,139.

The Board of review presented "Board of Review Notes on Appeal" wherein the subject's final assessment of $2,307,189 was disclosed.  The assessment reflects an estimated value of $6,903,618 using the three year median level of assessments for 1998 for Winnebago County of 33.42%.  The board also submitted both a summary report and a detailed report of the cost approach used in assessing the subject property.

A Rockford Deputy Assessor was called as a witness.  The assessor testified the board’s cost approach accounts for all the specific characteristics of the subject improvements.  The building has a masonry exterior and has 29 foot ceiling heights.  Heating costs were only applied to 73% of the building area because not all the building is heated.  The replacement cost of the building was $5,727,029.  The assessor stated the site preparation costs are included in the building costs because the Marshall Valuation Service recommends those costs be placed in the building costs.  The building costs also contain the asphalt parking lot and associated site preparation costs.  The witness stated all land is assessed as vacant and unimproved and therefore the site improvement costs go to the improvement assessment.

A 15 x 330 building overhang had an estimated cost of $54,450 and was listed as a site improvement.  The 428 parking stalls on the subject property were listed as miscellaneous site improvements and had an estimated cost after 25% depreciation of $272,850.  Adding the overhang costs to the total building replacement costs resulted in a cost of $5,781,479.  After depreciating the building costs by 10% and adding the depreciated cost of the parking stalls, the estimated cost for the subject improvements was $5,476,180.  After application of an equalization factor, the subject’s assessment reflected an estimated improvement value of $5,585,715.

The board of review also submitted two sales comparables.  The assessor testified the buildings on these properties are much smaller than the subject building but are the only sales to have occurred recently in Rockford Township that are also newer construction.  These two commercial properties were constructed in 1993 and 1995 and contain 19,941 and 23,335 square feet of building area.  These properties sold in 1996 for $2,588,960 and $2,850,000 or for $122.13 and $129.83 per square foot.  The subject’s total value as reflected in the assessment was $42.47 per square foot.

The board of review also submitted five equity comparables that ranged in date of construction from 1992 to 1996.  Building sizes ranged from 121,463 to 143,931 square feet.  Improvement values as reflected in the assessments ranged from $4,419,554 to $5,720,345 or from $34.94 to $39.74 per square foot.  The subject’s assessment reflects and estimated improvement value of $34.27 per square foot.

During cross-examination, the assessor again testified the estimated site improvement costs are part of the base improvement costs listed in the board’s evidence.  The appellant argued this would not allow for a “bad situation” where considerable costs were incurred to prepare the site for building.  The witness testified the board of review’s evaluation of the subject was taken from the subject’s blueprints.  Since only 73% of the building structure was heated, only 73% heat was calculated.

After hearing the testimony and reviewing the record, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  The Board also finds the record does not support the appellant’s claim that the subject property is overvalued.  The appellant repeatedly argued that no buyer would pay as much for the subject as the appellant paid for the land, site improvements and the building.  The appellant argued the necessary site work to make the subject’s vacant, raw land buildable were inordinately high and the subject’s value would not reflect these costs.  However, the Board finds the appellant did not submit any evidence of market value to support this claim.  No sales data, sales analysis or appraisal of the subject were presented.  Also, the appellant’s witness testified the site improvement costs were excessive when compared to the appellant’s typical site improvement costs, however, no evidence was presented to indicate these costs would not be supported by the market.

The appellant indicated the 1997 sale price of the subject’s vacant, raw land was $1,508,680.  Also submitted were site improvement costs of $1,700,000 and building costs of $3,800,000 rounded.  Total costs to purchase the land and construct the building were $7,008,680 rounded.  The assessment of the subject property reflects an estimated value of $6,903,618 which is less than the appellant’s costs.  The Board therefore finds the only evidence presented by the appellant supports the board of review’s assessment of the subject property.  The Board finds the appellant also argued the subject’s value is not worth the total costs, however, this is only argument and no support for this argument is found in the record.

The board of review submitted a summary and detailed list of the subject’s cost schedule and indicated the blueprints were used for calculations.  The appellant argued only 73% of the subject is heated and the board of review showed only 73% heat was included in the cost figures.  The board of review also submitted equity land comparables and sales of two commercial properties of similar age to the subject.  While these sales are so much smaller as to be dissimilar to the subject, their sale prices reflected values per square foot that were much higher than the subject’s estimated value.

The board of review also submitted five improved equity comparables of similar age and size to the subject.  The assessments of these properties reflected estimated values ranging from $48.13 to $51.61 per square foot.  The subject’s assessment reflects and estimated value of $42.47 per square foot.

On the basis of this analysis, the Property Tax Appeal Board finds the appellant has not supported its claim of overvaluation by a preponderance of the evidence.  Therefore, the Board finds no reduction in the assessment of the subject property is warranted.

The subject property consists of a four story office building containing 59,712 square feet of gross building area.  The building was constructed in 1972 with a brick exterior.  Amenities include central air conditioning, one freight elevator and one passenger elevator.  The subject property is located at 2401 West Jefferson Street, Springfield, Illinois.

The appellant appeared by its attorney and claimed overvaluation as the basis of the appeal.  In support of this contention, a market analysis was submitted and the preparer of the report was present to testify to the valuation conclusions contained in the report.  The appraiser first presented his qualifications and work experience.  In the market analysis the appraiser used the income approach and the sales comparison approach in estimating a market value of $3,100,000 for the subject property.  He testified that in the income approach he looked at both the actual income and market rents.  Using the actual rent and operating expenses and estimating a capitalization rate of 10% plus an effective tax rate of 2.53% the appraiser concluded a value of $2,214,600 for the subject property.  The appraiser testified the subject’s lease commenced in 1971 and was for the entire building.

An income approach was also performed using five rental comparables to estimate the market or economic rent for the subject property.  The rental comparables were located in the downtown area of Springfield.  They were all leased by the State of Illinois and ranged in lease area from 1,727 to 24,024 square feet.  Their rental rates ranged from $6.63 to $13.23 per square foot.  The appraiser was of the opinion there was more demand for downtown office properties than in the subject’s area.  However, he stated the subject property was newer than the five rental comparables.  Testimony disclosed that five of the rental comparables were built around the turn of the century and lacked on-site parking.  As a result, the appraiser went above the range and chose a rate of $13.50 per square foot of the net leasable area for the subject property and multiplied this amount by the net leasable area of 52,549 square feet.  This resulted in a potential gross income of $708,197.  A vacancy and credit loss of 5% was estimated for an effective gross income of $672,787.  Operating expenses were estimated at 59.05% and resulted in a net operating income of $397,377.  The appraiser used a capitalization rate of 10.50% and an effective tax rate of 2.53% for a total rate of 13.03%.  Capitalizing the subject’s estimated net income by this rate resulted in a value by this approach of $3,050,800.

In the sales comparison approach the appraiser utilized two sales of suggested comparable properties.  The appraiser testified these two sales were selected because of their size.  These properties contained 43,920 and 110,805 square feet and were constructed in 1987 and 1962 respectively.  They sold for $2,323,128 and $5,600,000 or $52.89 and $50.54 per square foot and the transactions occurred in July 1996 and November 1996 respectively.  From an analysis of this data the appraiser estimated a value of $52.00 per square foot or $3,105,024 for the subject property by the sales comparison approach.  The appraiser testified that he placed equal weight on the two valuation approaches used in the report in estimating his final opinion of value for the subject property.  Cross-examination of the witness revealed the market analysis was performed on a contingency fee basis.

The board of review submitted "Board of Review Notes on Appeal" wherein the subject’s assessment totaling $1,244,318 was disclosed.  The subject’s assessment reflects a market value of $3,847,613 using the county’s three year median level of assessments for 1997 of 32.34%.  The supervisor of assessments was present and presented the testimony of the deputy township assessor.  The assessor testified to his qualifications and to the information he compiled in valuing the subject property.  Property record cards and a spreadsheet detailing eight sales of office buildings were presented.  He testified that although there was a lack of sizable office building sales in the township, he chose the eight properties for their comparability in building class to the subject and because they have on-site parking like the subject.  He stated the average land-to-building ratio for the eight properties was 2.44:1 while the subject’s land-to-building ratio was 2.56:1.

The assessor described each of the comparable properties.  Two of the comparables were one story buildings and the remaining comparables had from two to five floors.  Two of the comparables were also used by the appellant’s appraiser.  The square footage for each of the comparables includes all finished areas with finished basement areas calculated at 65%.  The buildings ranged in size from 10,800 to 100,168 square feet and they ranged in date of construction from 1900 to 1994.  The properties sold for prices ranging from $675,000 to $5,600,000 or from $52.89 to $92.13 per square foot and the transactions occurred from September 1993 to September 1997.

In the assessor’s analysis the land value was deducted from the sales prices of the eight comparable properties in order to develop a building residual for each property.  He explained this technique allows for any differences between the sale properties and the subject property for location and land-to-building ratios.  This analysis indicated the selling prices of the buildings only ranged from $44.35 to $72.36 per square foot.  The subject’s building assessment reflects a market value of $56.00 per square foot.  The assessor noted the appellant’s opinion of value reflects a building value of $30.57 per square foot and is well below the range established by the eight suggested comparable sales.

The assessor also performed an income analysis for the subject property.  To estimate the subject’s economic rent, the assessor analyzed five comparable rental properties that were located either in downtown Springfield or on the perimeter of the downtown area.  These properties were leased by the State of Illinois and the leased areas ranged from 7,811 to 101,700 square feet.  The leases commenced from July 1992 to October 1997 and the rental rates ranged from $15.15 to $18.95 per square foot.  From this data, the assessor selected a rate of $16.00 per square foot for a potential gross income of $839,344.  A five percent vacancy factor was estimated and deducted for an effective gross income of $797,377.  Operating expenses of 41% were estimated and deducted for a net operating income of $470,452.

The assessor included market information regarding interest and capitalization rates provided by the American Council of Life Insurance Investment Bulletin.  This data indicated average capitalization rates ranging from 9.70% to 10.40%.  The assessor also submitted a list of the capitalization rates taken from appraisals on file in the township assessor’s office.  The rates ranged from 9% to 10%.  The assessor selected a capitalization rate of 10% and added the effective tax rate of 2.4% for a total rate of 12.40%.  Capitalizing the subject’s net operating income by this rate resulted in a value by the income approach of $3,794,000.  Based on this data, the board of review maintained the subject property was conservatively valued and requested confirmation of its assessed valuation.

After hearing the testimony and reviewing the record, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  Based on the evidence and testimony presented in the record the Board finds that a reduction in the subject’s assessment is not warranted.  The Board has reviewed the income analyses and the sales comparison analyses performed by both parties’ appraisers.  The Board notes that although the appellant’s appraiser performed an analysis utilizing the subject property’s actual rents, little weight was accorded this analysis.

The Illinois Supreme Court in Springfield Marine Bank v. Property Tax Appeal Board, 44 Ill.2d 428 (1970), defined fair cash value as “the value of the ‘tract or lot of real property’ which is assessed, rather than the value of the interest presently held by the owner.”  In this case the court held that: “[i]n determining the value of the property, rental income may of course be a relevant factor. [citation]  However, it cannot be the controlling factor, particularly where it is admittedly misleading as to the fair cash value of the property involved.  [I]t is the capacity for earning income, rather than the income actually derived, which reflects ‘fair cash value’ for taxation purposes.”  44 Ill.2d at 429-430.  Thus, the supreme court held that a property’s potential for earning income and not its actual income should be considered in determining its market value.

The appellant’s appraiser also performed an income approach utilizing an estimate of the subject’s market rents.  The deputy township assessor did the same in his analysis for the board of review.  Each appraiser relied on five rental comparables in selecting a market rent for the subject property.  The rental rates ranged from $6.63 to $18.95 per square foot.  The appellant’s appraiser selected a rate of $13.50 per square foot which was above the range established by his five comparables and the assessor selected a rate of $16.00 per square foot.  The Board finds that the $16.00 per square foot rate was well supported by the comparable properties submitted.  The majority of the appellant’s rental comparables were substantially older than the subject property and lacked on-site parking.

Although the rental comparables consisted of downtown Springfield properties and the leases were all with the State of Illinois, there was no showing that the market rent in the downtown area was higher than in the subject’s area.  There was also no showing that the rental rates for properties leased to the State of Illinois were higher than the rental rates for properties leased to the private sector.  The estimate of vacancy and credit loss and the estimate of the operating expenses were similar in both analyses.  The Board finds that the appellant’s appraiser provided no information or support for the capitalization rate that he selected.  The assessor submitted rates reported in an investment bulletin.  He also listed capitalization rates taken from appraisals on file in the township assessor’s office.  Thus, the Property Tax Appeal Board places most weight on the assessor’s 10% capitalization rate.  As a result, the Board placed most weight on the assessor’s opinion of value from the income approach.

With respect to the sales comparison approach, the Board finds that the eight suggested comparable sales support the assessment assigned to the subject property.  The comparables presented demonstrate a broad range of sales prices.  The properties all had varying degrees of comparability with the subject property.  Most were either much smaller than the subject and one was substantially larger than the subject.  The properties had sales prices ranging from $52.89 to $92.13 per square foot.  The assessor subtracted the market based land value of the sales comparables from their respective sales prices to account for differences in the land-to-building ratios and location.  The building sales prices per square foot ranged from $44.35 to $72.36 per square foot.  Looking at the range of values established by the comparable properties using either method supports the subject’s assessment which reflects a market value for the whole property of $64.44 per square foot or a building market value of $56.00 per square foot.

The Board also finds that less weight was accorded the appellant’s appraiser’s analysis due to the fee arrangement involved.  The testimony disclosed that he was paid on a contingency fee basis.  Where an appraiser’s compensation is contingent on the amount of property taxes saved or billed to his client, the possibility exists that the appraiser will color his findings and testimony to suit the needs of the proponent party, rather than to evaluate and present the subject matter of the testimony with complete impartiality.  This contingency fee arrangement could impair the objectivity of the appraiser and lead to biased testimony.  The International Association of Assessor Officers recognizes that a contingency fee arrangement has the potential for impairing the objectivity of an appraiser.  Canon 9 of the International Association of Assessing Officers Code of Ethics and Standards of Professional Conduct conveys that organization’s disapproval of contingent compensation for appraisals.  The Board finds that because the evidence indicates that the appellant’s appraiser’s fee was contingent on the increased taxes realized as the result of the appraisal, the weight and credibility given the report is greatly diminished.

In conclusion, the Property Tax Appeal Board finds that the subject property’s assessment as established by the board of review is correct and no reduction is warranted.

The subject property consists of a 12 story office building of masonry and steel construction with a full basement.  The building contains a total of 63,583 square feet of above grade area and was constructed in 1927 with remodeling done in 1986.  The basement contains 6,111 square feet of unfinished area.  The subject site contains 6,111 square feet and the building covers the entire site.  No parking is available on the site.  The subject property is located in the downtown business area of Springfield, Illinois.

The appellant appeared before the Property Tax Appeal Board through its attorney and claimed unequal treatment in the assessment process as the basis of the appeal.  In support of this contention, an equity analysis and the supporting testimony of the preparer of the report were presented.  The witness testified that he is a licensed real estate appraiser and a consultant.  No objections were entered with respect to his qualifications.  The appraiser’s equity analysis was marked Appellant’s Exhibit One.  The appraiser testified that he was not asked to prepare an appraisal report for the subject property, but was asked to verify the equity of the subject’s assessment.  He stated that his equity analysis consists of comparable properties that are located similarly to the subject in the central business district of downtown Springfield, Illinois.  A map of the downtown area was submitted and marked Appellant’s Exhibit Two.  The map was color coded to indicate the location of the subject property, the appellant’s three comparables and the board of review’s eight comparable properties.  The area considered to be the downtown business district was defined on the exhibit with pink and yellow markers.  The appraiser claimed the downtown business district defined on the map is utilized by the township assessor and that he concurs with the definition.

The appraiser first compared the land assessments of the subject property with three adjacent properties.  An analysis of the data disclosed the comparable properties and the subject property were assessed at $4.412 per square foot of land area.  Thus, the appraiser adopted the assessment assigned to the subject property by the board of review of $26,963.

The subject’s improvement assessment was next analyzed by the appraiser.  He stated that the equity analysis consists of three comparable properties similar to the subject in size, construction, appearance, condition and location.  These properties were located in the defined downtown central business district.  The location of these properties was depicted on Appellant’s Exhibit Two.  Comparable one was an eight story, masonry building containing 43,440 square feet of above grade area.  This property was constructed in 1914 with remodeling done in 1985, 1986 and 1992.  The basement is unfinished and contains 5,920 square feet.  Comparable two was a seven story, masonry building that was constructed in 1900.  This building contains 53,228 square feet of above grade area and 7,604 square feet of unfinished basement area.  Comparable three is a nine story, masonry building that was constructed in 1912 with remodeling done in 1972 and 1978.  This property contains 97,913 square feet of above ground building area and 12,885 square feet of unfinished basement area.

Using these three comparable properties, the appraiser utilized three methods of equity analyses.  For purposes of these analyses, he included the basement areas of these properties in the computation of the total square footage of the buildings as well as for the subject property.  This results in building areas for the three comparable properties ranging from a total of 49,360 to 110,798 square feet.  The comparable properties had building assessments ranging from $302,873 to $616,461  The subject building was assessed at $1,046,934.

In the first method the appraiser divided the comparables’ building assessments by their total square footage.  This resulted in assessments ranging from $4.92 to $10.13 per square foot while the subject was assessed at $15.02 per square foot.  Based on this analysis, the appraiser felt that an assessment of $6.75 per square foot or $470,435 would be appropriate for the subject buildings.  He explained this assessment is near the mean and median assessments of the comparable properties of $7.06 and $6.14 per square foot.

Under the second method the appraiser stated he looked at the relationship of the current assessment and the cost new of the structure for each of the three comparable properties and the subject property.  The calculation of the cost new estimate was derived from the Marshall and Swift Cost Manual and the building assessments were divided by the cost new calculation to derive a ratio.  The cost new estimates for the three comparables ranged from $3,930,040 to $8,510,411 and the ratio between the cost new and the building assessments ranged from 6.4% to 13.4%.  The subject’s cost new estimate was $5,661,574 and had a ratio of 18.5%.  Based on this analysis, the appraiser felt that a ratio of 8.5% to be applied to the subject’s replacement cost new estimate would be appropriate for an assessment by this method of $481,234.  Once again, the appraiser noted this conclusion was near the mean and median ratios of 9.2% and 7.7%.

The third method employed by the appraiser analyzes two variables; the building assessment and the building size.  The assessments and the building size were plotted on a graph.  Based on the trend line drawn on the graph the appraiser was of the opinion an equitable assessment of $479,000 for the subject improvements was appropriate.  Based on these three methods, the appraiser felt that an equitable building assessment for the subject property was $480,000.  He stated that the total assessment, including the land should be $506,963.  The appraiser explained that in 1986 some remodeling and repairs were made to the subject property such as repairing boilers replacing plaster walls with drywall and the like.  He testified that the comparables had also had some remodeling and thus, he felt they were comparable to the subject property.

The building manager of the subject property was next called to testify.  He stated that he has held this position for five years and is familiar with the cost of running and marketing the building.  He stated that he is also familiar with competing properties in the area.  He stated that the board of review’s comparable five is an owner-occupied insurance company and as a result he felt that it is not a competing property.  He next discussed the board of review’s comparable eight.  He stated this is occupied by the Department of Public Health, it is a more modern building than the subject and is owned by the State of Illinois.  The board of review’s comparable three was next discussed.  He stated it is occupied by the Department of Revenue and the building was more modern than the subject property.  He was of the opinion that the board of review’s comparable one is more comparable to the subject property than the other comparable properties.  He stated this building has additional amenities such as underground parking.  The subject property has a parking lot located across the street from the building.

The board of review submitted "Board of Review Notes on Appeal" wherein the subject’s assessment totaling $1,073,897 was disclosed.  The subject’s assessment reflects a market value of $3,320,646 using the county’s three year median level of assessments for 1997 of 32.34%.  The supervisor of assessments was present at the hearing and presented the equity analysis and the supporting testimony of the deputy township assessor.  The assessor agreed that properties located outside the central business district are inferior to the subject property.  However, he noted that the subject’s land assessment was not contested.  The assessor explained that assessments are based on a cost driven assessment, using the Marshall-Swift Valuation Service, adjusted for market factors based on sales data.  The evidence disclosed the subject property has had over $720,000 in remodeling and maintenance permits since 1986.  The appellant’s three comparables have had building permits issued for $17,500, $69,500 and $242,000 during the same time period.

In support of the subject property’s assessment, the assessor submitted assessment data and descriptions on eight commercial properties.  Photographs and property record cards were submitted on these properties.  The assessor testified the total square footage calculated for the subject property and each of the eight comparable properties includes finished basement areas, calculated at 65% of their total area, and above-ground unfinished areas, calculated at 50% of their total area.  The unfinished basement areas were listed separately for review and analysis.

The location of the board of review’s eight comparables were depicted on Appellant’s Exhibit Two.  Comparable three was located within the defined central business district area and the remainder of the comparables were located outside this immediate area.  The comparables were all office buildings except for comparable four, which is Lincoln Towers, an 18 story apartment building.  The remaining seven properties ranged from two to seven stories and all had brick, concrete or steel and glass exteriors.  The construction dates ranged from 1921 to 1969 and some were remodeled since the construction date.

Based on the deputy assessor’s method of calculating the square footage for each of the buildings, they ranged in size from 26,978 to 370,504 square feet of building area and their building assessments ranged from $448,037 to $5,962,704 or from $15.88 to $19.85 per square foot.  Six of these properties had unfinished basement areas that ranged in size from 1,780 to 54,530 square feet.  The subject property contained 63,383 square feet and had a building assessment of $1,046,934 or $16.52 per square foot.  The subject property had an unfinished basement area of 6,111 square feet.  Based on this analysis, the board of review was of the opinion the subject property was equitably assessed and requested confirmation of its assessment.

Under cross-examination, the witness was questioned about the neighborhood factors found on the property record cards.  The assessor explained the neighborhood factors are essentially a market adjustment factor.  The subject’s factor was .7706 and the comparable properties’ factors ranged from .8416 to 1.03392.  The assessor was also questioned as to the condition and construction class of the comparable properties as compared with the subject property.  The subject’s condition grade was D and the comparables’ ranged in condition from grades C to D.  The subject’s construction class was Grade A and the comparables’ class ranged from A to C.

After hearing the testimony and reviewing the record, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  The Board further finds that the appellant has failed to support the contention of unequal treatment in the assessment process.  The Illinois Supreme Court has held that taxpayers who object to an assessment on the basis of lack of uniformity bear the burden of proving the disparity of assessment valuations by clear and convincing evidence.  Kankakee County Board of Review v.  Property Tax Appeal Board, 131 Ill.2d 1 (1989).  The evidence must demonstrate a consistent pattern of assessment inequities within the assessment jurisdiction.  After an analysis of the assessment data, the Board finds that the appellant has failed to overcome this burden.

In this appeal, the appellant submitted assessment data and descriptions on three properties.  In method one, the appellant’s appraiser simply divided the building assessment by the total building square feet, including the unfinished basement areas of the comparable properties.  In method two, the appellant’s appraiser estimated the replacement cost new for the properties and compared this estimate with the building assessment.  In method three, the appraiser plotted a line on a graph trending the assessed values with the building size.  The Board notes that photographs of the three suggested comparable properties were not included in the appellant’s equity analysis.  The board of review submitted eight assessment comparables.  Unfinished basement areas were not included in the building’s square footage, but were listed for consideration.  The total building square footage of the comparables included the finished above grade area, 65% of the square footage of finished basement area and 50% of the unfinished above grade area.  According to the size computations used by the two appraisers, the 11 comparable properties had building assessments ranging from $5.56 to $19.85 per square foot.  The subject improvement was assessed at $16.50 per square foot.  Based on a simple mathematical procedure of dividing the building assessments by the building areas, the data indicates the subject property was assessed within the range established by the 11 suggested comparable properties.

The Board has reviewed the data presented by the parties.  In its analysis, the Board divided the building assessments by the above grade square footage.  The additional amenities such as finished basement areas, unfinished basement areas, unfinished above grade areas, parking garages and the like were taken into consideration by the Board in its analysis.  The Board’s analysis indicates the building assessments for the 11 suggested comparable properties ranged from $5.56 to $23.76 per square foot.  The subject improvements were assessed at $16.46 per square foot.  All of the comparables suggested by the parties had differing degrees of comparability with the subject property.  Although the subject property was constructed in 1927, the recent renovation costs of $720,000 must be taken into consideration when comparing its assessment with the other properties.

Although the board of review’s comparables for the most part were not located in the central business district as defined by the parties’ appraisers, the Board finds that this fact does not detract from the weight to be accorded these properties.  The testimony disclosed that properties outside the central business area generally have lesser land values than when inside the defined area.  The comparables submitted by the board of review were also located in commercial areas.  Many factors were assigned the comparable properties in the assessment process.  The board of review’s witness stated the factors were market based.  The board of review submitted photographs of the subject property and of the eight suggested comparable properties.

The testimony of the subject’s property manager indicates that the board of review’s comparable one was more similar to the subject than the other comparables considered by the board of review.  Pictures of these two buildings show some comparability.  The comparable property is 10 stories high, while the subject property is 12 stories high.  Both properties were built at about the same time and are used as office buildings.  This property has a parking garage in the basement.  Both buildings have two elevators.  Comparable one was assessed at $18.38 per square foot, while the subject property was assessed at $16.46 per square foot.  The Board notes the subject property was more recently remodeled than this property.  Considering the different variables in computing the assessments of these properties, the Board finds that the evidence suggests the subject’s building assessment is well within the range and supported by the comparable data.

The Board notes that only similarities in physical characteristics of the comparables were analyzed and compared to the subject.  Other areas of comparison such as potential gross incomes, expense ratios and market value considerations were not employed.  Without market value information regarding large commercial properties, it is difficult to do an assessment analysis of the buildings.  The income potential, the age and the overall market value of large commercial properties can vary significantly.

The Supreme Court in Apex Motor Fuel Co. v. Barrett, 20 Ill.2d 395, 169 N.E.2d 769, discussed the constitutional requirement of uniformity.  The court stated that “[u]niformity in taxation, as required by the constitution, implies equality in the burden of taxation.”  (Apex Motor Fuel, 20 Ill.2d at 401)  The court in Apex Motor Fuel further stated:

“the rule of uniformity ... prohibits the taxation of one kind of property within the taxing district at one value while the same kind of property in the same district for taxation purposes is valued at either a grossly less value or a grossly higher value. [citation.]

Within this constitutional limitation, however, the General Assembly has the power to determine the method by which property may be valued for tax purposes.  The constitutional provision for uniformity does [not] call ... for mathematical equality.  The requirement is satisfied if the intent is evident to adjust the burden with a reasonable degree of uniformity and if such is the effect of the statute in its general operation.  A practical uniformity, rather than an absolute one, is the test.[citation.]” Apex Motor Fuel, 20 Ill.2d at 401.

In the context of income producing property, the supreme court further stated in Kankakee County that the cornerstone of uniform assessments is the fair cash value of the property in question.  According to the court, uniformity is achieved only when all property with the same income earning capacity and fair cash value is assessed at a consistent level.  Kankakee County Board of Review, 131 Ill.2d at 21.

Although the comparables presented by the appellant disclosed that properties located in the same area are not assessed at identical levels, all that the constitution requires is a practical uniformity which appears to exist on the basis of the evidence.  For the foregoing reasons, the Board finds that the appellant has not proven by clear and convincing evidence that the subject property is inequitably assessed.  Therefore, the Property Tax Appeal Board finds that the subject's assessment as established by the board of review is correct and no reduction is warranted.

The subject property consists of two contiguous, unimproved lots located at 3106 and 3108 E. Elm Street in Springfield, Illinois.  The lot identified under Docket No. 97-4377-C-1 contains 27,292 square feet and the other lot contains 24,913 square feet.

The appellant appeared by its attorney before the Property Tax Appeal Board and claimed unequal treatment in the assessment process as the basis of the appeal.  To support the inequity contention, the equity analysis and the supporting testimony of the preparer of the analysis were presented.  The equity analysis consisted of the land assessments and the descriptions of seven lots located in the subject’s immediate area.  The assessments were converted to market value and ranged from $9,933 to $35,349 or from $.18 to $.77 per square foot.  Their land sizes ranged from 12,877 to 94,525 square feet.  An aerial map was submitted showing the location of these properties as compared with the subject property.

The appraiser stated that he chose the comparables for their location, size and topography.  He stated that he didn’t look at comparables located on Dirksen Parkway because he felt they were not comparable to the subject parcels’ Elm Street frontage.  Comparables one through four were also fronting on Elm Street.  Comparable five is accessed by an easement or common ownership through a property that has frontage on Enos Street.  Comparables six and seven are accessed through a property located on Dirsken Parkway and have common ownership.  The zoning of the comparables was also discussed.  The appraiser stated the zoning of the properties were verified with a map from the City of Springfield.  He stated that comparable one is zoned B-1, is improved with a commercial business and is located across the street from the subject.  Comparable two is zoned B-1 and is improved with a residence and business.  Comparable three is zoned residential and is improved with a residence.  Comparable four is zoned B-2 and is improved with a residence.  Comparable five is zoned R-4 and is improved with a mobile home park.  Comparable six is zoned commercial and is improved with a parking lot.  Comparable seven is zoned commercial and is improved with a commercial building.

He stated the subject parcels have business district zoning.  The appraiser stated that he placed primary weight on comparable one because it is located across the street from the subject and it has the same zoning as the subject property.  Based on this data the appraiser felt that a fair and equitable valuation for the subject parcels would be $.75 per square foot.  This relates to an assessment of $.25 per square foot for an assessment of $6,823 for Docket No. 97-4377-C-1 and $6,228 for Docket No. 97-4378-C-1.

The board of review submitted "Board of Review Notes on Appeal" wherein the subject parcels’ assessments were disclosed.  Docket 97-4377-C-2 was assessed at $20,767 or $.76 per square foot and Docket No. 97-4378-C-1 was assessed at $19,084 or $.76 per square foot.  The supervisor of assessments was present at the hearing and presented the testimony of the deputy township assessor for Capitol Township.  He claimed that four of the appellant’s comparables are zoned residential contrary to the appellant’s appraiser’s testimony.  The assessor stated that the zoning information was acquired from the City of Springfield Zoning Office on July 22, 1998.  The assessor claimed that the subject parcels are part of a larger parcel that fronts on Dirksen Parkway.

He stated that from a market value standpoint this factor should be taken into consideration.  To support the subject parcels’ assessments, assessment data and descriptions were submitted on four suggested comparable properties that front on Dirksen Parkway.  These properties range in size from 9,971 to 60,000 square feet and had land assessments ranging from $7,614 to $45,819 or $.76 per square foot.  Based on this data, the board of review requested confirmation of the subject property’s assessment.

Under cross-examination of the witness, the appellant’s attorney submitted maps showing the location of three of the board of review’s comparables.  The maps were marked as Exhibits One and Two.  The three comparables shown on the maps were located on Dirksen Parkway across the street from the block in which the subject parcels are located.  The comparable not shown on the maps was located about one-half mile from the subject parcels.

After hearing the testimony and reviewing the record, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  The Board further finds that a reduction in the assessment of the subject property is warranted based on the evidence contained in the record.  The Illinois Supreme Court has held that taxpayers who object to an assessment on the basis of lack of uniformity bear the burden of proving the disparity of assessment valuations by clear and convincing evidence.  Kankakee County Board of Review v. Property Tax Appeal Board, 131 Ill.2d l (1989).  The evidence must demonstrate a consistent pattern of assessment inequities within the assessment jurisdiction.

The crux of the issue in this appeal is whether or not the subject parcels should be assessed the same as properties that front on Dirksen Parkway, a busy thoroughfare in Springfield, Illinois.  The appellant claims that the parcels should be assessed at a rate assigned to properties that do not front on Dirksen Parkway.  The board of review came to the opposite conclusion and submitted assessment data on four properties that front on Dirksen Parkway.  The evidence shows a consistent pattern of lower assessments for properties that are located off of Dirksen Parkway.

The Board finds that the most similar comparison of property location as compared with the subject parcels is appellant’s comparables six and seven.  These properties are accessed through a parcel with frontage on Dirksen Parkway and they share common ownership.  This is similar to the subject parcels in that they are contiguous and share a common ownership with a parcel that fronts on Dirksen Parkway.  Comparables six and seven were assessed at $.19 per square foot while the subject parcels were assessed at $.76 per square foot, the same as properties that front on Dirksen Parkway.  Comparable seven, although zoned residential according to the assessor, was improved with a commercial building.  Comparable six was zoned the same as the subject parcels and was improved with a parking lot.

Based on this comparison the Board finds that the subject property was inequitably assessed at the same rate assigned to the properties that front on Dirksen Parkway.  Therefore, based on a review of the assessment comparables contained in the record, the Property Tax Appeal Board finds that the appellant has supported the contention of unequal treatment in the assessment process and a reduction in the assessment of the subject parcels is warranted.

The subject property consists of three contiguous parcels totaling 2.29 acres improved with a one story steel frame and masonry constructed commercial strip shopping center located in Woodstock, Dorr Township.  The improvements were developed in two stages.  One portion was built in 1962 and extensively remodeled in 1989.  An addition to the original structure was developed in 1991.  The structure contains 28,011 square feet with 25,615 square feet of gross leaseable area.  The taxpayer claims overvaluation as the basis of the complaint.

The appellant appeared by its attorney before the Property Tax Appeal Board and presented evidence in support of the contention that the assessment of the subject property does not accurately reflect its market value.  The evidence consisted of an appraisal of the subject property performed by an MAI appraiser and corroborating testimony from the preparer of the report.  The appraiser testified that he considered all three traditional approaches to value but only performed the income approach to value because the income approach is applicable to investment properties.  The appraiser further stated that the highest and best use of the subject property as improved is the current use.

The appraiser stated that no cost approach or sales comparison approaches were prepared because properties like the subject will virtually always sell on the basis of their economics.  He contends that purchasers of these types of properties will place no reliance on the cost approach because the economics result in them selling well below their replacement cost.  He also feels that purchasers of properties like the subject will place very little, if any, reliance on the sales comparison approach because they sell on the basis of their economics.  Thus, he contends, the cost approach provides virtually no insight in the value of the subject property and the sales comparison approach provides very little insight to the value.

The valuation method performed by the appraiser was the income approach.  The appraiser first estimated the subject property’s potential gross income based on five similar properties that were leased.  All of the comparables are located in the general area of the subject property.  These suggested rental comparables ranged in age from 8 years to 39 years and were reported to range in size from 5,223 to 63,397 square feet of gross building areas.  Gross rents per square foot for these facilities ranged from $11.00 to $16.00 per square foot.  Upon considering adjustments for differences in the buildings’ sizes and configurations, ages, land to building ratios and locations, the appraiser concluded the subject property would have a market rent of between $12.00 and $12.50 per square foot of gross building area.

The stabilized gross rental for the subject property was estimated to be $276,692.  A stabilized vacancy and credit loss of 12.5% or $34,843 was considered reasonable for the subject’s market area and deducted to arrive at an effective gross income of $243,904 for the subject facility.  Stabilized expenses were estimated to be $2.46 per square foot or $62,900.  These calculations result in a net operating income to the subject property of $181,004.  However, the appraiser also deducted an additional $11,800 for tenant improvements and leasing commissions which results in a final stabilized net operating income before real estate taxes of $169,204.  An overall capitalization rate of 10.25% was developed by the direct capitalization method.

The appraiser also investigated the band of investment method and industry publications in determining the overall capitalization rate to be applied.  After adding in for the tax load, a capitalization rate of 12.90% was indicated. Upon capitalization of the subject property’s estimated net operating income of $169,204, a value of $1,310,000 (rounded) was arrive at by the appraiser for the subject property.  Based thereon, the appellant requests an assessment reduction to reflect the appraiser’s opinion of value.

In rebuttal, the board of review questioned the market rents offered by the appraiser noting that some were below the market median.  However, there was no substantive documentation offered to support this claim.  The board also questioned the capitalization rate of 12.90%.  This  claim was based on the 1997 third quarter Korpacz report consisting of national strip shopping center market investor survey responses.  The board suggested an overall rate of between 9.5 to 10% was more in line.  A copy of the data from the report reviewed was submitted.

The board of review submitted its notes on appeals wherein the subject property’s total combined assessments for 1997 of $500,000 was disclosed.  In support of the assessment of the subject property, the board of review presented evidence and testimony from the township assessor.  The assessor stated that the subject property was purchased in September 1994 for a recorded price of $1,770,000.  He further pointed out that the final combined assessment of the subject property for 1997 of $500,000 reflects a valuation of $1,500,000 at 33.33% which is lower than the price paid for the property.

In support of the valuation of the subject property, a market analysis performed by the township assessor was submitted.  The market analysis compared the sale of the subject property as the #1 sale and four sales of similar use properties to estimate the value of the subject property.  These properties ranged in size from 18,500 to 96,662 square feet and sold from March 1994 to October 1997 for prices ranging from $70.81 to $135.14 per square foot of area including land.  The assessor pointed out that the subject property’s valuation reflects approximately $52.30 per square foot of area including land.  However, upon reviewing the per square foot market range of the comparables and considering any adjustments for location and building size, the assessor felt that the market value of the subject property would reflect $75.00 per square foot.

Rebuttal from the appellant indicated that the assessor’s comparable sale #2 is an office building with no comparability to the subject.  Sale #3 is a 1997 constructed strip shopping center with a superior location and superior tenant profile.  Sale #4 consists of a strip center with a major food store as an anchor tenant with a total of 96,672 square feet of area.  Sale #5 is similar in size to the subject but was built in 1988 and is located in Crystal Lake.  This center has higher per square foot rents than the subject property.

After reviewing the record and considering the evidence, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  The Property Tax Appeal Board further finds the appellant’s claim of overvaluation of the subject property for the 1997 assessment year is not supported.

The appellant submitted an appraisal of the subject property wherein the appraiser stated that he considered all three traditional approaches to value.  However, he felt that because the subject was an income producing property the market value would best be reflected by its income producing potential.  He stated the cost approach would provide no insight to the value of the subject and the sales comparison approach would only provide a little insight to the property’s value.  Thus, he only performed the income approach to estimate the value of the subject property of $1,310,000 as of January 1, 1997.

The Board finds that the income approach is a good indicator of value but should be supported by the depreciated cost approach and the sales comparison approach when possible.  When no reliable sales data are available for an appraisal of a property and the building is old and the cost approach inconclusive, the income approach is the best value indicator.

The board of review submitted evidence documenting the purchase of the subject property by the appellant in September 1994 for a recorded price of $1,770,00 along with sales data offered by the township assessor.  However, the assessor did not provide a detailed comparative analysis of the sales showing adjustments in value for differences to the subject property.  Thus, the Board finds the assessor’s opinion of market value undocumented.

Finally, the Board finds the subject’s assessment reflects a valuation of approximately $220,000 less than what the property was purchased for in September 1994 and no further reduction in value has been supported.

Based on the analysis of the evidence contained in the record, the Property Tax Appeal Board finds the purchase price of the subject in 1994 supports the subject’s valuation and the board of review’s final assessments are confirmed.

The subject property consists of a transmission tower and ancillary building located in Vermilion County, Illinois.  The appellant contends the transmission tower and ancillary building located on the property should be classified as personal property and, therefore, not assessed as real property.

In support of the classification issue, the appellant submitted a copy of a Property Tax Appeal Board’s decision rendered for Docket 88-1125-C-3 in which the transmission tower and ancillary building located on parcel number VNC 568 in Vermilion County was determined to be personalty based on prior assessment treatment.  The appellant also submitted a property record card, a copy of a personal property tax return filed for a transmission tower and ancillary building in 1978 and a copy of a change of assessment notice which removed the transmission tower and ancillary building from the assessment for parcel number PLT 679-B in Vermilion County.  The change of assessment notice states:  “Tower and shed found to be personal property.”  A copy of a letter from a real estate appraiser was submitted explaining the similarities between the two properties previously classified as personal property by the board of review with the subject property.  In summary, the appellant argued that under the Replacement Tax Act (35 ILCS 200/24-5) and in accordance with the Property Tax Appeal Board decision in Diamond Star Motors, Docket 88-2525-I-3 and 89-4200-I-3 and the 2nd District Appellant Court’s decision in Oregon Community Unit School District No. 220, et al. v. The Property Tax Appeal Board, Commonwealth Edison Company, et al., 285 Ill.App. 3d 170, the subject transmission tower and ancillary building should be treated as personalty and not realty and removed from the assessment of the subject property.

The board of review did not submit its "Board of Review Notes on Appeal" nor any evidence in support of its assessed valuation of the subject property.

After reviewing the record and considering the evidence submitted by the parties, the Property Tax Appeal Board finds that it has jurisdiction over the parties and the subject matter of this appeal.  The Property Tax Appeal Board further finds that a reduction in the subject property’s assessment is warranted.  The issue in this appeal is the classification of the subject property’s transmission tower and ancillary building.

When all ad valorem personal property taxes were abolished in 1979, the Illinois Legislature passed the Replacement Tax Act (35 ILCS 200/24-5 (1994)).  Section 24-5 “froze” the classification of real and personal property as of January 1, 1979.  In 1982, the statute was amended by Public Act 82-935 to add a prohibition of property of like kind acquired or placed in use after January 1, 1979, from being reclassified.  The Act provides that:

No property lawfully assessed and taxed as personal property prior to January 1, 1979, or property of like kind acquired or placed in use after January 1, 1979, shall be classified as real property subject to assessment and taxation.  No property lawfully assessed and taxed as real property prior to January 1, 1979, or property of like kind acquired or placed in use after January 1, 1979, shall be classified as personal property.

Thus, the 1979 classifications of property in each county control current classifications.  [See Central Illinois Light Co. v. Johnson, 84 Ill.2d 275 (1981); People ex rel. Bosworth v. Lowen, 115 Ill.App.3d 855 (1983); Cherry Bowl, Inc. v. Illinois Property Tax Appeal Board, 100 Ill.App.3d 326 (1981).]  In this appeal, the appellant submitted data establishing that prior to January 1, 1979, properties similar to the subject property and located in the same county were not assessed as realty, but were classified as personalty.  The board of review did not submit any evidence in support of its assessment of the subject property as required by Section 1910.40(a) of the Official Rules of the Property Tax Appeal Board.

Based thereon, the Property Tax Appeal Board finds that the subject transmission tower and ancillary building are personal property and not subject to ad valorem taxation.  Therefore, the Property Tax Appeal Board finds the subject property’s assessment as established by the board of review is incorrect and a reduction is warranted.

COMMERCIAL CHAPTER

Index

 SUBJECT MATTER

 Apartment Complex - Two Narrative Appraisals 

Car Wash Facility - Real vs. Personal Property
(35 ILCS 200/24-5)

Contingency Fee Appraisal

Cost Approach

Equity Contention - Commercial Property

Equity of Vacant Land/Growth Area

Environmental Contamination

Highest and Best Use

Income Approach

 Market Value - Multiple Purpose Facility 

Open Space Classification
(35 ILCS 200/10-155, 35 ILCS 200/10-147, 35 ILCS 200/10-60)

Pro-Rated Assessment 

Real vs. Personal Property – Transmission Tower Classification
(35 ILCS 200/24-5, Official Rules of the Property Tax Appeal Board, 1910.40(a))

 Unequal Treatment - Vacant Land