Property Tax Resources

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Ohio Property Tax Updates


BTA extends "special purpose" property value-in-use exception to big box retail

In a recent decision, the Ohio Board of Tax Appeals (BTA) found a 135,000 square foot, big box retail property, owner occupied by Lowe’s and 16 years old as of the valuation date to be a special purpose property, allowing the tax valuation to represent value-in-use instead of the typically mandated value-in-exchange. Lowe’s Home Centers, LLC v. Cuyahoga Cty. Bd. of Revision (Feb. 16, 2019), BTA No. 2017-39.

Ohio case law recognizes an exception to the requirement of valuation-in-exchange for real property tax purposes for “special purpose” properties which have a limited market because of unique characteristics limiting their functional utility to the uses for which they were originally built.[i]  For these properties, the tax valuation can be based on the value of its present use to its current user.

The BTA has mistakenly extended this exception to a big box retail property by adopting the school district appraiser’s report, valuing the property at almost $90 per square foot, an increase from the original assessment of $70 per square foot. 

The school district’s appraiser did the following:

  • Defined the property’s highest and best use to be “for continued use by current occupant for its ongoing business.” The BTA bases its finding that the special purpose exception applies largely on this determination.
  • Relied on lease renewals that were almost exclusively renewals with no exposure to market.
  • Relied on leased fee comparable sales without appropriate property rights adjustments.
  • Concentrated on Lowe’s continued occupancy of the property since its construction.
  • Concluded to the lowest of her three approaches to value in the value developed by the cost approach

Throughout its discussion, the BTA debates the merits of using “first” generation” or “second” generation leases or sales as more comparable to the subject.  While it is understandable that such terms became shorthand, the “first” or “second” generation description can be misleading.  The BTA references definitions of both from prior case law: “A ‘second-generation space’ is a ‘building or space used by a tenant other than the original tenant.’ Appraisal Institute, The Dictionary of Real Estate Appraisal 210 (6th Ed.2015), whereas a ‘first-generation’ space is a ‘building or space designed to be functionally and economically efficient for the original tenant or a similar class of tenants over a period of time, during which the space retains its original utility and desirability.’ id at 92”[ii]

As the definitions used by the BTA itself demonstrate, whether a comparable is “first” or “second” generation cannot be the end of the inquiry. Neither is a description of whether it reflects market conditions.  Whether the lease of the property is to its first user or to a subsequent user, whether the property sells occupied by that first user, or a subsequent user; neither is a measure of market conditions.  The important consideration is whether or not that lease or sale had sufficient market exposure to be considered a market transaction.  In light of this decision, it is even more imperative to properly define the highest and best use, and to use appropriate market data to measure the value-in-exchange that is required by Ohio real property taxation law.

[i] Appraisal Institute, The Appraisal of Real Estate 28 (13th Ed.2008).

[ii] Lowe’s Home Centers, Inc. v. Washington Cty. Bd. of Revision, 154 Ohio St.3d 463, 2018-Ohio-1974.

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Siegel Jennings Co, LPA
American Property Tax Counsel (APTC)

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