Telltale signs can signal opportunities for tax reductions in declining retail properties.

For a number of years the mantra in the retail industry has been that retail property values and shopping center values, in particular, will continue to decline because consumers make purchases online rather than in brick-and-mortar stores. While this may be true, simply reciting the words to property tax authorities rarely succeeds in arguing for a reduced assessment.

The best strategy to obtain significant tax reductions for declining retail properties is an analysis of indicators that measure the mall's or shopping center's health. These factors come in four categories: anchor tenants, in-line tenants, tenant occupancy costs and prevailing lease agreements. While these dynamics may not be readily apparent, their analysis is the key to obtaining property tax relief.

Anchor Tenants

Mall anchor tenants have a significant say in how the property is configured, and in the mix of inline tenants. Consequently, when a national chain department store or other anchor tenant starts to experience a decline in sales per square foot, it can send tremors through the entire shopping center. Declining anchor tenant sales grow more serious when the anchor tenant's sales per square foot fall below the national chain-wide average. If the anchor consistently underper­forms the chain-wide average, the store is often deemed a candidate for closure.

Inline Tenants

Inline tenants are the bread and butter of most shopping centers. No other group receives more scrutiny than tenants occupying 10,000 square feet or less. The first thing mall evaluators look for is the types of inline tenants, as well as the trends in those tenant types. Landlords and investors prefer permanent inline tenants over temporary tenants. It is also better to have retail inline tenants than non-retail users, such as offices, government agencies and the like. Of course, the level of inline vacancy is also important because higher vacancy levels may trigger co-tenancy clauses in leases, thereby permitting tenants to vacate before their leases expire.

Tenant Occupancy Costs

The trend in tenants' cost of occu­pancy (COO) may be the best predictor of inline tenants' future performance. By extrapolating COO trends, it is also possible to project a mall's performance several years into the future.

The COO measures the ratio between gross sales and real estate ex­penses, including rent, maintenance charges and other costs that a tenant bears. The COO ratio for Class B and higher malls is usually in the 13 per­cent to 17 percent range, depending on the strength of the tenants, and between 10 percent and 12 percent for lower-end Class C malls.

COO ratios that are higher than these ranges indicate tenants are spending more of their gross revenues to pay property occupancy costs. This reduces the available revenues to pay other operating expenses and, obviously, limits the tenant's profits. Year-over­year increases in COO ratios means tenants are experiencing increasing financial pressure. Eventually, COO ratios become so high tenants will either ask for rent relief or other lease conces­sions, or just walk away.

Prevailing Lease Agreements

Most inline tenants enter into triple­net lease arrangements with the prop­erty owner when a shopping center first opens. Triple-net leases require tenants to pay for maintenance, insur­ance, real estate taxes and other property operating expenses, including the cost for operating common areas within the mall. As a mall declines, inline tenant sales per square foot dwindle, rental rates for new tenants decline and COO ratios increase. At some point, tenants will be unable to pay their rent and still make a profit. At this point, they are likely to ask the mall owner for some type of rent relief.

Rent relief for inline tenants takes different forms, but usually consists of converting triple-net leases to leases paying a percentage of sales, or some­times to gross leases, both of which make the mall owner bear more operating costs. An increase in the number of percentage and gross leases shows that inline tenants are unable to generate enough sales to pay rent and other occupancy expenses.

As more and more leases become percentage or gross leases, the expense burden on the mall owner increases, and the likelihood grows that the mall will close. During this time, the mall owner may replace departing inline tenants with new tenants that demand gross lease arrangements, which further contribute to the mall's decline.

Seek Early Property Tax Relief

The four factors discussed above are interrelated. The progression of falling dominoes starts when the anchor tenant's sales begin to decline. This then leads to a fall in the number of permanent inline retailers, a rise in COO ratios, and the replacement of preferred triple-net leases with percentage or gross leases. All these factors put downward pressure on a retail property's value, which typically reduces the property's tax assessment.

Most of this sequence cannot be observed because it happens below the surface, but it may be the precursor to a mall's failure. Thus, the local property tax authority may not realize a mall is in decline until it falls off the cliff, as when an anchor tenant closes its doors or high-end retailers fail to renew their leases and move to other malls.

Astute retail property owners and operators will identify the underlying problems in a mall or shopping center early on, and bring those difficulties to the attention of the local tax assessor. Doing so may reduce taxes - and mall operating expenses - well before a property is in free-fall mode. If the tax relief is significant and obtained early in the process, it may even extend the life of the mall.

Passage of a new ballot initiative will confirm exemption of partially completed property from taxation."

Any taxpayer planning to develop a new property must consider how local taxing entities will treat the project during construction, but the question is especially important in evaluating and comparing overall costs of potential development locations during an industrial site search.

States generally recognize Construction Work in Progress (CWIP) as property that is in the process of changing from one state to another, such as the conversion of machinery, construction materials and other personal property from inventory into an asset or fixture by installation, assembly or construction. There is no clear consensus among taxing jurisdictions as to whether (or how) a tax assessor should value such par­tially completed construction on the applicable assessment date.

Many states including Alabama, Missouri and North Carolina value CWIP based on the value or percentage of completion on the assessment date. Kansas values incomplete construction based on the cost incurred as of the assessment date. Florida, Maryland, Virginia and West Virginia assess CWIP when the work has progressed to a degree that it is useful for its eventual purpose. And in South Carolina, improvements are only assessed upon completion.

With the exception of a few errant assessments in the early 1930s, Louisiana has never assessed partially completed construction for property tax purposes. Rather, taxing jurisdictions assess and add the completed property to tax rolls as of January 1 of the year immediately following completion of construction. This complements Louisiana's industrial tax exemption program, which exempts certain manufacturing property from ad valorem taxation for a specified number of years.

Unfortunately, properties on which ad valorem taxes have been paid are ineligible for participation in the exemption program. Thus, if a taxpayer has paid taxes on a project as partially completed construction, the property is no longer eligible for the industrial tax exemption and remains on the taxable rolls, subject to assessment each year. Obviously, assessing projects with partially finished construction in this manner would significantly diminish the value of the exemption pro­gram to taxpayers and undermine its usefulness to economic develop­ment agencies as an incentive tool.

In 2016, a local assessor broke with established practice and initiated an audit that included construction work in progress on a major industrial taxpayer. This audit raised statewide and local uniformity concerns over the assessment of a single taxpayer's partially completed construction in a single parish, and jeopardized the taxpayer's existing industrial tax exemption.

The taxpayer immediately filed an injunction action in district court, and the Louisiana Legislature took up the situation during its regular 2017 legislative session. Recognizing the need to formalize the exemption, the Legislature referred to voters a constitutional amendment that would codify the exemption of construction work in progress from assessment. Louisiana is one of 16 states that require a two-thirds supermajority in each chamber of the Legislature to refer a constitutional amendment to the ballot, so their vote underscores the strong support among lawmakers to codify the exemption.

Act 428 would add a subsection to Article VII, Section 21 of the Louisiana Constitution, which lists property that is exempt from ad valorem tax assessment. The new provision would exempt from ad valorem tax all property delivered to a construction project site for the purpose of incorporating the property into any tract of land, building or other construction as a component part. This exemption would apply until the construction project is completed (i.e. occupied and used for its in­tended purpose).

The exemption would not apply to (1) any portion of a construction project that is complete, available for its intended use, or operational on the date that property is assessed; (2) for projects constructed in two or more distinct phases, any phase of the construction project that is complete, available for its intended use or operational on the date the property is assessed; (3) certain public service property.

If voters approve the ballot item, CWIP will be exempt from property taxes until construction is "completed." The proposed amendment defines a completed construction as occurring when the property "can be used or occupied for its intended purpose." The exemption would thus remain effective until the construction project or given construc­tion phases of the project are ready to be used or occupied.

A constitutional amendment does not require action by the Governor. This constitutional amendment will be placed on the ballot at the state­wide election to be held on Oct. 14, 2017.

Leading Lawyers℠ names Jeffrey A. Brown and Thomas E. Sweeney among top ten property tax lawyers.

Leading Lawyers℠ Top 10 Layers

What's in a name? Discussing valuation principles with concise language avoids misunderstanding.

Dark store theory is being used incorrectly to name what is standard, accepted, and proper appraisal practice. It is most often employed by news media to mistakenly suggest that big-box storeowners are taking advantage of a property tax loophole and arguing that a property should be valued as if it were vacant even when the store is open and operating.

While the words "dark store" evoke images of villainous or nefarious activity, assessors and taxpayers should see through this provocative language.

The phrase often confuses the fee simple (absolute ownership of the real estate subject only to governmental powers) market value of the real es­tate with other types of quantifiable value, such as investment or insurable value.

Investment value reflects value to a specific investor based on his own in­vestment requirements, while insur­able value reflects improvements or the portion of the property that may be destroyed.

Typically, property taxes should only be assessed on the real estate value. That's why it's important to differentiate property value for real estate tax assessment from other types of value.

What local law deems real estate value often is different from the property's value to a lender or investor. For example, an owner may include large manufacturing equipment as part of collateral for a mortgage.

This equipment may be valued along with the real estate in determin­ing a loan amount, and may even be included in a financing appraisal; yet the value of that equipment should not be taxed as real estate.

Although this careless and unsys­tematic misapplication of dark store theory concerns commercial real es­tate, we will use examples of single­family homes to illustrate its con­cepts.

Comparable sales valuation

In many jurisdictions, assessors value the land, building and improve­ments for real estate tax purposes. If using sales of comparable proper­ties to determine value, the assessor should examine exactly how much was paid, by whom, for what.

If the sale price of the compara­ble property includes value for an above-market lease, for unusually favorable financing terms, or for an above-average credit rated tenant, the assessor must adjust the sale price to reflect market conditions. The flip side is also true: a sales price based on below-market rent should also be adjusted.

Users of the "dark store theory" label often argue that a busy store deserves a higher real estate tax as­sessment because a large and sophis­ticated company is running a suc­cessful business there. But excluding business value from the real estate as­sessment doesn't mean that the prop­erty owner made ill-advised business decisions.

The adjustments recognize that the sale included additional sources of value or achieved valuable business objectives in addition to the exchange of real estate. The value of these items is separate, and must be excluded from the real estate value for tax pur­poses.

Consider this residential example: a buyer pays 20 percent more than the high end of the market range to buy the house next door to the buyer's brother. The two families have chil­dren of similar ages and expect to save money by carpooling and shar­ing child care and other expenses.

The buyer is acting in his own self­interest and values the proximity to the brother's household, and the ob­jectives the buyer will meet by living next door. That does not mean that the additional money the buyer paid for those considerations increases the value of the house itself to the typical buyer.

lf an appraiser uses this purchase price as a comparable sale to value a similar house across the street, the purchase price should be adjusted to reflect a more typical market partici­pant.

Similarly, any sales of comparable properties used to value big-box retail stores must be adjusted to exclude any value paid for items that are not real estate, whether they are an above­market-quality tenant, atypically long lease duration or other intangible property.

Income approach valuation

Two distinct and important issues get muddied by dark store adherents in valuations based on potential in­come generation.

The first is whether the properties are valued as if vacant, or as if occu­pied at market terms. Valuation as if occupied at market terms by a typi­cal market tenant does not include a landlord's lease-up time and costs, which are factors in the value of a va­cant property.

Secondly, there will generally be a correlation between better retail properties in better locations and the financial strength of the tenants in those properties and areas. Howev­er, the business success or failure of a specific tenant cannot be the basis of a real estate tax assessment if that tenant is not representative of the market.

Returning to the single-family world, houses in desirable areas with good schools, municipal servic­es and low crime rates are generally occupied by people with higher in­comes than homes in less-desirable areas.

However, that does not mean that the income of a specific resident deter­mines the value of the house that he or she occupies. If a brain surgeon and a retail cashier are next-door neighbors in similar houses, the values of the homes do not change.

If two similar retail stores are located in a similar area, but one is gener­ating extremely high store sales while the other is vacant because of a business decision to exit the local market, the value of the properties for real es­tate tax purposes should be the same.

Valuing property is always fact intensive, and the array of specifics dif­fers from situation to situation. There are no shortcuts to an accurate and fair tax assessment value. If the data used is bad and valuation process sloppy, the value conclusion will also be wrong. Consistent and rigorous analysis is vital.

Don't be fooled by labels

Proper appraisal methodology does not become nefarious just because it is erroneously called a "dark store loop­hole." A rose by another name would smell as sweet. Taxpayers need to pay attention when the term "dark store" is bandied about - it is often used to confuse important appraisal concepts and practices.

To be fair and uniform, property taxes must be assessed only against the real estate, and be based on accurate data reflecting typical market participants. Value related to the success of the retailer's business is captured by other taxes levied on income, sales or commercial activity.

To include those items as part of the property tax assessment is not closing a tax loophole; it amounts to double taxation.

Ignore incendiary language and apply appraisal methodology consistently and diligently to arrive at a fair value for real estate taxes.

Tips from a veteran attorney on handling the assessments that can spell the difference between a successful closing and coming up short.

Almost every week, I get calls from brokers or investors who want to know how property taxes could impact a potential purchase. With property taxes forming the largest variable expense in most real estate acquisitions, investors should question the tax implications of every deal.

In some jurisdictions, the effective property tax can reach 5 percent of market value, so an unexpected increase can cause a deal to go under. With planning and an understanding of the local environment, however, investors can fully appreciate the risks and expenses, and may be able to come in with a winning bid in a tight market.

Most of the inquiries I receive relate to properties in Ohio or Pennsylvania, where school districts can, and do, file appeals to raise taxes on real estate. In those states, the aggressor is often a school board that seeks to value an asset based on its recent sale price. In other states, it may be the county assessor. Some states have deemed it unconstitutional to "chase" sales in setting taxable value.

Know your district

Knowing which states have aggressive taxing authorities can reveal potential problems, but familiarity with those agencies and their personnel is the key to deciding whether to walk away from a deal or to stay and find a creative solution, resulting in a deal that is favorable to everyone.

An examination of any real estate purchase, whether office, retail, hotel, etc., in the context of various taxing districts' behavior illustrates the importance of thoroughly knowing your taxing authority. In all the following examples, assume that the property is uniformly assessed and that the current assessment is consistent with the value of competing properties.

Also assume that the property is assessed for less than the proposed sale price, and that increasing taxable value to the amount of the purchase price would ruin the deal.The first example takes the case of a taxing district with an aggressive, unyielding district attorney. The tax district's counsel is unwilling or unable to see that the tax increase will end up lowering the property's value below the purchase price.

In this scenario, the assessment is raised to the purchase price, which becomes part of the tax budget. Since taxing entities typically establish tax rates based on the overall assessment of the community, the tax district only gets a single year's increase in tax revenue. In subsequent years, the newly increased tax burden weighs down the property's market value, ending in an eventual refund of taxes. The net effect is a loss for the district and a loss for the taxpayer, though the taxpayer eventually recovers some of those losses. It is altogether a lose-lose situation.

Big gambles

The relatively passive school district occasionally files an increase appeal and generally isn't driven to get the last penny from the taxpayer. At first this seems like a good situation. Although a passive district may be less difficult to deal with than a more aggressive counterpart, it still leaves the buyer with a great deal of uncertainty. Risking large sums of money on chance is gambling, not investing.

The advice to the investor in a passive district rests greatly upon the taxpayer's risk tolerance, and upon local counsel's experience with how cases are typically settled. In some instances, the investor could assume that the case would be settled similarly to past cases. This requires counsel that has enough experience with the district to gauge the risk as well as the possible outcome. It also requires that the buyer fully understand the nature of the risk.

Finally, there are districts with counsel that is both reasonable and creative. In that situation, attorneys have been able to resolve tax questions with the district in advance of closing. This allows for the obvious decrease in risk. As in the previous example, it takes a great deal of experience with the opposing attorney.

Of note, approaching a district early can produce a better result. Taxing authorities have become more likely to pursue appeals of assessments, and the chances that a sale will go unnoticed—and that an assessment will go unchanged—are becoming slimmer.

Due diligence means more than determining what might happen; it requires arranging the deal to whatever extent is possible to bring about the desired outcome. Paper the file with an appraisal that satisfies any allocations, and make notations in the purchase agreement that support the tax strategy.

Being able to explain the nature of the purchase later in a tax hearing is important, but having facts and documents that support those assertions is much more valuable. With the right opportunity and preparation, an investor may be able to enter into an acquisition while eliminating risk that has driven away the competition.

Reducing property tax assessments can be challenging under the best of circumstances, and distinctions between state tax systems make minimizing that burden across an office or industrial portfolio especially daunting. But a recent Delaware Supreme Court decision provides taxpayers with a new, yet surprisingly familiar, opportunity to ease the tax burden on properties in The First State.

Delaware's Tax Assessment System Shows its Age

Under Delaware law, property must be valued at its "true value in money," a term interpreted to mean the property's "present actual market value." However, in order to implement the Delaware Constitution's mandate of tax uniformity, the state applies a base­year method of assessing property. That means that all property in a jurisdiction is assessed in terms of its value as of a certain date, and that value remains on the books indefinitely until the jurisdiction performs a general reassessment. For Delaware's northernmost county, New Castle County, the last reassessment occurred in 1983, so all property therein is valued as of July 1, 1983.

A major challenge to contesting assessments in Delaware is that a taxpayer must determine the property's 1983 market value. Determining what a property is worth today is not always easy, but proving a property's value as of three decades ago has proven increasingly difficult. Furthermore, in the absence of regular adjustments to a property's assessed value, the county asserts that a property should be valued either as it existed in 1983 or, if it was built after 1983, as if it is new and undepreciated.

Delaware's courts have explained that taxpayers have two options in assessment appeals. The first option is to use data from the base year. The property owner could, for example, find sales of comparable properties in or around 1983, or using prevailing market rents and capitalization rates from 1983. The alternative route is to calculate the current market value of the property and "trend back" that amount to 1983. The County Board of Assessment Review has expressed a near-absolute preference for 1983 data, and rarely finds a taxpayer's trending formula acceptable.

The inequities of this practice are blatant. Under the county's interpretation of the base year system, a building constructed in 1983 and located next door to a similar new building should be assessed and taxed at the same level, even though buyers, sellers and tenants are likely to value the buildings quite differently. If the owner of the 34-year-old building wanted to contest its assessment, the owner would have to identify data for new buildings in 1983. Of course, as time marches on and years turn to decades, relevant data from the base year becomes increasingly difficult to find.

Taxpayers Highlight the System's Obsolescence

Taxpayers have raised many challenges to Delaware's assessment system, but most successful challenges have been fact-specific, and no recent court has gone so far as to order Delaware's counties to complete a reassessment. But after several attempts, the taxpayers in Commerce Associates LP v. New Castle County Office of Assessment successfully underscored the largest flaw in the system.

One Commerce Center is an office condominium building in Wilmington, Delaware. The county originally assessed each office condominium upon construction in 1983. After keeping the same tax assessment for decades, the owners of several of the condominiums challenged their assessments in 2015.

Before the County Board of Assessment Review, the owners presented five different analyses. Two analyses relied on comparable sales transactions, one using 1983 sales of buildings that were about 32 years old, and one using modern asking prices trended back to 1983 using the Consumer Price Index (CPI). Two analyses relied on income, one using 1983 data and one using 2015 data trended back to 1983 using the GPI. The fifth analysis employed a cost approach using the original construction expense and reflecting depreciation. These approaches showed that the properties were over-assessed by more than 40 percent.

The county presented evidence of the condominiums' sale prices in 1985, when each unit was relatively new. The county also presented an income approach using 1983 data and a cost approach reflecting no depreciation. The county's approaches all supported the original assessed values, and the board ultimately denied the taxpayers' appeals.

State Supreme Court Approves a Decrease

After having their appeals denied by the Superior Court, the taxpayers brought their challenge to the Delaware Supreme Court. In a tersely worded decision, the Supreme Court reiterated that assessors must consider all relevant factors bearing on the value of a property in its current condition. While the County argued that no depreciation was needed because the properties were brand new in 1983, the court noted that the properties were, in reality, more than 34 years old. Failing to account for their age and any resulting depreciation or appreciation resulted in a flawed value.

Although the county has yet to implement the court's decision, the effects of the decision will likely be widespread. Most properties in New Castle County built after 1983 are assessed without any depreciation. Because each tax year brings with it a new opportunity to challenge an assessment, property owners can bring a new appeal reflecting the property's current depreciation to the Board of Assessment Review every year. Ultimately, this could result in the downfall of the decades-old base-year assessment, as the county finds it necessary to update assessments for a larger number of properties.

A number of questions remain unanswered by the court's ruling. How should assessors value properties in areas that were rural in 1983 but are now highly developed? How can taxpayers quantify and reconcile appreciation and depreciation?

Future cases will need to resolve these questions, but for now, owners of Delaware property should evaluate their portfolios and determine whether opportunities exist to improve profitability by reducing property taxes.

July 10, 2017

Board of Directors IAAO
IAAO Headquarters 314 West 10th Street
Kansas City, Missouri 64105

Re: Big Box Valuation Paper

Dear Board Members:

I am the President of American Property Tax Counsel ("APTC"), the preeminent organization of real estate tax attorneys in North America. On behalf of the APTC, we offer these comments regarding your Special Committee on valuing Big Box properties.

Our primary concern is that the report is misleading. The purpose of the report does not appear to teach generally accepted appraisal methods but, instead, to advocate for changes to longaccepted definitions of property rights while professing it is a defense of the status quo.

The paper is essentially written as an activist piece designed to give assessors questionable legal arguments to be used in pending litigation to the end of influencing the decisions in those appeals. Whether that scheme is ethical will be addressed later in these comments.

As attorneys, our concern is the accuracy of the legal arguments advanced in the paper. The starting point is to ask the question, "why would the assessor's organization attempt to write a paper addressing legal theory and not one on appraisal methodology?" Again, it appears to be nothing more than an attempt to support new legal/appraisal theories to gain an advantage in pending litigation and to shape public opinion to support a new way of valuing and taxing retail properties instead of valuing the properties in fee simple.

Some decisions cited in the paper are misleading. Often, numerous cases from one state or another were ignored. Decisions that did not support the new narrative from states such as Michigan, Kansas, California, Massachusetts, Ohio, Indiana, Pennsylvania & Oregon were never even mentioned. But, the paper included cases from Ohio that were all overturned by a statutory change. ln as much as the changes were 3 to 4 years ago, it seems the inclusion of these irrelevant cases was careless or intentional, at worst. The Supreme Court of Ohio recently issued the first decision of a case reflective of the new law. Terraza 8, LLC v. Franklin County Board of Revision, 2017-0hio-4415 (June 22, 2017). The paper, at a minimum, should be corrected and updated on the Ohio cases and include a robust and accurate discussion of the relevant cases ignored by the authors.

A Kentucky case was cited with a notation it was appealed. In fact, discretionary review of that case was denied but the court ordered that case's decision be de-published. lt is inappropriate for the report to cite or rely on a de-published decision.

Another case citation was to a lower level Idaho administrative body but the report reads as if it was a case decided by an appellate court. The Idaho Board of Tax Appeals is not a court. Its decisions are not precedent and are appealed de novo to the District Court. If Idaho does not consider the case to have any precedent, why is it included in the IAAO paper? A similar concern was raised about the citations to non-precedential cases in Florida.

ATPC members also expressed concerns over how the decisions in North Carolina and other states were misconstrued in the report.

Any rational reading of this report would lead to a conclusion that it is not credible because the paper steers one to accept as true that it is a discussion of the current law on the valuation of big boxes. It is not. It advocates for a very significant change in appraisal methodologies and property rights. The IAAO is attempting to legislate through Standards. Any change to the law as to what property rights are to be valued and taxed should be left to each state and respectful of the obligation to value all property in a uniform and equal manner and without regard to the owner or tenant.

Another important concern relates to the ethical issue of whether it is appropriate for the IAAO to interject the organization into pending matters to influence the end results.

The IAAO Code of Ethics suggests that it is not appropriate for the IAAO to do so for many reasons. For instance, the Code provides:

• "It is unethical for members to conduct their professional duties in a manner that could reasonably be expected to create the appearance of impropriety ...
• It is unethical to perform any appraisal, assessment, or consulting service that is not in compliance with the IAAO governing documents or the Uniform Standards of Professional Appraisal Practice ...
• It is unethical for members to accept an appraisal or assessment-related assignment that can reasonably be construed as being in conflict with their responsibility to their jurisdiction, employer, or client, or in which they have an unrevealed personal interest or bias ...
• It is unethical to accept an assignment or responsibility in which there is a personal interest without full disclosure of that interest ...
• It is unethical to accept an assignment or participate in an activity where a conflict of interest exists and could be perceived as a bias, or impair objectivity ...
• It is unethical to knowingly fail to observe the requirements of the Uniform Standards of Professional Appraisal Practice ... "

There are pending cases across the country on this very issue, including many in the home states of the authors of this report. This paper imbeds the IAAO into pending litigation with no acknowledgment of that in the report. The report is silent on the pending matters where one or more authors are a party. The paper is silent on the conflicts of interest of the authors, the Board of Directors and the organization.

The IAAO, in its amicus brief in the Menard v. City of Escanaba case before the Michigan Supreme Court, said, "Given its significant authoritative status in the appraisal industry, all appraisers are encouraged to follow the standards in the Appraisal Institute's treatise, The Appraisal of Real Estate." This report advocates for methods specifically repudiated in the Appraisal of Real Estate, 14 th edition. To adopt the report would be contrary to the pronouncements made by the IAAO to the Michigan Supreme Court and violate of the IAAO Code of Ethics' requirement to observe the requirements of USPAP.

While the APTC strongly disagrees with the paper's definitions and misrepresentations of appraisal methodology, fee simple, property rights vs. contract rights, the applicability of build-to-suit and/or sale leaseback rental and sales information, and many other issues in the paper, the APTC will leave that critique to appraisal organizations such as the Appraisal Institute and those members of the Appraisal Institute with expertise in the fields of appraisal methodology and USP AP compliance.

In summary, the concerns of the APTC relate to (1) the misrepresentation of the law; (2) the appropriateness of the IAAO advocating to change the law of ad valorem taxation and the long accepted definitions; and (3) the ethical issues relating to conflicts of interest and the misrepresentations.

For these reasons APTC formally submits its objections to the IAAO Paper and requests it be withdrawn. The APTC stands ready and willing to participate in any meaningful discussions with the IAAO relative to this issue.

Respectfully yours,
Stephen Paul, Esq.
President, American Property Tax Counsel
Partner, Faegre Baker Daniels
300 North Meridian Street, Suite 2700
Indianapolis, Indiana 46204