Southlake Indiana LLC v. Lake County Assessor ( 2019 )

ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
MATTHEW M. ADOLAY CURTIS T. HILL, JR.
WOODEN MCLAUGHLIN LLP ATTORNEY GENERAL OF INDIANA
Indianapolis, IN WINSTON LIN
MEREDITH B. MCCUTCHEON
THOMAS M. ATHERTON DEPUTY ATTORNEYS GENERAL
BOSE MCKINNEY & EVANS LP Indianapolis, IN
Indianapolis, IN
FILED
IN THE Nov 25 2019, 1:59 pm
INDIANA TAX COURT CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
SOUTHLAKE INDIANA LLC, )
)
Petitioner, )
)
v. ) Cause No. 18T-TA-00016
)
)
LAKE COUNTY ASSESSOR, )
)
Respondent. )
ON APPEAL FROM A FINAL DETERMINATION
OF THE INDIANA BOARD OF TAX REVIEW
FOR PUBLICATION
November 25, 2019
WENTWORTH, J.
Southlake Indiana LLC challenges the Indiana Board of Tax Review’s final
determination that valued its real property for each of the 2007 through 2014 tax years.
Upon review, the Court reverses the Indiana Board’s final determination.
RELEVANT FACTS AND PROCEDURAL HISTORY
Southlake owns a 7.23 acre parcel with a 90,000 square-foot, two-story building
located in a premier retail location in Merrillville, Indiana. (See Cert. Admin. R. at 282,
576.) The property is a freestanding outlot building of the Southlake Mall, a large regional
mall with several anchor stores. (See Cert. Admin. R. at 293, 845-54.) The property sits
near a heavily traveled intersection at US 30 and Mississippi Street, with access and
visibility from both streets. (See Cert. Admin. R. at 573-74, 577.)
In 1992, Southlake entered into a build-to-suit lease with a Kohl’s discount
department store, which was renewed in 2012. (See Cert. Admin. R. at 397-98, 1457-
58, 1707.) In its build-to-suit leases, Kohl’s requires its properties to be developed
according to its national specifications. (See Cert. Admin. R. at 1704-06.) To determine
a rental rate, Kohl’s applies a mortgage constant to the construction costs,
compensating both the developer and owner for their investments. (See Cert. Admin.
R. at 1706.) Under the terms of the Southlake lease, Kohl’s paid a fixed rental rate plus
an additional 1.5% of its retail sales above $14,500,000. (See Cert. Admin. R. at 397,
546.)
For each tax year from 2007 through 2012, the Lake County Assessor valued the
property at $16,775,300 and for 2013 and 2014 valued the property at $13,700,000. (See
Cert. Admin. R. at. 533-34.) Believing those values to be too high, Southlake filed appeals
with the Lake County Property Tax Assessment Board of Appeals (“PTABOA”), which
reduced the assessments to $11,600,000 (2007); $12,500,000 (2008); $15,200,000
(2009); $11,500,000 (2010); $12,000,000 (2011); $12,700,000 (2012); $13,700,000
(2013); and $13,700,000 (2014). (See Cert. Admin. R. at 4, 12, 23, 38, 51, 64, 78, 81-
2
82, 87.) Still believing the property was over-assessed, Southlake appealed to the
Indiana Board.
In February and December of 2016, the Indiana Board conducted its hearing on
Southlake’s appeals. The parties each presented appraisals that valued the property
using the cost, sales comparison, and income approaches to value; both appraisals,
however, relied primarily on the income approach 1 on the basis that investors would be
the most likely purchasers of the property. (See Cert. Admin. R. at 445, 551, 738-42,
1474, 2162.)
Coers Appraisal
Southlake presented a USPAP-compliant appraisal prepared by Sara Coers, a
member of the Appraisal Institute (MAI). (See Cert. Admin. R. at 274-75.) In her income
approach, she estimated the subject property’s rent using three different methods: 1)
averaging extracted market rents of other Indiana properties, 2) calculating rent as a
percentage of gross sales, and 3) calculating a cost-based rent. (See Cert. Admin. R. at
400-17, 1459-65.) Based on these methods, Coers determined that the subject property’s
contract rent was actually below market rents that ranged from $5.50 to $7.00 per square
foot. (See Cert. Admin. R. at 397, 416-17.)
After accounting for expenses, Coers concluded that the property’s net operating
income (NOI) ranged from $4.88 to $6.09 per square foot. (See Cert. Admin. R. at 423-
1
The income approach “is used for income producing properties that are typically rented[, and]
converts an estimate of income, or rent, [a] property is expected to produce into value through a
mathematical process known as capitalization.” See 2002 REAL PROPERTY ASSESSMENT MANUAL
(2004 Reprint) (“2002 Manual”) (incorporated by reference at 50 IND. ADMIN. CODE 2.3-1-2 (2002
Supp.) (repealed 2010)) at 3; 2011 REAL PROPERTY ASSESSMENT MANUAL (“2011 Manual”)
(incorporated by reference at 50 IND. ADMIN. CODE 2.4-1-2 (2011)) at 2.
3
30, 1470-71.) She then selected loaded overall capitalization rates ranging from 7.15%
to 8.65% that were based on rates extracted from market sales in Indiana, Ohio, and
Kentucky as well as investor surveys. (See Cert. Admin. R. at 432-40, 1471-73.) After
applying the capitalization rates to her NOI values, Coers estimated the property’s market
value-in-use as follows: $6,460,000 (2007); $6,240,000 (2008); $5,350,000 (2009);
$5,090,000 (2010); $5,970,000 (2011); $6,500,000 (2012); $7,050,000 (2013); and
$7,160,000 (2014). (Cert. Admin. R. at 438-39, 1473.)
Kenney Appraisal
The Assessor presented a USPAP-compliant appraisal prepared by Mark Kenney,
MAI. (See Cert. Admin. R. at 525-28, 1739-40, 1760.) In his income approach, Kenney
assumed that both the subject property’s category and its location near the Southlake
Mall limited the types of comparable leases to those with similar users. (See Cert. Admin.
R. at 576, 2286-87, 2289-90.) Kenney then concluded that the subject property’s highest
and best use was as a discount department store and that leased fee sales were the most
relevant comparable sales for estimating its market rent. (See Cert. Admin. R. at 551.)
Kenney averaged market rents extracted from sale-leaseback and build-to-suit
leases of several Kohl’s stores and other national discount department stores and big box
stores, estimating that the market rent ranged between $9.00 to $10.50 per square foot.
(See Cert. Admin. R. at 655-68.) Using these market rent estimates, Kenney concluded
that the property’s NOI ranged from $8.19 to $9.58 per square foot during the years at
issue. (See Cert. Admin. R. 674-81.)
Finally, Kenney developed overall capitalization rates that ranged from 6.7% to
7.6%. (See Cert. Admin. R. at 674-81.) He applied the capitalization rates to his NOI
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estimates to arrive at final values for the subject property of $11,700,000 (2007);
$11,800,000 (2008); $10,900,000 (2009); $12,100,000 (2010); $12,100,000 (2011);
$11,000,000 (2012); $12,300,000 (2013); and $13,000,000 (2014). (See Cert. Admin. R.
at 714-16.)
The Indiana Board’s Final Determination
On May 10, 2018, the Indiana Board issued a final determination. In it, the Indiana
Board assigned no weight to either party’s sales comparison or cost approaches. (See
Cert. Admin. R. at 3372 ¶ 130, 3379 ¶ 151.) In considering each appraisal’s income
approach, the Indiana Board noted that Kenney provided a more detailed market rent
analysis than Coers by offering more relevant comparable properties. (See Cert. Admin.
R. at 3374-75 ¶¶ 136-37 (stating that Coers’s reliance on a month-to-month lease for a
fireworks store in a soon-to-be demolished building cast significant doubt on her
analysis).) To determine which appraiser’s estimate of market rent was best supported,
however, the Indiana Board used its own unique evaluation method.
First, the Indiana Board selected sixteen leases, five from Coers’s data and eleven
from Kenney’s data, that it found most relevant to the subject property’s market. (See
Cert. Admin. R. at 3374-75 ¶ 137.) Of those leases, nine were Kohl’s build-to-suit leases
from various locations across the United States with rents ranging from $6.40 to $11.97
per square foot, and two leases involved properties that were located close to the subject
property (i.e., Gander Mountain and The RoomPlace) with rents of $7.42 and $9.75 per
square foot. (See Cert. Admin. R. at 3374-76 ¶¶ 137-39.)
Next, the Indiana Board compared the rents from its selected leases with Coers’s
and Kenney’s estimated market rents and concluded that Kenney’s estimates were better
5
supported than Coers’s. (See Cert. Admin. R. at 3376 ¶ 140.) The Indiana Board
explained that once it “corrected” and “reconstructed” Coers’s gross sales percentage
rent analysis, Coers’s rent estimates themselves supported Kenney’s. (See Cert. Admin.
R. at 3376-77 ¶¶ 141-43 (stating that Coers’s analysis was flawed because she based
her findings on gross rent clauses and not rent as a percentage of gross sales).)
Finding Kenney’s estimated market rents more credible, the Indiana Board
adopted Kenney’s income approach values. 2 As a result, the Indiana Board valued the
property as follows: $11,700,000 (2007); $11,800,000 (2008); $10,900,000 (2009);
$9,600,000 (2010); $9,600,000 (2011); $10,400,000 (2012); $12,300,000 (2013); and
$13,000,000 (2014). (See Cert. Admin. R. at 3380 ¶ 153.)
Southlake initiated this original tax appeal on June 22, 2018. The Court conducted
oral argument on December 20, 2018. Additional facts will be supplied when necessary.
STANDARD OF REVIEW
The party seeking to overturn an Indiana Board final determination bears the
burden of demonstrating its invalidity. Osolo Twp. Assessor v. Elkhart Maple Lane
Assocs., 789 N.E.2d 109, 111 (Ind. Tax Ct. 2003). Accordingly, Southlake must
demonstrate to the Court that the Indiana Board’s final determination is arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to
constitutional right, power, privilege, or immunity; in excess of or short of statutory
jurisdiction, authority, or limitations; without observance of the procedure required by law;
or unsupported by substantial or reliable evidence. See IND. CODE § 33-26-6-6(e)(1)-(5)
2
The Indiana Board substituted Coers’s capitalization rates for Kenney’s in 2010, 2011, and 2012
because Kenney’s were actually below the ranges of rates selected in his own data. (See Cert.
Admin. R. at 3378-79 ¶¶ 149-50.)
6
(2019). On review, however, the Court may not reweigh or assess the credibility of
evidence absent finding an abuse of discretion. See Clark Cty. Assessor v. Meijer Stores
LP, 119 N.E.3d 634, 642 (Ind. Tax Ct. 2019).
LAW
In Indiana, real property is assessed on the basis of its “market value-in-use.”
2002 REAL PROPERTY ASSESSMENT MANUAL (2004 Reprint) (“2002 Manual”) (incorporated
by reference at 50 IND. ADMIN. CODE 2.3-1-2 (2002 Supp.) (repealed 2010)) at 2; 2011
REAL PROPERTY ASSESSMENT MANUAL (“2011 Manual”) (incorporated by reference at 50
IND. ADMIN. CODE 2.4-1-2 (2011) at 2. See also IND. CODE § 6-1.1-31-6(c) (2007)
(amended 2016). Market value-in-use is defined as the value “of a property for its current
use, as reflected by the utility received by the owner or a similar user, from the property.”
2002 Manual at 2; 2011 Manual at 2. Because Indiana’s property tax system taxes the
value of real property – and not business value, investment value, or the value of
contractual rights – this Court has explained that “market value-in-use, as determined by
objectively verifiable market data, is the value of a property for its use, not the value of its
use.” Stinson v. Trimas Fasteners, Inc., 923 N.E.2d 496, 501 (Ind. Tax Ct. 2010) (citation
omitted). See also IND. CODE § 6-1.1-1-15 (2007) (amended 2008) (stating what
constitutes “real property” for purposes of property tax assessment).
Accordingly, when valuing a property under the income approach, the fee simple
interest in property must be valued based on an estimate of market rent, not contract rent.
See Grant Cty. Assessor v. Kerasotes Showplace Theatres, LLC, 955 N.E.2d 876, 881
(Ind. Tax Ct. 2011) (explaining that “‘[a]ny potential value increment in excess of a fee
simple estate is attributable to the particular lease contract . . . [and] constitute[s] contract
7
[rights] rather than real property rights’” (citation omitted)). Market rent is defined as the
“most probable rent that a property should bring in a competitive and open market
reflecting all conditions and restrictions of the lease agreement[.]” APPRAISAL INSTITUTE,
THE APPRAISAL OF REAL ESTATE 447 (14th ed. 2013). Comparable rental data used to
estimate market rent must therefore represent freely negotiated, arm’s length
transactions. See id. at 466.
ANALYSIS
On appeal, Southlake presents seven issues for the Court to decide. The Court
consolidates and restates those issues as whether the Indiana Board’s final determination
must be reversed because it 1) relied on market rent values that are contrary to law; and
2) is unsupported by substantial and reliable evidence.
1. Contrary to Law
A final determination of the Indiana Board is contrary to law if it violates a statute,
constitutional provision, legal principle, or rule of substantive or procedural law. See
Meijer, 119 N.E.3d at 641. Southlake contends that in relying on Kenney’s market rent
estimates, the Indiana Board violated the legal principles in this Court’s jurisprudence that
leases reflecting contract rents cannot be used to estimate market rent. (See Pet’r Br. at
17-31, Pet’r Reply Br. at 4-5 (citing Kerasotes, 955 N.E.2d at 881-82).)
In its Kerasotes opinion, the Court rejected the use of unadjusted sale-leaseback
transactions to determine market rent. See Kerasotes, 955 N.E.2d at 882. Noting that
sale-leaseback transactions often value more than just the real property, the Court found
that “one should approach the rental data from such transactions with caution, taking care
to ascertain whether the sales prices/contract rents reflect real property value alone or
8
whether they include the value of certain other economic interests.” Id. (citation omitted).
Thus, while Kerasotes does not specifically prohibit the use of sale-leaseback
transactions when valuing property, it does require either the adjustment of the rent to
remove any non-taxable property values that are included or the presentation of evidence
to show that the rent reflects the market value of the real property alone. See id.; Shelby
Cty. Assessor v. CVS Pharmacy, Inc. #6637-02, 994 N.E.2d 350, 354 (Ind. Tax Ct. 2013)
(finding that contract rent based on a sale-leaseback transaction valued more than the
real property where the lease was used to generate business capital from investors). See
also THE APPRAISAL OF REAL ESTATE at 466 (“[s]ince sale-leasebacks are actually
financing vehicles, they should not be used in estimating market rent”). This same
requirement of caution and adjustment applies to the use of build-to-suit leases when
valuing property. See Kerasotes, 955 N.E.2d at 881-82 (citing Walgreen Co. v. City of
Madison, 752 N.W.2d 687, 701, 703 (Wis. 2008)).
In this case, the Indiana Board acknowledged that Kenney had not adjusted the
rental data contained in the build-to-suit leases on which he relied. (See, e.g., Cert.
Admin. R. at 3373-74 ¶¶ 132, 136.) Nonetheless, the Indiana Board found that the
testimony of Kendall Lees, a Kohl’s Real Estate Expense Manager, supported Kenney’s
decision not to adjust the market rent estimates because they were above market due to
business strategy, not because they reflected non-property interests associated with
raising capital or financing personal property. (See Cert. Admin. R. at 3340-41 ¶¶ 20-22,
3374 ¶ 135, 3376 ¶ 140.) The Indiana Board, however, ignored both the breadth and
substance of his testimony:
Q. Does the build-to-suit and reverse build-to-suit structure
transaction, does that allow Kohl’s to open more stores?
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A. It does. You know, certainly, we’re not necessarily cash poor, but,
you know, some of these -- these are really financing transactions for
going into these stores, these build-to-suit and reverse build-to-suit.
So since Kohl’s is not -- its not putting out all those funds for these
stores, it frees up our cash for a lot of other things, to build more stores,
for advertising, to expand. You know, we’ve gone through a very
significant expansion through the late ‘90s and 2000s. And it’s
something -- like I said, we’re not cash poor, but do have significant
borrowings, so it[] helps to minimize some of our borrowings.
Q. So does Kohl’s make a conscious decision when it enters into a
reverse build-to-suit or a build-to-suit lease . . . to incur an obligation
for a rate of rent that it knows is above the market rate?
A. No. We certainly don’t want to incur a rate above market rent . . .
but I know it does happen. . . . [W]e developed strategy for where we
want our stores. And sometimes, those locations -- when we go into
a new market, those locations -- some may be at market. Some
landowners, developers may not be willing to develop property at the
time that we want to go in there. So we need to pay a premium to get
in. It’s cost effective for us to do that, because we’re spreading it out
over the entire market. We can spread out our advertising costs. And
its something that we need to do to create a presence in the market in
the right places. There may be a location three miles away from an
existing store that we can get for a market rent, but it’s not where we
want to be. 10 miles away might be another location that fits in better
with our other stores, so we’re willing to pay whatever the rent is there
as long as it’s something we can still -- we can make a reasonable
profit on from our operations side.
*****
Q. When Kohl’s is negotiating a build-to-suit or reverse build-to-suit
transaction, are they negotiating for a market rate of rent, or are they
negotiating a financing transaction?
A. We’re negotiating for that financing transaction.
(Cert. Admin. R. at 1707-09; 1733-34.)
Lees’s testimony confirms that Kohl’s build-to-suit rents are often above market
because they actually reflect non-property interests. (See Cert. Admin. R. at 3340-41 ¶¶
21-22, 3376 ¶ 140.) Accordingly, the build-to-suit leases that both Kenney and the
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Indiana Board relied upon should have been adjusted to be probative evidence of market
rent under Kerasotes. There is no evidence in the administrative record that this occurred.
Moreover, the Indiana Board’s explained that it properly relied on Kenney’s market
rent estimates because Coers also used unadjusted build-to-suit rents in her analysis.
(See Cert. Admin. R. at 3373-74 ¶¶ 132-33, 136.) This explanation, however, is unsound.
The evidence in the administrative record demonstrates that Coers treated the build-to-
suit leases in her analysis in accordance with Kerasotes. Indeed, while Coers included
unadjusted build-to-suit leases in her market extraction analysis, she explained that she
ultimately did not consider them because they were old leases and she did not have a
“great way” to adjust them to market levels. (See Cert. Admin. R. at 1458-59, 1490-91,
1667-69.) Coers further explained that she would not consider build-to-suit rental data in
her analysis unless she could confirm that the leases were motivated by market terms,
that the potential above-market rent could be isolated, or how the increment of tenant
quality could affect the sales price. (See Cert. Admin. R. at 2599-2601.)
Coers also acknowledged that she considered market surveys that may have
included build-to-suit lease data in her percentage of gross sales analysis and in the
development of her capitalization rates. (See Cert. Admin. R. at 432, 1459-61; see also
Pet’r Br. at 46-47 (explaining that Coers considered retail sales of properties with build-
to-suit leases, not the rents for those properties).) Nonetheless, she repeatedly explained
that she took care to either avoid reliance on or otherwise account for build-to-suit data
influences. (See, e.g., Cert. Admin. R. at 1458-61 (stating that while she presented two
Kohl’s leases in her market rent comparable properties, she considered them to be far
less relevant because they were build-to-suit), 432 (stating that in developing her
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capitalization rates, “[l]eased fee sales of newer single-tenant, net lease investment
properties like leased Kohl’s were given less consideration because they typically involve
above-market lease terms, and market participants price these properties based on the
investment quality of the tenant”), 1462-63 (explaining that her percentage of gross sales
analysis was not intended to value the business or even the specific user of the property
in any way), 1471 (explaining that with a capitalization rate, it is nearly impossible to avoid
using sales of leased properties where tenant quality and credit strength could factor into
risk premiums paid when the property sells).) This evidence shows that Coers exercised
caution – as required by Kerasotes – whenever build-to-suit rental data was included in
her analyses, and the record is devoid of relevant evidence that shows otherwise. (See
also Pet’r Br. at 42-47.) Accordingly, the Indiana Board’s finding that Coers relied on
build-to-suit leases that did not reflect market rent is unsupported by the record evidence.
In determining the subject property’s market value-in-use, Kenney, and ultimately
the Indiana Board, relied heavily on build-to-suit rental data that was neither adjusted nor
explained as reflecting market rent as required by Kerasotes. Consequently, the Indiana
Board’s market rent conclusions are contrary to law.
2. Unsupported by Substantial and Reliable Evidence
A final determination is unsupported by substantial and reliable evidence if a
reasonable person reviewing the entire record could not find enough relevant evidence
to support it. See CVS Corp. (#6698-02) v. Monroe Cty. Assessor, 83 N.E.3d 1281, 1285
(Ind. Tax Ct. 2017). Southlake claims that the Indiana Board’s adjustment of Coers’s
percentage of gross sales market rent estimates is unsupported by substantial and
reliable evidence. (See Pet’r Br. at 34-39, Pet’r Reply Br. at 17-18.)
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One method Coers used to develop her market rents was a percentage of gross
sales analysis that evaluated potential sales of various types of retailers (i.e., discount
department stores, junior department stores, junior discount department stores, and
discount mixed apparel) and is published in national market surveys and other trade
reports. (See Cert. Admin. R. at 411-16, 1461-65, 1674-80, 3349-50 ¶¶ 50, 52.) Coers
also considered Kohl’s national and Indiana sales data as a proxy for discount department
stores sales. (See Cert. Admin. R. at 413, 1463.) Although Coers believed that the
subject property was best categorized as a discount department store, she used the
median sales from both the discount department store and the junior discount department
store categories to develop a range of annual sales per square foot – with junior discount
department stores representing the lower end of the range. (See Cert. Admin. R. at 414,
1676.) Coers then applied a range of rent, expressed as a percentage of sales from 1.5%
to 3.0% as reported in “Dollars & Cents,” to the median sales per square foot for each
retail category to determine a market rent. (See Cert. Admin. R. at 415-16, 1462-1465,
1674-80 (explaining that expressing rent as a percentage of gross sales is like “equat[ing]
30 percent of your income going towards your house payment”).)
In its final determination, the Indiana Board found Coers’s analysis flawed because
it could not duplicate her calculations, inferring that she “evidently” based it on gross rent
clauses in the leases instead of rent as a percentage of gross sales. (See Cert. Admin.
R. at 3376 ¶ 141 (stating that “[o]ftentimes, as with the lease on the Southlake Outlot,
gross percentage rent is in addition to fixed rent[; t]he median clause percentage is not
helpful without knowing the fixed median base rate”).) The Indiana Board “corrected”
Coers’s alleged error by dividing the median rent per square foot by the median sales per
13
square foot to arrive at a new “range of medians of gross percentage sales as a measure
of rent” of 2.03% to 4.22%, not the 1.5% to 3% range used by Coers. (See Cert. Admin.
R. at 3376 ¶ 141.)
The Indiana Board also determined that the subject property’s sales were more
likely at the high end of Coers’s discount department store sales per square foot rate
range, and the percentage rental rate was best reflected by the junior discount
department store category, not the discount department store category, due to its “prime
location.” (See Cert. Admin. R. at 3377 ¶ 142.) Based on those findings, the Indiana
Board “reconstruct[ed]” Coers’s gross percentage of sales analysis, multiplying its newly
derived percentage rent for junior discount department stores by its newly concluded
sales per square foot rate for discount department stores. (See Cert. Admin. R. at 3377
¶¶ 142-43.) The Indiana Board’s corrected calculations produced square foot rental rates
ranging from $9.54 to $10.25 for the years at issue, which it found were “remarkably
supportive of the market rents proposed by Kenney.” (See Cert. Admin. R. at 3376-77
¶¶ 141, 143.)
Southlake asserts that the Indiana Board’s alteration of Coers’s percentage of
gross sales market rent estimation was made out of whole cloth – a new analysis and
appraisal technique that is unsupported by record evidence. (See Pet’r Br. at 34-39, 48-
50.) Southlake states that the Indiana Board’s new analysis is tantamount to a rebuttal
to Coers’s evidence, which is the purview of an advocate and therefore outside of the
scope of the Indiana Board’s authority. (See Pet’r Br. at 48-50 (citing Hometowne Assocs.
v. Maley, 839 N.E.2d 269, 280 (Ind. Tax Ct. 2005) (explaining that the Assessor carries
the burden to rebut the taxpayer’s prima facie case, not the Indiana Board)).)
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The Indiana Board provided little basis for its conclusion that Coers’s percentage
of gross sales analysis was erroneous, and it seemed to bolster its conclusion by
providing its own independent analysis to correct Coers’s alleged error. (See Cert.
Admin. R. at 3376 ¶ 141 n.2 (explaining that Coers’s analysis was substantially flawed
because it “infer[red] that the survey data references reported percentage rent clauses”
when it could not duplicate her arithmetic).) Moreover, the Indiana Board cited no
evidence or authority to support its methodology or show that it actually corrected the
alleged error in Coers’s analysis. (See Cert. Admin. R. at 3377 ¶¶ 142-43.) (See also
Pet’r Br. at 38-39 (arguing that the Indiana Board provided no reason to mix and match
the survey data, but doing so was the only way to get to a value that would support
Kenney’s market rents).) Accordingly, no reasonable person reviewing the administrative
record would find enough relevant evidence to support the Indiana Board’s reconstruction
of Coers’s percentage of gross sales analysis or its resulting conclusions; as a result, it
is unsupported by substantial and reliable evidence. See Amax Inc v. State Bd. of Tax
Comm’rs, 552 N.E.2d 850, 852 (Ind. Tax Ct. 1990) (stating that “‘[s]ubstantial evidence is
more than a scintilla[; i]t means such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion’” (citation omitted)).
CONCLUSION
The Tax Court reverses the Indiana Board’s final determination in this matter
because its reliance on Kenney’s market rent estimates is contrary to law and its
repudiation of Coers’ percentage of gross sales analysis is unsupported by substantial
15
and reliable evidence. 3 Accordingly, the Court remands the matter to the Indiana Board
with instructions to assign the subject property a market value-in-use under the income
approach that: 1) calculates the property’s NOI each year at issue by replacing Kenney’s
market rents with the market rents derived by Coers through her reconciliation of her
market extraction and gross percentage of sales estimations; 4 and 2) applies Coers’s
capitalization rates for 2010, 2011, and 2012, but Kenney’s capitalization rates for 2007,
2008, 2009, 2013, and 2014. (See Cert. Admin. R. at 3368 ¶ 116, 3380 ¶ 153.)
3
Southlake asks the Court to determine several other issues including whether the Indiana Board
erroneously ignored evidence and violated Southlake’s due process rights, and whether the
Assessor waived the ability to present certain arguments. (See Pet’r Br. at 49-50, Pet’r Reply Br.
at 5-6, Oral Arg. Tr. at 43-45.) The Court will not address these issues because the matter is
resolved on other grounds.
4
The Indiana Board found Coers’s third method of calculating market rent was not probative and
the Court will not reweigh that evidentiary determination. (See Cert. Admin. R. at 3371-72 ¶ 128,
3377 ¶ 144.)
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