Rider Hotel, LLC, A Domestic Limited Liability Company v. City of Milwaukee, a Municipal Corporation ( 2024 )

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
June 11, 2024
A party may file with the Supreme Court a
Samuel A. Christensen petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.
Appeal No. 2022AP1141 Cir. Ct. No. 2018CV5246
STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT I
RIDER HOTEL, LLC, A DOMESTIC LIMITED LIABILITY COMPANY,
PLAINTIFF-APPELLANT,
V.
CITY OF MILWAUKEE, A MUNICIPAL CORPORATION,
DEFENDANT-RESPONDENT.
APPEAL from a judgment of the circuit court for Milwaukee
County: CARL ASHLEY, Judge. Affirmed.
Before Donald, P.J., Geenen and Colón, JJ.
Per curiam opinions may not be cited in any court of this state as precedent
or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).
¶1 PER CURIAM. Rider Hotel, LLC (“Rider”), owner of the Iron
Horse Hotel in Milwaukee (“Property” or “Iron Horse”), appeals from a judgment
No. 2022AP1141
of the circuit court dismissing its claims for partial property tax refunds under
WIS. STAT. § 74.37(3)(d) (2017-18),1 arguing that the City of Milwaukee’s
(“City”) 2017 and 2018 assessments of the Property were excessive in violation of
WIS. STAT. § 70.32(1). Specifically, Rider argues that the City’s assessments
upon which the circuit court relied failed to follow the Markarian hierarchy,2
unlawfully averaged the Property’s historical work-up values to calculate the
Property’s fair market value, and failed to account for “multiple significant
factors” affecting the Property’s fair market value. We reject Rider’s arguments
and affirm.
BACKGROUND3
¶2 Rider brought this action against the City under WIS. STAT.
§ 74.37(3)(d), claiming that it was entitled to partial property tax refunds because
1
All references to the Wisconsin Statutes are to the 2017-18 version unless otherwise
noted.
2
In State ex rel. Markarian v. City of Cudahy, 45 Wis. 2d 683, 685-86, 173 N.W.2d
627 (1970), the Wisconsin Supreme Court set forth a tiered system of approaches for calculating
the fair market value of real estate for property tax assessment purposes in which assessors are to
apply the highest tier that the best practicably available information will allow. See also State ex
rel. Collison v. City of Milwaukee Bd. of Rev., 2021 WI 48, ¶¶23-26, 397 Wis. 2d 246, 960
N.W.2d 1. The tiered system is now codified at WIS. STAT. § 70.32(1).
Here, the City assessor applied a tier three “income approach” while Rider argues that it
should have used a tier two “sales comparison approach.”
3
The parties are reminded that WIS. STAT. RULE 809.19(1)(d)-(e) (2021-22) requires the
parties to reference and cite to the record in their appellate briefs. Citations to proposed findings
of fact and conclusions of law filed with the circuit court are technically citations to the record,
but they are not as helpful as citations to actual trial transcripts and exhibits, and they are
affirmatively unhelpful when the proposed findings themselves contain no record citations.
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No. 2022AP1141
the City’s 2017 and 2018 assessments of the Property were excessive in violation
of WIS. STAT. § 70.32(1).4
¶3 The circuit court conducted a bench trial from May 24 to May 26,
2021, during which the parties each presented evidence regarding the Property’s
fair market value, including the testimony and appraisal reports of their respective
expert witnesses: Duane Debelak as Rider’s appraiser, and James Wiegand as the
City’s assessor.
¶4 Debelak performed a tier two “sales comparison approach” to
calculate the Property’s fair market value.5 Debelak identified six properties that
he claimed were reasonably comparable to the Iron Horse, but he had to make
large adjustments in order to bring those properties in line with the Iron Horse.
Four of the six properties reflected a net adjustment between 35% and 40% while
another property reflected a 70% net adjustment, and Debelak admitted that “the
higher the percentage of adjustment, the less similarity” between the subject
property and the comparative property. The Iron Horse has a full-service
restaurant that comprised approximately 40% of its total revenue. However, only
one of the proposed comparable properties had a full-service restaurant like the
Iron Horse, while another had a bar/lounge with no onsite kitchen; the remaining
four had no restaurant, bar, or lounge. Additionally, while the Iron Horse is
4
Rider filed timely objections and appeals of the 2017 and 2018 assessments with the
City’s Board of Review. The Board of Assessors and Board of Review sustained both
assessments and disallowed Rider’s claims, prompting the filing of the instant case in the circuit
court.
5
It is undisputed that the Property had not been recently sold, so a tier one approach
could not be performed. Debelak also performed a tier three income approach “as a check” on
the tier two sales comparison approach, but he did not rely on the income approach in his final
value conclusion.
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No. 2022AP1141
categorized as an “upper upscale” hotel, only one of the six comparable properties
was identified by Debelak as sharing that category.
¶5 Wiegand considered a tier two sales comparison approach, but
determined that there were no recent arm’s-length sales of reasonably comparable
properties.6 Quoting the Wisconsin Property Assessment Manual (“WPAM”),
Wiegand said that it is extraordinarily difficult to perform an accurate sales
comparison approach to hotel properties “because individual properties may differ
greatly in services, reputation, age, and location all of which can affect value.”
Wiegand also cited a textbook by Stephen Rushmore related to the valuation of
hotel properties, and testified that Rushmore’s method of hotel valuation is
employed by the City. In determining whether other hotel properties were
reasonably comparable to the Iron Horse, Wiegand consulted a rank-ordered list of
factors from Rushmore. Wiegand analyzed Debelak’s six proposed comparable
properties in light of those factors and determined that they were too dissimilar in
“location, construction, physical condition, layout, equipment, size, services, and
amenities” to support a tier two sales comparison analysis.
¶6 Instead, Wiegand conducted a tier three income approach. He
reviewed the income and expense data provided by Rider for the period from
January 1, 2014 to December 31, 2017, in comparison with market data. Wiegand
6
The 2017 and 2018 versions of the Wisconsin Property Assessment Manual
(“WPAM”), which assessors must follow in valuing real property for tax assessment purposes,
WIS. STAT. § 70.32(1), defines an “arm’s-length sale” as “[a] sale between two parties neither of
whom is related to or under abnormal pressure from the other.” 1 Wisconsin Property
Assessment Manual G-31.
All references to the WPAM are to both the 2017 and 2018 versions unless otherwise
noted.
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No. 2022AP1141
created four individual “work-up” values for 2015-2018, one for each year, based
on the prior year’s operating data, then averaged those work-up values to reach an
opinion of the Property’s fair market value as of the assessment date. That is, the
work-up value for 2015 was based on 2014 operating data, the work-up value for
2016 was based on 2015 operating data, etc. Wiegand averaged the work-up
values for 2015, 2016, and 2017 to reach an opinion of the Property’s fair market
value as of January 1, 2017. He averaged the work-up values for 2016, 2017, and
2018 to reach an opinion of the Property’s fair market value as of January 1, 2018.
Wiegand explained that this is the same method used for all established hotels
generating income, i.e., averaging three single-year work-ups (two prior years and
the assessment year) to form an opinion as to a property’s fair market value.
¶7 Wiegand testified that a single-year work-up value alone is not a
conclusion as to a property’s fair market value for that year. In short, he explained
that these work-up values are determined based only on an individual year’s
operating data, and an opinion is formed as to fair market value by averaging
single-year work-up values for the assessment year and the two years prior to the
assessment year. Wiegand said that averages are used to best anticipate what a
property may experience in the future, and that a knowledgeable and prudent
property investor would look for as much information on a property as possible.
Debelak agreed that investors would review at least three years of prior operating
data when they determine a property’s value.
¶8 The circuit court found Wiegand’s testimony credible. On the other
hand, the circuit court rejected Debelak’s appraisal as a reliable indicator of the
Property’s fair market value because the properties used in Debelak’s tier two
sales comparison approach were not reasonably comparable to the Iron Horse
considering their “lack of similarities” and “the amount of adjustments made” to
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No. 2022AP1141
them. For these reasons, the circuit court concluded that Rider failed to present
significant contrary evidence to rebut the statutory presumption that the City’s
assessments were correct, and it dismissed Rider’s claims.
¶9 Rider appeals.
DISCUSSION
¶10 When presented with excessive assessment claims under WIS. STAT.
§ 74.37, we review the circuit court’s determination and not the determination of
the taxing district’s Board of Assessors or Board of Review. Lowe’s Home Ctrs.,
LLC v. City of Delavan, 2023 WI 8, ¶23 & n.11, 405 Wis. 2d 616, 985 N.W.2d
69. The City’s assessments are entitled to a presumption of correctness under
WIS. STAT. § 70.49(2) that “may be rebutted if the assessor did not correctly apply
the [WPAM] and Wisconsin statutes or if a challenger presents significant
contrary evidence.” Lowe’s Home Ctrs., 405 Wis. 2d 616, ¶32. Whether the
City’s assessments complied with statutory directives is a question of law that we
review independently, but the circuit court’s factual findings will not be disturbed
unless they are clearly erroneous, i.e., “against the great weight and clear
preponderance of the evidence,” because “[i]t is within the province of the
factfinder to make determinations of the weight and credibility of evidence.” Id.,
¶¶24-25, 68.
¶11 Rider claims that the City’s 2017 and 2018 assessments were
excessive in violation of WIS. STAT. § 70.32(1). Section 70.32(1) states that
“[r]eal property shall be valued by the assessor in the manner specified in the
Wisconsin property assessment manual ... from the best information that the
assessor can practicably obtain, at the full value which could ordinarily be
obtained therefor at private sale.” “Full value” in the statute has been interpreted
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No. 2022AP1141
to mean “fair market value.” Flood v. Village of Lomira, Bd. of Rev., 153 Wis.
2d 428, 435, 451 N.W.2d 422 (1990). Section 70.32(1) lists three sources of
information used to determine a property’s fair market value for tax assessment
purposes. “The order in which these sources are listed is indicative of the quality
of information each source provides,” and this methodology has been described as
providing three “tiers” of analysis. Lowe’s Home Ctrs., 405 Wis. 2d 616, ¶28.
¶12 A tier one analysis examines recent arm’s-length sales of the subject
property as the best information of a property’s fair market value. Id., ¶29. It is
undisputed that there were no recent sales of the Iron Horse upon which to base a
tier one analysis.
¶13 If the property has not been recently sold, the appraiser moves to a
tier two analysis, examining recent arm’s-length sales of reasonably comparable
properties. Id. This approach is “based on the premise that similar properties will
sell for similar prices on the open market.” Id., ¶42 (quoting 1 Wisconsin
Property Assessment Manual 7-24 (2016)). “‘[R]easonable comparability’
depends upon the degree of similarity between the properties in question.”
Rosen v. City of Milwaukee, 72 Wis. 2d 653, 686, 242 N.W.2d 681 (1976). The
WPAM provides specific factors for assessors to consider in determining whether
a property is “comparable” to the subject property, including: “age, condition,
use, type of construction, location, design, physical features and economic
characteristics.” Lowe’s Home Ctrs., 405 Wis. 2d 616, ¶43.
¶14 Finally, if both tier one and tier two information is unavailable, an
assessor moves to tier three under which he or she “may consider all the factors
collectively that have a bearing on the value of the property,” including “cost,
depreciation, replacement value, income, industrial conditions, location and
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No. 2022AP1141
occupancy, sales of like property, book value, amount of insurance carried, value
asserted in a prospectus, and appraisals produced by the owner.” Id., ¶30. As
relevant here, “the income approach, ‘which seeks to capture the amount of
income the property will generate over its useful life,’ fits under the umbrella of
tier 3 analysis.” State ex rel. Collison v. City of Milwaukee Bd. of Rev., 2021 WI
48, ¶26, 397 Wis. 2d 246, 960 N.W.2d 1 (quoting Metropolitan Assocs. v. City of
Milwaukee, 2018 WI 4, ¶34, 379 Wis. 2d 141, 905 N.W.2d 784).
I. The City’s assessments were conducted in compliance with
Wisconsin statutes and the WPAM.
¶15 Rider argues that the City’s use of a tier three income approach was
unlawful because, in its view, the City did not “even try” to perform a tier two
approach based on recent arm’s-length sales of reasonably comparable properties.
There was conflicting evidence about the existence of reasonably comparable
properties, specifically with respect to the degree of similarity between the
properties used for comparison in Debelak’s tier two approach. Determining
whether a property is “reasonably comparable” to the property being assessed
depends upon the weight and credibility evidence, and it is therefore an issue of
fact that will only be overturned if it is clearly erroneous. Lowe’s Home Ctrs.,
405 Wis. 2d 616, ¶¶40-72.
¶16 In its decision, the circuit court found that the comparative properties
used by Debelak were not reasonably comparable to the Property, crediting
Wiegand’s explanation for why he relied on a tier three approach and did not
conduct a tier two approach. Wiegand said that it is extraordinarily difficult to
perform an accurate sales comparison approach on hotel properties “because
individual properties may differ greatly in services, reputation, age, and location
all of which can affect value.” He consulted a rank-ordered list of factors from
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No. 2022AP1141
Rushmore, independently analyzed Debelak’s comparable properties in light of
these factors, and determined that they were too dissimilar in “location,
construction, physical condition, layout, equipment, size, services, and amenities”
to support a tier two sales comparison analysis.
¶17 Moreover, as observed by the circuit court, Debelak had to make
large adjustments to the properties he used as the basis of his tier two sales
comparison approach. Four of the six properties reflected a net adjustment
between 35% and 40%, while one property reflected a 70% net adjustment, and
Debelak admitted that “the higher the percentage of adjustment, the less
similarity” between the subject property and the comparative property. The Iron
Horse has a full-service restaurant that comprised approximately 40% of its total
revenue, but only one of his comparable properties approached this amount.
Additionally, while the Iron Horse is categorized as an “upper upscale” hotel, only
one of the six comparable properties was identified by Debelak as sharing that
category. Other differences include: (1) two of Debelak’s comparable properties
are located outside of downtown Milwaukee and have no-charge surface parking;
(2) Debelak’s amenity adjustments were not based on actual market sales; and
(3) Debelak did not have average daily rate information for the comparable
properties to compare with the Iron Horse.
¶18 Based on this record, we cannot conclude that the circuit court’s
factual findings were clearly erroneous. The circuit court carefully examined
Wiegand’s and Debelak’s appraisals, considered the reasons both for and against
conducting a tier two approach based on Debelak’s proposed comparable
properties, and ultimately concluded that Debelak’s proposed properties were not
reasonably comparable to the Iron Horse. The circuit court’s determination has
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No. 2022AP1141
ample support in the record and was not “against the great weight and clear
preponderance of the evidence.” Id., ¶69 (citation omitted).
¶19 Rider also argues that the City’s tier three income approach violated
Wisconsin statute and the WPAM. Specifically, Rider argues that the Wisconsin
Supreme Court’s opinion in Pennsylvania Coal Co. v. Porth, 63 Wis. 77, 23 N.W.
105 (1885), makes it unlawful for the City to arrive at fair market value for the
Property as of January 1, 2017 and January 1, 2018, by averaging assessment
work-up amounts from the assessment year and the prior two years. We disagree.
¶20 Pennsylvania Coal involved a personal property tax assessed on the
coal stored at Pennsylvania Coal Company’s yard. The quantity of the coal
fluctuated throughout the year, but the statute at issue mandated that “all personal
property shall be assessed as of the first day of May in such year.” Id. at 105(quoting 1883 WIS. ACT ch. 354). Rather than ascertaining the quantity of coal in
Pennsylvania Coal’s possession as of May 1 of the assessment year, the city
sought to assess the average amount of coal stored at the yard during the entire
year preceding May 1, apparently because Pennsylvania Coal reduced their stock
to a very small amount as of May 1. Id. at 105-06. The Pennsylvania Coal court
held that while averaging the amount of coal for the assessment year “might be a
very just and fair rule,” the statute required that the property to be assessed is the
amount of coal in the plaintiff’s possession on May 1 of the assessment year. Id.¶21 The present case is distinguishable. Whereas the coal stored at the
plaintiff’s yard fluctuated dramatically over the year in Pennsylvania Coal, there
is no evidence that the Iron Horse underwent any material physical alterations
during the relevant time periods. Wiegand testified that the Iron Horse was
stabilized and that any fluctuations in the net income of the Property over the years
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No. 2022AP1141
were typical. Moreover, nothing in either the WPAM nor Rushmore prohibit the
consideration of more than one year of operating data, and Debelak agreed that a
knowledgeable commercial property investor would review at least three years of
historical operating data in due diligence when they are determining a property’s
value.
¶22 Accordingly, we affirm the circuit court’s conclusion that Wiegand’s
averaging of historical work-up values did not violate Wisconsin statute or the
WPAM.
II. Rider failed to present significant contrary evidence to rebut the
City assessments’ presumption of correctness.
¶23 Rider alleges that the City’s income approach was deficient because
it failed to consider certain factors that it believes were important in determining
the Property’s fair market value. The circuit court found the City’s income
approach to be credible and reliable, and those determinations are not clearly
erroneous because they have ample support in the record. See Lowe’s Home
Ctrs., 405 Wis. 2d 616, ¶69.
¶24 First, Rider argues that “[t]here is no individualization of the [City’s]
valuation.” This argument fails because the work-up amounts used by the City
were derived from the Property’s actual operating data.
¶25 Second, Rider says that the City should have considered a “29%
decline in [fair market values] over a three-year period.” The trend Rider
highlights was before the circuit court in the reports, Wiegand testified that the
Iron Horse was stabilized with normal fluctuations in revenue, and it is within “the
province of the factfinder to make determinations of the weight and credibility of
the evidence.” Id., ¶¶25, 68.
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No. 2022AP1141
¶26 Third, Rider claims that the City failed to subtract a “business
component” value from the income valuation, violating the Rushmore approach
that the City says it applies. This is not correct. The City’s assessment states that
“[t]he Rushmore Approach separates [the] business component by deducting
management and franchise fees from the hotel[’]s stabilized net income.” It goes
on to state that the Iron Horse “reported a management fee and did not report a
franchise fee as this is an independent hotel,” and these fees were deducted “as a
fixed expense, which reduces hotel’s net operating income (and thus reducing its
resultant value).”
¶27 Rider points to the following exchange in Wiegand’s deposition to
support its argument:
Question: And so we have a business component there that
needs to be taken into account, true?
[Wiegand]: I’m not sure how there were any changes to
the business. It’s still the Iron Horse Hotel. The location is
the same. The operating methods have changed slightly
along with changes in the effective tax rate and increase
expenses. Those were the main drivers for the reduction in
value. I can’t quantify the business aspect of this hotel.
There could be business value.
However, immediately after reading this deposition testimony into the record at
trial, Wiegand explicitly denied that he had failed to deduct a “business
component separate and apart from the management fee[.]”
¶28 Fourth, Rider argues that the City disregarded increased supply in
the Milwaukee hotel market by not assuming the food and beverage revenue and
rooms revenue would decrease as a hotel ceases to be “the place to be.” However,
Wiegand did consider the new supply of hotel rooms coming online in Milwaukee
in recent years. Wiegand explained that he ultimately did not make an adjustment
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No. 2022AP1141
because there are “no guidelines” for reducing a hotel’s fair market value in light
of increased hotel supply “without actually having actual operating information to
review or to confirm that fact.” It was not clearly erroneous for the circuit court to
credit this testimony.7
CONCLUSION
¶29 The City’s assessments were conducted in compliance with the
WPAM and Wisconsin statutes. None of the circuit court’s factual findings were
against the great weight and clear preponderance of the evidence. Accordingly,
Rider’s excessive assessment claims were properly dismissed.
By the Court.—Judgment affirmed.
This opinion will not be published. See WIS. STAT.
RULE 809.23(1)(b)5. (2021-22).
7
Rider invokes Powers v. Allstate Insurance Co., 10 Wis. 2d 78, 102 N.W.2d 393(1960), arguing that it is willing to forego a new trial as to the Property’s fair market value and
accept the work-up values for 2017 and 2018 as the fair market value for those years. Even
assuming Powers applied in this context, Rider failed to demonstrate that the City’s assessments
were excessive.
13