MAR 0 1Z012. MAR 0 izo1? CLERK OF CCURT SUPREME COURT OF OHIO. CLERK f^f OOUR'T SUPREME COUB^T OF HIO IN THE SUPREME COURT OF OHIO

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1 LTC Properties, Inc. IN THE SUPREME COURT OF OHIO Appellant, Case No VS. Appeal from the Ohio Board of Tax Appeals Case No A-1010 Licking County Board of Revision, et al, Appellees. REPLY BRIEF OF APPELLANT, LTC PROPERTIES, INC. Wayne E. Petkovic ( ) 840 Brittany Drive Delaware, Ohio (fax) Attorney for Appellant Robert M. Morrow ( ) Means, Bichimer, Burkholder & Baker, Co., LPA 1650 Lake Shore Drive Columbus, Ohio (fax) Attorney for Newark City School District Dennis E. Dove (005521S) Assistant County Prosecutor 20 S. Second Street Newark, Ohio (fax) Attorney for Licking County Appellees Michael Dewine Attorney General of Ohio 30 East Broad Street Columbus, Ohio MAR 0 1Z012 CLERK OF CCURT SUPREME COURT OF OHIO MAR 0 izo1? CLERK f^f OOUR'T SUPREME COUB^T OF HIO

2 CONTENTS Reply Brief page 1 Certificate of Service page 4 ATTACHMENTS: BTA Decision Bedford Board of Education v. Cuyahoga County Board of Revision and ARVAssisted Living (October 19, 2001), BTA No. 99-M-1677 BTA Decision Karrinqton of Kenwood, Ltd. v. Hamilton County Board of Revision, et al. (November 10, 2009), BTA No M

3 Attached to the Brief of the County Appellees is a property record card for a property NOT involved in this matter which has been included as a "comparable" to ostensibly support the county's methodology. In Dublin Senior Community, L.P. v. Franklin Cty. Bd of Revision (1997), 80 Ohio St. 3d 455, the Ohio Supreme Court, at page 460 was clear that sales of congregate facilities involve both real estate and other service activities such as housekeeping, food service etc. In Bedford Board of Education v. Cuyahoga County Bd. Of Revision and ARV Assisted Living, Inc.,(October 19, 2001) Ohio BTA 99-M-1677, unreported and attached hereto the BTA stated the following at page 6:" Clearly, the same principle holds true when considering the transfer price of a congregate care facility-a portion of THE SALES PRICE MUST BE PAID FOR THE BUSINESS OPERATED THEREIN".( emphasis added ). It is thus, clearly disingenuous for county appellees to put in their brief the transfer of the unrelated property with both real estate and other items to bolster their position. Both the Board of Education ( BOE) and county reiterate their assertion that there is no separate category in the Ohio Administrative Code for properties such as that involved herein which is a 39 unit efficiency apartment property, and Page 1

4 harken back to the BTA's erroneous assertion that it is proper to use " nursing home and private hospital" costs for this 39 unit apartment property so long as some adjustment factor(s), of dubious and unexplained factual basis, is [are] used in the county's cost approach ( the only valuation method employed). However, the BTA wholly ignored its often held precedent as noted in Karrington of Kenwood, Ltd. V. Hamilton County Board of Revision, et al, (November 10, 2009) BTA case No M-2329, unreported and attached, where the BTA stated at page 7: "THE VALUATION OF THE REALTY PORTION OF CONGREGATE CARE FACILITIES IN COMPARISON TO CONVENTIONAL APARTMENT BUILDINGS HAS BEEN THE STANDARD SINCE CHIPPEWA PLACE". It is to be remembered that the BTA explicitly held in this matter that the subject property is NOT a nursing home, and certainly is not a hospital. See: BTA decision at page 8. The BTA stated at page 8: " Thus, the current valuation of the subject supports appellant's claim that the subject's value should be less than a nursing home's value. " By what convoluted logic can the BTA endorse the use of nursing home cost schedules on the subject property in light of its specific finding that this taxpayer Page 2

5 had demonstrated that the value was less than a nursing home? The BTA found that "adjustments to the base calculation for nursing homes was used. The starting point was the nursing home classification. At page 9 of the BTA decision appealed herein the BTA states: Because there is no code available for an assisted living facility, it follows that the code that is ultimately used for it may not accurately reflect all of the facility's characteristics". BTA decision at page 9. The following incongruities exist in the BTA decision: 1) Comparison to conventional apartments is "the standard"; 2) There is no code for congregate properties ( the subject is a 39 unit apartment property, codes exist for apartments; 3) The taxpayer has demonstrated that "the subject's value should be less than a nursing home's value" ( BTA at page 8); 4) The BTA approved the use of "nursing home and private hospital" costs; 5) If you start with nursing home costs and apply some "factor" the procedure is acceptable instead of starting with "apartments" and adjusting for age, obsolescence etc. as "apartments. 6) There are only two " classes of property", however the Tax Commissioner by law has made separate distinctions by virtue of O,A,C and conventional apartments are the "standard" for comparison It is abundantly clear that the BTA decision is wholly unreasonable and unlawful and should be reversed. Respe tfully submitted, Wayn. Petkovic Attorney for Taxpayer-Appellant

6 CERTIFICATE OF SERVICE A copy of the foregoing Reply Brief of Appellant was mailed to all counsel of record this Z^^` day of February, 2012 by prepaid U.S.Mail, yne E. Petkovic ( )

7 OHIO BOARD OF TAX APPEALS Bedford Board of Education, ) CASE NO. 99-M-1677 vs. Appellant, (REAL PROPERTY TAX) DECISION AND ORDER Cuyahoga County Board of Revision, the Cuyahoga County Auditor and ARV Assisted Living Inc., APPEARANCES: Appellees. For the Appellant- Kimberley A. Aldrich Thomas Kondzer KoGck & Kondzer Center Ridge Road, #175 Westlake, Ohio For the County- William D. Mason Appellees Cuyahoga County Prosecuting Attorney By: Timotby Kollin Assistant Prosecuting Attomey Justice Center, 8th Floor 1200 Ontario Street Cleveland, Ohio For the Property Owner- John T. Sunderland ARV Assisted Living, Inc. Thompson Hine, LLP One Columbus, 7"` Floor 10 W. Broad Street Columbus, Ohio Entered October 19, 2001 Mr. Johnson, Ms. JackSon, and Ms. Margulies concur.

8 This cause and matter comes to be considered by the Board of Tax Appeals upon a notice of appeal filed by appellant on October 5, 1999, from a decision, dated September 8, 1999, of the Cuyahoga County Board of Revision (" BOR" ), appellee. The subject property is located in the Bedford taxing district of Cuyahoga County, Ohio, and further identified as Parcel No The Cuyahoga County Auditor found the true and taxable values of the subject property for tax year 1997 to be as follows: Parcel No True Value Taxable Value Land $1,040,000 $ 364,000 Building $7,810,000 $ 2,733,500 Total $8,850,000 $ 3,097,500 Upon consideration of the complaint filed by the appellee, ARV Assisted Living, Inc. ("ARV" ), the BOR reduced the value of the subject property as follows: Parcel No True Value Taxable Value Land $1,040,000 $ 364,000 Building $5,060,000 $ 1,771,000 Total $6,100,000 $ 2,135,000 Through its norice of appeal, the appellant, Bedford Board of Education ("BOE"), alleges that the Auditor's values were correct and the BOR erred in reducing the value of the subject property. The matter was submitted to the Board of Tax Appeals pursuant to R.C upon the notice of appeal and the statutory transcript certified by the Cuyahoga County Auditor as secretary of the BOR. As the parties agreed that no

9 further evidence was to be brought forward, hearing was waived, but both the BOE and ARV provided legal argument by way of brief.l The subject property is a 188-unit assisted living facility located on approximately 20 acres of land in the City of Bedford, Cuyahoga County. The property's improvements were described as "Cardinal-type" construction, refexring to a manufacturer of pre-fabricated, self-contained units of 288 square feet which could be attached to one another in a variety of configurations. Such modules were typically used in the construction of apartments and motels. The subject property contains a mix of efficiency apartments, one-bedroom, one-bath units, two-bedrooni, two-bath units and units containing one-bedroom and a larger living area described as a great room. All units are mulriples of the 288-square-foot modules. The property was constructed for use as an assisted living, or congregate care, facility for residents generally over the age of 75. In addition to providing living space, the property provides services to its tenants. Services offered range from planned activities and transportation to providing meals and assisting residents with healthcare needs. The business operation employs a staff of 60 people. The property sold on or about January 10, 1996 for a purchase price of $8,850,000. At the time of sale, a conveyance fee statement was filed with the Cuyahoga County Auditor's office, which indicated a transfer amount equal to the total purchase price. On November 17, 1997, however, ARV re-recorded the Limited Warranty Deed previously recorded in January 1996 and submitted a new real property ' This matter's original briefing schedule was extended a number of times because of personal matters affecting the BOE's initial counsel. Ultimately, and for those personal reasons, counsel withdrew and the BOE obtained new counsel. Again, the date for the submission of the BOE's brief was extended. When yet another extension was requested, the attorney-examiner monitoring this appeal denied the request and assigned a final date for the subnrission of all argument. Both the BOE and ARV filed briefs by the assigned date. Seven days later ARV filed a "Response Brief' addressing the arguments made by the BOE. The BOE then filed a "Motion to Strike" ARV's response brief. That motion is denied. Had the BOE filed a brief within any of the dates provided prior to the final request, ARV would have had the opportumty to respond. The BOE's delay (and the Board's forbearance) should not deprive ARV of an opportimity it would otherwise have received.

10 conveyance fee statement to the Auditor indicating that $2,850,000 of the consideration paid for the property was paid for items other than realty. Both ARV and the BOE filed complaints before the BOR for the 1997 tax year and both relied upon the sale described above. ARV argued that the second filing of the deed and the removal of the personalty most accurately captured value and requested a decrease from the value assessed. The BOE argued that the original conveyance fee statement most accurately captured value and sought affirma.nce of the Auditor's values. Neither party relied solely upon their interpretations of the conveyance fee statement. Before the BOR, ARV presented the testimony and appraisal report of Mr. R. Terry Watson of the Conunercial Property Group, Inc., who testified to a value for the subject of $6,100,000. The BOE presented an appraisal analysis and the testimony of Mr. Sam Canitia, who testified to a value for the subject property of $8,850,000. The BOR reduced value for 1997 to $6,100,000 and the BOE appealed. We begin our review of this matter by noting that a party who asserts a right to an increase or decrease in the value of real property has the burden to prove the right to the value asserted. Cleveland Bd ofedn. v. Cuyahoga Cty. Bd. ofrevision (1994), 68 Ohio St.3d 336; Crow v. Cuyahoga Cty. Bd of Revision (1990), 50 Ohio St.3d 55; Mentor Exenzpted Village Bd. of Edn. v. Lake Cty Bd. of Revision (1988), 37 Ohio St.3d 318. Consequently, it is incumbent upon an appellant challenging the decision of a board of revision to come forward and offer evidence which demonstrates its right to the value sought. Cleveland Bd. of Edn., supra; Springfield Local Bd. ofedn. v. Summit Cty. Bd ofrevision (1994), 68 Ohio St.3d 493. Once an appellant has presented competent and probative evidence of riue value, other parties asserting a different value then have a corresponding burden of providing sufficient evidence to rebut the appellant's evidence. Springfield Local Bd of Edn., supra; Mentor Exempted Village Bd of Edn., supra. a

11 It is axiomatic that the best evidence of "true value in money" of real property is revealed by an actual, recent sale of the property in an arm's-length transaction. Conalco v. Bd. of'revision (1977), 50 Ohio St.2d 120; State ex rel Park Investment Co. v. Bd. of Tax Appeals (1964), 175 Ohio St See also Reynoldsburg Bd of Edn. v. Licking Cty. Bd of Revision (1997), 78 Ohio St.3d 543; Dublin-Sawmill Properties v. Franklin Cty. Bd. ofreviszon (1993), 67 Ohio St.3d 575. An arm's-length sale is comprised of three elements: 1) the sale is voluntary; 2) it generally takes place in an open market; and 3) the parties act in their own self interests. Walters v. Knox Cty. Bd. ofrevision (1988), 47 Ohio St.3d 23. It is also well established that when a sale occurs, there is a rebuttable presumption that the sale price reflects the true value of the property in question. Consequently, a rebuttable presumption extends to all of the requirements which characterize true value. It is then the burden of the party who claims that the sale is other than arm's-length to meet such a presumption. However, the burden of persuasion does not change, as it is still upon the appealing party to establish, tlnough the presentation of competent and probative evidence, a different value than that which was found by the board of revision. See Cincinnati Bd. of Edn. v. Hamilton Cty. Bd of Revision (1997), 78 Ohio St.3d 325; Bd. of Edn. of the Columbus City School District v. Franklin Cty. Bd of Revision (Nov. 28, 1997), B.T.A. No. 96-S-93, unreported. Further, if evidence is introduced which indicates that the sale price is not reflective of true value, then a review of other evidence, such as independent appraisals based upon factors other than sale price, is appropriate. Cincinnati Bd. of Edn., supra; Ratnerv. StarkCty. Bd ofrevision (1986), 23 Ohio St.3d 59. For a sale price to be reflective of true value, not only must the sale meet the qualifications of an arm's-length sale, but also the transfer must not include value for items other than realty. If the sale includes items other than realty, the ultimate purchase price may not reflect the value of the realty alone. Bd. of Edn. of Kettering- S

12 Moraine v. Montgomery Cty. Bd. of Revision (Sept. 1, 2000), Montgomery App. No , unreported. This Board recognized this principle specifically with reference to assisted living facilities in ARV Assisted Living, Inc. v. Hamilton Cty. Bd. of Revision (Nov. 9, 2000), B.T.A. No 98-A-168, unreported. In that case, a congregate care facility similar to the subject was sold in the Hamilton County area. In rejecting the recent sale and instead relying upon appraisal testimony to determine value, the Board held: "*** [4V]e are convinced that appellant purchased more than just the real property at issue herein when it purchased Amber Park, regardless of the amount set forth on the conveyance fee statement ***." The Ohio Supreme Court recognized that a congregate care facility serves more than the housing needs of its resident population in Dublin Senior Community L.P. v. Franklin Cty. Bd ofrevision (1997), 80 Ohio St.3d 455 wherein it held: "The property being valued is a congregate care center that comprises a combination of real estate and business activities. Dublin charges for such services as food and housekeeping; these are business activities. It also charges rental for the apartments; that is a real estate activity. Each activity has separate expenses. In a valuation of only the real estate, the two activities must be kept separate. The separation of the income and expenses is important not only when determining net income, but also when considering a comparison of the sale prices of comparable facilities. ***." Id. at 460. Clearly the same principle holds true when considering the transfer price of a congregate care facility -- a portion of the sales price must be paid for the business operated therein. Thus, when a sale of a congregate care business includes the business and the real property, a review of the purchase price must be made to attempt to extract value paid for the real property separate and apart from the value paid for the ti

13 ongoing congregate care business. In this regard, both the BOE and ARV attempted to make deductions to account for items other than realty. The BOE, through the testimony of its appraiser, Mr. Sam Canitia, recognized that a certain portion of the purchase price was paid for items of personalty located in the apartments themselves. Mr. Canitia testified that while a standard apartment unit would contain approximately $400 of personalty, it would not be unreasonable to allocate $2,000 per unit in assisted living facilities. ARV, on the other hand, argues that much more than the personalty such as refrigerators and stoves was transferred in the sale. ARV points to additional services provided residents, as outlined in the appraisal submitted to the BOR. The business operators are compensated for those services through higher rental rates. We must agree with ARV that the value which the assisted living seivices brings to the facility was included in the sale of the property and adds greater value than that reflected by the personalty contained in the individual units. We therefore reject the BOE's claim that only a minimal amoun.t such as $2,000 per unit should be deducted for items other than realty. Such minimal deductions would not fully take into account the business aspect of the 1996 transfer. We now consider the appraisal testimony presented before the BOR. Mr. Watson surveyed the Cuyahoga County market and found four aparlment complexes he believed to be similar to the subject property. Two were Cardinal apartment projects. Mr. Watson adjusted his market comparables and concluded to a per-square-foot value for the vaiious unit types. Mr. Watson also concluded to a rental value of the "business profit centers" such as the food service operation and laundry area at $.76 per square foot, or $6,566 per month. Multiplying the monthly rentals by the number of each unit type, Mr. Watson concluded to a potential gross annual income of $1,209,017. Mr. Watson then reviewed the operating expenses of Cardinal apartment complexes throughout the state 7

14 as well as the expense information published for the Cleveland market to obtain a market-based expense figure. Concluding that the subject is identical to the Cardinal apartment complexes throughout the state, Mr. Watson placed more weight on his review of the Cardinal complexes than the Cleveland market. Mr. Watson concluded to a stabilized expense estimate of $2.25 per square foot. Mr. Watson's market comparables had very low vacancy. However, the subject itself reported approximately a 25 per cent vacancy rate. Considering both the market and the subject itself, Mr. Watson utilized a 10 per cent vacancy rate and deducted market expenses to conclude to a stabilized net operating income of $797,163. Mr. Watson then concluded to a capitalization rate of 10.5 per cent and added a tax additur. Applying his per cent capitalization rate to his stabilized net operating income, Mr. Watson concluded to a value under the income capitalization approach of $6,300,000. Mr. Watson also concluded to value under the sales comparison approach, Mr. Watson reviewed the market and found sales of Cardinal-type properties he believed were similar to the subject and size and location. While none of the five sales considered was in Cuyahoga County, all were in northeast Ohio. The sales took place during 1994 through While the difference among the comparable sales' price-per-unit was significant, the comparable sales' price-persquare-foot were in a much closer range, from a low of $32.12 per square foot for a property in Orrville, Ohio to a high of $39.87 per square foot for a property in Wooster, Ohio. Mr. Watson adjusted the comparable sales and, after adjustments found a range of $34 to $40 per square foot. Mr. Watson concluded to a market valuation of $36 per square foot, or a value under the sales comparison approach of $5,900,000. Considering both approaches, Mr. Watson concluded to a final value for tax lien date 1997 of $6,100,000. A

15 The BOE challenges Mr. Watson's opinion, arguing that Mr. Watson did not properly take into account the special amenities found in an assisted living apartment complex, such as wider hallways and doors, and handrails, and attribute some value to such amenities. However, Mr. Watson suggested that very little modifications had been made to the modules themselves to account for the subject's use as an assisted living facility. Moreover, Mr. Watson argued that a comparison of the rental rates obtained by the Cardinal properties located next door to the subject were persuasive indicators of the rental income that could be attributed to the subject. We agree that the complex adjacent to the subject appears to have units identical to the subject as well as fewer amenities than tradirionally associated with apartment living. Therefore, we fmd the use of the Cardinal properties as comparables sufficient even though no adjustments were made to account for assisted living amenities. The BOE is also critical of Mr. Watson's values because he attributed residential rates to the rental of retail space. However, the BOE presented no evidence of rental rates at which such retail operations would lease. Therefore, we do not find Mr. Watson's rental conclusions unreasonable. Finally the BOE is critical of Mr. Watson for not focusing on the Bedford area when reviewing the market. The BOE notes that in his operating expense analysis, none of the properties upon which Mr. Watson relies is in the greater Cleveland area. The BOE notes that while Mr. Watson relied upon two Cardinal projects adjacent to or very near the subject for rental rates, he did not similarly report the expenses of those properties. Again, the BOE's appraiser did not provide other evidence of market expenses. histead, W. Canitia brought forth evidence of sales prices of other assisted living facilities in Cuyahoga County. However, we remain persuaded that at least a portion of the purchase price in each such comparable must be attiibuted to the business activities within the facility. Dublin Senior Community, L.P., 0

16 supra. Therefore, we are persuaded that the record contains competent and probative evidence of value as reflected tbrough Mr. Watson's appraisal. In this matter we fmd that ARV presented sufficient competent and probative evidence of value to the BOR. The BOR also considered Mr. Canitia's evidence, but concluded that the property was overvalued. Considering the entire record before us, we must agree with the BOR's ultimate value conclusion. Therefore, upon consideration of the existing record and the applicable law, the Board of Tax Appeals fmds and determines that the value of the subject property as of January 1, 1997 was: Parcel No Tiue Value Taxable Value Land $1,040,000 $ 364,000 Building $5,060,000 $ 1,771,000 Total $6,100,000 $2,135,000 It is the order of the Board of Tax Appeals that the Auditor of Cuyahoga County list and assess the subject real property in conformity with this decision and order. It is further ordered that this value be carried forward in accordance with the law. oluosearchkepbta 1 n

17 OHIO BOARD OF TAX APPEALS Karrington of Kenwood Ltd., vs. Appellant, CASE NO M-2329 (REAL PROPERTY TAX) DECISION AND ORDER Hamilton County Board of Revision, the Hamilton County Auditor and the Sycamore Community School District Board of Education, Appellees. APPEARANCES: For the Appellant- Siegel, Siegel, Johnson & Jennings Nicholas Ray 3001 Bethel Road, Suite 208 Columbus, Ohio For the County- Joseph T. Deters Appeliees - Hamilton County Prosecuting Attorney Thomas Scheve Assistant Prosecuting Attorney 230 E. Ninth Street, Suite 4000 Cincinnati, Ohio For the Bd. of Edn. - Strauss & Troy Franklin A. Klaine, Jr. The Federal Reserve Building 150 E. Fourth Street Cincinna8, Ohio Entered NOV Ms. Margulies, Mr. Johrendt, and Mr. Dunlap concur. This cause and matter comes to be considered by the Board of Tax Appeals upon a notice of appeal filed by appellant on December 14, 2006, from a decision, dated November 16, 2006, of the Hamilton County Board of Revision ("BOR"), appellee.

18 The subject property is located in the 210-Sycamore taxing district of Hamilton County, Ohio, and further identified as parcel no The Hamilton County Auditor found the true and taxable values of the subject property for tax year 2005 to be as follows: Parcel No True Value Taxable Value Land $ 771,400 $ 269,990 Building $4,542,000 $ 1,589,700 Total $5,313,400 $ 1,859,690 Upon consideration of the complaint filed by the appellant, Karrington of Kenwood Ltd. ("Karrington"), as well as a counter-complaint filed on behalf of the Sycamore Community City School District Board of Education ("BOE"), the BOR concluded that the values assessed by the auditor were correct and did not adjust value. Through its notice of appeal, Karrington alleges that the true and correct values for the subject property are as follows: Parcel No True Value Taxable Value Land $ 435,540 $ 152,440 Building $2,564,460 $ 897,560 Total $3,000,000 $ 1,050,000 The matter was submitted to the Board of Tax Appeals pursuant to R.C upon the notice of appeal, the statutory transcript certified by the auditor as secretary of the BOR, the testimony adduced at the hearing held in this matter and the legal arguments submitted by counsel for the parties. 1)

19 The subject property encompasses 4.28 acres of land and is improved with a 46,000-square-foot building in use as an assisted living facility for the elderly. The two-story building houses 63 one-bedroom, one-bath apartments of approximately 282 square feet and four two-bedroom, one-bath units of approximately 466 square feet. The public areas of the building include meeting spaces, a kitchen and dining area, a private dining room, public rest rooms, office space, and laundry facilities. The entire facility is equipped with a sprinkler system. Site improvements include approximately 8,000 square feet of asphalt paving, patios, landscaping, and a storage shed. The property also is improved with a cell tower located to the rear. The tower brings no income to the current owner. The property's design supports its purpose as an assisted living facility. The individual units contain handrails in the bathroom and an emergency call response system. The hallways contain handrails on either side and are wider than conventional aparlment hallways in order to easily accommodate wheelchairs. The rental units do not have a full kitchen. Meals and housekeeping services are provided to all residents. The facility offers additional services for a fee so that a resident is able to live somewhat independently for as long as possible. This particular location is able to offer 24-hour dementia and Alzheimer's care. We begin our review of this matter by noting that a party who asserts a right to an increase or decrease in the value of real property has the burden to prove the right to the value asserted. Cleveland Bd of Edn. v. Cuyahoga Cty. Bd. of 'A

20 Revision (1994), 68 Ohio St.3d 336; Crow v. Cuyahoga Cty. Bd of Revision (1990), 50 Ohio St.3d 55; Mentor Exempted Village Bd of Edn. v. Lake Cty. Bd. of Revision (1988), 37 Ohio St.3d 318. Consequently, it is incumbent upon an appellant challenging the decision of a board of revision to come forward and offer evidence which demonstrates its right to the value sought. Cleveland Bd. of Edn., supra; Springfield Local Bd. of Edn. v. Summit Cty. Bd of Revision (1994), 68 Ohio St.3d 493. Once an appellant has presented competent and probative evidence of true value, other parties asserting a different value then have a corresponding burden of providing sufficient evidence to rebut the appellant's evidence. Springfield Local Bd. of Edn., supra; Mentor Exempted Village Bd of Edn., supra. It is axiomatic that the best evidence of "true value in money" of real property is revealed by an actual, recent sale of the property in an arm's-length transaction. Conalco v. Bd. ofrevision (1977), 50 Ohio St.2d 120; State ex rel. Park Investment Co. v. Bd. of Tax Appeals (1964), 175 Ohio St See, also, Reynoldsburg Bd. of Edn. v. Licking Cty. Bd. of Revision (1997), 78 Ohio St.3d 543; Dublin-Sawmill Properties v. Franklin Cty. Bd. ofrevision (1993), 67 Ohio St.3d 575. However, when the property has not been the subject of an arm's-length sale, then other evidence estimating the value of the property becomes relevant to a valuation fmding. Coventry Towers, Inc. v. Strongsville (1985), 18 Ohio St.3d 120. The board was presented with the testimony of two appraisers at the hearing held in this matter. Karrington presented the testimony and appraisal of

21 Raymond A. Jackson, MAI, CRE. The appellee auditor presented the testimony and appraisal of Douglas Thoreson, GAA. Both appraisers prepared written appraisals valuing the subject property as of January 1, However, the appraisers differed in the methods used to arrive at their ultimate opinion of value. Both appraisers recognized that an assisted-living facility presents unique challenges when attempting to determine the value of the realty for ad valorem tax purposes. The Ohio Supreme Court also spoke to the difficulty of valuing eldercare facilities in Dublin Senior Community L.P. v. Franklin Cty. Bd. ofrevision (1997), 80 Ohio St.3d 455. The property under consideration in that appeal had the same types of amenities available in the subject property, i.e., smaller than typical apartments connected by interior hallways to common areas that include a kitchen and dining, library, exercise, and recreation rooms. The facility also provided emergency pull-cords in each of the apartments, a twenty-four-hour staff, laundry, housekeeping services, and a meal program. - In that case, the court held that the Board of Tax Appeals was correct when it rejected an appraisal that valued the congregate care facility as a total package, without any deduction for the value of the business operated within the facility: "The property being valued is a congregate care center that comprises a combination of real estate and business activities. Dublin charges for such services as food and housekeeping; these are business activities. It also charges rental for the apartments; that is a real estate activity. Each activity has separate expenses. In a valuation of only the real estate, the two activities must be kept separate. The separation of the income c

22 and expenses is important not only when determining net income, but also when considering a comparison of the sale prices of comparable facilities. ***:' Id at 460. Prior to the court's decision in Dublin Senior Community L.P., this board had faced the question of how to value an eldercare facility in Chippewa Place Dev. Co. v. Cuyahoga Cty. Bd of Revision (Sept. 24, 1993), BTA No P-245, unreported. The development under consideration in that appeal was federally subsidized senior citizen housing. The services provided were not as extensive as those provided in the present matter, and the housing units were more comparable to a non-subsidized apartment, with fully appointed kitchens. Nevertheless, one meal a day was provided to residents, daily activities and excursions were planned, and a nurse was onsite. The units had emergency call buttons, and the building itself had meeting spaces for gatherings and activities. The county's appraiser in that appeal attempted to value the subject property in comparison to other congregate care facilities in northeastern Ohio. The board found, however, that the comparisons did not accurately capture the value of the subject property for ad valorem valuation purposes, either because the sales were too remote in both time and distance, or the income earned by an individual comparable was too closely tied to the operating business of eldercare to be indicative of the value of the real property. The board concluded that the use of congregate care facilities to compare either sale prices or income earned would violate the Ohio Supreme Court's a

23 admonition in Dinner Bell Meats, Inc. v. Cuyahoga County Board of Revision (1984), 12 Ohio St.3d 270, to base value for ad valorem tax purposes on value in exchange and not value in use. The board found more persuasive the valuation method utilized by the property owner's appraiser. That appraiser surveyed the market and found conventional apartment buildings within a close proximity to the subject property. This board found that the conventional apartments were in the same community as the congregate care facility, thus suggesting that the apartments would compete for tenants, Identifying income earned by a conventional apartment building and utilizing the income capitalization approach, the board concluded to a value for the realty portion of the congregate care facility. The valuation of the realty portion of congregate care facilities in comparison to conventional aparkment buildings has been the standard since Chippewa Place. WEC 99C-12 LLC v. Montgomery Cty. Bd. of Revision (May 14, 2004), BTA 'No T-1905, unreported; Carriage Court Grove City Ltd. Partnership v. Franklin Cty. Bd. of Revision (Jan. 9, 2004), BTA No M-1 843, unreported, Sup. Court No , settled upon remand, Apr. 30, 2004; Carriage Court Grove City Ltd Part v. Franklin Cty. Bd of Revision (July 26, 2002), BTA Nos M-236, et seq., unreported; ARITAssisted Living, Inc. v. Hamilton Cty. Bd. of Revision (Nov. 9, 2000), BTA No A-168, unreported; Health Care & Retirement Corp. v. Franklin Cty. Bd ofrevision (Sept. 25, 1998), BTA No K- 7

24 127, unreported; Harbor Court Ltd. Partnership v. Cuyahoga Cty. Bd of Revision (June 10, 1994), BTA No T-1054, unreported. When valuing the subject property, Karrington's appraiser utilized the previously approved approach. Mr. Jackson first surveyed the surrounding area and found four sales of apartment complexes. Mr. Jackson testified that his search centered on location, age, and quality. Mr. Jackson believed that the subject property catered to an upscale clientele and he believed his comparable sales represented higher-end, luxury-type properties. H.R. I, at 68. All Mr. Jackson's comparables were larger than the subject in both land size and total units. Sale dates ranged from August 2004 to February Mr. Jackson testified that he made no adjustments based upon the size of the subject's units; however, he did adjust ali four comparables downward to account for "overall utility," finding that the "overall utility of the subject was poor, while the overall utility of the comparables were [sic] good." H.R. I at 70-71; Appellant's Ex. 1 at 43. One comparable-was adjusted downward, as the sale occurred in February 2007, which Ivlr. Jackson considered to be better market conditions. Another comparable was adjusted downward to account for a lower landto-building ratio. Appellant's Ex. 1 at 43. The per-unit unadjusted prices ranged from $47,972 to $112,750. The adjusted prices ranged from $46,000 to $62,000 per unit. Mr. Jackson concluded to a unit price of $55,000. Multiplying the unit price by the number of units (67), Mr. Jackson concluded to a sales comparison value of $3,700,000. u

25 Mr. Jackson then turned to his income approach. Again, the appraiser surveyed the market and found five properties which he believed best indicated competitive rental rates. Those rates ranged from $650 to $815 for a one-bedroom one-bath apartment. Mr. Jackson extrapolated the rent per unit to a rental rate on a per square foot basis. H.R. I at 80. Mr. Jackson recognized that the rental rates of each individual unit must take into account the more public spaces used by all residents. Therefore, Mr. Jackson calculated a potential apartment rental income, which allocated the 20,683 square feet of public space to the individual units based upon size. Appellant's Ex. 1 at 48. After calculating for allocated space, Mr. Jackson applied rental rates similar to the per square foot rates obtained from the marketplace. Compare Appellant's Ex. 1, survey at 47 with gross rental rates per square foot at 48. His rental income calculated to $55,085 per month, or $661,020 per year. To this figure Mr. Jackson added an additional $350 per unit per year, or $23,450 in other income, and deducted for 10 percent vacancy and credit loss. For rental expenses, Mr. Jackson returned to the Cincinnati market and determined that a reasonable expense rate was percent of effective gross income. While the appraisal's commentary indicates that the appraiser applied a $4.13 per square foot expense deduction, which calculated to a 43 percent deduction for expenses, his pro forma indicated a $4.47 per square foot expense rate, which calculated to 35 percent of effective gross income. Compare Appellant's Ex. 1 at 49 and 52. He deducted an 0

26 additional $300 per unit, or $20,100, as a reserve for replacement. His net income equaled $378,173. Mr. Jackson applied a capitalization rate of percent, inclusive of the tax additur, and arrived at a value of $3,670,000. Placing equal weight on a1l three valuation methods,1 Mr. Jackson concluded to a value of $3,690,000 as of tax lien date. The county auditor's representative argues that the board's approved approach was developed at a time when congregate care facilities were new to the market. Being new to the market, such properties did not have a verifiable record for market sales. Counsel argues that the landscape for such properties has changed over time. Now, counsel claims, the congregate care business is flourishing and the proper method of allocating value between realty and non-realty components has become the subject of discussion among experts in the field. The county auditor cites to an article entitled "Identifying Business Values in Assessment of Senior Living and Long-Term Care Properties" authored by Richard T. Crotty, Anthony J. Mullen, CPA, and William C. Weaver, Ph.D, found in the March/April 2001 edition of The Assessment Journal. The article describes its method as a "variation of the sales comparison approach to help solve the problem of valuing" congregate care facilities. Id. at 34. The county auditor's appraiser utilized this approach as discussed in his valuation of the subject property. ' Both appraisers calculated value through the cost approach, both finding some support for their ultimate value conchfsions through that method. However, the board accords the cost approach very little weight. in

27 The theory underlying the variation focuses on the additional operating expenses involved in running a congregate care facility. The article concludes that such expenses are due to the business services provided and not to real estate value. The article suggests that by comparing operating expenses of a congregate care facility to the operating expenses of a conventional apartment building, a percentage of value that is attributable to the business activities can be derived. The example given in the article suggests that a typical apartment building has operating expenses of 45 percent and a typical senior living facility has operating expenses of 60 percent. The increase of operating expense from 45 to 60 represents an increase in operating expenses of approximately 33 percent (15 percent/45 percent). Therefore, the authors suggest, the total value of the sales comparables should be divided between 33 percent business value and 67 percent real estate value. A similar approach was addressed by the board in WEC 99C-12 LLC, supra. In that appeal it was suggested that an appraisal which valued the subject property by comparison to conventional apartment complexes should be disregarded in favor of a valuation method that considers the actual income earned by a specific assisted living facility and attempts to address the non-realty component by using expense ratios to remove value. The board first turned to our previous case law and agreed that the issue in such cases was to properly isolate the value of the realty. The board then held: "Given the great variety of services offered at these facilities, we believe that it is not only difficult to fmd congregate care facilities that are indeed comparable but also it is difficult to ii

28 remove the value derived from the use of the facility. [The BOE]'s argument implies that expenses cancel out the income derived from services and other intangibles. This belies the very nature of operating a business, i.e., making a profit. It is reasonable to conclude that operators of assisted care facilities would seek to bring in more income from services than they expend. Thus, simply utilizing the higher expense rate would not adequately remove business income from that generated by the real estate alone[.]" Id. at 8. In a footnote, the board commented: "This is not to say that an appraiser may never utilize congregate care facilities in estimating the true value of real property. There may be situations where there are properties that are comparable in size, condition, and services offered. From such properties, an appraiser may be able to apply an analysis that will properly separate income earned from the real estate from that earned from the business. ***." As this board predicted, the BOR now suggests that it is indeed possible to value congregate care facilities by utilizing similar properties and separating income earned from the real estate from that earned from the business. The county auditor's appraiser began with a review of the senior housing market, concluding that sales prices were at a low point in At a national level, sales prices on a per-room basis were lower than sale prices in From 2002 forward, increases on a perroom basis were seen through 2005, the year in issue. Appellee's Ex. A at 53. Mr. Thoreson indicated that the trend in Cincinnati mirrored the national trend. His survey of the market revealed three "matched" sales - sales of the same property. His comparable sale no. 2 sold in June 2003 for $8,100,000, in 2005 for $13,800,000 and in January 2007 for 18,380,461. Comparable sale no. 4 sold both in i1)

29 November 2003 and again in While the appraiser indicated that the property would sell for $12,650,000, he did not provide a total sales price for Compare Appellee's Ex. A at 53 and 55. Mr. Thoreson surveyed the Cincinnati area and obtained four sales he believed to be comparable to the subject. All of the sales have an assisted living component. However, two of the comparables include a skilled nursing component. One of the comparables was sold as a part of a portfolio of six locations in Cincinnati, Columbus, and Memphis. The fmal comparable sale was of a properry approximately 3 miles southwest of the subject. The property does not provide housing for dementia. Mr. Thoreson accepted the allocations between business value and realty value obtained from his sources knowledgeable about the individual comparable sales. It does not appear that he attempted to verify the business value by application of his theoretical model. Mr. Thoreson concluded that his comparable sale no. 2 competes directly with the subject, is slightly larger (106 beds versus 67 beds), and, like the subject, does not accept Medicare/Medicaid. H.R. II at 326. Mr. Thoreson testified that he placed the greatest weight on this sale comparable. Id. at 330. The auditor's appraiser then calculated value under the income approach. From published market sources, the appraiser obtained income, vacancy, and expense information. Actual information from the subject was only considered if it was deemed to reflect the market. Appellee's Ex. A at 57. From comparable rental properties, Mr. Thoreson determined that the base rental rates ranged from $76 per 1 z

30 day to $146 per day. Unit prices ranged from $2,465 per month to $4,812 per month. Mr. Thoreson concluded to an average per-bed fee of $ per day, added a $3,479 one-time conununity fee for each bed, and concluded to an annual base rent of $3,069,136. He added an additional figure of $767,284 for other income related to the realty for a potential gross income of $3,836,420. Mr. Thoreson then deducted a vacancy and collection loss of 10 percent, expenses of percent, and a reserve for replacement of 3 percent, concluding to a net operating income of $1,094,531. His capitalization rate, including tax additur, calculated to Dividing his net operating income by his capitalization rate, Mr. Thoreson derived value for the facility as a whole of $9,008,486. Mr. Thoreson then applied the method suggested by the abovereferenced article. The appraiser compared expense ratios from conventional apartments in the Cincinnati area with expense ratios from congregate care facilities in an attempt to isolate value for the realty. He determined the difference was percent. Applying this expense difference to the overall value resulted in a real estate value of $6,551,000, rounded. Mr. Thoreson concluded that this value represented value for the subject as of January 1, In sun?mary, Karrington's appraiser, valuing the subject against conventional apartment complexes, opined a value of $3,690,000. The county auditor's appraiser, valuing the subject against assisted living facilities, opined a value of $6,551,000. The board does not find that either appraiser's opinion is entitled to in

31 that quantum of weight necessary for us to modify value. Each appraiser attempted to measure the market for the subject property, but our concerns with each appraisal leave us with the conclusion that no change in value is the most appropriate outcome. We first consider the appellant's appraiser. While we place no weight upon the cost approach, we must comment on the fact that Mr. Jackson's derived value for the land as if unimproved as of tax lien date January 1, 2005 ($400,000) is less than the developer paid for the land in June 1996 ($500,000). Compare Appellant's Ex. I at 31 with Appellee's Ex. A at 9. It is doubtful that land described in the "heart of the best demographics of Cincinnati" would lose value during that nine-year period. Next, while any comparison of two dissimilar entities requires some suspension of reality, the board cannot conclude that the comparable sales and rental properties provided by the appellant's appraiser give any indication as to the proper value of the subject property. All four comparables appear to be newer apartment complexes, with two- and three-story buildings, apparently without elevator access. The appraiser adjusted each of the comparables downward under the category of "overall utility." Appellant's Ex. 1 at 43. However, like a newer apartment complex, a newer assisted living facility is constructed in the manner most advantageous to its purpose. Therefore, if the newer apartment complexes meet the "overall utility" of their purpose, the same should be said for the assisted living facility. is

32 While the actual values ranged from $48,000 to $113,000 per unit, after adjustments, which were not quantified, the appraiser's range was $46,000 to $62,000 per unit. The record is devoid of any information which would allow the board to conclude that the adjustments are reasonable. The board also must question the validity of the appraiser's income approach. Mr. Jackson provided five comparables, and indicated that detailed information was located in the addenda, but no such information was provided. Mr. Jackson attempted allocate rental income by the size of an individual unit on a per square foot basis, adding additional income to account for utilities paid by the landlord. Mr. Jackson also added additional income to account for the public spaces. However, Mr. Jackson has not accounted for income that may be earned by any of the additional space. la'or instance, in Carriage Court Grove City Ltd. Partnership, supra, the appraiser concluded that the commercial kitchen and dining space should be valued as if the space were rented as a restaurant. In this case, Mr. Jackson added no additional value for the use of the public areas, except to include rental income as a part of the rental units. We are, similarly, unable to place great weight upon the opinion expressed by the county auditor's appraiser. In Harbor Court Ltd. Partnership, supra, the board was critical of an appraiser's deductions to value to account for what the appraiser termed "non-real estate amenities," concluding that the deductions taken could not be validated by the evidence within the record. Id. at 8. The same may be I ti

33 said of the appraiser's deductions in the present matter. Mr. Thoreson testified under his sales comparison approach that he accepted the deductions for personalty and business value provided to him by representatives of the buyer and the seller. There is nothing in the record to support such deductions. Mr. Thoreson did not obtain the expense ratios of the sold properties and compare those ratios to conventional apartment expense ratios to validate his own theory of valuation. Even his matched sales do not lend support to his method. Mr. Thoreson's comparable no. 2, the comparable upon which he placed the most weight, sold in June 2003 for a total consideration of $8,100,000. Of this amount, $3,000,000, or 37 percent of value, was allocated for items other than realty. When the property sold in November 2005 for $13,800,000, $3,100,000, or 22 percent, was allocated for items other than realty. Under the BOR's theory of valuation, this allocation would indicate that the business expenses were static (or decreased) during the period between June 2003 and November 2005, since the sale price increased, but the percentage of value allocated to the business portion decreased. While we doubt that was the case, no financial data was provided. Under his income approach, Mr. Thoreson reviewed the actual income information provided by the property owner and concluded that the subject's average expense ratio for the three years provided is percent. The appraiser ultimately concluded that a 72 percent expense ratio is a market-driven rate, as the property markets to both independent seniors and those needing assisted living services. From 11